Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 1 of 43 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MARYLAND

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1 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 1 of 43 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MARYLAND In re: * BARTON-COTTON, INCORPORATED, et al., * Case Number: JS (n/k/a XBC, Incorporated), et al., * Debtors. Chapter 7 * (Jointly Administered) 1 * * * * * * * * * * * * * * * MARK J. FRIEDMAN, Chapter 7 Trustee for Barton-Cotton Incorporated, et al., * c/o DLA Piper LLP (US) 6225 Smith Avenue * Baltimore, MD 21209, * Plaintiff, * v. Adversary No. * AMERICAN CAPITAL, LTD. f/k/a American Capital Strategies, Ltd. * 2 Bethesda Metro Center 14th Floor * Bethesda, MD 20814, * Serve On: Malon Wilkus, CEO and Chairman * American Capital, Ltd. f/k/a American Capital Strategies, Ltd. * 2 Bethesda Metro Center 14th Floor * Bethesda, MD 20814, * and 1 The bankruptcy cases jointly administered with Barton-Cotton, Inc. ( Barton-Cotton ) are Barton-Cotton Holding Corporation (n/k/a XBC Holding Corporation), Barton-Cotton Sales Corporation (n/k/a XBC Sales Corporation), and Barton-Cotton Real Estate, Inc. (collectively the Barton-Cotton Cases and together the debtors are the Debtors or the Barton-Cotton Debtors ). EAST\

2 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 2 of 43 * The Corporation Trust Incorporated 351 West Camden Street * Baltimore, MD 21201, * The Corporation Trust Company Corporation Trust Center * 1209 Orange Street Wilmington, DE 19801, * and * AMERICAN CAPITAL FINANCIAL * SERVICES, INC. 2 Bethesda Metro Center * 14th Floor Bethesda, MD 20814, * Serve On: * John Erickson American Capital, Ltd. * f/k/a American Capital Strategies, Ltd. 2 Bethesda Metro Center * 14th Floor Bethesda, MD 20814, * and * The Corporation Trust Incorporated * 351 West Camden Street Baltimore, MD 21201, * The Corporation Trust Company * Corporation Trust Center 1209 Orange Street * Wilmington, DE 19801, * ACS FUNDING TRUST I, a Delaware Statutory Trust, * Serve On: * RL&F Service Corp. One Rodney Square, 10th Floor * 10th and King Streets Wilmington, DE 19801, * EAST\

3 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 3 of 43 and * Serve On: * Malon Wilkus as Beneficiary Trustee * 2 Bethesda Metro Center 14th Floor * Bethesda, MD 20814, * and * DALE STOHR * c/o American Capital, Ltd. 2 Bethesda Metro Center * 14th Floor Bethesda, MD 20814, * and * TERRY BATEMAN * c/o American Capital, Ltd. 2 Bethesda Metro Center * 14th Floor Bethesda, MD 20814, * Defendants. * * * * * * * * * * * * * * * ADVERSARY COMPLAINT Trustee, Mark J. Friedman ( Trustee ), by and on behalf of, and as the representative of the bankruptcy estates of the Barton-Cotton Debtors, based upon information and belief and as a result of the Trustee s investigation to date, alleges as follows: Preliminary Statement 1. The Trustee seeks to avoid, and recover for the bankruptcy estates of the Barton- Cotton Debtors (collectively the Barton-Cotton Bankruptcy Estate ) proceeds related to certain EAST\

4 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 4 of 43 prepetition fraudulent transfers implemented by the Defendants on behalf of Defendant American Capital, Ltd. f/k/a American Capital Strategies, Ltd. ( ACAS ), in a classic leveraged buy-out scheme (the LBO ), to use the Barton-Cotton assets to finance the 2006 acquisition of all of the equity of Barton-Cotton (and its two subsidiaries) by, and for the benefit of, ACAS (and essentially improperly to effect a shareholder distribution to ACAS) Rather than pay the entire $123 million purchase price (subject to adjustment, the Purchase Price ) for the Barton-Cotton equity acquisition directly, or through Barton-Cotton Holding Corporation, a Delaware corporation ( Holding ), which ACAS formed, solely to be the purchasing vehicle and the direct holder of Barton-Cotton equity, ACAS required Barton-Cotton to borrow as much as $84 million, from or through ACAS, for the sole purpose of effecting payment of the Purchase Price for the Barton-Cotton equity. Upon information and belief, $69 million was used to pay the Purchase Price at closing. 3. In addition, Barton-Cotton was required to pay significant and exorbitant transaction fees to ACAS, pursuant to those purported borrowings imposed in connection with the satisfaction of the ACAS obligation, through Holding, to pay for the Barton-Cotton equity. 4. These Barton-Cotton loans were secured by liens on essentially all of the Barton-Cotton assets in favor of ACAS. In so doing, Barton-Cotton, in classic LBO fashion, was, in effect, manipulated by ACAS to finance its own acquisition by ACAS. 5. These liens were granted to ACAS to secure loans that provided no benefit to Barton-Cotton or its creditors and thereby neither reasonably equivalent value nor fair consideration was provided by ACAS to Barton-Cotton for the collateral which ACAS obtained. 2 A small percentage of equity appears to have been made available to pre-acquisition management and otherwise to employees. EAST\

5 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 5 of While ACAS had negotiated an acquisition to assume the risks and potential benefits of equity ownership, ACAS, once in control, converted the transaction, in classic LBO fashion, into a structure where it acquired first priority position over all of the present and future creditors of Barton-Cotton which were then left with the primary risk of the success or failure of a Barton-Cotton business operation burdened by a leveraged debt load that it was unable to manage and ultimately led to its liquidation. 7. Not surprisingly anxious to cash out to the maximum extent possible when an opportunity presented itself, in August, 2007, ACAS required Barton-Cotton to refinance (essentially with non-insider lenders) solely in order to allow ACAS, to the maximum extent, to recoup funds purportedly loaned to Barton-Cotton. ACAS used all of the proceeds of the refinancing in the amount of approximately $46 million to enable itself to be repaid from Barton- Cotton and thereby to release its purported liens on essentially all of Barton-Cotton assets in order to secure the refinancing. 8. This refinancing constituted a second fraudulent conveyance in which Barton- Cotton was obligated to deliver $46 million to ACAS for neither reasonably equivalent value nor for fair consideration, putting Barton-Cotton non-insider creditors at further risk as non-insider lenders now possessed liens on essentially all of Barton-Cotton assets. 9. The aforementioned transactions were each undertaken with actual intent by ACAS to hinder, delay and defraud present and future creditors of Barton-Cotton. 10. As a result of each of the aforementioned transactions, Barton-Cotton was either (i) rendered insolvent, (ii) left with unreasonably small capital for continuation of its normal business operations and/or (iii) required to incur debts beyond its ability to pay as such debts matured. EAST\

6 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 6 of Ultimately, the Barton-Cotton business continued to deteriorate and Barton- Cotton was unable to service its secured debt. In early February, 2009, the non-insider lenders accelerated the entire debt due and owing to them of approximately $40 million as a result of loan defaults which Barton-Cotton had acknowledged. 12. In response to that debt acceleration, ACAS directed and/or permitted Barton- Cotton to liquidate under Chapter 7 of the Bankruptcy Code. 13. Accordingly, for the benefit of the Barton-Cotton Bankruptcy Estates and their creditors, the Trustee seeks to avoid and, as applicable, recover under applicable bankruptcy and non-bankruptcy law, inter alia, as fraudulent conveyances, the payments received by, for the benefit of, and through ACAS. Jurisdiction, Venue and Appointment of Trustee 14. The Barton-Cotton Debtors each commenced their Chapter 7 case by the filing of a voluntary petition under Chapter 7 of the United States Bankruptcy Code (the Bankruptcy Code ) on February 9, 2009 (the Petition Date ). The Trustee of the Barton-Cotton Cases was appointed as interim trustee pursuant to Section 701 of the Bankruptcy Code and became the permanent trustee pursuant to the operation of Section 702(d) of the Bankruptcy Code. 15. This adversary proceeding is initiated pursuant to (i) Sections 544, 548(a), 550(a) and 551 of the Bankruptcy Code, (ii) the New York Fraudulent Conveyance Act 270, et seq. (New York Debtor and Creditor Law, referred to herein as the New York Law ) and (iii) the Maryland Uniform Fraudulent Conveyance Act, Md. Code Comm. Law , et seq. (referred to herein as the Maryland Law ). The Trustee seeks to set aside such transfers and preserve and recover property for the benefit of Barton-Cotton creditors. EAST\

7 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 7 of This Court has jurisdiction over this matter pursuant to 28 U.S.C. 157(b) and 1334(b) because the claims asserted in this adversary proceeding arise in the above-captioned Chapter 7 bankruptcy case. This proceeding is a core proceeding within the meaning of 28 U.S.C. 157(b)(2) and venue is proper in this Court pursuant to 28 U.S.C and Identification of the Debtors 17. Prior to the ACAS acquisition, for many years, Barton-Cotton, a Maryland corporation, had been a national leader in providing customized direct marketing fundraising services to North American non-profit organizations, including affinity groups, religious organizations and memberships, and social services organizations. Barton-Cotton provided design and printing capabilities as well as an array of consulting services. In effect, Barton- Cotton was a soup to nuts fundraising and marketing organization for the non-profit world. Barton-Cotton also operated a separate internal division known as the Affinity Division that marketed specialized branded holiday cards via direct mail and on-line channels inter alia, using the brands of various prominent non-profit and for profit organizations and associations through licensing arrangements. A third internal division of Barton-Cotton, the RPS Division, sold stationery products, including Holy Cards and Mass cards via catalogue and on-line channels to Catholic parishes, churches and other religious organizations. 18. Barton-Cotton has two subsidiaries (the BC Subs ). One of the BC Subs is Barton-Cotton Real Estate, Inc. (formerly known as Barton-Cotton Real Estate LLC, a Maryland limited liability company, converted at the direction of ACAS, after the acquisition, to a Maryland corporation) which owned real estate in Baltimore County, Maryland from which Barton-Cotton conducted a substantial part of its business operations. That real estate has been sold by the Trustee during the administration of the Barton-Cotton Cases. EAST\

8 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 8 of The other of the BC Subs is Barton-Cotton Sales Corporation which was essentially inactive at the time of the ACAS acquisition. 20. Barton-Cotton itself, as a result of the ACAS acquisition, became a wholly-owned subsidiary of Holding which was formed, as previously stated, by ACAS simply to hold Barton- Cotton stock and did not itself conduct business operations. 21. For all relevant periods, the stock in Holding was owned by or through ACAS except for a small percentage provided to Barton-Cotton management in connection with the ACAS acquisition. Identification of Defendants 22. ACAS, a Delaware corporation, formerly known as American Capital Strategies, Ltd., founded in 1986, and publicly traded since 1997, is a large publicly traded equity fund and asset manager. ACAS provides capital to middle market companies and also, as an investor, engages in private equity buyouts, as occurred here with Barton-Cotton. 23. American Capital Financial Services, Inc., also a Delaware corporation ( ACFS ), is a wholly owned subsidiary of ACAS and is engaged, at the direction of ACAS, in various investment activities of ACAS. 24. ACS Funding Trust I ( ACS Funding ) was formed by ACAS as a Delaware statutory trust. ACS Funding is or was a wholly-owned affiliate of ACAS. 25. During the time relevant to this adversary proceeding, Terry Bateman was a director on the Board of Directors of Barton-Cotton at the designation of ACAS. EAST\

9 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 9 of In connection with the ACAS acquisition, Dale Stohr was a director of Holding and denominated himself as a Principal of ACAS and was also a director on the Board of Directors of Barton-Cotton. Factual Background 27. ACAS acquired Barton-Cotton pursuant to the Stock Purchase Agreement dated as of April 6, 2006 (the Stock Purchase Agreement, Exhibit 1, without the Disclosure Schedule) entered into among (i) Barton-Cotton, (ii) Barton-Cotton Sales Corporation, (iii) Holding as Purchaser and (iv) together with all of the owners of outstanding Barton-Cotton stock (collectively the Sellers ). 28. Section 2.2 of the Stock Purchase Agreement obligated Holding, in exchange for the outstanding stock of Barton-Cotton, to pay the Purchase Price of One Hundred Twenty-Three Million Dollars ($123,000,000) less certain adjustments as set forth therein. 29. As set forth in Section 5.05 of the Stock Purchase Agreement, Holding had obtained the Financing Commitment from ACAS to enable Holding to pay the Purchase Price. A copy of the Financing Commitment is attached as Exhibit C to the Stock Purchase Agreement (Exhibit 1 hereto). ACAS promised to acquire equity securities of Holding and essentially to contribute capital or financing to Holding in order to enable Holding to satisfy the Purchase Price required to be paid under the Stock Purchase Agreement. 30. The closing occurred on April 25, In connection with the closing, according to the ACAS Net Proceeds Calculation (Exhibit 2), rather than have Holding pay the Purchase Price, through its own loans or equity contributions, Barton-Cotton was apparently provided access by ACAS to $129 million. ACAS required that $7.5 million of that amount be EAST\

10 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 10 of 43 returned to ACAS characterized as net expenses and financing fees and the balance of $121.5 million was directed to be used to pay the Purchase Price as adjusted. 31. In conjunction therewith, (i) approximately $7.75 million was applied to pay Barton-Cotton employees bonuses, (ii) approximately $3.5 million was deposited in the Barton- Cotton operating account, (iii) approximately $10.8 million was paid to satisfy all outstanding bank debt of Barton-Cotton, and (iv) the balance was paid to the Sellers directly and/or for their transaction expenses, including an amount that was deposited into an indemnity escrow that, upon information and belief, was ultimately paid for the benefit of the Sellers, all as set forth on Exhibit In connection with the closing, ACAS implemented its LBO scheme to load debt upon Barton-Cotton in exchange for funds advanced to pay the Purchase Price such that Barton- Cotton, in large measure, was committed by ACAS to be obligated to pay, and to become indebted, for the ACAS acquisition of Barton-Cotton by ACAS from the Sellers without any reasonably equivalent value or fair consideration to Barton-Cotton. Barton-Cotton/ACAS Credit Agreement (April 25, 2006) 33. Compelled to do so by ACAS, Barton-Cotton entered into the Credit Agreement dated as of April 25, 2006 (the Insider Credit Agreement, Exhibit 3), pursuant to which Barton Cotton was the Borrower, entered into among Holding, Barton-Cotton, the BC Subs, ACFS as Agent and ACAS as Lender (as set forth on Annex A to Exhibit 3). 34. Pursuant to Section 10.8 of the Insider Credit Agreement, the Insider Credit Agreement is to be governed by, and construed in accordance with, New York law. EAST\

11 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 11 of Pursuant to the Insider Credit Agreement Barton-Cotton was compelled to borrow up to $55 million from ACAS. The borrowings consisted of $40 million in term loans characterized as the Senior Secured Loans (actually advanced to pay the Sellers) and $15 million in a Revolving Loan Facility (apparently intended for Barton-Cotton working capital and it is not clear that any amount so characterized was then advanced). The Insider Credit Agreement was executed by Bateman on behalf of Barton-Cotton as President (he was also then a Barton-Cotton director) and by Stohr (he was also then a Barton-Cotton director) on behalf of (i) Holding as President, (ii) ACFS as its Vice President and (iii) ACAS as Lender in his capacity of Principal. 36. At the direction of ACAS, the Senior Secured Loans (advanced) and the Revolving Loan Facility (apparently not then advanced), were secured by a senior pledge on all Barton-Cotton assets in favor of ACAS pursuant to the First Lien Pledge and Security Agreement entered into as of April 25, 2006 by Barton-Cotton and Holding in favor of ACFS as First Lien Agent for the benefit of ACAS (the Insider Pledge, Exhibit 4). The Insider Pledge was executed by Bateman on behalf of Barton-Cotton, and the BC Subs as President and by Stohr on behalf of Holding as President and ACFS as Vice-President. Pursuant to Section 7.11, the Insider Pledge is purported to be governed by, and to be construed in accordance with, New York law. 37. Pursuant to the Insider Credit Agreement, Barton-Cotton executed the Senior Security Term Notes (in the aggregate principal amount of $40 million) consistent with the characterization of such funds advanced by ACAS as Senior Secured Loans. Barton-Cotton also executed the Revolving Security Note consistent with the Revolving Loan Facility. EAST\

12 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 12 of The Senior Security Term Notes may have been endorsed without recourse to ACS Funding, the terms of which, if occurred, are not known to the Trustee. Note and Equity Purchase Agreement (Dated April 25, 2006) 39. Further, in connection with the financing of the ACAS acquisition of Barton- Cotton, the Note and Equity Purchase Agreement (the NEPA, Exhibit 5) was entered into among Holding, Barton-Cotton, the BC Subs, ACFS as Agent and ACAS as Purchaser. The NEPA provided for ACAS to purchase secured promissory notes (the Subordinated Notes ) to be issued by the Loan Parties which consisted of Holding, Barton-Cotton and the BC Subs and for ACAS to acquire preferred stock in Holding and warrants to purchase common stock in Holding. All of the asset value in the Loan Parties was in Barton-Cotton. 40. Specifically, the Loan Parties issued $29 million in Subordinated Notes, as set forth in Recital A of the NEPA, for purposes of financing the acquisition of Barton-Cotton. The proceeds of the Subordinated Notes were advanced by ACAS to Barton-Cotton to pay the Purchase Price to Sellers. Further, the balance of the Purchase Price (in addition to the proceeds of the Senior Security Term Loans and the proceeds from the Subordinated Notes) was provided by ACAS through its purchase of Preferred Stock in Holding purportedly in the aggregate amount of approximately $60 million. 41. The aggregate of the (i) Senior Security Term Notes issued by Barton-Cotton, (ii) the Subordinated Notes issued by Barton-Cotton, the BC Subs and Holding and (iii) the proceeds of the Preferred Stock issued by Holding, together equaled the amount advanced to Barton- Cotton to pay the Purchase Price, and the Net Expenses and Financing Fees charged by ACAS to Barton-Cotton. EAST\

13 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 13 of The NEPA was executed by Stohr for (i) Holding as President, (ii) ACFS as Vice President and (iii) ACAS as Purchaser in his capacity as Principal. Bateman executed on behalf of Barton-Cotton and the BC Subs as President. Pursuant to Section 15.8 of the NEPA, the NEPA is purported to be governed by, and to be construed in accordance with, Maryland law. 43. Barton-Cotton, together with the BC Subs, and Holding (although Holding had nothing except for Barton-Cotton stock), were required to execute the Second Lien Pledge and Security Agreement with ACFS as Second Lien Agent by which a subordinate lien pledge, inter alia, in Barton-Cotton assets (the Sub Liens ) was granted for the benefit of ACAS to secure, inter alia, the obligations of Barton-Cotton pursuant to the Subordinated Notes. 44. The Barton-Cotton Sub Liens were granted to secure loans that provided no benefit to Barton-Cotton or its creditors and thereby neither reasonably equivalent value nor fair consideration was provided by ACAS to Barton-Cotton for the collateral obtained by the Sub Liens. Cashout by ACAS through Noninsider Credit Agreement with Noninsider Lenders 45. Solely, in order to cashout from the Senior Security Term Notes, as of August 9, 2007, Barton-Cotton, as Borrower entered into the Credit Agreement (the Noninsider Credit Agreement, Exhibit 6) among Holding, the Bank of Montreal as administrative and collateral agent, the Governor and Company of the Bank of Ireland, as syndication agent and General Electric Capital Corporation as documentation agent which included various lenders as set forth on Annex A (collectively, the Noninsider Lenders, also including ACAS, which, pursuant to prearrangement, entirely sold its small participation within days to a noninsider). EAST\

14 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 14 of Pursuant to the Noninsider Credit Agreement, Barton-Cotton as Borrower was extended credit in the form of term loans in the amount of $40 million (the Noninsider Term Loans ) and a Revolving Facility Note in an aggregate amount not to exceed the lesser of $25 million and the borrowing base pursuant to a formula set forth in the Noninsider Credit Agreement. 47. In order to obtain the Noninsider Term Loans, pursuant to the Noninsider Credit Agreement, Barton-Cotton was required to provide a senior lien to the Noninsider Lenders on essentially all of its assets. It did so pursuant to the First Lien Pledge and Security Agreement executed in favor of Bank of Montreal dated August 9, 2007 (the Noninsider Pledge, Exhibit 7, an unexecuted version). 48. In order to provide the Noninsider Pledge to the Noninsider Lenders, Barton- Cotton was required to satisfy and discharge the Senior Security Term Notes (and the Revolving Facility Note) issued to ACAS for funds that ACAS had advanced, not for Barton-Cotton s benefit, but for the benefit of ACAS in paying the Purchase Price to Sellers to implement its acquisition of Barton-Cotton. (The advances under the Revolving Facility Loan may have been made to Barton-Cotton for working capital). 49. In order to secure the Noninsider Term Loans, Barton-Cotton was directed to pay to ACFS, for the benefit of ACAS and ACS Funding, the sum of Forty-Five Million Nine Hundred Twenty-Six Thousand Four Hundred Thirty-One Dollars and Sixty-One Cents ($45,926,431.61) designated the Payoff Amount for the Senior Security Term Notes and the Revolving Loan Facility (the Cashout Payment, Exhibit 8). Thus, ACAS, directly and/or through or with ACS Funding, received a cashout from Barton-Cotton for the release of the EAST\

15 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 15 of 43 Insider Pledge imposed on Barton-Cotton assets solely for the benefit of ACAS without any reasonably equivalent value or fair consideration for Barton-Cotton itself. Deterioration of Barton-Cotton Leading to Chapter 7 Bankruptcy Filings 50. Upon the closing of the ACAS acquisition, the Barton-Cotton business began to falter, in part, resulting from the unprecedented heavy debt load imposed upon Barton-Cotton by ACAS, and also the lack of focus upon core Barton-Cotton business operations. 51. Less than two and one-half years after the ACAS acquisition, Barton-Cotton, unable to service its debt, filed a voluntary Chapter 7 petition under the Bankruptcy Code. This Chapter 7 bankruptcy filing occurred within one-and one-half years of the Noninsider Credit Agreement by which ACAS arranged the Cashout Payment, for its benefit and the benefit of ACS Funding, pursuant to the Insider Pledge imposed upon Barton-Cotton without appropriate consideration or value. 52. In 2005, the last full year Barton-Cotton was operated by the Sellers, Barton- Cotton earned net income (according to GAAP) of approximately $ million. For 2006, after operation by ACAS for only eight months after the ACAS acquisition, Barton-Cotton suffered a loss (according to GAAP) for calendar 2006 of approximately $6.8 million inclusive of $9 million paid to ACAS for deal costs and fees and approximately $5.3 million paid to ACAS as interest on the Senior Security Term Notes and the Subordinated Notes. Moreover, while funds had been advanced apparently for working capital purposes to Barton-Cotton under the Term Facility Loan, during the course of 2006, the Term Facility Loan was entirely reduced to a zero balance during the course of that calendar year. EAST\

16 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 16 of The Barton-Cotton year-end 2005 balance sheet reflected assets of approximately $34.9 million (absent of any good will value), and aggregate liabilities of approximately $16 million yielding a net worth of approximately $18.9 million. 54. For year-end 2006, ending only eight months after the ACAS acquisition, the Barton-Cotton balance sheet reflected an asset value of approximately $138.4 million, of which approximately $98.6 million represented good will and intangible asset accounting essentially to represent the Purchase Price paid to the Sellers. Cash and equivalents, accounts receivable, inventory prepayments and property and equipment (net of depreciation) aggregated only to approximately $39.8 million. Alarmingly, Barton-Cotton s current and long-term debt (including the Senior Security Term Notes and the Subordinated Notes, at their face amounts, but excluding Preferred Stock) totaled approximately $79.5 million. Accordingly, excluding good will and intangible assets, (and considering essentially only those assets which Barton-Cotton had at the time of the ACAS acquisition), due to the debt load imposed upon Barton-Cotton by ACAS, at the end of 2006, Barton-Cotton had a negative net worth of approximately $40 million. 55. Barton-Cotton purportedly had forecasted net income for 2007 (according to GAAP) of approximately $4.5 million inclusive of the payment of almost $8 million in interest on the Senior Security Term Notes and the Subordinated Notes. However, as of the end of July, 2007, the month immediately preceding the closing on the Noninsider Credit Agreement and the ACAS Cashout Payment, Barton-Cotton had a net loss (according to GAAP) of approximately $8.5 million (inclusive of approximately $4.7 million in interest on the Senior Security Term Notes and the Subordinated Notes). 56. Under the direction of ACAS, Barton-Cotton reported that 2007 was the most challenging year in its history, that Barton-Cotton had lost focus on what we do best and had EAST\

17 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 17 of 43 disappointed people, clients and investors. Barton-Cotton had suffered significant account executive resignations and widespread production issues, losing the confidence of its clients. Barton-Cotton suffered a net loss in calendar year 2007 (according to GAAP) of approximately $5.7 million. 57. Consistent with the negative net worth for calendar year 2006 as described above, for calendar year 2007 the Barton-Cotton balance sheet revealed assets (exclusive of goodwill, intangible assets and deferred debt to ACAS) with an aggregate value of approximately $41 million and current liabilities and long-term debt (exclusive of warrant redemption liability to ACAS) of approximately $85 million, yielding a negative net worth of approximately $44 million. 58. The fortunes of Barton-Cotton continued to deteriorate into Shortly after the first calendar quarter, Barton-Cotton had suffered (i) unparalleled turnover in account staff, (ii) substantial morale issues and a continuing disappointment of customers, (iii) continuing failure to meet delivery schedules, (iv) limited new business resources and (v) the additional new expense of a significant long-term lease for corporate office headquarters separate from Barton- Cotton operations. Moreover, Barton-Cotton s contract with its biggest customer, the Veterans of Foreign Wars (VFW), making up a significant percentage of Barton-Cotton revenue, was scheduled to expire and was up for renegotiation. 59. As the Barton-Cotton financial condition continued to deteriorate, as of the end of calendar year 2007, Barton-Cotton was in default under the Noninsider Credit Agreement for failure to meet various financial ratios. Accordingly, Barton-Cotton and Bank of Montreal, as Agent for the Noninsider Lenders (ACAS was no longer a participant in the Noninsider Credit Agreement), entered into the Forbearance Agreement dated March 26, 2008, pursuant to which EAST\

18 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 18 of 43 the Noninsider Lenders were willing to forbear from exercising their rights against Barton- Cotton in exchange for the payment of a forbearance fee of approximately $2 million as set forth more specifically in the Forbearance Agreement. 60. Pursuant to the First Amendment of the Forbearance Agreement dated April 30, 2008 among Barton-Cotton, the Bank of Montreal and the Noninsider Lenders, Barton-Cotton was given some relief from its commitments under the Forbearance Agreement. In connection therewith, and in exchange therefore, Barton-Cotton, Holding, the BC Subs, Bank of Montreal and the Noninsider Lenders agreed to the First Amendment to the Credit Agreement and Waiver, dated May 15, 2008, pursuant to which, at the request of Barton-Cotton, the Noninsider Lenders and the Bank of Montreal agreed to waive certain events of default and to amend the Noninsider Credit Agreement. In conjunction therewith, also as of May 15, 2008, ACAS guaranteed $10 million of the Barton-Cotton obligations to repay the Noninsider Loans. 61. The financial performance and operations of Barton-Cotton continued to slide as 2008 continued and concluded. 62. On February 5, 2009, the Bank of Montreal, on behalf of the Non-Insider Lenders, accelerated the entire Barton-Cotton indebtedness, demanding payment of Thirty-Nine Million Nine Hundred Eight-Seven Thousand Fifty-Four Dollars and Seventy-Eight Cents ($39,987,054.78) as a result of continuing defaults of Barton-Cotton (Exhibit No. 9). 63. In response, seeing no way to recoup any further funds from Barton-Cotton, the Board of Directors of Barton-Cotton, upon information and belief, at the consent and direction of ACAS, determined to discontinue business operations and on February 9, 2009, the voluntary Chapter 7 bankruptcy cases were commenced in the Bankruptcy Court. EAST\

19 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 19 of The transfers that are avoidable and recoverable by the Trustee for the benefit of Barton-Cotton creditors are (i) the Insider Pledge, granted to ACAS without reasonably equivalent value or fair consideration, in order to pay the Barton-Cotton Purchase Price (as well as the transaction fees which Barton-Cotton was required to pay), and (ii) the Cashout Payment received by ACAS and ACS Funding in 2007 for the release of the Insider Pledge. Count I (Fraudulent Transfer Against ACAS and ACS Funding Pursuant to Sections 276, 278 and/or 279 of the New York Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code) 65. To the extent applicable, the Trustee incorporates by reference the allegations contained in the previous paragraphs of this Complaint as if fully repeated herein. 66. At all relevant times, there are and have been one or more creditors who have held and still hold matured or unmatured unsecured claims against Barton-Cotton that were and are allowable under Section 502 and Section 544(b) of the Bankruptcy Code. 67. The Insider Credit Agreement is purported to be controlled by New York law and this claim is asserted to the extent New York law is determined applicable to the avoidance of the Insider Pledge and the $7.5 million paid to ACAS by Barton-Cotton characterized as net expenses and financing fees (the Financing Fees ). 68. The Insider Pledge and payment of the Financing Fees each constitutes a conveyance by Barton-Cotton as defined under Section 270 of the New York Law. 69. The issuance of the Insider Pledge and payment of the Financing Fees were made by Barton-Cotton and, at the direction of ACAS, with the actual intent to hinder, delay or defraud present and/or future Barton-Cotton creditors. The Insider Pledge and Financing Fees EAST\

20 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 20 of 43 were part of the LBO scheme of ACAS to put the risk of the failure of the Barton-Cotton acquisition first and foremost upon the present and future creditors of Barton-Cotton. 70. ACAS and ACS Funding wrongfully controlled and received the benefit of the Insider Pledge and payment of Financing Fees. 71. As a result of the foregoing, pursuant to Sections 276, 278 and/or 279 of the New York Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code, the Trustee is entitled to a judgment against ACAS and ACS Funding (i) avoiding the transfer of the Insider Pledge and Financing Fees and (ii) recovering the value thereof individually and/or collectively from ACAS and ACS Funding. Count II (Fraudulent Transfer Against ACAS and ACS Funding Pursuant to Sections 273, 278 and/or 279 of the New York Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code) 72. To the extent applicable, the Trustee incorporates by reference the allegations contained in the previous paragraphs of this Complaint as if fully repeated herein. 73. At all relevant times, there are and have been one or more creditors who have held and still hold matured or unmatured unsecured claims against Barton-Cotton that were and are allowable under Section 502 and Section 544(b) of the Bankruptcy Code. 74. The Insider Credit Agreement is purported to be controlled by New York law and this claim is asserted to the extent New York law is determined applicable to the avoidance of the Insider Pledge and the Financing Fees. 75. The Insider Pledge and payment of the Financing Fees each constitutes a conveyance by Barton-Cotton as defined under Section 270 of the New York Law. EAST\

21 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 21 of Barton-Cotton did not receive fair consideration for the Insider Pledge or for payment of the Financing Fees and was rendered insolvent as a result thereof. 77. ACAS and ACS Funding wrongfully controlled and received the benefit of the Insider Pledge and payment of the Financing Fees. 78. As a result of the foregoing, pursuant to Sections 273, 278 and/or 279 of the New York Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code, the Trustee is entitled to a judgment against ACAS and ACS Funding (i) avoiding the transfer of the Insider Pledge and Financing Fees and (ii) recovering the value thereof individually and/or collectively from ACAS and ACS Funding. Count III (Fraudulent Transfer Against ACAS and ACS Funding Pursuant to Sections 274, 278 and/or 279 of the New York Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code) 79. To the extent applicable, the Trustee incorporates by reference the allegations contained in the previous paragraphs of this Complaint as if fully repeated herein. 80. At all relevant times, there are and have been one or more creditors who have held and still hold matured or unmatured unsecured claims against Barton-Cotton that were and are allowable under Section 502 and Section 544(b) of the Bankruptcy Code. 81. The Insider Credit Agreement is purported to be controlled by New York law and this claim is asserted to the extent New York law is determined applicable to the avoidance of the Insider Pledge and the Financing Fees. 82. The Insider Pledge and payment of the Financing Fees each constitutes a conveyance by Barton-Cotton as defined under Section 270 of the New York Law. EAST\

22 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 22 of Barton-Cotton did not receive fair consideration for the issuance of the Insider Pledge or the payment of the Financing Fees and at such time of that issuance and payment Barton-Cotton was engaged or about to engage in business and transactions for which the property remaining in its hands after such issuance and payment constituted an unreasonably small amount of capital for such business and transactions. 84. ACAS and ACS Funding wrongfully controlled and received the benefit of the Insider Pledge and payment of the Financing Fees. 85. As a result of the foregoing, pursuant to Sections 274, 278 and/or 279 of the New York Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code, the Trustee is entitled to a judgment against ACAS and ACS Funding (i) avoiding the transfer of the Insider Pledge and Financing Fees and (ii) recovering the value thereof individually and/or collectively from ACAS and ACS Funding. Count IV (Fraudulent Transfer Against ACAS and ACS Funding Pursuant to Sections 275, 278 and/or 279 of the New York Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code) 86. To the extent applicable, the Trustee incorporates by reference the allegations contained in the previous paragraphs of this Complaint as if fully repeated herein. 87. At all relevant times, there are and have been one or more creditors who have held and still hold matured or unmatured unsecured claims against Barton-Cotton that were and are allowable under Section 502 and Section 544(b) of the Bankruptcy Code. EAST\

23 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 23 of The Insider Credit Agreement is purported to be controlled by New York law and this claim is asserted to the extent New York law is determined applicable to the avoidance of the Insider Pledge and the Financing Fees. 89. The Insider Pledge and payment of the Financing Fees each constitutes a conveyance by Barton-Cotton as defined under Section 270 of the New York Law. 90. Barton-Cotton did not receive fair consideration for the issuance of the Insider Pledge and payment of the Financing Fees and, at such time, had incurred, was intending to incur, or believed that it would incur debts beyond its ability to pay them as such debts matured. 91. ACAS and ACS Funding wrongfully controlled and received the benefit of the Insider Pledge and payment of the Financing Fees. 92. As a result of the foregoing, pursuant to Sections 275, 278 and/or 279 of the New York Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code, the Trustee is entitled to a judgment against ACAS and ACS Funding (i) avoiding the transfer of the Insider Pledge and Financing Fees and (ii) recovering the value thereof individually and/or collectively from ACAS and ACS Funding. Count V (Fraudulent Transfer Against ACAS and ACS Funding Pursuant to Sections , and/or of the Maryland Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code) 93. To the extent applicable, the Trustee incorporates by reference the allegations contained in the previous paragraphs of this Complaint as if fully repeated herein. EAST\

24 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 24 of At all relevant times, there are and have been one or more creditors who have held and still hold matured or unmatured unsecured claims against Barton-Cotton that were and are allowable under Section 502 and Section 544(b) of the Bankruptcy Code. 95. This claim is asserted to the extent the Maryland Law is determined applicable to the avoidance and recovery of the Insider Pledge and Financing Fees. 96. The Insider Pledge and payment of the Financing Fees each constitutes a conveyance by Barton-Cotton as defined under Section of the Maryland Law. 97. The issuance of the Insider Pledge and payment of the Financing Fees were made by Barton-Cotton and, at the direction of ACAS, with the actual intent to hinder, delay or defraud present and/or future Barton-Cotton creditors. The Insider Pledge and Financing Fees were part of the LBO scheme of ACAS to put the risk of the failure of the Barton-Cotton acquisition first and foremost upon the present and future creditors of Barton-Cotton. 98. ACAS and ACS Funding wrongfully controlled and received the benefit of the Insider Pledge and payment of the Financing Fees. 99. As a result of the foregoing, pursuant to Sections , and/or of the Maryland Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code, the Trustee is entitled to a judgment against ACAS and ACS Funding (i) avoiding the transfer of the Insider Pledge and Financing Fees and (ii) recovering the value thereof individually and/or collectively from ACAS and ACS Funding. EAST\

25 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 25 of 43 Count VI (Fraudulent Transfer Against ACAS and ACS Funding Pursuant to Sections , and/or of the Maryland Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code) 100. To the extent applicable, the Trustee incorporates by reference the allegations contained in the previous paragraphs of this Complaint as if fully repeated herein At all relevant times, there are and have been one or more creditors who have held and still hold matured or unmatured unsecured claims against Barton-Cotton that were and are allowable under Section 502 and Section 544(b) of the Bankruptcy Code This claim is asserted to the extent the Maryland Law is determined applicable to the avoidance and recovery of the Insider Pledge and Financing Fees The Insider Pledge and payment of the Financing Fees each constitutes a conveyance by Barton-Cotton as defined under Section of the Maryland Law Barton-Cotton did not receive fair consideration for the Insider Pledge or for payment of the Financing Fees and was rendered insolvent as a result thereof ACAS and ACS Funding wrongfully controlled and received the benefit of the Insider Pledge and payment of the Financing Fees As a result of the foregoing, pursuant to Sections , and/or of the Maryland Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code, the Trustee is entitled to a judgment against ACAS and ACS Funding (i) avoiding the transfer of the Insider Pledge and Financing Fees and (ii) recovering the value thereof individually and/or collectively from ACAS and ACS Funding. EAST\

26 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 26 of 43 Count VII (Fraudulent Transfer Against ACAS and ACS Funding Pursuant to Sections , and/or of the Maryland Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code) 107. To the extent applicable, the Trustee incorporates by reference the allegations contained in the previous paragraphs of this Complaint as if fully repeated herein At all relevant times, there are and have been one or more creditors who have held and still hold matured or unmatured unsecured claims against Barton-Cotton that were and are allowable under Section 502 and Section 544(b) of the Bankruptcy Code This claim is asserted to the extent the Maryland Law is determined applicable to the avoidance and recovery of the Insider Pledge and Financing Fees The Insider Pledge and payment of the Financing Fees each constitutes a conveyance by Barton-Cotton as defined under Section of the Maryland Law Barton-Cotton did not receive fair consideration for the issuance of the Insider Pledge or the payment of the Financing Fees and at such time of that issuance and payment Barton-Cotton was engaged or about to engage in business and transactions for which the property remaining in its hands after such issuance and payment constituted an unreasonably small amount of capital for such business and transactions ACAS and ACS Funding wrongfully controlled and received the benefit of the Insider Pledge and payment of the Financing Fees As a result of the foregoing, pursuant to Sections , and/or of the Maryland Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code, the Trustee is EAST\

27 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 27 of 43 entitled to a judgment against ACAS and ACS Funding (i) avoiding the transfer of the Insider Pledge and Financing Fees and (ii) recovering the value thereof individually and/or collectively from ACAS and ACS Funding. Count VIII (Fraudulent Transfer Against ACAS and ACS Funding Pursuant to Sections , and/or of the Maryland Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code) 114. To the extent applicable, the Trustee incorporates by reference the allegations contained in the previous paragraphs of this Complaint as if fully repeated herein At all relevant times, there are and have been one or more creditors who have held and still hold matured or unmatured unsecured claims against Barton-Cotton that were and are allowable under Section 502 and Section 544(b) of the Bankruptcy Code This claim is asserted to the extent the Maryland Law is determined applicable to the avoidance and recovery of the Insider Pledge and Financing Fees The Insider Pledge and payment of the Financing Fees each constitutes a conveyance by Barton-Cotton as defined under Section of the Maryland Law Barton-Cotton did not receive fair consideration for the issuance of the Insider Pledge and payment of the Financing Fees and, at such time, had incurred, was intending to incur, or believed that it would incur debts beyond its ability to pay them as such debts matured ACAS and ACS Funding wrongfully controlled and received the benefit of the Insider Pledge and payment of the Financing Fees As a result of the foregoing, pursuant to Sections , and/or of Maryland Law and Sections 544(b), 550(a) and 551 of the Bankruptcy Code, the Trustee is EAST\

28 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 28 of 43 entitled to a judgment against ACAS and ACS Funding (i) avoiding the transfer of the Insider Pledge and Financing Fees and (ii) recovering the value thereof individually and/or collectively from ACAS and ACS Funding. Count IX (Fraudulent Transfer Pursuant to Sections 548(a)(1)(A), 550(a) and 551 of the Bankruptcy Code Against ACAS and ACS Funding for Cashout) 121. To the extent applicable, the Trustee incorporates by reference the allegations contained in the previous paragraphs of this Complaint as if fully repeated herein At all relevant times, there are and have been one or more creditors who have held and still hold matured or unmatured unsecured claims against Barton-Cotton that were and are allowable under Section 502 and 544(b) of the Bankruptcy Code The Cashout Payment by Barton-Cotton to ACAS and/or ACS Funding of the full value of the Insider Pledge in 2007 was without fair consideration or reasonably equivalent value and was solely intended to allow ACAS directly and/or with ACS Funding to cashout and recoup a significant part of the Barton-Cotton Purchase Price to the detriment of Barton-Cotton creditors The Cashout Payment constituted a transfer of an interest of Barton-Cotton in property within the meaning of Section 101(54) of the Bankruptcy Code The Cashout Payment was made by Barton-Cotton with the actual intent to hinder, delay or defraud some or all of Barton-Cotton s then existing and/or future creditors. EAST\

29 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 29 of The Cashout Payment constitutes a fraudulent transfer avoidable by the Trustee pursuant to Section 548(a)(1)(A) of the Bankruptcy Code and recoverable from ACAS and ACS Funding, individually and collectively, pursuant to Section 550(a) of the Bankruptcy Code ACAS and ACS Funding wrongfully controlled and received the benefit of the Cashout Payment As a result of the foregoing, pursuant to Sections 548(a)(1)(A), 550(a) and 551 of the Bankruptcy Code, the Trustee is entitled to a judgment against ACAS and ACS Funding (i) avoiding the transfer of the Cashout Payment and (ii) recovering the Cashout Payment or the value thereof individually and/or collectively from ACAS and ACS Funding. Count X (Fraudulent Transfer Pursuant to Sections 548(a)(1)(B), 550(a) and 551 of the Bankruptcy Code Against ACAS and ACS Funding for Cashout) 129. To the extent applicable, the Trustee incorporates by reference the allegations contained in the previous paragraphs of this Complaint as if fully repeated herein At all relevant times, there are and have been one or more creditors who have held and still hold matured or unmatured unsecured claims against Barton-Cotton that were and are allowable under Section 502 and Section 544(b) of the Bankruptcy Code The Cashout Payment by Barton-Cotton to ACAS and/or ACS Funding of the full value of the Insider Pledge in 2007 was without fair consideration or reasonably equivalent value and was solely intended to allow ACAS directly and/or with ACS Funding to cashout and recoup a significant part of the Barton-Cotton Purchase Price to the detriment of Barton-Cotton creditors. EAST\

30 Case 1:11-cv ELH Document 1-4 Filed 10/17/11 Page 30 of The Cashout Payment constituted a transfer of an interest of Barton-Cotton in property within the meaning of Section 101(54) of the Bankruptcy Code Barton-Cotton received less than reasonably equivalent value in exchange for the Cashout Payment and to the detriment of Barton-Cotton s then existing and/or future creditors, (i) was insolvent or became insolvent resulting therefrom; (ii) was engaged in a business and transactions and was about to engage in business and transactions for which the property remaining with Barton-Cotton was unreasonably small capital and insufficient for its purposes; and (iii) had incurred, was intending to incur, or believed that it would incur debts beyond its ability to pay as such debts matured The Cashout Payment was made for the benefit of ACAS and ACS Funding, each of which were Insiders pursuant to Section 101(31) of the Bankruptcy Code The Cashout Payment constitutes a fraudulent transfer avoidable by the Trustee pursuant to Section 548(a)(1)(B) of the Bankruptcy Code and recoverable from ACAS and ACS Funding, individually and collectively, pursuant to Section 550(a) of the Bankruptcy Code ACAS and ACS Funding wrongfully controlled and received the benefit of the Cashout Payment As a result of the foregoing, pursuant to Sections 548(a)(1)(B), 550(a) and 551 of the Bankruptcy Code, the Trustee is entitled to a judgment against ACAS and ACS Funding, individually and collectively (i) avoiding the Cashout Payment and (ii) recovering the Cashout Payment or the value thereof from ACAS and ACS Funding, individually and collectively, for the benefit of the Barton-Cotton bankruptcy estate. EAST\