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Filing # 69755952 E-Filed 03/23/2018 05:35:32 PM
IN THE CIRCUIT COURT OF THE 9TH JUDICIAL CIRCUIT
IN AND FOR ORANGE COUNTY, FLORIDA
COMPLEX BUSINESS LITIGATION COURT
CASE NO. 2018-CA-001834-O; Div 43
DR. JOHN A. FARNELLA, JR., an individual, and
FARNELLA GENICON HOLDINGS, LLC,
a Florida limited liability company.
Plaintiffs,
v.
GENICON, LLC, a Florida limited liability company,
GENICON, INC., a Florida corporation,
GO LIQUIDITY, LLC, a Florida limited
liability company, GENICON FUNDING, LLC,
a Florida limited liability company,
GARY W. HABERLAND, individually and
in his capacity as an officer of GENICON, LLC
and as an officer of GENICON, INC., and
THOMAS CALCATERRA, individually and in his capacity
as an officer of GENICON, LLC and GENICON, INC.,
Defendants.
___________________________________________________/
COUNTERCLAIM
Defendant/Counter-Plaintiff, GENICON, INC. (“Genicon, Inc.”), sues
Plaintiffs/Counter-Defendants, DR. JOHN A. FARNELLA, JR. (“Farnella”),
Farnella Genicon Holdings, LLC. (“Farnella Holdings”) and EQUITY TRUST
COMPANY d/b/a STERLING TRUST COMPANY, Custodian fbo Dr. John A.
Farnella, Jr., Rollover IRA (“Farnella IRA”), and alleges the following:
Background
1. Genicon, Inc. is an emerging leader in the design, production and
distribution of patented surgical instrumentation focused on laparoscopic surgery.
Although Genicon, Inc. started as an original equipment manufacturer for other
medical device firms, it began bringing its own products directly to the surgical
market in the late 1990’s.
2. Genicon, Inc. competes in a highly competitive market against
significantly larger competitors. Genico, Inc., a predecessor of Genicon, LLC, the
parent of Genicon, Inc., initially struggled to achieve profitability in the highly
competitive market place for design, production and distribution of patented
surgical instrumentation.
3. In or around 2007, Farnella became an investor in Genico, Inc., and a
member of its board. Later, Farnella became a manager of Genicon, LLC and a
member of Genicon, Inc.’s board of directors. By 2012, Genico, Inc. was insolvent
and Genico, Inc.’s accountant issued a review report in which they stated that
Genico, Inc.’s financial “conditions raised substantial doubt about its ability to
continue as a going concern.”
4. At that time, Farnella, Dr. Greg Zittel and Gary Haberland, Genico,
Inc.’s president, or their related entities, were the largest owners and creditors of
Genico, Inc. Because Genico, Inc. had valuable patented products, an experienced
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executive staff and design team and increasing market penetration, Farnella and the
other owners of Genico, Inc. elected to recapitalize by merging Genico, Inc. into a
new company, Genicon, LLC. Farnella and Haberland agreed to forgive some of
the debt owed to them by Genico, Inc. as part of the merger. Farnella solicited the
consent of the shareholders of Genico, Inc. to the merger transaction in which
Genicon, LLC would merge with Genico, Inc.
5. The shareholders of Genico, Inc., including Farnella, approved the
merger of Genico, Inc. into Genicon, LLC. A copy of Farnella’s signed Written
Consent to the merger is attached as Exhibit “A.” As part of the merger
transaction, Genicon, LLC paid the Genico, Inc. shareholders a per price share in
excess of the share’s appraised value. Farnella accepted the consideration paid for
his shares as part of the merger transaction in 2012. The surviving entity was
Genicon, LLC. Farnella Holdings at all material times has been a member of
Genicon, LLC. Farnella Holdings is an entity owned and controlled by Farnella.
6. As a director of Genico, Inc., Farnella, along with the other directors,
approved the merger with Genicon, LLC, and in his Shareholder Written Consent
stated that the merger was in the best interest of the company and its shareholders
because he and other directors had agreed to continue their personal guarantees of
substantial company debt, and the terms of the merger were fair and reasonable
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inasmuch as the price to be paid to the shareholders for their shares was in excess
of their fair market value.
7. As part of the merger transaction, Farnella and other creditors of
Genico, Inc., including Gary Haberland, forgave debt so that the surviving entity
would not be burdened with excessive debt. A copy of the Debt Forgiveness
Agreement signed by Farnella (“Farnella Debt Forgiveness Agreement”) is
attached as Exhibit “B.” A copy of the Debt Forgiveness Agreement signed by
Olga Haberland as part of the merger transaction is attached as Exhibit “C.” Gary
Haberland, president of Genico, Inc., also forgave $269,951.00 in debt. A copy of
a letter from the controller of Genico, Inc. confirming that forgiveness is attached
as Exhibit “D.”
8. On or about December 28, 2012, Farnella, as managing member of
Farnella Holdings, signed the Certificate of Merger of Genico, Inc., with and into
Genicon, LLC, on behalf of Genicon, LLC. A copy of the Certificate of Merger is
attached as Exhibit “E.”
9. After the merger and the restructuring of Genicon, LLC’s debt,
Genicon, LLC negotiated a restructuring of its debt with Old Florida National
Bank (“OFNB”). As part of that restructuring, managers of Genicon, LLC,
including Farnella, executed a Certificate of Resolution of Managers, a copy of
which is attached as Exhibit “F.” In restructuring the loan with Genicon, LLC,
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OFNB relied on the financial statements of Genicon that confirmed the debt
forgiven by creditors of Genico, including Farnella, and reflected that the forgiven
debt was not a liability of Genicon. Farnella did not inform OFNB or Genicon,
LLC that he believed the Debt Forgiveness Agreement signed by him was
unenforceable and that Genicon, LLC owed to him the money he forgave in the
Debt Forgiveness Agreement. Instead, he knowingly allowed Genicon, LLC,
OFNB and the guarantors of the debt to rely on Farnella’s Debt Forgiveness
Agreement and Genicon’s financial statements.
10. In reliance on the Board of Managers Certificate of Resolution and the
Debt Forgiveness Agreements, including the one executed by Farnella, Gary
Haberland and Olga Haberland, his wife, mortgaged their home to partially secure
the restructured OFNB loan to Genicon, LLC. At the time Mr. and Mrs. Haberland
mortgaged their home to secure the OFNB loan, Farnella did not inform them that
he contended the Debt Forgiveness Agreement he signed was not enforceable and
that Genicon, LLC owed him the debt that he forgave in his Debt Forgiveness
Agreement.
11. After the merger and debt restructurings, Haberland and the other
executive staff of Genicon, LLC worked extremely long hours to grow Genicon,
LLC’s business and its value. Farnella and Farnella Holdings, as an owner of
Genicon, LLC, benefitted from the growth and increased value of Genicon, LLC.
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They were successful, but as with any growing business, Genicon, LLC required
additional investment to continue its growth. Farnella and the other managers of
Genicon, LLC approved a plan to create a wholly owned subsidiary, Genicon, Inc.,
that could raise additional investment capital by issuance of preferred stock.
12. In December 2013, Genicon, LLC, formed Genicon, Inc., and
transferred its assets to Genicon, Inc. in exchange for all shares of common stock
of Genicon, Inc. (16,500,000 shares). As part of that transaction, Genicon, Inc.
assumed and acknowledged its obligation to pay all of the “debts and liabilities of
its predecessor as set forth on the financial statement prepared by the Corporation’s
accountant, setting forth the opening entries to the Corporation’s books of
account ….” Farnella approved the transaction and knew that the financial
statements did not include any obligation to pay the debts forgiven by him in his
Debt Forgiveness Agreement. A copy of the Board of Directors Written Consent
to Action signed by Farnella and dated December 18, 2013, is attached as Exhibit
“G.” Farnella did not inform Genicon, Inc. that the financial statement prepared
by the accountants was inaccurate because it did not contain liabilities for the debt
he forgave as part of the merger of Genico, Inc. into Genicon, LLC.
13. Genicon, LLC formed Genicon, Inc., in part, to raise capital to grow
the business of the Company through the issuance of preferred stock.
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14. On September 25, 2014, Farnella, as a member of the board of
managers of Genicon, LLC, executed a Written Consent of Shareholders to
approve the issuance of Series A Preferred Stock to Genicon Investment Group. A
copy of the September 25, 2014, Written Consent of Shareholders is attached as
Exhibit “H.” At that same time, Farnella, as a director of Genicon, Inc., executed
a Written Consent of Board of Directors of Genicon, Inc. approving the Series A
Preferred Stock transaction with Genicon Investment Group. A copy of the
Written Consent of Board of Directors dated September 25, 2014, is attached as
Exhibit “I.” When Farnella approved the transaction with Genicon Investment
Group and Genicon Investment Group purchased its preferred shares, Farnella did
not inform Genicon, Inc. or Genicon Investment Group that he believed the Debt
Forgiveness Agreement he signed was unenforceable or that Genicon, Inc. owed
more than $3,700,000 in debt not reflected on its financial statements.
15. In April 2015, Genicon, Inc. elected to raise additional money to grow
its business through issuance of Series B Preferred Stock. With the consent and
approval of Farnella, Genicon, Inc. entered into a Series B Preferred Stock
Purchase Agreement on or about April 10, 2015. A copy of the Unanimous
Written Consent of the Shareholders and Board of Directors of Genicon, Inc.,
signed by Farnella, approving the Series B Preferred Stock offering is attached as
Exhibit “J.”
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16. As part of the Series B Preferred Stock offering, Farnella and other
lenders of Genicon, Inc. entered into Amended Promissory Notes. Copies of the
Amendments to Promissory Note signed by Farnella, for himself and Equity Trust
Company d/b/a Sterling Trust Company, Custodian fbo Dr. John A. Farnella, Jr.,
Rollover IRA, are attached as composite Exhibit “K.” At that time, Gary
Haberland, as a lender to Genicon, Inc., also signed an Amendment to Promissory
Note. A copy of the Haberland Amendment to Promissory Note is attached as
Exhibit “L.”
17. With its restructured ownership, restructured debt, new investment
capital and with the herculean efforts of its executive, financial and design staff,
Genicon, Inc. grew its business. In 2012, Mercer Capital evaluated Genico, Inc., a
predecessor of Genicon, Inc., and concluded that the stock of Genico, Inc., was
worthless. In the short space of five (5) years, Genicon, Inc. grew from a worthless
company to a company worth $30,000,000 or more. In 2017, the board of
directors of Genicon, Inc., including Farnella, approved a letter of intent for the
sale of Genicon, Inc. for $30,000,000. 1 After Genicon, Inc.’s board authorized the
executive staff to pursue the sale of Genicon, Inc., they engaged in detailed
discussions with the potential buyer. The discussions progressed rapidly and the
parties were proceeding toward a closing in February or March 2018.
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The $30,000,000 purchase price was comprised of approximately $20,000,000 at closing and $10,000,000 in earn-
out compensation if Genicon, Inc. met agreed earnout requirements.
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18. As the negotiations for the $30,000,000 sale of Genicon, Inc.
progressed, Farnella and Farnella Holdings formulated a plan to extort Genicon,
Inc., or its other shareholders, to pay them money from the sale proceeds for,
among other things, the debt forgiven by Farnella in the Farnella Debt Forgiveness
Agreement. Farnella and Farnella Holdings fabricated claims that the Farnella
Debt Forgiveness Agreement was not enforceable for lack of consideration or
fraudulent inducement and made a demand on Genicon, Inc. and others to receive
more from the sale of Genicon, Inc. than they were otherwise entitled to receive. 2
19. Farnella and Farnella Holdings delivered a draft complaint to
Genicon, Inc., that contained knowingly false statements. Farnella and Farnella
Holdings knew that Genicon, Inc. would be forced to provide their demand to the
potential buyer and they used that threat as a means to extort additional money
from Genicon, Inc. Genicon, Inc. refused to accede to Farnella’s and Farnella
Holdings’ extortion and provided notice, as required, of Farnella’s and Farnella
Holdings’ claims to the potential buyer. The potential buyer immediately placed
the transaction on hold and has since withdrawn from the transaction.
Parties
20. Farnella is an individual residing in Orange County, Florida.
2 Before he filed his complaint, Farnella knew that he would receive as much as $2,025,758 at the closing
of the sale and a total of $5,015,343 from the sale if Genicon, Inc. met its earnout targets.
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21. Farnella Holdings is a Florida limited liability company with its
principal place of business located in Orange County, Florida. At all material
times, Farnella has been a member and manager of Farnella Holdings.
22. Genicon, Inc. is a Florida corporation with its principal place of
business located in Orange County, Florida.
23. Equity Trust Company d/b/a Sterling Trust Company, Custodian fbo
Dr. John A. Farnella, Jr., Rollover IRA (“Farnella IRA”), is a trust company that
loaned money in Orange County, Florida, to Genicon, Inc. In April 2015, Farnella
IRA entered into Amendments to Promissory Notes in which it agreed that it
“irrevocably and unconditionally submit to the jurisdiction of the state courts of
Florida and to the jurisdiction of the United States District Court for the Middle
District of Florida for the purpose of any suit, action or proceeding arising out of or
based upon this agreement.” Venue is proper in Orange County, Florida, because
the causes of action asserted herein accrued in Orange County, Florida.
COUNT I
(Breach of Amendment to Promissory Notes)
24. Genicon, Inc. realleges its allegations to paragraphs 1 through 23
above.
25. This is an action for damages for breach of contract. The damages
exceed $15,000, exclusive of interest, costs and attorney’s fees.
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26. On or about April 10, 2015, Farnella and Farnella IRA entered into
Amendments to Promissory Notes as part of the Series B Preferred Stock
Transaction. Copies of those Amendments are attached as Exhibit “K.”
27. In the Amendments to Promissory Notes, Farnella and Farnella IRA
acknowledged that “the issuance of the Series B Preferred Stock in accordance
with the terms thereof set forth in the Restated Articles of Incorporation are of
value to the borrower and the lender, and the lender’s agreement to the provisions
of this agreement was a condition to the issuance of the Series B Preferred Stock.”
28. In the Amendments, Farnella and Farnella IRA agreed that the
principal and interest under the amended notes, if not sooner paid, “shall be due
and payable on the earlier to occur of (i) April 10, 2021 and (ii) the first day after
December 1, 2017 on which all shares of the Series B Preferred Stock, whether
issued and outstanding as of the date hereof or at any time subsequent to the date
hereof, are no longer issued and outstanding shall have been redeemed,
repurchased, cancelled or otherwise retired.”
29. To date, the Series B Preferred Stock has not been redeemed,
repurchased, cancelled or otherwise retired. The Series B Preferred Stock remains
issued and outstanding.
30. In the Amendments to Promissory Notes, Farnella and Farnella IRA
also agreed to subordinate their debt to the Series B stockholders. In their
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subordination, Farnella and Farnella IRA agreed that they “shall not ask for,
demand, sue for, otherwise enforce or collect upon, take, receive or retain from the
Borrower or any of its subsidiaries, by setoff or in any other manner, the whole or
any part of any monies (whether such monies represent principal, interest,
indebtedness, obligations or liabilities due or not due, direct or indirect (including
obligations to which the lender may be subrogated hereunder), absolute or
contingent) which may now or hereafter be owing by the Borrower or its
subsidiaries, or any successor or assign of the Borrower or its subsidiaries,
unless and until all of the Series B Obligations shall have been fully and
indefeasibly paid in full and satisfied.” (Emphasis Added).
31. Again, the Series B Obligations have not been fully and indefeasibly
paid in full and satisfied. Therefore, it was and is a breach of the Amendments for
Farnella to demand, sue for or collect “any monies” from Genicon, Inc.
32. To further their extortion plan, Farnella and Farnella IRA refused to
honor their contractual obligations and made demand to collect and then filed a
lawsuit to collect the money allegedly owed by Genicon, Inc., including without
limitation, some or all of the Amended Promissory Notes and the debt Farnella
forgave in the Farnella Debt Forgiveness Agreement.
33. Farnella and Farnella IRA breached the Amendments to Promissory
Notes and as a result, have directly caused damage to Genicon, Inc. Those
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damages include special and consequential damages caused by Farnella arising
from and related to the failed transaction to sell Genicon, Inc. Those special and
consequential damages include, but are not limited to, costs and fees related to the
failed transaction, lost value related to the failed transaction and frivolous demand
in violation of the Amendments, additional interest on debt that would have been
paid and lost profit from the sale.
34. Under the terms of the Amendment to Promissory Notes, Genicon,
Inc. is entitled to recover its reasonable attorney’s fees and costs and necessary
disbursements in this action.
35. All conditions precedent to the institution, maintenance and
prosecution of this action have occurred, have been performed or have been
waived.
WHEREFORE, Genicon, Inc. demands judgment against Farnella and
Farnella IRA for damages, including special and consequential damages, injunctive
relief to require Farnella and Farnella IRA to perform their agreements and
obligations under the Amendments to Promissory Notes by enjoining their
collection of any monies in violation of those Amendments, attorney’s fees, costs
and such other relief as the Court deems appropriate.
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COUNT II
(Breach of Fiduciary Duty)
36. This is an action for damages in excess of $15,000, exclusive of
interest, attorney’s fees and costs based on Farnella’s breach of fiduciary duty.
37. At all materials times, Farnella was a director of Genicon, Inc., and he
served on the compensation committee of Genicon, Inc.
38. As a director of Genicon, Inc., Farnella owed a fiduciary duty to
Genicon, Inc. and its shareholders. Those duties include a duty of loyalty and a
duty to act in good faith with the care an ordinarily prudent person in a like
position would exercise and in a manner reasonably believed to be in the best
interests of Genicon, Inc.
39. Farnella breached his fiduciary duties to Genicon, Inc. and its
shareholders, and as a direct and proximate result of his breach, Genicon, Inc. has
suffered serious damages.
40. After years of herculean efforts in a highly competitive industry,
Genicon, Inc. emerged as a successful and valuable company designing, producing
and distributing patented surgical instrumentation for laparoscopic surgery.
Farnella was a director of Genicon, Inc. or its predecessors. As a director, Farnella
had access to and received financial information related to the business and
performance of Genicon, Inc., its confidential plans for future business and for the
sale of Genicon, Inc.
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41. As an owner of Genicon, LLC and a lender to Genicon, Inc., Farnella
and Farnella IRA directly benefitted from the rise of Genicon, Inc. after the fall of
Genico, Inc. In or about October 2012, Farnella, as a director of Genico, Inc.,
approved Mercer Capital to perform a valuation of Genico, Inc. After doing an
extensive analysis, Mercer Capital’s conclusion of value was that the total common
equity interest in Genico, Inc. was worth nothing. In December 2011, moreover,
the independent accountants of Genico, Inc., concluded that the financial condition
of Genico, Inc. raised “substantial doubt about its ability to continue as a going
concern.” Farnella’s stock in Genico, Inc. was worthless. Farnella then supported
and the shareholders of Genico, Inc. approved a merger into Genicon, LLC.
Farnella Holdings became an owner and Farnella became a manager of Genicon,
LLC at the time of the merger. Later, Genicon, LLC, again with the approval of
Farnella and Farnella Holdings, formed Genicon, Inc. and held all of its common
stock.
42. With Gary Haberland and Tom Calcaterra as executive officers and
after years of restructuring and recapitalization, Genicon, Inc., the operating entity,
successfully increased the value of the business from nothing in 2012 to
approximately $30,000,000. By late 2017, the board of directors of Genicon, Inc.,
including Farnella, approved a letter of intent with a proposed purchaser of
Genicon, Inc. Under the terms of the proposed transaction, Genicon, Inc. would
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receive $20,000,000 at closing (subject to escrows and holdbacks) and the right to
earn an additional $10,000,000 over the next twelve (12) months if it met the
applicable earnout requirements.
43. As a director of Genicon, Inc., Farnella knew the status of
negotiations with the potential purchaser of Genicon, Inc. He attended board
meetings at which the officers of Genicon provided current financial information
and reports on the status of the proposed sale of Genicon. Likewise, Farnella
Holdings knew all of the foregoing because Farnella was its managing member.
44. The negotiations for the sale of Genicon, Inc. progressed in late 2017
and into early 2018. By late January 2018, executives of Genicon, Inc. were
negotiating final issues regarding operations during the earnout period. Executives
of Genicon, Inc. kept the board of directors, including Farnella, informed of the
progress of negotiations.
45. As negotiations progressed, Farnella and Farnella Holdings
formulated a plan to extort more money for themselves from Genicon, Inc. or its
other shareholders from the sale proceeds. In January 2018, Farnella and Farnella
Holdings delivered a draft complaint to Genicon, Inc. in which they made multiple
knowingly false and spurious claims that Genicon, Inc.’s financial records or those
of its predecessor fraudulently misrepresented the assets and liabilities of Genicon,
Inc. or its predecessor. When they made those claims, Farnella knew that Genicon,
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Inc. had for years employed outside accountants to audit the financial statements of
Genicon, Inc. As a board member, Farnella did not question the accuracy of
Genicon, Inc.’s financial statements. Instead, he waited until the eleventh hour
before closing of the sale to make his false claims about misrepresentations in
Genicon’s financial records.
46. Without basis or substantiation, Farnella falsely alleged that executive
officers of Genicon, Inc. or its predecessor caused the insolvency of Genico, Inc.
and Genicon, Inc. by fraudulently transferring some or all of the loan proceeds to
Genico, Inc. or Genicon, Inc. to themselves or entities that they controlled or
owned.
47. Farnella, in 2013 and after, signed multiple operating agreements and
other documents that reflected his minority ownership in Genicon, LLC. Despite
that, Farnella falsely and fraudulently claimed in his draft complaint that in 2012
he was told he would be a majority shareholder of Genicon, LLC. More than four
years after signing documents that clearly reflected he was not a majority owner of
Genicon, LLC, and at the eleventh hour of the sale transaction of Genicon, Inc.,
Farnella and Farnella Holdings claimed that they were the majority owners of
Genicon, LLC with the authority to control whether Genicon, Inc. could merge or
sell all or substantially all of Genicon, LLC’s assets. Based on Genicon LLC’s
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clear operating agreements signed by Farnella, Farnella and Farnella Holdings
knew that their claims were false.
48. Farnella also claimed that Genicon, LLC wrongfully diluted
Plaintiffs’ ownership by approving the preferred stock offerings by Genicon, Inc.
Farnella, however, approved and consented in writing to those preferred stock
offerings. See, Exhibit J. In the Operating Agreements of Genicon, LLC, Farnella
and Farnella Holdings agreed in writing that Plaintiffs’ ownership could be diluted
with their consent. Plaintiffs consented in writing to the preferred stock offerings.
Plaintiffs made knowingly false claims regarding violation of their anti-dilution
rights.
48. Beyond that, Farnella claimed for the first time in his draft complaint
that Genicon, Inc. owed him $4,844,060.38 most or all which was not reflected in
its financial statements. That amount included over $3,700,000 of debt that
Farnella forgave in the Farnella Debt Forgiveness Agreement. To support their
extortion, however, they asserted false claims that the Farnella Debt Forgiveness
Agreement was not supported by consideration or fraudulently induced. As a
manager of Genicon, LLC and a director of Genicon, Inc., Farnella and Farnella
Holdings allowed those companies to raise investment capital through preferred
stock offerings and loans based on financial statements of Genicon, Inc. that did
not reflect liability for the debt Farnella had forgiven. When Farnella and Farnella
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Holdings approved those transactions as a member, director or manager, they did
not inform Genicon, LLC, Genicon, Inc., the lenders or the investors that the
Farnella Debt Forgiveness Agreement was not enforceable or that Genicon, Inc.
had far more debt than was reflected on its financial records. Farnella and Farnella
Holdings knew that the claims in their draft complaint about the forgiven debt were
false but they asserted them nonetheless to create greater risk that the proposed sale
of Genicon, Inc. would fail if Genicon, LLC or Genicon, Inc. did not accede to
their demands.
49. In his draft complaint, Farnella also acknowledged he entered into
Amendments to all outstanding promissory notes in April 2015 as part of Genicon,
Inc.’s preferred stock offerings to raise additional investment capital. In his draft
complaint, Farnella falsely stated that he would not have executed the amended
promissory notes except for representations that Genicon, Inc., was insolvent.
Farnella claimed that executive officers of Genicon, Inc. fraudulently induced him
to enter into the Amended Promissory Notes.
50. Those Amended Promissory Notes do not contain any of the alleged
misrepresentations that Farnella contended fraudulently induced him to sign the
Amendments to Promissory Notes.
51. Quite to the contrary, those Amendments state that they constitute
“the full entire understanding and agreement between the parties with respect to
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the subject matter hereof, and any other written or oral agreement relating to the
subject matter hereof existing between the parties are expressly cancelled.”
52. In their draft complaint, Farnella and Farnella Holdings claimed that
Farnella was the inventor of certain medical and surgical devices that he assigned
to Genicon. They also claimed that he agreed to assign his ownership in certain of
the patented surgical devices based on misrepresentations by Gary Haberland that
Genicon would compensate him for the patents.
53. Farnella executed multiple general and specific assignments of patents
and patent applications on which he was listed as one of multiple inventors. In the
general patent assignments, Farnella stated that he understood “all of its terms, that
all agreements between board member and Genicon relating to the subjects
covered in this agreement are contained in it, and that Board Member has entered
into this agreement voluntarily and not in reliance upon any promises or
representations other than those contained in this Agreement itself.” (Emphasis
added). A copy of general assignments executed by Farnella are attached as
Exhibit “M.”
54. The assignment agreements did not contain any promise to pay
compensation to Farnella and that directly contradicts the alleged
misrepresentation by Mr. Haberland that Genicon would compensate him for the
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assignments. 3 Again, Farnella and Farnella Holdings created the false claim for
compensation related to patents to further their extortion plan and garner more
money from the proposed $30,000,000 sale of Genicon, Inc.
55. Farnella’s actions, including, without limitation, those described
above, were done in bad faith and not in the best interest of Genicon, Inc. As a
direct and proximate result of Farnella’s breaches of fiduciary duty, Genicon, Inc.
lost a $30,000,000 sale transaction, incurred costs associated with the sale
transaction, lost the ability to raise additional capital to grow its business and lost
enterprise value because of the knowingly false claims by Farnella that Genicon,
Inc.’s financial records are not accurate and that Genicon, Inc. owes
Preview
Filing # 69755952 E-Filed 03/23/2018 05:35:32 PM IN THE CIRCUIT COURT OF THE 9TH JUDICIAL CIRCUIT IN AND FOR ORANGE COUNTY, FLORIDA COMPLEX BUSINESS LITIGATION COURT CASE NO. 2018-CA-001834-O; Div 43 DR. JOHN A. FARNELLA, JR., an individual, and FARNELLA GENICON HOLDINGS, LLC, a Florida limited liability company. Plaintiffs, v. GENICON, LLC, a Florida limited liability company, GENICON, INC., a Florida corporation, GO LIQUIDITY, LLC, a Florida limited liability company, GENICON FUNDING, LLC, a Florida limited liability company, GARY W. HABERLAND, individually and in his capacity as an officer of GENICON, LLC and as an officer of GENICON, INC., and THOMAS CALCATERRA, individually and in his capacity as an officer of GENICON, LLC and GENICON, INC., Defendants. ___________________________________________________/ COUNTERCLAIM Defendant/Counter-Plaintiff, GENICON, INC. (“Genicon, Inc.”), sues Plaintiffs/Counter-Defendants, DR. JOHN A. FARNELLA, JR. (“Farnella”), Farnella Genicon Holdings, LLC. (“Farnella Holdings”) and EQUITY TRUST COMPANY d/b/a STERLING TRUST COMPANY, Custodian fbo Dr. John A. Farnella, Jr., Rollover IRA (“Farnella IRA”), and alleges the following: Background 1. Genicon, Inc. is an emerging leader in the design, production and distribution of patented surgical instrumentation focused on laparoscopic surgery. Although Genicon, Inc. started as an original equipment manufacturer for other medical device firms, it began bringing its own products directly to the surgical market in the late 1990’s. 2. Genicon, Inc. competes in a highly competitive market against significantly larger competitors. Genico, Inc., a predecessor of Genicon, LLC, the parent of Genicon, Inc., initially struggled to achieve profitability in the highly competitive market place for design, production and distribution of patented surgical instrumentation. 3. In or around 2007, Farnella became an investor in Genico, Inc., and a member of its board. Later, Farnella became a manager of Genicon, LLC and a member of Genicon, Inc.’s board of directors. By 2012, Genico, Inc. was insolvent and Genico, Inc.’s accountant issued a review report in which they stated that Genico, Inc.’s financial “conditions raised substantial doubt about its ability to continue as a going concern.” 4. At that time, Farnella, Dr. Greg Zittel and Gary Haberland, Genico, Inc.’s president, or their related entities, were the largest owners and creditors of Genico, Inc. Because Genico, Inc. had valuable patented products, an experienced 2 executive staff and design team and increasing market penetration, Farnella and the other owners of Genico, Inc. elected to recapitalize by merging Genico, Inc. into a new company, Genicon, LLC. Farnella and Haberland agreed to forgive some of the debt owed to them by Genico, Inc. as part of the merger. Farnella solicited the consent of the shareholders of Genico, Inc. to the merger transaction in which Genicon, LLC would merge with Genico, Inc. 5. The shareholders of Genico, Inc., including Farnella, approved the merger of Genico, Inc. into Genicon, LLC. A copy of Farnella’s signed Written Consent to the merger is attached as Exhibit “A.” As part of the merger transaction, Genicon, LLC paid the Genico, Inc. shareholders a per price share in excess of the share’s appraised value. Farnella accepted the consideration paid for his shares as part of the merger transaction in 2012. The surviving entity was Genicon, LLC. Farnella Holdings at all material times has been a member of Genicon, LLC. Farnella Holdings is an entity owned and controlled by Farnella. 6. As a director of Genico, Inc., Farnella, along with the other directors, approved the merger with Genicon, LLC, and in his Shareholder Written Consent stated that the merger was in the best interest of the company and its shareholders because he and other directors had agreed to continue their personal guarantees of substantial company debt, and the terms of the merger were fair and reasonable 3 inasmuch as the price to be paid to the shareholders for their shares was in excess of their fair market value. 7. As part of the merger transaction, Farnella and other creditors of Genico, Inc., including Gary Haberland, forgave debt so that the surviving entity would not be burdened with excessive debt. A copy of the Debt Forgiveness Agreement signed by Farnella (“Farnella Debt Forgiveness Agreement”) is attached as Exhibit “B.” A copy of the Debt Forgiveness Agreement signed by Olga Haberland as part of the merger transaction is attached as Exhibit “C.” Gary Haberland, president of Genico, Inc., also forgave $269,951.00 in debt. A copy of a letter from the controller of Genico, Inc. confirming that forgiveness is attached as Exhibit “D.” 8. On or about December 28, 2012, Farnella, as managing member of Farnella Holdings, signed the Certificate of Merger of Genico, Inc., with and into Genicon, LLC, on behalf of Genicon, LLC. A copy of the Certificate of Merger is attached as Exhibit “E.” 9. After the merger and the restructuring of Genicon, LLC’s debt, Genicon, LLC negotiated a restructuring of its debt with Old Florida National Bank (“OFNB”). As part of that restructuring, managers of Genicon, LLC, including Farnella, executed a Certificate of Resolution of Managers, a copy of which is attached as Exhibit “F.” In restructuring the loan with Genicon, LLC, 4 OFNB relied on the financial statements of Genicon that confirmed the debt forgiven by creditors of Genico, including Farnella, and reflected that the forgiven debt was not a liability of Genicon. Farnella did not inform OFNB or Genicon, LLC that he believed the Debt Forgiveness Agreement signed by him was unenforceable and that Genicon, LLC owed to him the money he forgave in the Debt Forgiveness Agreement. Instead, he knowingly allowed Genicon, LLC, OFNB and the guarantors of the debt to rely on Farnella’s Debt Forgiveness Agreement and Genicon’s financial statements. 10. In reliance on the Board of Managers Certificate of Resolution and the Debt Forgiveness Agreements, including the one executed by Farnella, Gary Haberland and Olga Haberland, his wife, mortgaged their home to partially secure the restructured OFNB loan to Genicon, LLC. At the time Mr. and Mrs. Haberland mortgaged their home to secure the OFNB loan, Farnella did not inform them that he contended the Debt Forgiveness Agreement he signed was not enforceable and that Genicon, LLC owed him the debt that he forgave in his Debt Forgiveness Agreement. 11. After the merger and debt restructurings, Haberland and the other executive staff of Genicon, LLC worked extremely long hours to grow Genicon, LLC’s business and its value. Farnella and Farnella Holdings, as an owner of Genicon, LLC, benefitted from the growth and increased value of Genicon, LLC. 5 They were successful, but as with any growing business, Genicon, LLC required additional investment to continue its growth. Farnella and the other managers of Genicon, LLC approved a plan to create a wholly owned subsidiary, Genicon, Inc., that could raise additional investment capital by issuance of preferred stock. 12. In December 2013, Genicon, LLC, formed Genicon, Inc., and transferred its assets to Genicon, Inc. in exchange for all shares of common stock of Genicon, Inc. (16,500,000 shares). As part of that transaction, Genicon, Inc. assumed and acknowledged its obligation to pay all of the “debts and liabilities of its predecessor as set forth on the financial statement prepared by the Corporation’s accountant, setting forth the opening entries to the Corporation’s books of account ….” Farnella approved the transaction and knew that the financial statements did not include any obligation to pay the debts forgiven by him in his Debt Forgiveness Agreement. A copy of the Board of Directors Written Consent to Action signed by Farnella and dated December 18, 2013, is attached as Exhibit “G.” Farnella did not inform Genicon, Inc. that the financial statement prepared by the accountants was inaccurate because it did not contain liabilities for the debt he forgave as part of the merger of Genico, Inc. into Genicon, LLC. 13. Genicon, LLC formed Genicon, Inc., in part, to raise capital to grow the business of the Company through the issuance of preferred stock. 6 14. On September 25, 2014, Farnella, as a member of the board of managers of Genicon, LLC, executed a Written Consent of Shareholders to approve the issuance of Series A Preferred Stock to Genicon Investment Group. A copy of the September 25, 2014, Written Consent of Shareholders is attached as Exhibit “H.” At that same time, Farnella, as a director of Genicon, Inc., executed a Written Consent of Board of Directors of Genicon, Inc. approving the Series A Preferred Stock transaction with Genicon Investment Group. A copy of the Written Consent of Board of Directors dated September 25, 2014, is attached as Exhibit “I.” When Farnella approved the transaction with Genicon Investment Group and Genicon Investment Group purchased its preferred shares, Farnella did not inform Genicon, Inc. or Genicon Investment Group that he believed the Debt Forgiveness Agreement he signed was unenforceable or that Genicon, Inc. owed more than $3,700,000 in debt not reflected on its financial statements. 15. In April 2015, Genicon, Inc. elected to raise additional money to grow its business through issuance of Series B Preferred Stock. With the consent and approval of Farnella, Genicon, Inc. entered into a Series B Preferred Stock Purchase Agreement on or about April 10, 2015. A copy of the Unanimous Written Consent of the Shareholders and Board of Directors of Genicon, Inc., signed by Farnella, approving the Series B Preferred Stock offering is attached as Exhibit “J.” 7 16. As part of the Series B Preferred Stock offering, Farnella and other lenders of Genicon, Inc. entered into Amended Promissory Notes. Copies of the Amendments to Promissory Note signed by Farnella, for himself and Equity Trust Company d/b/a Sterling Trust Company, Custodian fbo Dr. John A. Farnella, Jr., Rollover IRA, are attached as composite Exhibit “K.” At that time, Gary Haberland, as a lender to Genicon, Inc., also signed an Amendment to Promissory Note. A copy of the Haberland Amendment to Promissory Note is attached as Exhibit “L.” 17. With its restructured ownership, restructured debt, new investment capital and with the herculean efforts of its executive, financial and design staff, Genicon, Inc. grew its business. In 2012, Mercer Capital evaluated Genico, Inc., a predecessor of Genicon, Inc., and concluded that the stock of Genico, Inc., was worthless. In the short space of five (5) years, Genicon, Inc. grew from a worthless company to a company worth $30,000,000 or more. In 2017, the board of directors of Genicon, Inc., including Farnella, approved a letter of intent for the sale of Genicon, Inc. for $30,000,000. 1 After Genicon, Inc.’s board authorized the executive staff to pursue the sale of Genicon, Inc., they engaged in detailed discussions with the potential buyer. The discussions progressed rapidly and the parties were proceeding toward a closing in February or March 2018. 1 The $30,000,000 purchase price was comprised of approximately $20,000,000 at closing and $10,000,000 in earn- out compensation if Genicon, Inc. met agreed earnout requirements. 8 18. As the negotiations for the $30,000,000 sale of Genicon, Inc. progressed, Farnella and Farnella Holdings formulated a plan to extort Genicon, Inc., or its other shareholders, to pay them money from the sale proceeds for, among other things, the debt forgiven by Farnella in the Farnella Debt Forgiveness Agreement. Farnella and Farnella Holdings fabricated claims that the Farnella Debt Forgiveness Agreement was not enforceable for lack of consideration or fraudulent inducement and made a demand on Genicon, Inc. and others to receive more from the sale of Genicon, Inc. than they were otherwise entitled to receive. 2 19. Farnella and Farnella Holdings delivered a draft complaint to Genicon, Inc., that contained knowingly false statements. Farnella and Farnella Holdings knew that Genicon, Inc. would be forced to provide their demand to the potential buyer and they used that threat as a means to extort additional money from Genicon, Inc. Genicon, Inc. refused to accede to Farnella’s and Farnella Holdings’ extortion and provided notice, as required, of Farnella’s and Farnella Holdings’ claims to the potential buyer. The potential buyer immediately placed the transaction on hold and has since withdrawn from the transaction. Parties 20. Farnella is an individual residing in Orange County, Florida. 2 Before he filed his complaint, Farnella knew that he would receive as much as $2,025,758 at the closing of the sale and a total of $5,015,343 from the sale if Genicon, Inc. met its earnout targets. 9 21. Farnella Holdings is a Florida limited liability company with its principal place of business located in Orange County, Florida. At all material times, Farnella has been a member and manager of Farnella Holdings. 22. Genicon, Inc. is a Florida corporation with its principal place of business located in Orange County, Florida. 23. Equity Trust Company d/b/a Sterling Trust Company, Custodian fbo Dr. John A. Farnella, Jr., Rollover IRA (“Farnella IRA”), is a trust company that loaned money in Orange County, Florida, to Genicon, Inc. In April 2015, Farnella IRA entered into Amendments to Promissory Notes in which it agreed that it “irrevocably and unconditionally submit to the jurisdiction of the state courts of Florida and to the jurisdiction of the United States District Court for the Middle District of Florida for the purpose of any suit, action or proceeding arising out of or based upon this agreement.” Venue is proper in Orange County, Florida, because the causes of action asserted herein accrued in Orange County, Florida. COUNT I (Breach of Amendment to Promissory Notes) 24. Genicon, Inc. realleges its allegations to paragraphs 1 through 23 above. 25. This is an action for damages for breach of contract. The damages exceed $15,000, exclusive of interest, costs and attorney’s fees. 10 26. On or about April 10, 2015, Farnella and Farnella IRA entered into Amendments to Promissory Notes as part of the Series B Preferred Stock Transaction. Copies of those Amendments are attached as Exhibit “K.” 27. In the Amendments to Promissory Notes, Farnella and Farnella IRA acknowledged that “the issuance of the Series B Preferred Stock in accordance with the terms thereof set forth in the Restated Articles of Incorporation are of value to the borrower and the lender, and the lender’s agreement to the provisions of this agreement was a condition to the issuance of the Series B Preferred Stock.” 28. In the Amendments, Farnella and Farnella IRA agreed that the principal and interest under the amended notes, if not sooner paid, “shall be due and payable on the earlier to occur of (i) April 10, 2021 and (ii) the first day after December 1, 2017 on which all shares of the Series B Preferred Stock, whether issued and outstanding as of the date hereof or at any time subsequent to the date hereof, are no longer issued and outstanding shall have been redeemed, repurchased, cancelled or otherwise retired.” 29. To date, the Series B Preferred Stock has not been redeemed, repurchased, cancelled or otherwise retired. The Series B Preferred Stock remains issued and outstanding. 30. In the Amendments to Promissory Notes, Farnella and Farnella IRA also agreed to subordinate their debt to the Series B stockholders. In their 11 subordination, Farnella and Farnella IRA agreed that they “shall not ask for, demand, sue for, otherwise enforce or collect upon, take, receive or retain from the Borrower or any of its subsidiaries, by setoff or in any other manner, the whole or any part of any monies (whether such monies represent principal, interest, indebtedness, obligations or liabilities due or not due, direct or indirect (including obligations to which the lender may be subrogated hereunder), absolute or contingent) which may now or hereafter be owing by the Borrower or its subsidiaries, or any successor or assign of the Borrower or its subsidiaries, unless and until all of the Series B Obligations shall have been fully and indefeasibly paid in full and satisfied.” (Emphasis Added). 31. Again, the Series B Obligations have not been fully and indefeasibly paid in full and satisfied. Therefore, it was and is a breach of the Amendments for Farnella to demand, sue for or collect “any monies” from Genicon, Inc. 32. To further their extortion plan, Farnella and Farnella IRA refused to honor their contractual obligations and made demand to collect and then filed a lawsuit to collect the money allegedly owed by Genicon, Inc., including without limitation, some or all of the Amended Promissory Notes and the debt Farnella forgave in the Farnella Debt Forgiveness Agreement. 33. Farnella and Farnella IRA breached the Amendments to Promissory Notes and as a result, have directly caused damage to Genicon, Inc. Those 12 damages include special and consequential damages caused by Farnella arising from and related to the failed transaction to sell Genicon, Inc. Those special and consequential damages include, but are not limited to, costs and fees related to the failed transaction, lost value related to the failed transaction and frivolous demand in violation of the Amendments, additional interest on debt that would have been paid and lost profit from the sale. 34. Under the terms of the Amendment to Promissory Notes, Genicon, Inc. is entitled to recover its reasonable attorney’s fees and costs and necessary disbursements in this action. 35. All conditions precedent to the institution, maintenance and prosecution of this action have occurred, have been performed or have been waived. WHEREFORE, Genicon, Inc. demands judgment against Farnella and Farnella IRA for damages, including special and consequential damages, injunctive relief to require Farnella and Farnella IRA to perform their agreements and obligations under the Amendments to Promissory Notes by enjoining their collection of any monies in violation of those Amendments, attorney’s fees, costs and such other relief as the Court deems appropriate. 13 COUNT II (Breach of Fiduciary Duty) 36. This is an action for damages in excess of $15,000, exclusive of interest, attorney’s fees and costs based on Farnella’s breach of fiduciary duty. 37. At all materials times, Farnella was a director of Genicon, Inc., and he served on the compensation committee of Genicon, Inc. 38. As a director of Genicon, Inc., Farnella owed a fiduciary duty to Genicon, Inc. and its shareholders. Those duties include a duty of loyalty and a duty to act in good faith with the care an ordinarily prudent person in a like position would exercise and in a manner reasonably believed to be in the best interests of Genicon, Inc. 39. Farnella breached his fiduciary duties to Genicon, Inc. and its shareholders, and as a direct and proximate result of his breach, Genicon, Inc. has suffered serious damages. 40. After years of herculean efforts in a highly competitive industry, Genicon, Inc. emerged as a successful and valuable company designing, producing and distributing patented surgical instrumentation for laparoscopic surgery. Farnella was a director of Genicon, Inc. or its predecessors. As a director, Farnella had access to and received financial information related to the business and performance of Genicon, Inc., its confidential plans for future business and for the sale of Genicon, Inc. 14 41. As an owner of Genicon, LLC and a lender to Genicon, Inc., Farnella and Farnella IRA directly benefitted from the rise of Genicon, Inc. after the fall of Genico, Inc. In or about October 2012, Farnella, as a director of Genico, Inc., approved Mercer Capital to perform a valuation of Genico, Inc. After doing an extensive analysis, Mercer Capital’s conclusion of value was that the total common equity interest in Genico, Inc. was worth nothing. In December 2011, moreover, the independent accountants of Genico, Inc., concluded that the financial condition of Genico, Inc. raised “substantial doubt about its ability to continue as a going concern.” Farnella’s stock in Genico, Inc. was worthless. Farnella then supported and the shareholders of Genico, Inc. approved a merger into Genicon, LLC. Farnella Holdings became an owner and Farnella became a manager of Genicon, LLC at the time of the merger. Later, Genicon, LLC, again with the approval of Farnella and Farnella Holdings, formed Genicon, Inc. and held all of its common stock. 42. With Gary Haberland and Tom Calcaterra as executive officers and after years of restructuring and recapitalization, Genicon, Inc., the operating entity, successfully increased the value of the business from nothing in 2012 to approximately $30,000,000. By late 2017, the board of directors of Genicon, Inc., including Farnella, approved a letter of intent with a proposed purchaser of Genicon, Inc. Under the terms of the proposed transaction, Genicon, Inc. would 15 receive $20,000,000 at closing (subject to escrows and holdbacks) and the right to earn an additional $10,000,000 over the next twelve (12) months if it met the applicable earnout requirements. 43. As a director of Genicon, Inc., Farnella knew the status of negotiations with the potential purchaser of Genicon, Inc. He attended board meetings at which the officers of Genicon provided current financial information and reports on the status of the proposed sale of Genicon. Likewise, Farnella Holdings knew all of the foregoing because Farnella was its managing member. 44. The negotiations for the sale of Genicon, Inc. progressed in late 2017 and into early 2018. By late January 2018, executives of Genicon, Inc. were negotiating final issues regarding operations during the earnout period. Executives of Genicon, Inc. kept the board of directors, including Farnella, informed of the progress of negotiations. 45. As negotiations progressed, Farnella and Farnella Holdings formulated a plan to extort more money for themselves from Genicon, Inc. or its other shareholders from the sale proceeds. In January 2018, Farnella and Farnella Holdings delivered a draft complaint to Genicon, Inc. in which they made multiple knowingly false and spurious claims that Genicon, Inc.’s financial records or those of its predecessor fraudulently misrepresented the assets and liabilities of Genicon, Inc. or its predecessor. When they made those claims, Farnella knew that Genicon, 16 Inc. had for years employed outside accountants to audit the financial statements of Genicon, Inc. As a board member, Farnella did not question the accuracy of Genicon, Inc.’s financial statements. Instead, he waited until the eleventh hour before closing of the sale to make his false claims about misrepresentations in Genicon’s financial records. 46. Without basis or substantiation, Farnella falsely alleged that executive officers of Genicon, Inc. or its predecessor caused the insolvency of Genico, Inc. and Genicon, Inc. by fraudulently transferring some or all of the loan proceeds to Genico, Inc. or Genicon, Inc. to themselves or entities that they controlled or owned. 47. Farnella, in 2013 and after, signed multiple operating agreements and other documents that reflected his minority ownership in Genicon, LLC. Despite that, Farnella falsely and fraudulently claimed in his draft complaint that in 2012 he was told he would be a majority shareholder of Genicon, LLC. More than four years after signing documents that clearly reflected he was not a majority owner of Genicon, LLC, and at the eleventh hour of the sale transaction of Genicon, Inc., Farnella and Farnella Holdings claimed that they were the majority owners of Genicon, LLC with the authority to control whether Genicon, Inc. could merge or sell all or substantially all of Genicon, LLC’s assets. Based on Genicon LLC’s 17 clear operating agreements signed by Farnella, Farnella and Farnella Holdings knew that their claims were false. 48. Farnella also claimed that Genicon, LLC wrongfully diluted Plaintiffs’ ownership by approving the preferred stock offerings by Genicon, Inc. Farnella, however, approved and consented in writing to those preferred stock offerings. See, Exhibit J. In the Operating Agreements of Genicon, LLC, Farnella and Farnella Holdings agreed in writing that Plaintiffs’ ownership could be diluted with their consent. Plaintiffs consented in writing to the preferred stock offerings. Plaintiffs made knowingly false claims regarding violation of their anti-dilution rights. 48. Beyond that, Farnella claimed for the first time in his draft complaint that Genicon, Inc. owed him $4,844,060.38 most or all which was not reflected in its financial statements. That amount included over $3,700,000 of debt that Farnella forgave in the Farnella Debt Forgiveness Agreement. To support their extortion, however, they asserted false claims that the Farnella Debt Forgiveness Agreement was not supported by consideration or fraudulently induced. As a manager of Genicon, LLC and a director of Genicon, Inc., Farnella and Farnella Holdings allowed those companies to raise investment capital through preferred stock offerings and loans based on financial statements of Genicon, Inc. that did not reflect liability for the debt Farnella had forgiven. When Farnella and Farnella 18 Holdings approved those transactions as a member, director or manager, they did not inform Genicon, LLC, Genicon, Inc., the lenders or the investors that the Farnella Debt Forgiveness Agreement was not enforceable or that Genicon, Inc. had far more debt than was reflected on its financial records. Farnella and Farnella Holdings knew that the claims in their draft complaint about the forgiven debt were false but they asserted them nonetheless to create greater risk that the proposed sale of Genicon, Inc. would fail if Genicon, LLC or Genicon, Inc. did not accede to their demands. 49. In his draft complaint, Farnella also acknowledged he entered into Amendments to all outstanding promissory notes in April 2015 as part of Genicon, Inc.’s preferred stock offerings to raise additional investment capital. In his draft complaint, Farnella falsely stated that he would not have executed the amended promissory notes except for representations that Genicon, Inc., was insolvent. Farnella claimed that executive officers of Genicon, Inc. fraudulently induced him to enter into the Amended Promissory Notes. 50. Those Amended Promissory Notes do not contain any of the alleged misrepresentations that Farnella contended fraudulently induced him to sign the Amendments to Promissory Notes. 51. Quite to the contrary, those Amendments state that they constitute “the full entire understanding and agreement between the parties with respect to 19 the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly cancelled.” 52. In their draft complaint, Farnella and Farnella Holdings claimed that Farnella was the inventor of certain medical and surgical devices that he assigned to Genicon. They also claimed that he agreed to assign his ownership in certain of the patented surgical devices based on misrepresentations by Gary Haberland that Genicon would compensate him for the patents. 53. Farnella executed multiple general and specific assignments of patents and patent applications on which he was listed as one of multiple inventors. In the general patent assignments, Farnella stated that he understood “all of its terms, that all agreements between board member and Genicon relating to the subjects covered in this agreement are contained in it, and that Board Member has entered into this agreement voluntarily and not in reliance upon any promises or representations other than those contained in this Agreement itself.” (Emphasis added). A copy of general assignments executed by Farnella are attached as Exhibit “M.” 54. The assignment agreements did not contain any promise to pay compensation to Farnella and that directly contradicts the alleged misrepresentation by Mr. Haberland that Genicon would compensate him for the 20 assignments. 3 Again, Farnella and Farnella Holdings created the false claim for compensation related to patents to further their extortion plan and garner more money from the proposed $30,000,000 sale of Genicon, Inc. 55. Farnella’s actions, including, without limitation, those described above, were done in bad faith and not in the best interest of Genicon, Inc. As a direct and proximate result of Farnella’s breaches of fiduciary duty, Genicon, Inc. lost a $30,000,000 sale transaction, incurred costs associated with the sale transaction, lost the ability to raise additional capital to grow its business and lost enterprise value because of the knowingly false claims by Farnella that Genicon, Inc.’s financial records are not accurate and that Genicon, Inc. owes