Register in Chancery, Dan Herman Courthouse, Wilmington DE; Civil Action



#15434;>



Yorkton vs. Luckman.



----------------------------



IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN AND FOR NEW CASTLE COUNTY,



YORKTON SECURITIES INC.,

Plaintiff,



BRENT LUCKMAN and MARCO PAPA,

Defendants,and



LUCKMAN INTEPACTIVE, INC.,

Nominal Defendant.



Civil Action No. 15434NC



DERIVATIVE COMPLAINT



Plaintiff, by its undersigned attorneys, for its complaint

against defendants, alleges upon knowledge as to itself and information

and

belief as to all other matters, as follows:



NATURE OF THE ACTION



1. Plaintiff brings this action derivatively on behalf of nominal

defendant Luckman Interactive, Inc. (the "Company" or "Luckman Inc.")

for damages, injunctive and other appropriate equitable and legal

relief. This derivative action arises out of an ongoing scheme by the

individual defendants to loot the Company and misappropriate Company

assets

for their own personal benefit, in violation of their fiduciary duties.

The individual defendants have also been grossly negligent in their

management and oversight of the Company's business. As specified below,

each of the individual defendants' actions constitutes a breach of the

duties of care and loyalty, which have not only caused the Company to

incur millions of dollars in damages but, unless enjoined, will cause

the Company irreparable injury for which there will be no adequate

remedy at law.



THE PARTIES



2. Plaintiff Yorkton Securities inc. ("Yorkton") is a corporation

organized and existing according to the laws of Ontario. Yorkton owns

and continues to own 234,708 shares of the Company's outstanding common

stock. Yorkton either owned such shares at the time the acts complained

of occurred or ownership devolved upon Yorkton by operation of law.

Institutional investors who are clients of Yorkton and whose interests

Yorkton is seeking to protect by bringing this derivative action own

approximately 22.3%. of the Company's outstanding common stock and 100%

of the Company's Class B Convertible Stock.



.... 128,701 "Second Special Warrants" in July 1996 automatically

convertible into shares of Class 2 Convertible Stock upon the issuance

of a prospectus covering the Class B shares. Through those offerings,

the Company received in excess of 19 million dollars. By operation of

law, the "First Special Warrants" have converted into shares of common

stock and the "Second Special Warrants" into Class 9 shares, a

substantial portion of which are owned by Yorkton and its clients.



The Director Defendants' Misappropriation and Waste of Corporate Assets



11. Rather than using the money raised in the offerings for the benefit

of the Company and shareholders, the Director Defendants have squandered



significant funds by, among other things: (i) diverting payments made by



customers for Company products to personal control and only returning

them on demand of the Company's counsel, (ii) using corporate funds for

personal purposes such as purchasing home furnishings, stereo equipment

and leasing luxury automobiles; (iii) "donating" corporate funds to the

Church of Scientology, a religious cult group infamous for its use of

"brainwashing" and other techniques of mind control to convince its

followers to surrender their assets to "Church" control; (iv) diverting

corporate funds to "friends" for which the Company received no value;

(v) ...



.... employing relatives and "friends" in corporate positions for which

they were unqualified at exorbitant rates of compensation; (vi) drawing

"advances" and submitting for payment purely personal expenses unrelated



to Company business; and (vii) traveling first class and staying at

luxury hotels at a time when the Company was in financial distress.



12. As specific examples of expenditures comprising both corporate

waste and misappropriation of assets, Yorkton points to the following

acts

committed by Luckman:



a. From February 1996 through May 1996, Luckman caused the Company

to employ as a "marketing person" his wife Joy Westrum at a salary of

$80,000 per year even though Ms. Westrum had no qualifications for that

position. Remarkably, Luckman instructed the Company's Controller,

Michael Fuentes ("Mr. Fuentes") to continue paying Ms. Westrum's salary

even though Ms. Westrum left the Company in or about May 1996 following

her separation from Luckman. The Company had no legal obligation to

make such payments, but Luckman insisted the payments occur;



b. On July 25, 1996, Luckman instructed Mr. Fuentes to make a

$25,000 payment Calstar Motors Inc., a Mercedes Benz dealer, even though

the

Company neither leases nor owns a Mercedes Benz automobile;

.... c. Luckman instructed Mr. Fuentes to have the Company issue Luckman

cash advances in the amounts of $20,000 on June 20, 1996; $128,500 on

August 28, 19961 $70,000 on September 5, 1996; $50,000 on September 26,

1996; and $50,000 on October 7, 1996.



d. Luckman instructed Mr. Fuentes to have the Company pay Luckman

cash "bonuses" of $50,000 on July 25, 1996 and $60,000 on September 25,

1996.



e. On or about August 23, 1996, Luckman instructed Mr. Fuentes to

pay $30,108.75 to Paul Stevens for stereo equipment purchased for

Luckman's

personal use and ownership;



f. On or about August 14 and 21, 1996, Luckman instructed Mr.

Fuentes to pay $10,405 and $12,630.33 for Luckman's home furnishings;



g. Luckman also instructed Mr. Fuentes to pay a series of charges

from June to September 1996 on Luckman's personal credit card for

"donations"

to the Church of Scientology in excess of $52,000;



h. In or about September 1996, Luckman instructed Mr. Fuentes to

pay $12,899.50 for a trip taken by Mr. and Mrs. Siebers (the parents of

a

woman Luckman was then involved with) for a "vacation" trip;



.... i. Prior to September 23, 1996, Luckman was receiving a monthly

"car allowance" from the Company of $725. This practice continued until

September 23, when Luckman unilaterally increased his car allowance to

$1,879;



j. Luckman instructed Mr. Fuentes to make payments in August 1996 to

Edward T. Renna and Edwardo Neito and in August through October 1996 to

Dan T. Owen of $10,000, $7,694.80 and $24,321, respectively, for

personal accounting expenses, interior decorating services, and

Scientological "consulting services"; and k. In or about the fall or

winter of 1996, Luckman received at his home $10,000 in cash from a

customer in payment for Company products and converted those funds to

his personal use until he returned those funds to the Company at the

insistence of the Company's inside attorney;



1. On July 22, 1996, Luckman and Papa at that time the only members of

the Company's board unilaterally voted themselves salary increases from

$240,000 to $320,000 per year for Luckman and $140,000 to $200,000 per

year for Papa.



13. The specific misappropriation of Company funds set forth above

do not constitute a complete list of...



.... 15. Luckman's diversion of corporate funds for his own personal use

is well known within the Company. As an officer and sole board member

other than Luckman when this looting took place, Papa is aware of and

@as acquiesced in Luckman's wrongdoing. In addition, as set forth

below, Papa has himself participated directly in conduct constituting a

waste of corporate funds.



16. In addition to Luckman using corporate funds for personal

expenditures, both Luckman and Papa have spent Company funds on

activities from which the Company received no benefit. These

expenditures took place when the Company was in a weakened financial

condition and are still taking place even though the Company is cn the

verge of financial collapse. Among other things, both Luckman and Papa

leave:



a. Insisted on flying first class, staying at luxury hotels and dining

in very expensive restaurants whenever traveling on Company business;



b. Forced Company employees to attend Church of Scientology

seminars paid for and held at the Company during business hours.

Attendance at such seminars has not only interfered with the employees

working on

Company business but also seriously damaged employee morale;



.... c. Cancelled a Church of Scientology "executive training" program

for which the Company had made a $8,000 payment, which has never been

refunded to the Company; and



d. Approved the holding of a lavish Christmas party on December 14,

1996 with a budget in excess of $25,000 or more than $400.00 per

employee.



Defendants' Failure to Cease and Desist and the Irreparable Injury Being



Caused to the Company



17. Although the Director Defendants have been warned by other

Company officers that their conduct is threatening the Company with

financial

ruin, the Director Defendants have recklessly ignored these warnings.

For example, when challenged by Mr. Fuentes as the expenditures

continued and the Company's financial health deteriorated, Luckman told

Mr. Fuentes that it was "his company" and that "he would run the company



his way;



18. Luckman was again confronted with his improper conduct when

Yorkton learned of the ongoing misappropriation of corporate assets by

the

Director ]Defendants. On December 11, 1996, a meeting was held in

Ontario, Canada in Yorkton's offices, attended by, among others, Victor

Alboini (a Yorkton Executive Vice President), Eric Elvidge (an attorney

for Yorkton), Luckman and Philip Symmonds (counse...