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THE CIRCUIT COURT FOR THE STATE OF OREGON

FOR WASHINGTON COUNTY

ANN MAR, an Individual,

Plaintiff,

vs.

FADDEN/MAR COMPANY, an Oregon

Corporation, and GARY FADDEN, an

Individual

Defendants

Plaintiff, Ann Mar, alleges as follows:

) Case No.: C097225CV

)

) COMPLAINT

)

) (Shareholder Oppression (ORS 60.952);

) Judicial Removal of Director for Gross Abuse

) of Authority or Discretion (ORS 60.327);

) Breach of Fiduciary Duties)

)

) CLAIMS NOT SUBJECT TO

) MANDATORY ARIBTRATION

)

) Jury Trial Requested

)

)

JURISIDICTION AND VENUE

1.

Defendant Fadden/Mar Company is an Oregon corporation with its principal place of

business in Washington County, Oregon.

COMPLAINT - 1

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

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2.

Defendant Gary Fadden is an individual who resides in Washington County, Oregon.

3.

This Court has jurisdiction over this matter pursuant to ORCP 4A, ORCP 4G,

ORS 14.030, and ORS 60.952.

4.

Venue in the County of Clackamas is proper pursuant to ORS 14.080.

FACTUAL ALLEGATIONS

5.

For more than a decade, defendant Gary Fadden has treated Fadden/Mar Company as his

personal piggy bank and willfully ignored his fiduciary obligations to plaintiff Ann Mar, the

company’s 40% minority shareholder.

6.

Fadden/Mar Company was formed in 1996, when Ann Mar recruited Fadden to help her

run the knife company she had run with husband, Al Mar, prior to his untimely death. Al Mar

was a legendary knife designer who was recently inducted into the Blade Magazine Cutlery Hall

of Fame. For more than 14 years before he passed away, Al Mar designed high-end knives

marketed under the trademark Al Mar Knives.”

7.

After her husband passed away, plaintiff decided that she needed someone to help her run

her business. In her time of need, she turned to Fadden, a trusted family friend.

8.

In order to facilitate defendant Fadden’s involvement in Al Mar Knives, Ann Mar agreed

to form a new company, defendant Fadden/Mar, which purchased the assets of Al Mar Knives,

COMPLAINT - 2

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

.

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Inc., including the “Al Mar Knives” trademark. Ann Mar agreed to give Fadden a controlling

interest in Fadden/Mar, but retained a 40% minority interest in the company. Fadden/Mar issued

a total of 800 shares of stock to its two shareholders—480 shares to Fadden and 320 shares to

Mar.

9.

When they formed Fadden/Mar, the parties’ intention was to create a revenue stream

consisting of shareholder dividends and a ten-year employment contract that Ann Mar could use

to support herself, given that she had no alternative means of support following the death of her

husband. Ann Mar was to remain actively involved in the company as a member of its Board of

Directors and the Vice-President and Treasurer of the corporation.

10.

Shortly after Fadden/Mar acquired the assets of Al Mar Knives, the parties’ relationship

began to deteriorate. By the end of 1997, defendant Fadden had locked Ann Mar out of the

company’s offices and, within a few months after that, he had moved the company headquarters

from the offices Al Mar Knives had occupied since 1985 to the garage at his personal residence.

11.

Once Fadden locked her out of the day-to-day operations of the company, Ann Mar was

unable to maintain any meaningful involvement in Fadden/Mar. The fact that Fadden had shut

her out of the company’s operations was aggravated by the fact that, around this same time, Mar

began to suffer a series of personal health crises. These health issues, coupled with her lack of

financial resources once she was cut off from her only means of support, effectively made it

impossible for Mar to police what was happening at the company that bore (and still bears) her

family name.

COMPLAINT - 3

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

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12.

Taking advantage of Ann Mar’s increasing inability to assert herself into Fadden/Mar’s

affairs, defendant Fadden began to tighten his stranglehold on the company. By mid-2000,

acting as Fadden/Mar’s majority shareholder, Fadden adopted Amended and Restated Bylaws for

the company that reduced the number of directors from three to one, elected himself the sole

director of the company, and appointed himself President and Secretary, with no other company

officers.

13.

A few years later, in 2002, Fadden adopted Amended and Restated Articles of

Incorporation that, among other things, eliminated the preemptive rights granted to Mar in the

company’s original articles. The new articles also gave Fadden power, as the majority

shareholder, to take any shareholder action without a meeting or a vote of the shareholders.

14.

Pursuant to ORS 60.561, Fadden/Mar was statutorily obligated to give Ann Mar notice of

her dissenters’ rights when it adopted Restated Articles of Incorporation that eliminated her

preemptive rights. Fadden/Mar, however, unlawfully failed to give Mar this notice.

15.

Fadden/Mar has also failed to notify Ann Mar of any of the shareholders’ meetings that

have taken place since 2004. At each of those meetings and the meetings of the company’s

Board of Directors, defendant Fadden has re-elected himself to serve as Fadden/Mar’s sole

director and re-appointed himself to serve as Fadden/Mar’s sole officer.

16.

By not noticing shareholder meetings and otherwise failing to keep Ann Mar informed

about Fadden/Mar’s operations, defendant Fadden concealed his unlawful and oppressive acts

COMPLAINT - 4

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

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from Mar. Until serving a demand to inspect the company’s records earlier this year, Ann Mar

had no knowledge of what was happening at Fadden/Mar. In the 13 years she has been a 40%

shareholder of the company, she has not received a single dividend or other distribution of profits

and, despite the parties’ original intent, she has not received an employment agreement or any

payment for the services she rendered to the company before Fadden locked her out.

17.

Instead of exercising his fiduciary duties to operate the company for the benefit of

Fadden/Mar’s shareholders, defendant Fadden has used the company’s assets to enrich himself to

Ann Mars detriment.

18.

In 2003, without prior notice to Mar, Fadden voted as the company’s sole director and

majority shareholder to adopt a stock option incentive plan. Although he subsequently notified

Mar that the he had adopted this plan, he failed to tell her that he had also awarded himself and

his wife each options to purchase 1,000 shares of Fadden/Mar stock for 10 cents/sharea price

well below the real market value of those shares. These 2,000 stock options that Fadden voted as

the corporation’s sole director to award to himself and his wife would allow them to purchase

more than six times the number of shares Ann Mar holds as a 40% shareholder of Fadden/Mar.

19.

Between 2001 and 2008, Fadden, acting as the company’s sole director, doubled his total

personal compensation package, from approximately $37,500 in 2001 to a peak of $77,750 in

2008. In order to further supplement his family income, Fadden added his wife to the company

payroll in 2001 and started paying her total annual compensation ranging from $49,125 to

$80,250. On information and belief, Fadden’s wife has no relevant industry or business

COMPLAINT - 5

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

.

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experience and is not providing any meaningful services to the company that would justify this

lucrative compensation.

20.

In addition to increasing his total direct household income by more than 400%, Fadden

has found other creative ways to enrich himself with company assets instead of distributing

profits to shareholders or reinvesting the money in the company. By 2003, Fadden had increased

the “rent” that Fadden/Mar pays him for the use of his garage from $6,000/year to $24,000/year.

Today, this rate is nearly three times a fair market rental rate for the type of space Fadden/Mar is

using.

21.

Since 2001, Fadden has also been leasing his personal automobiles to Fadden/Mar at the

above-market rate of $500/month. The lease agreement between Fadden and the company he

alone controls requires Fadden/Mar to pay for all gas and maintenance on Fadden’s car, in

addition to the monthly lease payments to Fadden. There is no legitimate business need for

Fadden/Mar to maintain a company car. Instead, on information and belief, Fadden uses the cars

he has leased to Fadden/Mar almost exclusively for his own personal business.

22.

Since 1998, Fadden has caused the company to incur significant costs for his travel,

including extensive international travel to locations that have no apparent business purpose. On

information and belief, Fadden has also been spending money to enhance his personal knife

collection under the pretense of “research and development.” Fadden and his wife have also

loaned Fadden/Mar as much as $160,000 on terms that are less favorable to the company than it

could have obtained from other sources, and for no readily apparent business purpose.

COMPLAINT - 6

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

.

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23.

In 2000, Fadden caused the company to start reimbursing all of his family’s out-of-pocket

health care related costs, including charges for massage treatments and cosmetic dental care. In

2003, at the company’s annual meeting of shareholders, held without notice to Ann Mar, Fadden

approved company reimbursement of more than $15,000 in expenses incurred by his wife for in

vitro fertilization treatments.

24.

In addition to diverting Fadden/Mar’s assets to his family, defendant Fadden has

mismanaged Fadden/Mar by, among other things, failing to reinvest corporate profits to develop

meaningful new knife designs to enhance the company’s sales and Al Mar’s reputation, and by

allowing the company’s inventory to balloon at a rate that is dramatically disproportionate to the

company’s sales and unjustified by any business necessity. Between 2005 and 2008, while

Fadden/Mar’s sales grew at a compounded annual rate of -1.5%, the company’s inventory grew

at a compounded annual rate of 22%— from $130,220 to $285,396.

FIRST CLAIM FOR RELIEF

(Shareholder Oppression—ORS 60.952)

Count I

(Illegal and Oppressive Acts)

25.

Plaintiff incorporates by reference the allegations contained in paragraphs 5 through 24

above.

26.

As the sole director of defendant Fadden/Mar, defendant Gary Fadden has acted, is

acting, and, unless the Court intervenes, will continue to act in a manner that is illegal and

oppressive.

COMPLAINT - 7

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

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27.

Examples of defendant Fadden’s illegal and oppressive conduct include, but are not

limited to, the following:

Eliminating plaintiff’s preemptive rights without providing her with notice of her

dissenters’ rights, as required by ORS 60.561;

Failing to provide plaintiff written notice of shareholder meetings, as required by

the company’s Amended and Restated Bylaws, and by ORS 60.214;

Usurping unilateral authority and control over the company;

Adopting a stock incentive compensation plan and awarding himself and his wife

options to purchase shares representing more than six times Ann Mar’s 40%

interest in Fadden/Mar, even though no stock options are needed to retain the

services of Fadden or his wife, and offering himself and his wife an option price

well below market value;

Diverting corporate funds to himself and his family through the various acts

described above, rather than reinvesting profits in the company or distributing

those profits to all shareholders;

Locking Ann Mar out of the corporate offices and failing to allow her any

meaningful participation in Fadden/Mar’s operations;

Failing to give Ann Mar an employment contract despite the parties’ intentions

and Ann Mar’s reasonable expectations when they created Fadden/Mar and

failing to compensate her for the work she did perform for the company; and

Breaching his fiduciary obligations of loyalty, good faith, fair dealing, and full

disclosure by, among other things, using his control over the company to enrich

himself at the expense of Fadden/Mar’s minority shareholder.

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

COMPLAINT - 8

.

Count II

(Waste and Misapplication of Corporate Assets)

28.

Fadden/Mar Company’s assets have been and are being wasted and/or misapplied.

29.

Examples of how the company’s assets have been and are being wasted and/or

misapplied include, but are not limited to the following:

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Using corporate assets to pay Fadden’s wife up to $80,250/year in total

compensation, even though she has no relevant training or experience and is not

providing any services to the company that could justify such lucrative

compensation;

Using corporate assets to pay or reimburse Fadden’s family’s personal medical

expenses, including massage therapy, cosmetic dentistry, and in vitro fertilization

treatments;

Using corporate assets to rent space in Fadden’s garage at a rate approximately

three times the market rental value of that space;

Using corporate assets to lease Fadden’s car and pay for all gas and maintenance

for that car, which is used primarily, if not exclusively, for Fadden’s personal and

family use;

Using corporate assets to pay for extensive international travel that provides little

or no value to the corporation;

Using corporate assets to purchase knives for defendant Fadden’s personal knife

collection under the guise of “research and development”;

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

COMPLAINT - 9

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Causing Fadden/Mar to borrow $160,000 from Fadden and his wife on terms that

are less favorable to the company than the company could obtain from other

sources; and

Creating an inventory stock pile that is materially greater than necessary to meet

the company’s needs.

SECOND CLAIM FOR RELIEF

(Judicial Removal of Director for Gross Abuse

of Authority or Discretion—ORS 60.327)

30.

Plaintiff incorporates by reference the allegations contained in paragraphs 5 through 29

above.

31.

Defendant Gary Fadden has engaged in gross abuses of authority and discretion with

respect to Fadden/Mar Company by engaging in the unlawful and oppressive conduct described

above, by entering into in self-enriching transactions that fail to provide fair value to the

corporation, and by wasting corporate assets.

32.

Removal of defendant Fadden as a director would be in Fadden/Mar’s best interest.

THIRD CLAIM FOR RELIEF

(Breach of Fiduciary Duties)

33.

Plaintiff incorporates by reference the allegations contained in paragraphs 5 through 32

above.

COMPLAINT - 10

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

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34.

As the majority shareholder and sole director of Fadden/Mar, defendant Gary Fadden

owes Ann Mar fiduciary duties of loyalty, good faith, fair dealing, and full disclosure.

35.

Fadden has breached his fiduciary duties to Ann Mar by, among other things, making

decisions based on his own, private interests, and not on legitimate business purposes or on the

best interests of the company’s 40% shareholder.

36.

Examples of how Fadden has breached his fiduciary duties to Ann Mar include, but are

not limited to the following:

Using his control over Fadden/Mar Company to make himself the sole director

without any supervision or oversight of his activities and using his control to

eliminate any possibility of Ann Mar providing meaningful input concerning the

operations of the business;

Failing to provide Ann Mar notice of shareholder meetings or any other

information concerning the company’s operations;

Using his control over Fadden/Mar to create the possibility of diluting Ann Mar’s

interest in the company by granting himself and his wife unwarranted stock

options at below market rates;

Diverting corporate funds to himself and his family through the acts described

above, including unwarranted personal income, reimbursement of personal

expenses, self-dealing “lease” transactions at above market rates; and other

misuses of corporate funds;

COMPLAINT - 11

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

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Failing to reinvest company profits or pay dividends despite sufficient revenue to

do so; and

Generally failing to operate Fadden/Mar with the other shareholder’s best

interests in mind, and instead operating Fadden/Mar to benefit himself and his

family at the other shareholder’s expense.

PRAYER FOR RELIEF

37.

WHEREFORE, plaintiff, Ann Mar, prays for the following relief:

(a) On her first claim for relief, for shareholder oppression pursuant to ORS 60.952, an

order requiring defendant Fadden to sell his interest in Fadden/Mar Company to Ann

Mar on terms that are fair and reasonable under the circumstances and at a price

determined pursuant to ORS 60.925(5) or, in the alternative, a remedy fashioned in

consideration of the parties’ reasonable expectations at the time Fadden/Mar was

formed, including, at a minimum, the following:

i. An order requiring Fadden/Mar to remove defendant Fadden as an

officer and director of the company;

ii. An order requiring Fadden/Mar to adopt by-laws that require the

company to appoint three directors;

iii. An order appointing Ann Mar and two disinterested directors with

relevant experience to serve on the company’s Board;

iv. An order requiring Fadden/Mar to adopt articles of incorporation that

require the unanimous consent of all shareholders to take an action

without a meeting of shareholders;

COMPLAINT - 12

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

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v. An order requiring Fadden/Mar to provide all shareholders notice of

any shareholder meeting;

vi. An order limiting Fadden’s ability to vote his shares in any manner

that enriches him at the expense and detriment of Ann Mar;

vii. An order requiring Fadden/Mar to nullify and cancel the stock options

granted to defendant Fadden and his wife and to rescind the stock

option plan;

viii. An order requiring Fadden/Mar to reinstate preemptive rights for all

shareholders;

ix. An order requiring Fadden and his wife to waive any claims for above-

market interest on money they have loaned to Fadden/Mar;

x. An order requiring Fadden and his wife to return all improperly

diverted corporate funds to the corporation, including at a minimum,

all compensation paid to Fadden’s wife, all personal medical expenses,

and all rental income and other expenses paid to Fadden to the extent

they exceed fair market value or did not provide value to the company;

and

xi. A money judgment in an amount equal to 40% of the profits that

Fadden has diverted to himself, instead of paying them out as

dividends, plus the revenue Ann Mar should have received under the

10-year employment contract contemplated by the parties, plus pre-

judgment interest at the statutory rate of 9% per annum.

(b) On her second claim for relief, for judicial removal of a director for gross abuse of

authority or discretion pursuant to ORS 60.327, an order removing defendant Gary

COMPLAINT - 13

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

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Fadden as a director of Fadden/Mar and an barring him from reelection to that

position, indefinitely;

(c) On her third claim for relief, for breach of fiduciary duties, rescission of all acts taken

in violation of Fadden’s fiduciary duties and a money judgment in an amount equal to

40% of the profits that Fadden has diverted to himself, instead of paying them out as

dividends, plus pre-judgment interest at the statutory rate of 9% per annum;

(d) An award of the attorney fees and other costs plaintiff has incurred in bringing this

lawsuit; and

(e) Such other relief as the Court may deem just and proper.

Dated this 30th day of November, 2009

LAW OFFICE OF JAY ZOLLINGER

By __/s/_______________________

Jay Zollinger, OSB No. 97445

jay@outsidegcservices.com

Attorney for Ann Mar

Trial Attorney: Jay Zollinger

COMPLAINT - 14

LAW OFFICE OF JAY ZOLLINGER

3501 SW Illinois St

Portland, OR 97221

Phone: 503.464.6787

Fax: 503.245.5744

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