Deposition of the Liar & Fraud. Jim Ellerton. The longest Suicide Note in Corpo’rat’e History!

For the first time and at great expense to myself and Mr Tom W.  I publish in it’s entirety the full Deposition with exhibits, emails and written correspondence/evidence which exposes the lies, deceits and frauds that have been perpetrated by this man in his guise as “Uncle Jim” the bringer of “real value to share-holders”, the former Chairman John J Ellerton.

Read how Ellerton claims that all the Board of Directors knew about and sanctioned his “Dillabaugh Dealings” Ellerton claims that Jeremy Delmar Morgan, Sefton Chairman before he moved to Allenby Capital as their Chairman, knew full well telling Jim he was “OK”.

Read how Karl Arleth Sefton CEO, did the same in fact read all about how the whole Board of Directors at the time & continuing, covered up one of the biggest financial scandals on AIM. It’s all in there, Jim even had his teeth done on company money! Stock transfers to his children, loans and cash being pocketed. Travel, hotels expenses, perks! The list of fraud is endless! Read it Now!

“Uncle Jim” The bringer of “real value” to his own pockets!

Viva!

Dan

Please sign the government e-petition. http://epetitions.direct.gov.uk/petitions/52766

Sign the E-PETITION now!


1 DISTRICT COURT, DENVER COUNTY STATE OF COLORADO


http://epetitions.direct.gov.uk/petitions/52766

1437 Bannock Street

3 Denver, Colorado 80202

4

Plaintiff:

5 GARY DILLABAUGH

6

 

Defendant:

JOHN J. ELLERTON

 

A COURT USE ONLY A


7

For the Plaintiff: Case No. 08CV2877

GARY C. DAVENPORT, ESQ.

McGloin, Davenport, Severson

and Snow, P.C.

1600 Stout Street

Suite 1600

Denver, Colorado 80202


Division: 3

12 303-863-9800

303-571-1600 (fax)

garyd@mdsslaw.com Atty. Reg. No. 5211

DEPOSITION OF JOHN J. ELLERTON

November 25, 2008

 

For the Defendant:

JACK R. LUELLEN, ESQ.

Beatty & Wozniak, P.C.

216 16th Street

Suite 1100

Denver, Colorado 80202

303-407-4499

21 303-407-4494 (fax)

jluellen@bwenergylaw.com

Atty. Reg. No. 29017

Also Present:

Gary Dillabaugh

25

2

Deposition of JOHN J. ELLERTON, the Defendant,

called by the Plaintiff in the above-entitled matter on

Tuesday, the 25th day of November, 2008, commencing at

the hour of 9:03a.m., at 1600 Stout street, Suite 1600,

Denver, Colorado, before Wendy Evangelista, Registered

Professional Reporter and Notary Public within and for

the State of Colorado, said deposition being taken

pursuant to Notice and the Colorado Rules of Civil

Procedure.

I  N   D  E  X

12

Page Number

Examination by Mr. Davenport

4

13

E X H I B I T S

14

Exhibit Number Initial Reference

15

18

19

20

21

22

23

24

25

4 (Pages 4 to 7)

4

I

 

PROCEEDINGS

JOHN

 

J. ELLER TON,


the Defendant herein, having been first duly sworn, was

examined and testified on his oath as follows:

EXAMINATION

BY MR. DAVENPORT:

Q

 

Would you state your full name and spell your


last name for the record.

A    John James Ellerton, E-L-L-E-R-T-0-N.

Q

 

All right. Mr. Ellerton, what is your home


II

 

address?

12

 

A    790 Washington Street, Apartment  1001, Denver,

13

 

Colorado 80203.

Q

 

And what is your business address?

A

 

2050 South Oneida Street, Unit 102, Denver,


Colorado

 

80224.

Q

 

Okay.  How old are you, Mr. Ellerton?

A   Sixty-four.

Q

 

Mr. Ellerton, we met a few minutes ago.  My


name is

 

Gary Davenport, and I represent Dillabaugh in

this proceeding.

 

If at any time you don’t understand my

question or it’s confusing to you, would you please let

me know?

 

And rn try to rephrase it so we’re on the

same page, in essence.

My goal here today is to find out what you

6

I

 

background information from you before we get into the

facts of the case. What is your educational background?

A

 

High school in the United Kingdom, university


in

 

Canada.

Q

 

What type of degree?

A

 

I have an honors Bachelor of Science degree


7

 

from University of Toronto.

Q

 

And where — what’s your Bachelor of Science


in?


10

 

A   Geology and- with a math and physics minor.

11 Q

 

And since getting your B.S., just generally,

12

 

if you could, go through what your employment history has

13

 

been for me.

A

 

I’ve basically been in the oil business the


entire time.

 

Igraduated in ’69 and worked for a major

oil company, Texaco, for a number of years. And since

then, I’ve basically been running my own companies.

Q

 

And what companies are those?

A

 

J. Ellerton Consultants, Inc., COM-TEK

Resources, Inc.

Q

 

I’m sorry. What was that last one?

22

 

A   COM-TEK, C-0-M, hyphen, T-E-K, Resources,

Inc.; Sefton Resources, Inc., which was fonnally TEG

Resources,  Inc.

Q

 

What is your present position?

5

I

 

know, what your position is. rm not here to attempt to

trick you in any way. I want you to understand my

question and respond to what rm asking. And ifthere’s

any confusion about that whatsoever, let me know and rn

try

 

to make it clear.  Fair enough?

A

 

Fair enough.

Q

 

Okay. Ifyou need a break at some point, just

let us know.  We’re happy to accommodate you in that

regard.

So at this point, do you generally have an


11

 

understanding of what a deposition is about?

A

 

Yes, sir.

Q

 

You understand you’re under oath –

A

 

Yes, sir.

Q

 

–just as if we were in a court oflaw before

a judge or jury?

A

 

Yes, sir.

Q

 

All right.  Have you had your deposition taken

before?

A

 

Yes, sir.

Q

 

How many times?

A

 

Can’t remember.

Q

 

A number?

A

 

Yes.

Q

 

All right  Mr. Ellerton, rd like to get some

7

I

 

A  CEO of Sefton Resources, Inc.

Q

 

And how long have you been CEO of Sefton?

A    Approximately

 

15 years.

Q

 

How long has Sefton been in existence?

A    Approximately

 

15 years.

Q

 

So you started it?


7 A

 

Correct.  I was one of the cofmmders.

Q

 

It’s a publicly traded company; is that

correct?

A

 

Correct


11

 

Q    How many shareholders does it have?  Do you

12

 

have any idea?

13

 

A   Several thousand.

Q

 

Where is it incorporated?

A    The British Virgin Islands.

Q

 

And is its headquarters here in Denver?

A

 

Yes.

Q

 

All right.  How many employees does Sefton


have?

A

 

Sefton and its subsidiaries have

approximately– about seven or eight employees full

time.

Q

 

And how would you characterize -I know you

said it’s the oil and gas business.  But is it

production? Is it- what area does Sefton primarily–

 

 

 

(Pages 8 to II)

8

I A   Exploration and production.

2

 

Q   All right. And primarily what geographic

areas?

A   California and Kansas.

Q

 

Would you tell me, please, Mr. Ellerton, who

the officers and directors are of Sefton?


7 A   The directors of Sefton are myself; Bruce

Mackay, M-A-C-K-A-Y;

 

Hany Barnum, B-A-R-N–

B-A-R-N-H-U-M (sic); Jeremy Delmar-Morgan; and Tony

!0Ashton,A-S-H-T-0-N.

I 1

 

Q   Where are these gentlemen located?

A    Jeremy Delmar-Morgan is in the United Kingdom,

T

 

any Ashton is in Canada, Harry Barnum is in California,

Bruce Mackay and myself are in Colorado.

Q   So those are the directors, correct?


16 A   Correct.

17 Q    Who are the officers?

18 A    The officers of Sefton Resources, Inc., are

myself as CEO; Harry Barnum is the executive vice

president; Bruce Mackay is the executive vice president;

and Kris Short is the assistant secretary.


22

 

Q    Whafs the present status of the business?  Is

it ongoing?

A    Yes.


25

 

Q   Okay.  And Sefton commenced doing business

!0

of Sefton at some point; we know that.

 

Ifyou will, just

characterize for me how the relationship went from the

time you met him in a social arrangement of coaching his

son in soccer.

A

 

The previous company I had formed or co-formed

merged with a company that Gary had an interest in, and

Gary was associated with that company for a while.  And

 

I

believe we’ve stayed in touch over the years.  And then


9

 

we, in terms of professionally, were reacquainted again

in

 

the – about — in the early days of Sefton forming

and developing.

Q

 

Mr. Dillabaugh eventually became an employee

ofSefton?

A

 

Correct.


!5 Q

 

Tell me how that happened. How did that

16

 

occur?

A

 

Basically, Gary had provided some funding for

myself, and basically I lobbied the directors to bring

19

 

him in as a – originally as a consultant and eventually

20

 

as a full-time employee.

2!

 

Q   All right. And to consult on what?

22 A

 

Helping in whatever manner we needed help.

23

 

Q    I mean, when you were —

A

 

Primarily shareholder relations

and/or involved in invoicing and– I mean, invoice

9

1

 

approximately, you said, 15 years ago?

A    Correct.

Q    All right.  And been in business continually

4

 

since then?

A

 

Correct.

Q   Has the number of employees of Sefton over

that time changed dramatically or has it been primarily

in the seven to eight area?

A

 

It started originally with just myself.

Q   Okay.  So from one to eight has been sort of

the lay of the land, if you will, on the number of

employees?

A

 

Correct.

Q

 

All right. Now, you are familiar with Gary


Dillabaugh, are you not?

A

 

Yes.

Q   When did you first meet Mr. Dillabaugh?

A    Twenty plus years ago.

Q    Twenty plus?  I’m sorry.

A

 

Yeah.

Q    Okay. And how did that occur?

A    I coached his son’s soccer in Littleton,

Colorado.

Q    And just tell me how the relationship went

from there. Obviously, Mr. Dillabaugh became an employee

1!

management, if that’s a term that you understand.

Q

 

I think l do.

A

 

Yeah.

Q    S.o let me make sure I understand this,

Mr. Ellerton.  You went to the board– I don’t know if

you used the word “lobby”; I thought you did -lobbied


7

 

the board to bring Mr. Dillabaugh into the company?

8

 

Correct.

9

 

Q   And Itake it when you did that, you felt that

I 0

 

he would be a valuable asset or contributor to the

company; is that correct?

A

 

Partially correct, yeah.


13

 

Q   Why do you say “partially”?

!4

 

A   Well, part of it was for assistance in helping

15

 

me and it was kind of a reward phenomena.

Q   Can you be any more specific as to how he was

helping you?

A    The board lmew that he had helped me during a

time when the company was unable to pay me, and basically

they recognized that and rewarded him to some extent by

involvement in the company.

Q

 

So I’m a little confused by this.  Let me be

sure.  The board rewarded  Mr. Dillabaugh as a result of

helping you personally?

A   Correct.

 

 

 

(Pages 12 to 15)

12

Q

 

Okay. Did you have conversations with the

board members about the — about that fact?

A

 

Yes.

Q

 

And what board members did you discuss that


with?

A

 

That was the existing board and any prior


board members.

Q

 

Okay. Would it be different board members

than the names you’ve already given me?

A   Yes.


II

 

Who would they be?

A

 

Alan Thomas, John Killer, Karl Arleth, Norm

Thachuk.  For the moment that’s-

Q

 

And where are these gentleman located?

A

 

Norm Thachuk is in Canada; Alan Thomas, John

Killer in the United Kingdom; and Karl .Arleth is here

 

in

Colorado.

Q

 

So do you recall approximately when


Mr.

 

Dillabaugh went to work for Sefton?

A

 

In an official capacity?

Q

 

Yes.

A

 

I believe it was in – about ’02, thereabouts.

Q

 

Okay.  Now when you say 11an official

capacity,” are you differentiating between a consultant

and an employee?

14

I

 

that he was paid but there was v.rithholding taken out for

taxes and–

A    rm assuming so, yes.

Q

 

And when he was paid as a consultant, you

probably didn’t do the v.rithholding.   He was probably just

given a gross check; is that right?

A   I can’t remember.

Q

 

Okay. Now, would you describe for me, when


Mr.

 

Dillabaugh became an employee, exactly what his

duties and responsibilities were. And then take me

forward until the time he was no longer associated with

Sefton, and tell me if they changed over time or they

remained the same.

A

 

I believe he was made corporate secretary.

And his function, job description

 

Ww I don’t know if!

can give you a precise job description

 

ww was that of

helping with the administration side of it and with the

shareholder relations side.

Q

 

Okay.  That was commencing in ’02?

A

 

Pretty well what he was doing as a consultant,

and then it became more official.

Q

 

All right.  So in ’02, he’s helping with


administration and shareholder relations?

A

 

Correct

Q

 

Did he work full time at Sefton, then,

13

I

 

Correct.

Q

 

All right.  So that he was a consultant for a

while, then became an employee; is that correct?

A

 

Correct.

Q

 

So how long was he a consultant before

approximately ’02 when he became an employee?

A

 

A year or so. rm not completely clear on


that.

Q

 

How was he compensated as a consultant?

A

 

As a consultant, cash.  And I’m not sure —

rd have to check the records regarding stock

opportunities or options.

Q

 

In Sefton?

A

 

Correct.

Q

 

Okay. And then he came on board as an

employee?

A

 

Correct.

Q

 

And how was he compensated then?

A

 

Inthe normal manner of employees:  cash,

medical benefits, stock options — stock opportunities,

options, things of a normal nature for a company.

Q

 

Just like any other employee of Sefton at that

time?

A

 

Correct.

Q

 

Now, when you say “cash,” I assume you mean

15

starting in ’02?

A

 

Well, we know Gary had a dental practice, so I

believe it was not full time, no.

Q

 

Okay.  And through the period of time or

through the time where he was no longer an employee of


6

 

Sefton, did his duties and responsibilities change at

all?

A

 

Not really.

Q

 

Now, how do you assess 1-ir. Dillabaugh’s

performance on behalf of Sefton when he was an employee?

Was he a good employee, bad employee, mediocre employee?

Vhat’s your view of that?


13

 

A    My personal view?

Q   Uh-huh.

A

 

I would say mediocre.

Q

 

Okay. Was he ever reprimanded in any way for

nonperformance or not fulfilling his obligations or

duties?

A

 

No, other than dialogue that things weren’t

getting done or- or things of that nature.

Q

 

Okay.  Was he ever put on any probationary

status-

A    No.

Q

 

-in any way?

A    No.

 

(Pages

16 to 19)

16

1

 

Q   Was his salary ever docked in any way for

nonperformance?

A   No.

Q

 

So the bottom line is: You view him as a


mediocre employee, and he was never reprimanded or any

official action taken against him for anything he did

while he was an employee; is that correct?

A    Other than us verbally

 

talking to him about

any shortcomings.

Q   Would that be similar to what you’d say ‘With

any employee?

A    Yes.

Q

 

All right. Now, at what point in time did

Mr. Dillabaugh cease to be an employee of Sefton?

A    I believe

 

it was this year, 2008.

Q

 

How and why did that occur?


17 A    Mr. Dillabaugh moved to Canada, and I believe

 

 

we were attempting to negotiate a relationship with

Mr. Dillabaugh as to what his capacity could be with him

being

 

in -living in that location and our company being


18

believe there have been certain amounts of forgiveness of

some of that.  So what the net is, I don’t

 

think we have

an accounting.

Q

 

Well, you’ve done some work on that in

responding to written answers, and we’ll get to that.

But Ijust wanted to know

 

if you’ve done any more work or

anything to come up with a definitive number in terms of

8

 

what you think you owe him exclusive of offsets?

A   No, sir.  Once

 

Mr. Dillabaugh filed the

lawsuit, rve been too busy, and there seemed to be no

point in that.

Q    Do you have any intention of doing that?


13 A

 

Of doing what?

Q    Of coming up with a number that you think you

owehim.

 

A

 

At this point, I believe it’s a legal matter,

and that will come about from that.

Q    Okay.  So the answer is:  You don’t have any

intention of coming up with a number that you think you

owehim?

here. And an attempt was made to have an agreement

 

•• an 21

agreement with him more in the consulting capacity.  And

 

22


A    Not at this point in time.

Q   All right.  Now, you readily admit, do you

that basically was never agreed to. And as a result of

it, the association ended.

Q   Was he fired?

not,

 

Mr. Ellerton, that over a period of time,

Mr. Dillabaugh loaned you, personally, substantial sums

ofmoney?

A   No, I don’t

 

think. Itjust never came to an

accommodation.

3

 

Q    All right  So mutual parting of the ways, if

4    you will; would that be fair?


17 19

 

A

 

Ifyoumeanbytheterm “loan” advances in the

form of loan or cash advances, then, yes, he has; and

3

 

substantial amounts of money, yes.

4

 

Q    Okay.  Well, let me make sure I understand.

A   I guess that would be a fair way of assessing


it

Q

 

All right  Okay.  Mr. Ellerton, do you owe


Mr. Dillabaugh any money as we sit here today?

A  I believe that’s a possibility.


10

 

Q    Why do you say “a possibility”?

 

A

 

Well, Mr. Dillabaugh has advanced funds to

myself over time, and I believe that rm entitled to some

offsets against those funds. And we’ve never come to an

agreement on what that net amount is.

Q

 

All right  Exclusiveoftheoffsets-let’s


set that aside for a moment. I know that’s your

position, that you’re entitled some offsets.  But

exclusive ofthe offsets, what do you owe Mr. Dillabaugh

as we sit here today?

A   I really don’t know, sir, to be honest.

Q    You haven’t taken the time to sit down and

figure that out?

A    We talked about it and gone through it.  But,

I mean, there have been various amounts of monies

advanced by Mr. Dillabaugh, and there have been-· I

5    Is it your position that he did not loan you money?

6

 

A    There was either loan or advances made and–

that weren’t necessarily a loan.

Q

 

All right.  What’s the difference, tell me,

between when he loaned you money

 

and he advanced you

money?

A   When he loaned money, that was itemized as a

loan.  When he advanced monies, then that might have been

eventually put

 

inthe form of a loan and/or offset

against benefits Mr. Dillabaugh received.

Q

 

Okay.  So I’m just trying to get exactly where

you’re at on this today. We’ve spent some time

 

in

sending back written questions.  Are you telling me there

were two types of situations here: one where

Mr. Dillabaugh would loan you money that was not subject

to an offset, and another was he would advance you money

that was subject to an offset?

A   No.

Q

 

Okay.  Then I’m confused.  I’ve got to work

back through this. What would be the difference – how

would one have kno’Wll, during your relationship, whether


8 (Pages 20 to 23)

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2

3

4

 

5

 

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

20

money that he put in your possession was a loan or an advance?

A Periodically, money that had been

 

M- that had

been money advanced, and periodically that would be put in a written document that would be

 

in the form of a loan.

Q

 

Uh-huh.

A    And some of those loans might have been

reduced against what offset and/or any outstanding monies advanced were anticipated being an offset against

benefits received.

Q

 

Let’s take a look at- do you have any idea

about what the total amount of money was that was lent to you, the gross amount, not – exclusive of interest, lent

to you by

 

Mr. Dillabaugh over time?

A   I believe the amount of funds that were

advanced to me by

 

Mr. Dillabaugh were, to the best of our ability, were reflected in Exhibit A of my -M what do

they call it– interrogatories.

Q

 

Okay.  Let’s get those out. (Exhibit Number  1 was marked for

identification.)

Q

 

(By Mr. Davenport)  Would you take a look at Exhibit 1 for me, please, Mr. Dillabaugh (sic)?

A

 

Mr. Ellerton.

22

just for clarification

 

M- I think he inadvertently said

Exhibit E.

MR. DAVENPORT:  Exhibit

 

A.

THE WITNESS: Exhibit

 

A.


5

MR. DAVENPORT:   Right.

Q   (By Mr. Davenport) And the number you

eventually arrive at is $367,751.70; is that correct?

8

 

A   Correct.

Q   All right. Now, I’d like to work through

this. And we need to look at another exhibit to make

11    sure we can understand what’s going on here.

(Exhibit Number 2 was marked for

identification.)

Q    (By Mr. Davenport)  Now,

 

I’lltell you what my

understanding is, Mr. Dillabaugh (sic), so maybe we can

shortcut this a little bit.

A    Mr. Ellerton.

Q   I’m sorry. Mr. Ellerton.

And maybe we can shortcut this a little bit in

terms of having to work through all this laboriously.

Would you look at Exhibit Number 2 now for me.  See that?

A    Yes.

Q

 

Can you identify what is it?

A   It’s a letter from myself to Gary dated

December the 31, 200 1, outlining, at that point in time,

1

2

3

4

 

5

 

6

7

8

9

10

II

12

13

14

15

16

17

18

19

20

21

22

23

24

25

21

Q   I

 

mean, Mr. Ellerton.  Sorry.

A

 

rn look at it too.

MR.

 

LUELLEN:  At least I won feel bad when I


do that this afternoon; I undoubtedly will.

MR.

 

DAVENPORT:   It’s easily done.

THE WITNESS:  That’s all right.

 

I know who I


am.

MR.

 

DAVENPORT:  Just so long as I don’t call myself the wrong name,Iguess we’ll be fine.

Q

 

(By Mr. Davenport)  Do you have that in front

of you?

A   Yes, sir.

Q

 

Those are your answers that you provided and signed under oath in this case, is that right, to interrogatories that were submitted to you?

A    Correct.

Q

 

Now, you had mentioned an Exhibit A.  Does it help refresh your recollection as to how much money was loaned to you by Mr. Dillabaugh to look at that?

A    As I said, monies that were advanced by

Mr.

 

Dillabaugh were reflected in Exhibit E (sic), to the best of my records and my attorney’s review of those records.

Q

 

All right.  So the number —

MR.

 

LUELLEN:  Yeah, rm sorry.  But I think–

2

what our various dealings were and the status of our

understanding of them was.

Q    All right.  And you sent that to

Mr. Dillabaugh?


5

A    Yes, sir.

Q

 

And you signed it?

A

 

Yes, sir.

Q    Now, as I understand

 

it, what this was is a

total recapitulation, if you will, of all of your

10   dealings coming to exactly where you stood as of Decembe

31, 2001; is that correct?

A   “Recapitulation.”  I don’t understand that

13  word.

Q

 

Just a setting forth, if you would.  You were

setting forth exactly what your relationship was in terms

of stock, advances, loans, et cetera, as of December 31,


17 2001?

A   My understanding of that, yes.

Q   All right. And what you came up with was

principal and interest at 12/31/01 of$65,661.88,

correct?

A   Yes.

Q And you also – and

 

I’ll try to direct your

attention to this a little bit – applied an interest

rate to money that had been loaned to you by

3r 

 

9 (Pages 24 to 27)

24 26


Mr.

 

Dillabaugh of 12.5 percent, is that correct? 1    short break, I might be able to shorten this a little

3 QAll right. Now, let’s now lay side-by-side 3
4 Exhibit A -Ijust want to make sure we’re on the same 4

A    Correct. 2

 

bit.

MR. DAVENPORT:  Well, I’m happy to do it anytime.  Sure.


page here.

 

Itwould be my understanding, then, 5 MR. LUELLEN: Okay.

Mr.

 

Ellerton, that as of December 31,2001, this was 6 MR. DAVENPORT:   That’s fine.

exactly where you and

 

Mr. Dillabaugh stood. 7 MR.DAVENPORT:  Goahead.  Yeah.

A   Yes. 8 MR. LUELLEN:

 

Can we take a break?

Q   So when you- and

 

iflmay, when you have set 9 MR.DAVENPORT: Yeah. Sure.


forth at the top of this a number of items of– the

 

10 (A recess was taken from 9:30 a.m. until

I!

 

first page of Exhibit A– down to 6/22/01, really I! 9:33a.m.)

everything before 6/22/01 would be embodied in your 12

 

1AR. DAVENPORT:  .A.re we back on the record?

letter of December 31, 2001? 13 MR. LUELLEN:  We are.

A

 

Correct. 14 Q    (By Mr. Davenport)  Okay.  We took a break,

Q

 

Okay.  So really when — we don’t really need 15    and you’ve had an opportunity to consult with counsel.

to worry about, then, if you will, what the status was 16   Is there anything you wish to add to your testimony after

between you and Mr. Dillabaugh until after December 31, 17    consulting with counsel?

’01.  We know what it was from this letter, correct? 18 A    Could you repeat what the question was to

A    Well, that’s my understanding of it, yes. 19   start ‘Nith?

Q   Okay. Very good. And I will suggest to you 20 Q   Well, I can work back through it. But the

21 that’sMr. –you’ll be able to talk to Mr. Dillabaugh 21 point is this:  rm trying to get to a number, based upon
22 about that as well, but that’s his understanding as well. 22 your numbers, as to what the loans were.  We’re going to
23 So we now move forv.rard, then, starting at 23 get in a little bit, fully,Mr. Ellerton, to the issue of
24 3118/02. And you have, then, listed a variety of 24 offsets.  All rm trying to do now is see if we can get
25 things- variety of numbers coming up vtith amounts that 25 to a number that is the number of money that was loaned

 

25

 

I have run, that I have put together, and they don’t

necessarily jive exactly with your 367,751.70. And

 

rn


tell you:  What we have done is run the numbers at the

bottom of page– from 3118/02 down, that’s $190,441.

And then on the next page, it is 135,750. You then get

to 326,191.  And it would be my understanding, if those

numbers are correct, you would add back this 65,000 to

those two numbers.  Would you agree with that?

9 A

 

No.

Q   Why?

A    This Exhibit A is a reflection of monies that

have been advanced to me. And this document, Exhibit 2,

reflects other items that have either been offset against

some of those or otherwise.  So there’s two different

animals, in my opinion.

Q

 

All right.  So are you telling me that some of

the 65,000 has been offset against some of the loans on

Exhibit A?

A    Yeah.  Without going into a great amount of

detail, yes. I mean –

Q    Can you identify any for me?

A   Let’s see. Let me look at

 

it.

Q    Okay.  Sure.  Take your time.

MR. LUELLEN:

 

Gary, I don’t want to interrupt

your flow. But when you get to a point- if we had a


27

 

by

 

Mr. Dillabaugh to you.

And what I had done with you previously was

show you Exhibit Number 2, and we got to a number of

65,000. We then, I think, agreed that that would chop

everything off above this entry of 6/22/0 1, and we would

start with then numbers after that.  And what I indicated

to you is when I ran the numbers, the number at the

bottom from 3/18/02 was $190,441. And then when we get

to the next page, if you run doVO this column of numbers

starting at 500 doVO to 200, the number you get is

140,750 less a credit of 5000 for 135,750. When you add

!35,75Dand!90,44l,youget326,!9!.   Jaddedbackin

the 65,661 and got to a number then of391,852.

And rm simply trying to see if you agree with

that analysis as to the amount of money that was lent.

A    Well, basically, again, my original comment

about using the tenn “loan” or “lent,” this is money

advanced. This document here, Exhibit A, was put

together recently based on information I had to put this

together.  And this one, obviously, was put together in

December 31,2001, which was about seven years ago. And

that was, obviously, put together based on infonnation I

had then. And basically those are the two documents.

And I stand by both of them since this one was sent by me

and this one was put together with myself with


10 (Pages 28 to 31)

28

I

 

consultation with counsel.  So how you view it and

analyze it, really, I’ll stand by both documents.

Q   All right.  So your position   –whether we’re

going to call it a loan or advance, whatever– let’s

call it funds that were transferred to you by

Mr.

 

Dillabaugh.  Your position is that it was 7 $367,751.70?

A   Correct.

Q

 

All right.  Now, do you have any recollectior

of an Oatley loan?


11

 

A    Don Oatley?

Q

 

Oatley?

A

 

Oakley.  I think it’s Oatley, yes.

Q   And

 

Mr. Dillabaugh taking over that note?


IS

 

A I believe so, yes.

Q   All right. Would you think he would be

entitled to anything in addition to the 367- for that

event?

A    I can’t remember

 

if that was a deal with the

company or with me.

Q    Okay.  So as you sit here today — and, again,

exclusive of credits that we’re going to talk about, et

cetera — this is the amount that you believe was

advanced to you by

 

Mr. Dillabaugh, the 367,751.70.

A   Correct.

30

I document like this, no.

Q

 

Did you think you were getting it interest

free?

A

 

No.


5

 

Q   Did you have any notion, in your own mind, as

to what interest rate should apply?

A

 

No.

Q

 

Do you have any idea today what interest rate


should apply?

A

 

No.


ll

 

Q Do you think some interest rate should apply?

A

 

Depending on the offsets.

Q

 

But, I mean, interms of just the money, the


money that was advanced by

 

him before you apply the

offsets, is

 

it your position that interest should or

should not apply to that money before applying any

offsets?

A

 

No.

Q

 

You don’t have any opinion?

A

 

No.

Q

 

Okay.

A

 

Well, my opinion is that there shouldn’t be

interest.

Q

 

Why not?

A

 

Well, what happens if the offsets are in

29

I

 

Q All right. Now, what about interest? Does

this document include any interest whatsoever?

A  It

 

doesn’t appear so.

Q

 

All right. What was your agreement with


Mr.

 

Dillabaugh in terms of what interest rate would apply

to monies advanced by him to you?

A

 

There wasn’t any.

Q

 

Let’s look at Exhibit Number 2 again.

A

 

Right.

Q

 

It seemed to me in looking at that that you

were saying that interest was earned at 12.5 percent.

And you applied that, in fact, to get to a number of 13  65,661.88, did you not?

A

 

Correct.

Q

 

Okay.  So are you telling me that there was no

agreement, at least in December 31 of’01, on interest?

A

 

Well, there’s obviously an agreement, December

31, with interest on that particular  occasion.

Q

 

At 12.5 percent?

A

 

Correct.

Q

 

All right. Now, what about after December 31,

’01; did you have any understanding or agreement with

Mr. Dillabaugh on what interest rate would apply to funds

that were advanced by him to you?

A

 

No.  Unless it was rendered in the form of a

31

I

 

excess of the money owed? Then the interest doesn’t

apply.

Q

 

Well, are you telling me that if you had

interest applied on the amount that was advanced and then

the offsets discounted all of that, applied to

 

all of

that, that wouldn’t be appropriate?

A

 

I don’t understand what you’re saying.

Q

 

All right.  So you’re telling me that today,

it’s your position that no interest should apply on any

advance made by you

 

MM   made by Mr. Dillabaugh to you


II

 

since December 31 of’01?

A

 

No.

Q

 

You’re not saying that?

A

 

No.

Q

 

Then are you saying some interest should

apply?

A

 

Ifthere’s an agreement to how much money I

owe

 

Mr. Dillabaugh, then it seems reasonable that

interest would apply to that money on some occasion, and

that is what was never agreed to.

Q

 

Do you ever recall having any discussions

whatsoever, at any time, with

 

Mr. Dillabaugh as to what

interest rate should apply on monies that were advanced

by him to you over the period from 2001 to today?

A

 

I believe Mr. Dillabaugh discussed 12.5

 

II (Pages 32 to 35)

32

I

 

percent, and I believe the records will show that I

disagreed

 

with that.

Q

 

Okay. Can you tell me what records you’re

talking about?

A

 

Various correspondence between us, as well as

oral communications.

Q   All right.  Lefs talk about, first of all,


oral communications.  I want to know everything you

recall of any conversations you had with

 

Mr. Dillabaugh

after December 31, 2001, about what interest rate would

11   or would not apply to any monies he advanced to you.

12

 

A   I don’t recall all the conversations.

Q

 

rm asking you for any; rm not asking you —

rm asking you for — understand, what I want is what you

do remember.  Obviously, I don’t want what you don’t

remember.  So if there’s anything you remember about any

conversation you had during this entire time period with

Mr.

 

Dillabaugh about what interest rate would or would

not apply, rd like to know about it, please.

A

 

I had conversations with Mr. Dillabaugh-

obviously, I believe the records will show there are

subsequent documents that have interest on them, and so

that would have been agreed to. I also know more

recently

 

Mr. Dillabaugh has indicated that- that he

desired a 12.5 to reflect something to do with his credit

34

I

 

about.

A

 

Well, there’s a document subsequent to this


that is for 123Mand-some-odd-thousand with an interest

rate of

 

10 percent, so there was obviously more than just

a verbal communication; that was written.

Q   And we’ll get to that.

A

 

You asked the question — you asked anything

after this. Okay?

Q

 

And remember what — and maybe that time I

didn’t ask it as specific as I should have.

11

 

A   Okay.

Q

 

But rm separating now very clearly documents

which we’re going to look at–

A

 

Okay.

Q

 

-or conversations that you recall having

with

 

Mr. Dillabaugh.  We’re now strictly in the

conversational area. What conversations, if any, do you

remember with

 

Mr. Dillabaugh after this date,

December 31, 2001, to date, about interest?

A

 

Basically the best of my recollection would be

the most recent ones where

 

Mr. Dillabaugh requested, in

his conversations and communications with me, 12.5

percent. And I said no, because that was not reflective

of the current interest regime, and we hadn’t decided on

offsets.

33

I

 

cards. And my recollection is that my argument against

that was the interest rate’s been coming down since

December 31, 200 I. And so it’s not – it’s not in my

mind — what’s the term — it should certainly not be

going up if the interest rate–

 

ifthe prime interest

rate is coming down.

Q

 

Well, we know that you applied 12.5 percent up

to December 31, ’01, correct?

A

 

Correct.

Q

 

How did you get to 12.5 percent at that point

in time?

A    It

 

was something we agreed to, and it’s

probably related to what, you know, some degree, what

prime was at that point in time.

Q

 

All right. Now, I want to- I want to really

get specific with you. And

 

if you don’t recall, you

don’t recall,

 

Mr. Ellerton.  That’s fair enough.

A

 

Okay. All right.

Q

 

But I simply want to know your recollection of

any conversations you had with

 

Mr. Dillabaugh after you

agreed on 12.5 percent interest

 

in December 31 of’01 as

reflected on Exhibit 2; anything whatsoever you recall

where you talked about: it was going to go up, it was

going to go down, there wasn’t going to be any interest

at all. Anything you recall, fd like you to tell me

35

I

 

Q Any other conversations that you recall at

all?

A

 

I can’t remember.

Q

 

Okay.  Fair enough.  Now, when you

used twelve– or agreed upon, as you put it- 12.5

percent in December of’01, in your mind, when further


7

 

funds were advanced by Mr. Dillabaugh as you went along,

did that interest rate of 12.5 percent apply to them?

A

 

I believe subsequent documents will show, no.

Q

 

All right  I’m asking just for your


II

 

understanding. Do you recall having an understanding?

12

 

In other words, when additional funds are advanced

13

 

in ’02, in’03, in- in ’02, ’03, ’05, ’06, do you

recall having the thought process of, Well, 12.5 percent

is going to apply to this, or it’s not going to apply to

it, or it’s going to be something different?

A

 

Obviously, it won’t apply to this since

there’s been subsequent loans with a 10 percent, as an

example.

Q

 

Well, let me ask you that.  Was it your

understanding  that loans- and let’s look back at

Exhibit Number (sic) A again, the first page of it.

Starting with loans or advances that were made after

3/18/02 up until ’06, was it your understanding that on

those advances, that a 10 percent interest rate would

 

12 (Pages 36 to 39)

36

I

 

apply?

A    No.

Q

 

Was it your understanding that any interest

rate would apply?

A

 

My understanding was that it was never really

discussed because of– it was never — the only time

 

it

was ever discussed was when something was rendered to

 

in

v.rriting as to what we both agreed at that point

 

in time.

Q

 

So what your testimony is that there — as far


as you’re concerned, there was no interest to be applied?


II

 

If there was interest to be applied, it needed

to be discussed and put in writing.

Q

 

And what you’re saying is, that never

occurred?

A

 

No. Other than what I’ve indicated-

Q

 

That’s the promissory note of

120 something dollars?

A

 

And anything else that reflected numbers.

Q

 

Let me talk to you about how these loans

happened- advances, whatever we want to call them.

A

 

Yeah.  I’m content with you using the term

“loan,” if, indeed, you understand that my response will

be, you know, “advances” as opposed to the word “loan”.

Q

 

Whichever.  We can call it transfer of funds.

A

 

Okay.  There you go.

38

I

 

A That would be one- that would be one way.

And

 

then the other way would be he would ask me,

occasionally,

 

if I needed anything.

Q

 

And what would you respond?  If you did or


didn’t-

A

 

If I did or didn’t. And if I did, Gary would

or would not advance money.

Q

 

All right.  What would be the more typical


situation:  You coming to

 

him or him coming to you and —

A

 

Inthe early days, it would be me going to


II

 

Gary.

12

 

All right.  And why were you doing that?  Why

13

 

were you coming to him for these sums of money?  I mean,

these were fairly substantial amounts of money.  We’ve

got one in 9/27/02 for $40,000.  I mean, why were you

coming to him for money at that point?

A

 

Well, the company had – I was not paid any

salary for a 5 year period. They wrote it off, the

salary, for 3 years, and I took stock for 2 years.  So

for a 5 year period, I took no salary from the company.

And if- sometimes it might have been that the company

needed the money, and it was done through my borrowing

money from Gary, and then money going into the company

that way.  I mean, I can’t recollect every one of these

at this point in time sitting here.  I’d have to go back

37

I

 

All right.  Transfer of funds. Let’s start

with the first page of Exhibit A

 

Now, we’ve got- and

you prepared this, did you not?

A

 

I believe I did, yes.

Q

 

And we’ve got a variety of transfers that were


6

 

made.  It starts with 4,000 in 4/22/02; 4,500 in 4/15/02;

5,000, etcetera, etcetera.

A   Right.

Q

 

Tell me how this would happen.  In other

words, when a loan or – pardon me – a transfer of funds

was made, would it be at your request?

A

 

Not always, no.  Gary would sometimes say, Do

you need money, or, Can you use any money?

Q

 

Okay.

A

 

And sometimes it was cash.  Gary carries a lot

of hundred-dollar bills.  And he would go into the room

and come out with sometimes several thousand dollars of

cash, or it would be a check or maybe electronic

transfer.  I can’t remember all the mechanisms.

Q

 

And rm not really talking about the


mechanisms. rm trying to figure out now how these

occur.  And was it a situation where, you know, you would

typically come to him. and say, Hey, I need some money

for this, that, or the other, and he would say okay or

not okay and transfer the funds?  Would that be typical?

39

and check through it.

Q

 

But clearly, every time this occurred, it was

a situation where you needed money and Gary was willing

to transfer it to you?

A

 

Not every one, but certainly it looked like

the majority of these would be.  $300, obviously, is one

where maybe- I don’t know, maybe – in the past, I

remember being on a business trip and Gary would, you

know, have $300. I don’t know what it was. But, you

know, $50, I mean, that’s not the sort of request! would

make.  It must come about from another different —

another circumstance.

Q

 

Well, you obviously put this together from

some documentations that –

A   Yeah, I had– either I or, I believe– and


we had some indication that money was advanced, yeah.

Q

 

All right.  Did you consider these funds that

were advanced to you by Mr. Dillabaugh as gifts?

A   No.

Q

 

What did you consider them to be?

A

 

An advance of funds that had the possibility

of being offset against opportunities that

 

Mr. Dillabaugh

realized through association with myself and also with

Sefton.

Q

 

Let’s go to Exhibit -this exhibit again —

 

13 (Pages 40 to 43)

1

40

Exhibit Number  1. Would you tum to page number 3. Do

1

4

Sefton, leaving a number at 12/31 outstanding, and that

 

 

2 you have that in front of you? 2 we agreed to discuss the payment terms at some point in
3 A    Yes. 3 time thereafter, and that there wasn1t any options that I
4 QAnd these are your answers to interrogatories, 4 may have assigned toMr. Dillabaugh reflective of what
5 correct? 5 they were.
6 ACorrect. 6 QOkay.  And, in fact, ifyou could look back at
7Okay. And you reference seven promissory 7     Exhibit Number 2, the $57,500, etcetera, is referenced
8 notes or other written agreements that pertain or may 8 inExhibit Number 2, which came some months later after
9 pertain to payments madeby Dillabaugh to Ellerton. And 9 Exhibit Number 3, didn’t it?
10 then you have a series of numbers, whichrn tell you 10 A This one appears to be later.
11 are Bates-stamped numbers on documents you produced. 11 Q Right.
12 Okay? 12 A Yeab.
13 A Okay. 13But this would be sort of restating what was
14 Q And I want you to look at those now so I can 14said in your letter of the third -I mean, the Exhibit
15make sure- 15   Number3.
16 MR. DAVENPORT:Ifwe could go off for just a 16 AExhibit Number 3 is– obviously follows this
17 second, it’s going to take me a minute to get these 17 one and discusses the situation in April versus the
18 organized. 18 situation in December.
19 (A recess was taken from 9:50 a.m. until 19 QBut they both make reference to the 57,500, do
20    9:53a.m.) 20they not?

2

 

(Exhibit Numbers 3 through 8 were marked for

 

21 A   Yes, there’s a– the 57,500 is referenced in

identification.)

 

22     it.

Q

 

(By Mr. Davenport)  Okay.  You’ve got a series 23 Q   Okay. Let’s look at Exhibit Number 4 now.

of exhibits in front of you that range from 3 through 8

 

24    What is Exhibit Number 4?

now, which I will tell you correspond with the answers in

 

25 A    It’s a promissory note in the amount of

41 43


the interrogatory we’re just — the interrogatory answer

 

1       123,500 dated December 31,2002, and it is signed by

we’re looking at.

 

2    myself.

And what you say is, “Ellerton has identified

 

3 Do you recall the circumstances under which

7 promissory notes or other ‘Nritten agreements that

 

4    you signed this promissory note?

pertain, or may pertain, to any payments made by

 

5 A    Yes.

Dillabaugh to Ellerton.  Those agreements are

 

6 Tell me, if you would, please.

reflected” — et cetera.  “The first three documents

 

7 A    Well, lvfr. Dillabaugh, was undergoing a divorce

identified are promissory notes and are described further

 

8    settlement and needed a — kind of a status of our

as follows.”

 

9 situation. And Mr. Dillabaugh presented this to me as

I want to walk you through these, and ask you

 

10   what he would require.  And I felt that was reflective

what you recall of these documents and what your

 

11   of- I was happy with that number and those terms, and,

understanding is of what they are. Look at Exhibit 3 for

 

12   therefore, executed it.

me,

 

Vill you, please? 13 Q   Now, what was your understanding of what this

A   Uh-huh. 14

 

$123,500 represented at the time?

Q

 

What is Exhibit 3? 15 A    That represented, basically, the number which

A

 

It’s a letter from me to Mr. Dillabaugh, 16    Gary felt was reflective of what I owed him at the time.

signed by myself and signed by

 

Mr. Dillabaugh, that 17 So at this point in time, you signed a

appears to be a follow-up to a 12/31/00 letter.

 

18   promissory note saying you would pay him $123,500,

Q

 

Do you recall anything about this? 19    correct?

A

 

Well, yes.  I see that I signed it and 20 A    Correct.

Mr.

 

Dillabaugh signed it.  So, yes, that must have been 21 Q   All rigbt.  Did you say anything about offsets

reflective of a situation at that time.

 

22    in here?

Q

 

And what was the purpose of this document? 23 A    That reflected, I believe, offsets at the

A    That– basically, that

 

Mr. Dillabaugh was 24    time.

converting 57,500 of any outstanding debt in shares of

 

25 Q   Oh, so you’re saying this was the net number?

14 (Pages 44 to 47)

44

I

 

Correct.

Q

 

You took the number- so at that time in


December of2002, after taking the offsets, this was the

number you came up

 

with?

A

 

Correct.

Q

 

What were the offsets?

A

 

I can’t remember, sir.

Q

 

Do you remember how the number was arrived at?

A    No.  !just remember that Gary felt that he


was — this was a number he was happy with. And I


11

 

remember, at the time, looking at my numbers and being

12

 

happy v.r:ith that number as well.

13

 

So, in essence, what you’re telling us then is

in 2002, there were some offsets applied to advances that

had been made by

 

Mr. Dillabaugh to you?

A

 

Correct.

Q

 

And you arrived at this number?

A

 

Correct.

Q

 

Okay. Where did those offsets come from?

What were they?

A

 

They were probably a combination of things:

dealings

 

with Sefton, opportunities for stock,

opportunities for options.  You know, I can’t remember

individually, but they were likely to come from

 

all of

those.

46

MR. LUELLEN:

 

I’m going to object to that at

this point.

MR. DAVENPORT:  Okay. Well, we’re being told

here today, now, that things that Sefton did vis-a-vis

Mr. Dillabaugh benefited this man

 

by reducing the amount

of money he owed him, and that’s income.  And I’m going

to be making a request for tax returns, I can tell you

that, from a credibility standpoint.

MR. LUELLEN: And, Mr. Davenport, you’re more

than happy to make – feel free to make the request. We

will either produce or not produce

 

in accordance with the

applicable rules and

 

ww   but Jim not going to make a

representation as to how we’ll deal with a request at a

future point in time.

MR. DAVENPORT:   Fair enough.  We’ll be making

the request.

Q

 

(By Mr. Davenport) Where do you file your tax

returns?

A

 

How do you mean?

Q

 

Well, what – do you file them in the United

States? Do you file

 

-w

A

 

Oh, yeah, yeah, yeah.

Q    Okay. Where else?

A

 

Jim a resident of the US, so I file inthe US.

Q   Okay. Do you file anyplace else?

45

Q

 

They would –I mean, it would have all been

from Sefton: options and Sefton–


3

 

A Sefton and/or stock or options that I had.  I

can’t remember the specific ones, but it would be either

myself and/or Sefton.

Q

 

Some came from Sefton?


7

 

A   I believe they might have now.  I can’t

remember.

Q

 

So was — I just want to be clear about this.


10 A   Uh-huh.

II

 

Q    So the situation is that benefits that

12

 

Mr. Dillabaugh got from Sefton were used to offset

13

 

advances of money that he made to you?

A

 

Correct.

Q

 

All right.  Did you ever report that as


income?

A

 

I can’t remember, sir.

Q

 

Well, stop and think about it.  Do you think


it should have been reported as income?

A

 

I don’t know. My –I have accountants do my

books and they might have done that.  I don’t know.

Q

 

Okay.

A   They said–

Q   Would you be willing to provide your tax


retwns to us to show

 

if you did it or not?

47

A   No.

Q

 

Have you filed tax returns for the years 2002

and a:ftenvard?

A

 

Yes.

Q

 

All right. Now, is that consistently what

your position is, is that Sefton provided opportunities

or benefits, including salary, to

 

Mr. Dillabaugh that

operate as offsets to money that had been advanced to you

by Mr. Dillabaugh?

A   No.


11

 

That’s not your position?

12

 

A    No.

13

 

Where did these benefits come from?

A

 

Benefits can come from myself and/or Sefton

and then negotiated with

 

Mr. Dillabaugh as the situation

arises.

Q

 

Well, is it your position, or is it not, that

some of these offsets that you believe you’re entitled to

were the result of benefits that

 

Mr. Dillabaugh got from

Sefton?

A

 

Correct, yes.

Q

 

Okay.  So again, do you recognize that that

would be income to you?

 

In other words, if the


24

 

corporation –let’s say it’s an offset for salary.  And

25

 

I know you’ve said that you get an offset for salary. Do

 

IS (Pages 48 to 51)

48

I

 

you recognize that if, in fact, there was an offset for

his salary, the corporation, in essence, had paid some of

your obligation to

 

Mr. Dillabaugh?  Do you recognize

that’s income to you?

MR. LUELLEN:

 

rm going to object both as


being irrelevant, as calling for a legal conclusion, that

he’s not a tax attorney.

lvlR.

 

DAVENPORT:  I understand he’s not a tax

attorney. Ijustwantto know as a taxpayer, does he

recognize that that’s income to him?


II

 

:MR. LUELLEN: Again, that assumes facts not in

evidence.  That assumes that your evaluation is correct.

If

 

you want to ask him whether it may constitute income,

that’s fine.

MR. DAVENPORT: And

 

I-you know, Jack, I


appreciate your objection. But rd just assume that-

just assume that you just object as to form and let me

ask my questions of

 

Mr. Ellerton.

MR. LUELLEN:   Sure.

Q

 

(By Mr. Davenport) Now, do you recognize that

that may or may not be income to you?

A

 

Ifmy tax -M my accountant deems that to be

income, then

 

-M then, yes.

Q

 

Well, if somebody else pays your debts, do you

view that as being income to you?

50

Q

 

Did you ever pay it?

A   No.

Q

 

Why not?

A

 

Well, at that point, Mr. Dillabaugh, I


believe — subsequent to December 31, ’02, there was

additional money advanced, and Mr. Dillabaugh never

really pressed for it because he was receiving

opportunities and benefits from Sefton and/or myself.

Q

 

Okay.  Well, let’s get real specific about


this.

 

It calls for a date. It says, “Shall be paid to


ll

 

holder,” which is Mr. Dillabaugh, “on December 31, 2003,”

a year later.

A   Correct.

Q

 

And you’re telling me you didn’t pay it?

A   No.

Q

 

Did you talk to Mr. Dillabaugh about whether

you were going to pay it?

A    No.

Q

 

You just didn’t pay it?

A    Well, Mr. Dillabaugh didn’t request it.

Q

 

And you’re saying he had to request it before

it was to be paid?

A    If Mr. Dillabaugh requested it, I would have

probably found a way to pay it, yes.

Q

 

And you’re just saying he simply didn’t

49

MR. LUELLEN:  Object as irrelevant.

THE VITNESS:

 

Ifmy accountant M- if my

accountant deems that’s it, then, yes.

Q

 

(By Mr. Davenport)  You don’t have any

personal opinion on whether that would constitute income

to you or not; is that right?

A

 

If,you know – it’s like anything. Itwould

depend on the circumstances on what’s

 

M- what – if

there’s any offsets against it or situations like that.

That’s why Ijust refer to

 

M- I would refer it to my


II

 

accountant.

Q

 

I think we’ve M- now, is it your testimony

that Mr. Dillabaugh put together Exhibit Number 4?

A    Yes.

Q

 

Had it prepared?

A   Had it prepared, yes.

Q

 

And presented it to you?

A   Yes.

Q

 

And that it was net of all offsets and credits

that you were entitled to at the time?

A   Yes.

Q

 

So when we got to December 31, 2002, what

you’re saying is that:  That’s the number at that point

that

 

Iowed Mr. Dillabaugh net of credits?

A    Correct.

51

I

 

request it-

A   No.

Q

 

-and you didn’t pay it?

Now, has that amount continued to run at

interest- 10 percent to date?

A    I have no idea, sir.

Q

 

All right. Well, this note’s never been paid,

has it?

A   No.

Q

 

All right. And it says it runs at 10 percent

interest, doesn’t it?

A    Correct.

Q

 

All right.  So would it be your position that

you still owe this to

 

Mr. Dillabaugh at 10 percent

interest from December two thousand

 

M- or December 31, 16  2003?

A   No.

Q

 

Why not?

A    Well, maybe those offsets that he was

receiving or offsets that I was entitled to from benefits

he was receiving from myself or whatever might have –

Q

 

Well, let’s talk about –

A

 

M- offset it.

Q   Well, this is a real clear document.

A   Yes.

 

(Pages 52 to 55)

 

 

52

I

 

This is very crystal clear: You owe it; you

didn’t pay it —

A    Right.

Q

 

-ran at 10 percent. Now you’re saying, But


I was entitled to some offsets to this 123,000 plus

interest?

A   No, sir, I didn’t say that. I said there


might have been offsets or benefits that

 

Mr. Dillabaugh

was receiving– there might have been benefits that

Mr.

 

Dillabaugh was receiving from myself or Sefton that

he was content with so that he wouldn’t call the note.

Q   Well, you know there’s been a demand made for

payment of what you owe him, right?

A   Yes.

Q   All right.  So a demand has been made, and you

still haven’t paid?

A   No.

Q   All right.  Why?

A    Well, because this is just part and parcel of

a more larger situation that -I believe that what

Mr.

 

Dillabaugh has demanded is not payment of this.

Mr.

 

Dillabaugh has demanded a number thafs excessive in

what I believe rm – he’s owed by me.

Q Well, you – would you agree that you at least

owe this amount, the 123,000 with interest?

54

I

 

which usually is a copy I keep. So I believe it is

likely to be one, yes.

Q

 

All right.  Did you ever pay Ms. Dillabaugh on


this note?

lv.IR. LUELLEN:   Object as irrelevant.

:MR.

 

DAVENPORT:  Well, he’s referenced it in


his answers to interrogatories.

 

rm trying to get a

sense ofwhy.

Q   (By

 

Mr. Davenport)  Did you ever pay her on


this?

A

 

I have no idea, sir.

Q   Well, it says it had a due date of

May 31,2002.  You have no recollection of whether you

paid her or not?

MR. LUELLEN:  Same objection.

THE WITNESS:  I probably did or she was paid,

but I have no idea. I can’t recollect at this point.

Q    (By

 

Mr. Davenport)  And it calls for 10

percent interest, doesn’t it?

A   Correct.

Q    Do you have any documentation that would show

if you paid it or not?

A   rm sure I might have, yeah.

Q   Would you mind providing that to us?

A

 

IfI can find it, yes.

53

I

 

A Unless there’s an offset in excess of it, no.

Q    Okay.  And that’s what rd like to know.  What

are the offsets you think you’re entitled to as a result

of this note?

A   It’s really not been negotiated with

Mr.

 

Dillabaugh and myself  At this point, ifs in the

hands of the courts.

Q   So you say the offsets need to be negotiated

to arrive at a number that you owe him?

A   Correct.

Q    Okay. All right.  Let’s go to Exhibit Number

5. This is another one -just to keep you sort of

referenced here, if you will, rm using your answers to

interrogatories with these documents.

A    Okay.

Q    Okay.  So we’re now up to Number 5.  What was

number 5?

A

 

It appears to be a copy of a promissory note

for $5,000 dated February 2003 between Lisa Dillabaugh

and myself.

Q   Who prepared this?

A    rm assuming

 

Mr. Dillabaugh prepared it.

Q   And it was  – it’s something that you

individually promised to pay to Lisa Dillabaugh, right?

A   My- the copy I have here is just an initial,

55

I

 

Q  Okay.

MR. LUELLEN:  rm going to object as

irrelevant again.

MR. DAVENPORT:  Okay.  Your objection is

noted.

Q    (By

 

Mr. Davenport)  Do you have any idea how

this came about that you signed a promissory note to Lisa

Dillabaugh for $5,000?

A    I can estimate that it was money that was put

into Sefton, and I assumed the obligation.

Q   Who was Lisa Dillabaugh?

A   Gary’s daughter.

Q    Let’s look at Exhibit 6. What is Exhibit

Number6?

A   Well, it looks like it’s a

 

draft of an

agreement – or a letter from myselfto

 

Mr. Dillabaugh

dated December the 31st, 2000, regarding stock options

and loan agreements:  Sefton Resources, Inc.; TEG

Resources; and J. Ellerton.

Q   Do you have any recollection of preparing this

document?

A   Well, it looks like I did signed it and

prepared it, yes.

Q   Now, if you look at the second page, paragraph

3, it says under A, “Repayment of cash advances (and

 

(Pages 56 to 59)

 

 

56

I

 

aforementioned $5,000 premium) in form ofloan (see

12/31/00 statement of principal and interest) bearing 12

percent per annum.”

So were you saying at that point on money he

advanced to you, it would run at 12 percent interest?

A

 

Correct.

Q

 

Now, this was dated before Exhibit Number 2.

This is dated 2000.  Exhibit Number 2, you then go to an

interest rate of 12.5?

A

 

Correct.


II

 

Q  All right. So it was 12 and then it went to

12

 

12.5?

A

 

Correct.

Q

 

Let’s go to Exhibit Number 7.  Do you see

that?

A

 

Yes.

Q

 

What is Exhibit Number 7?

A

 

It’s copy of a letter that I prepared, between

myself and Mr. Dillabaugh, regarding an addendum to a

12/31/00 agreement and a 4/2/01 addendum to that

agreement.

Q

 

Now, in paragraph C, this references that you

say, “It is my understanding that you -..vish to purchase

these shares for the above-indicated  price by applying

said money from outstanding amount owed by myself.”  Do

58

I

 

dealt with in Exhibit Number 2 when you came to the

bottom line analysis that you were at on December 31

oCOl?

A

 

Ifthis is one that was executed and enforced,

yes.

Q

 

All right.  Let’s go to now your supplemental

answers to discovery, and that is Exhibit Number– I

don’t think we’ve marked that one yet.

MR. LUELLEN: I don’t believe so.

(Exhibit Number 9 was marked for


II

 

identification.)

Q    (By

 

Mr. Davenport)  Okay. I would like you to


take a look at Exhibit Number 9. And !will represent to

you that these are the supplemental answers to discovery

that were provided to me after I made requests of you and

Mr.

 

Luellen, your counsel, that there be further answers

put together.

A

 

There’s two copies of it here.

Q

 

Let’s ignore that second copy; jus take it

off.  These are your supplemental answers to

interrogatories that were,

 

in fact, signed by -well,

they’re signed by your counsel, but I assume that they’re

your answers as well.

A

 

Correct.

Q

 

Let’s go to the second page.  And you state in

57

I

 

you see that?

A   Yep.

Q

 

And that’s what you did, then, I assume?

A

 

I assume, yes.

Q    All right.  And that would be –that would


all have been set forth, then, in Exhibit Number 2 when

you come to a culmination of what the situation is. As

of December 31, ’01, this letter would have been taken

into account, correct?

A

 

I would assume so, yes.


II

 

Q All right. Let’s go to Exhibit Number 8, and

that is right there.  What is Exhibit Number 8?

A

 

It appears to be an unsigned promissory note

between myself and

 

Mr. Dillabaugh.

Q

 

Do you recall the circumstance under which

this was done?

A   No.

Q

 

Whose handwriting is it in?

A

 

Ifs my handwriting.

Q

 

Okay.  It’s a promissory note dated November


21   30,1999?

22 A

 

An unsigned promissory note dated November

23   30th, 1999.

Q   Would it be your understanding,

 

Mr. Ellerton,


that this promissory note, as well, would be embodied or

59

I

 

your response to number 3, “With respect to offsets and

other consideration due to Ellerton, please see Exhibit B

attached to the initial responses. Despite a good-faith

effort, it is impossible for Ellerton to quantifY the

value of each specific item of benefit conferred upon or

received by Dillabaugh for which Ellerton is entitled to

credit, offset or other consideration.  Nevertheless,

Ellerton has been able to estimate that the value of the

benefits for which credit, offset or other consideration

is due iS to Ellerton to be not less than $2,028,668,

II

 

which is calculated as follows.”

You start with compensation from Sefton

Resources, $285,000.  Do you see that?

A

 

Correct.

Q

 

Is that the entire amount of compensation that

was paid by Sefton to Gary Dillabaugh for the entire time

he worked there?

A

 

That would be the cash that he received, is my

understanding, yeah.

Q

 

Now, when you say “cash”– maybe we’re not on

the same — that was his salary; that was his

compensation from Sefton, right?

A

 

It might have been bonus prior to him being–

rd have to look at the– that number was provided by

Sefton.

 

18 (Pages 60 to 63)

60

Q    All right.  But it would be everything he was

paid

 

by Sefton during the time he worked there, correct?

A   Outside of expenses and other things, I assume


4

 

so, yes.

Q

 

All right.  So what you’re saying is that all

of the salary, every bit of the salary that Gary

Dillabaugh made while he was at Sefton, his compensation,

you were entitled personally to an offset against amounts

that you otherwise would owe Mr. Dillabaugh, correct?

A   No.

Q   Well, that’s what it looks like to me.

A   I think

 

if you read it, 11With respect to

offsets and other consideration due to Ellerton, please

see Exhibit B attached”- “Despite a good-faith effort,

it is impossible for Ellerton to quantify the value of

each specific item of benefit conferred upon or received


17   by

 

Dillabaugh for which Ellerton is entitled to credit,

offset or other consideration.”

It’s part of the negotiation of what the

possible offsets against money advanced are.

Q    Well, I guess I don’t understand it then.

Because in the next paragraph, you say, “Nevertheless,

Ellerton has been able to estimate the value of the

benefits for which credit, offset or other consideration

is due to Ellerton to be not less than $2,028,668, which

62

I

 

A  Okay.

Q

 

And the issue is: I want to know what you’re

claiming and in what amount.

A

 

Basically – and I think rve already answered

that by saying that’s something that would need to be

negotiated or –


7 Q

 

Well, assume you can’t–

8 A   —

 

or what the courts deem.

Q

 

Well, assume you can’t negotiate it and assume

we go to court and assume we have a trial.  What is your

position going to be as to what offsets you’re entitled

to from

 

Mr. Dillabaugh against funds he advanced you?

It’s a really simple question.

MR. LUELLEN:

 

Asked and answered.

THE WITNESS:

 

Basically I think I’ve just


answered that.  Basically rUieave that to the

courts–

Q

 

(By Mr. Davenport)  So you–

A  -to determine what amount I should be

entitled to.

Q

 

Well, let’s get more basic.  Let’s talk about

agreements that you had with

 

11r. Dillabaugh about

offsets.  Tell me every agreement you ever recall

reaching vvith

 

Mr. Dillabaugh about offsets that you were

entitled to, given money that he lent to you.

61

amount was calculated as follows:  $285,000.”   I assume

that what you’re saying is, I’m entitled to a credit of

$285,000 as a result of compensation Mr. Dillabaugh

received from Sefton.  Am I missing something?

A

 

No.

Q

 

So you get -what you’re telling us is your

deal with Mr. Dillabaugh was: For every bit of

compensation he received from Sefton, you got an absolute

total credit against amounts you othePNise would owe him?


10 A

 

No.

Q   You’re not?

A   I realize what you’re saying. But

nevertheless, offset is due to Ellerton — this number

was basically my estimate of the benefit- the value of

the benefits

 

Mr. Dillabaugh had received from Sefton

through myself. And I guess maybe my response maybe

needed to be modified where it says this was the number

that we would negotiate from which -what the offset

against monies advanced would be.

Q

 

Well, are you claiming any compensation that

Mr. Dillabaugh got from Sefton as an offset?

A   I’m basically saying these are the numbers

that need to be negotiated from.

Q      Okay.   We’regoingtohavetogettothe

bottom of this.

63

A   Actually –let’s see. That $123,000 is one

example of an — that would be net of offsets, other —

Q

 

And let me be real clear with you.  What rm

talking about is something you can identify as a verbal

agreement, and then we’ll get to written agreements.

A    Okay.  Let’s start with written agreements.

Q

 

Let’s — I want to go to verbal.

A

 

Verbal?

Q

 

Yeah.  I want to know every time you ever

recall  sitting  down with

 

1v1r. Dillabaugh  and  saying to

him, Now, recognize when you’re– something to this

effect– when you’re loaning me these monies or

transferring these, rm going to get a benefit back for

your compensation, stock options you get, et cetera; and

he agreed to that  That’s the kind of thing I want to

know about.

A    All right  Well, one verbal agreement would

be prior to me executing that promissory note that Ijust

referred to.

Q

 

Okay. Tellmeaboutthatverbalagreement.

A

 

Itwas a discussion after Mr. Dillabaugh

presented that promissory note to me, his desire for

something so that he could use it in the settlement in

his divorce. So that- we would have chatted about that

before I executed it.

 

19 (Pages 64 to 67)

1

 

Q    Do you recall sitting do’Ml and going through

what credits you were going to get and offsets you were

going to get and how much the money was?

 

A

 

No.  It was that Mr. Dillabaugh presented that

5    to me.  And then I, at some point, must have gone and

6

 

checked my records and been happy with a number

7

 

representing an offset of some sort or a discount, yes.

8 Q

 

All right. But you don’t have any specifics

9

 

about–

10

 

A   No.

11 Q    —

 

what you agreed to —

12

 

A   No.

64 66

 

 

I

 

you for things he got from Sefton, et cetera; you never

had that agreement, did you?

A

 

It was a verbal understanding, yes, that that


would occur.

Q

 

When did that verbal understanding occur?

A

 

Over time.  Over all of those times.

Q

 

I want you to tell me about any time you

recall

 

Mr. Dillabaugh agreeing with you and saying, I

agree that for money rve transferred to you over time,

10   you’re going to get a credit against paying me back based

11

 

upon the salary I get from Sefton or stock options rve

12

 

gotten, et cetera.


13

 

Q   –how you agreed to it, etcetera?

A

 

That was an ongoing understanding.


In

 

my

 

 

A

 

No.

Q

 

All right.  Any other situation you can tell

me about where you had an agreement- in your mind, you


17

 

had an agreement with Mr. Dillabaugh that you were going

to get offsets or credits against the amounts that he had

transferred to you?

 

A

 

Not very specific, other than at some point,

we would sit do’Ml and discuss what they were.  And it

was — Mr. Dillabaugh  seemed quite happy just to leave

things as they are until a point in time when we would

sit do’Ml and do that.

Q   Well–

mind, that was ongoing, and that’s

 

why there were never

any demands made on the notes or any – or monies

advanced to him.

Q

 

You said it was an ongoing understanding in


your mind?

A

 

Yes.

Q

 

Did ever have– did Mr. Dillabaugh ever tell

you at any time in history that, I agree that for money

I’m advancing to you or transferring to you or lending

you, that you’re going to get a credit for my salary I’m

getting from Sefton, stock options I’m getting from

Sefton, stock I’m buying from Sefton? Did he ever say

1 A

 

And that would be recent correspondence

2

 

in ’08.

3 Q

 

Recent correspondence in ’08 is what you’re

4

 

talking about now?

A

 

Right.

Q

 

I’m talking prior to ’08 when you all were

trying to settle this and talking about settling, et

cetera.  I’m talking about, like, from

 

2001 to 2007.  Can

you identify for me and tell me about any agreement that

you sat down with and had with Mr. Dillabaugh about the

fact that you were going to get credits against amounts

that he was transferring to you?

A

 

No, I can’t specifically remember specific

ones.

Q

 

But are you saying there were such agreements?


65

67

anything like that to you

 

in any way, shape, or form?

A   Yes.

Q

 

When?

A

 

The 123,000 note.

Q   We’re talking about verbal conversations.

A

 

There was a verbal one prior to that or at

that time that was delivered to me. I’ve already

answered that.

Q

 

What did he say?

10 A   He basically said, This is a number that I

would be happy with, if you’re happy with it, to offset

the benefits that I’m receiving.

Q

 

All right.

A   And I agreed to it.

Q  Now, for all ofthe time period after the


16 A

 

It was just an understanding that we had that

17   Mr. Dillabaugh was happy with the way things were between

myself; Sefton, and himself in terms of what he was

getting, opportunities he was receiving.  And so we never

really sat down and negotiated, although there was always

an understanding that we would at some point in time.

Q    Okay.  The fact is, is it not, Mr. Ellerton,

that you never had any agreement with Mr. Dillabaugh in

which you tv.to specifically agreed that he was going to

25

 

have credits taken against the amounts that he’d loaned

promissory note, were there ever any agreements in any

statements by

 

Mr. Dillabaugh where he agreed to the

offsets?


19 A

 

Yes. He basically indicated that he was happy

with the way things were going and there was no need to

negotiate what those offsets were until the point in time

that we needed to sit down and determine what they were.

 

Q

 

When did those conversations take place?

A

 

Over time, off and on, certainly at least once

25

 

a year.

20

(Pages 68 to 71)

68

I

 

Where would they take place?

A    Wherever we were together, whether it be in

London, whether it be here, or wherever.

Q

 

Can you recall a specific conversation?

A

 

No.

Q

 

Can you recall anybody else that overheard

these conversations?

A

 

No.

Q

 

Is there anybody else we could talk to that


could say — we could talk to and ask, Can you verify

that this occurred or did not occur?

A    I wouldn’t know.  I– not from my mind, no.

Q

 

Did you ever have any conversations about,

specifically, how these, you know, offsets would be

arrived at?

A    We would negotiate them.

Q

 

Did you ever have any conversations about

whether or not the fact that his salary that was being

paid by Sefton would be used as an offset?

A   Again, it would be negotiated.

Q

 

And, again, did you or did you not ever have a

conversation about whether you would use his salary as an

offset?

A

 

No.

Q    Okay.  Did you ever have any conversations

70

They were all discussed as one, basically, you know,

overall aspect of benefits that Mr. Dillabaugh would

receive.


4

 

Q    Okay.  !want-

S

A   We don’t talk about specifics. We would talk

about benefits, plural, and those benefits would be

anything that you’ve referred to so far.

Q    Soiflunderstandyourtestimony.  What

you’re saying is that occasionally, maybe once a year,

you had a conversation with

 

Mr. Dillabaugh where you said

something to this effect: There’s money that you have

lent me that I owe you, but we’re going to talk at some

point about offsets to that. Is that how it went?

A   No.  It would probably say, you know– my

recollection would be where we would somehow talk about

it, and Mr. Dillabaugh would indicate he was quite happy

with just letting things go the way they are at the

moment, and we would get to it at some future point in

time when we were both — we would both sit doVn and

negotiate it.

Q

 

Okay.  Andlunderstandthatthat’swhatyou

recall.

A   Right.

Q    What I’m trying to get to is:  Did

Mr. Dillabaugh ever say to you in conjunction with that,

6971
I

 

about whether you’d use stock that he had purchased as an I You’re going to get offsets against the amounts rve

offset? 2

 

loaned you from my salary, my stock rve gotten, my stock

A

 

Yes. 3    options; did he ever say that?

Q

 

When? 4 A   That was my understanding.

A

 

Over that time that rve indicated. 5 Q   Did he ever say it?

Q

 

So what you’re saying is that stock that he 6 A   Yes.


purchased, that he actually paid money for, you were 7

 

What did he say?

going to get an offset against monies he’d advanced you? 8

 

A    He basically said the benefits that he was

A

 

As part of an overall offset, yes. 9    receiving would be used in the negotiations of what the

Q

 

How were you going to determine that? 10   final number was that I would owe him.

A

 

Through negotiations. II Okay. And you recall him specifically saying

Q

 

Were there any ideas that were thrown out 12  that?


about how these negotiations would go, what you would

 

13 A   Yes.

use, what percentages you would use, anything?

 

14 Q   Do you ever recall him saying, My salary will

A   No.

 

15   be used for that?

Q

 

How about stock options?  Were there ever any 16 A   No.  It was all benefits in plural, not just

conversations where you talked about that, as a result of

 

17   salary.

him getting stock options just like the rest of the

 

18 Q   Fair enough.  Was it ever specific enough to

employees of the corporation, that there would be an

 

19   say, We’ll do it based upon the stock I bought?

offset against amounts he’d advanced to you?

 

20 A   As I mentioned, it would be all-encompassing.

A

 

Ifyou- the rest of the employees didn’t 21 Q   Did he ever mention in regard to stock

always get stock options.

 

22   options?

Q

 

Well, take that out of the question. 23 A   In the sense it was all-encompassing, yes.

A   Okay. Well, with that, then, yes.

 

It was 24 Q   So the — he did mention stock options?

like my aforementioned response to the stock options.

 

25 A   The benefits that he was receiving.

 

(Pages 72 to 75)

 

 

72

I

 

Q All right. In your mind, when he was saying

that, what benefits did you think he was talking about?

A

 

Salary, stocks, opportunity- stock


opportunities, other opportunities that were not

necessarily Sefton but from myself and/or Sefton, stock

options.

 

Ican recall one other one or two other ones in

examples where Sefton sold -was going to take one of

its subsidiaries public, and Mr. Dillabaugh was offered

an opportunity there.  So that would be stock in another

company.  There was an opportunity I provided to acquire

some shares in a non-Sefton entity through some

associates of mine.

 

Itwas all– benefits were all

these opportunities:  salaries, stocks, stock options,

opportunities in other entities.

Q

 

Is it your position today that as a result of

these benefits, that you don’t owe him anything?

A

 

I really haven’t thought about it.

Q

 

Don’t you think you should?

A

 

No, because it’s now reduced to a legal

matter.  And so what’s the point?

Q

 

Well, you know you’re going to have to testify

as to what your position is.  We know that he advanced to

you in the neighborhood of $400,000, correct?

A   Right.

Q

 

Okay.  So now, what’s your position going to

74

I

 

haven even figmed out what they are?

MR. LUELLEN:  Object to the form.

Tiffi

 

WITNESS: No. rve been specific about

what potential offsets there are and that rve indicated

have yet to be negotiated.

Q   (By

 

Mr. Davenport)  Well, let’s go back to

what you- tell you

 

what let’s take– it’s about

10:30. Let’s take a break.

Tiffi

 

WITNESS: Okay.

MR. LUELLEN:  Thank you very much.

(A recess was taken from 10:30 a.m. until 12    10:41 a.m.)

13

 

Q    (By Mr. Davenport)  I want to go back again to

the supplemental answers to interrogatories, see if we

can get a little — I can make sure I understand what

you’ve done here.

You say that — right before you start

 

listing

the amounts — “offset or other consideration is due to

Ellerton to be not less

 

than 2,028,668,” we talked a

little bit about this $285,000. And !just need to know

your position.

Mr. Ellerton, are you saying that you should


get a $285,000 credit against the amount loaned?

A    No.

Q

 

What are you saying?

73

be at trial in tenns of, Okay, yes, he advanced me around

S400,000, and I get credits against that of some amount?

You’re going to have to testify to that, aren’t you?

A   Uh-huh.

MR. LUELLEN:

 

I object to the hypothetical


question.

MR. DAVENPORT: Okay.

THE WITNESS:

 

Ifll be- I think I’ve


indicated that my estimate of benefits he’s received, the

value at this point

 

in time, is approximately $2 million.


II

 

So, you lmow, as I say, we haven’t negotiated– I really

haven’t thought about

 

it, to be quite honest with you.

Q

 

(By Mr. Davenport)  Do you have a position

today as to whether or not, thinking about the benefits,

et cetera, that there’s any net amount that’s owed to

Mr. Dillabaugh?

A

 

No.

Q

 

You don’t even lmow?

A

 

No.

Q

 

Do you care?

A

 

Yes.

Q

 

Do you think this is fair to Mr. Dillabaugh

that he advanced you over $400,000 and now you’re saying

there’s some -what I’m understanding

 

MM  some fairly

vague credits out there you’re entitled to and you

75

I

 

What rm basically saying — and I apologize

for that language — but basically what rm saying is

from these benefits, I should get some sort of offset.

And the benefits that

 

Mr. Dillabaugh has received at this

point just from Sefton is in the amount of, my estimate,

$2 million– approximately $2 million.  And at least

some of that should be offset against what I- money

that he’s advanced.

Q

 

Okay. And how much?

A

 

As I say, I don’t know.  We were attempting to

negotiate that and

 

Mr. Dillabaugh filed suit. And since

then, I have really not spent time or effort.  rve been

extremely busy. And that’s something that, basically, I

kind ofleft at some point to talk to counsel about when

the appropriate time arises.

Q

 

Was there ever any agreement with


Mr.

 

Dillabaugh as to – from these various benefits, how

much the credit would be?

A

 

No.

Q

 

Now, you- so let’s go to the next number,

“Settlement Agreement with Sefton:  $15,000.”  What is

that about?  Why are you claiming that as a credit?

A

 

rve just said rm not claiming any of this as

credit.  rm basically saying from all of these benefits

received from- by Mr. Dillabaugh from Sefton, that I

 

 

 

(Pages 76 to 79)

76

I should receive some offset against the monies that

Mr.

 

Dillabaugh has advanced me. And that applies to any

and all of them.

Q

 

And why is that?  Why do you take that


position?

A

 

Well, that was the position that Gary and I


basically agreed to, and that these benefits were

basically granted Gary for assistance to myself.

Q

 

So you say you and Gary agreed that there

would be a deduction from the amount he advanced to you

II   from the benefits he got from Sefton?

A

 

Correct.

Q

 

Okay. Do you ever recall Mr. Dillabaugh

saying that to you?

A

 

Yes.

Q

 

What did he say?

A

 

My recollection was that we would come to an

understanding as to offsets against money he’d advanced

at some point in time.

Q

 

When did he say that?

A

 

Over the – as rve said before, over the

course of- over the course of time.

Q

 

But you never had any discussions whatsoever

about how much?

A

 

No.

78

I Well, you know, the better the deal I get, the more the

offset.

Q

 

When was that conversation?

A

 

I can’t remember.

Q

 

Let’s talk about how you came up with these


numbers.  First of

 

all, the $15,000 settlement agreement

with

 

Sefton, what’s that?

A

 

Well, that’s a signed agreement betv.reen Gary


and Sefton

 

in which he’s paid a severance of$15,000.

Q

 

And are you saying that you should get some


credit against the amount he lent you from that amount?

A

 

Again, I go back to my response saying these

are the kind of basket of benefits received by

Mr.

 

Dillabaugh that need to be put into consideration and

negotiated.

Q

 

I appreciate that.  But understand, my

obligation is to try to figure this out for my client.

And I — ifthere’s some in here that you think should be

in the basket or some that should not be in the basket,

that’s what rm trying to get to. Is this 15,000 that he

got in the severance to be put in the basket?

A

 

Yes.

Q

 

Why?

A

 

It’s just a benefit he received for-

basically because of the association

 

with me.

77

I

 

You never had any discussions about when?

A

 

No.

Q

 

Was Mr. Dillabaugh specific as to what

benefits would apply to achieve this credit?

A

 

No.

Q

 

Were you?

A

 

No.

Q    Mr. Dillabaugh ever agree, in your mind, that

his salary and bonus could be used as an offset?

A

 

Yes.


11

 

He did — did he say that specifically to you?

A

 

You said, in my mind. And I said, yes.

Q

 

And did you ever hear Mr. Dillabaugh say, I

agree–

A

 

No.

Q    Did you ever hear Mr. Dillabaugh say, Shares I

received

 

in Sefton can be used as an offset?

A

 

No.

Q

 

Did you ever hear him say, Options I received


in

 

Sefton can be used as an offset?

A

 

Yes.

Q

 

Vhen?

A

 

I remember options because we discussed who

would get what when, and Mr. Dillabaugh had input in

that.  And I remember a conversation that was recent,

79

Q

 

Did it say anything about that in the

settlement agreement?

A

 

No.

Q

 

How about the shares of Sefton?  How did you

arrive at the amount of 1,349,261?

A

 

There’s a third-party report put out by

Hardman

 

& Company that basically said the value of this

company is betveen  11P and 33P. And I basically took the

mid-value of those two, their ranges.


lO

 

Q   What’s the stock trading at today?

II

 

A   I don’t know, sir.

Q

 

It’s not between 11 and 33, is it?

A

 

No.

Q

 

It’s much less than 11, isn’t it?

A

 

Yes.

Q

 

So, I mean, why would this — why would you


l7

 

use this number if the stock is trading at much less than

II?

A

 

I basically took a valuation of what the

company’s worth, say –let’s say, for the break-up,  as

an example.  You can probably get that mid-range value

 

if

someone acquired the assets and the money was distributed

or we acquired the company. That might be a very

conservative estimate of what it might be sold for.

Q

 

What’s the stock trading at today?

 

(Pages 80 to 83)

 


80

 

82


I A

 

I have no idea. I $5,000 credit; would that be enough?

Q

 

Three — about three. 2 A     I don’t think so, no.

A

 

I would imagine, so, yeah. 3 Q   What if he said I 0?

Q

 

Okay. Let’s look at options in Sefton 4 A     I doubt it.


Resources, 379,407. How did you arrive at that number?

 

5 Q    What if he said 200?

A

 

I -the same principle. I took that 6 A   I mean, I don’t know, sir. I really don’t

mid-value of liP or so and deducted the option price, and 7   know.

 

At this point, you’re asking me something that I

that’s how the number came about. 8    haven’t had a chance to think about.  So, you know,

 

it

Q

 

The options are all out of the money right 9     behooves me to give you a response to it at this point


now, aren’t they?

 

10   without thinking about it and discussing it with

 

A

 

Yeah. 11  associates.

Q

 

Okay.  So they’re really worthless right now, 12 Q   At some point, are you going to come up Vith


aren’t they?

 

13   what that number is that you think you’re entitled to for

A

 

No.  Therets a way of calculating what options 14      a credit against  the 400,000?


are worth in the very least because our profit and loss,

 

15 A     lfrm required to, yeah.

basically, statement is hit.

 

16 Q    But you’re telling us you simply have not done

Q

 

But as we sit here today, they’re not worth 17    that to date?

19can you? 19 Q Are you asking for any money back from Gary
20 AWell, yeah, you can. You can execute them if 20     Dillabaugh?
21 you want.  I’ve executed them at 6P. I mean, there 21 A I haven’t thought about it, sir.
22 are — long term, these things have ten years of life to 22 Q But today, are you?
23 them.Ifyou want to, if you believe in the value of 23 A rm sorry?
24 them, you can exercise them. 24 Q Today, is it your position that Mr. Dillabaugh

 

anything. You can’t execute them and achieve anything,

 

18 A    No.


25

 

Q   In any event, they’re out of the money right 25     owes you any money?

 

81

 

83


I

 

now? I A   I don’t lmow.

A

They’re out of the money, yeah.  But you said

 

2 You don’t know?

“worth.” I said they’re out of the money, I agree.

 

3 I haven’t thought– as I say, I haven’t

Q

 

So there’s not any specific one of these items 4    thought about what this offset would be.

that you’re relying upon for these basket of benefits to

 

5 Q   Can you tell me how you’d go about it,

figure out the amount of deduction or credit you’re

 

6   figuring that out?

entitled to, correct?

 

7 A    Yeah, I think I just did.  I consulted my

A

Correct.

 

8   legal counsel as to what his position was on the advances

Q

 

You’re looking at this in sum total and saying 9     and the legalities of those; and then, basically, sit

these are all the things, these are all the benefits, and

 

10   down with some friends and associates who, you lmow —

I think I’m entitled to some credit against the money 11    and talk to them as to what they think and what my

that was lent to me by Gary Dillabaugh. 12

 

thoughts were, and, you lmow, get some third-party input

A

Correct.

 

13  into it.

Q

 

And, again, do you have any idea how much that 14 Q   Did you ever have any understanding or any

is?

 

15    agreement with Mr. Dillabaugh at any time as to how you’d

A

 

I dont 16  go about calculating the benefits?

Q

 

How would you figure it? 17 A    No.

A

 

I would sit down with my counsel and say, At 18 Q   Never even discussed it?

this point, since we’re in a legal entanglement, what are

 

19 A    No.

the legal – side ofthis thing.  And then I would 20

 

Q So you don’t have any idea– maybe

probably– well, we would– you know, rd probably get 21

 

Mr. Dillabaugh was thinking about, Well, I’ll give him

together with, you know, some– probably the friends and

 

22   that $10,000 credit. He may have been thinking

associates or whatever and kind of discuss it with

 

23   about that and you were thinking about something else,

someone and kind of come up with that

 

24    correct?

Q

 

What if Gary Dillabaugh said, rn agree to a 25 A   Correct.

 

(Pages 84 to 87)

84

(Exhibit Number 10 was marked for


identification.)

Q

 

(By Mr. Davenport)  Take a look at Exhibit 10


for me, please.  Do you recognize that?

A   Yes.

Q

 

What is it?

A

 

These are some notes and my Vf:iting as to —


8

 

from where I went through my records to see what monies

had been advanced, and

 

if Mr. Dillabaugh had sat dovm and

decided what money and interest might be – he might be

entitled to so I could see what his total number was

before determining what a potential offset might be.

Q    When did you put this together?

A   Oh, God. I — obviously it was sometime this

year when Gary and I- well, actually, no. This was

probably as -yeah, it was probably when we were sitting

down and talking about what the fmal number might be.

Q   Do you emember, I mean, just a general time

of year that you did this?

A   It was this year. When was that?  I mean, I

can’t remember.

22 Q   2007?

A    No.  It would be 2008, I believe.

Q   All right.

A   When our e-mails were going back and forth,

86

THE WITNESS:   Sir, 1think it’s Exhibit 3.

Q

 

(By Mr. Davenport)  Then how about the

sixty–

 

right dov.tn the right-hand column, if you will:

65,661.88.  I

 

assume you got that from Exhibit Number 2,

the letter.

A

 

Could very well be, yeah.

Q

 

All right.  Then in ’02, what– does that

say– there’s a number of 169,791.17.  Do you know where

that number comes from?

A

 

Extra loans, increased — I mean, I presume


that’s from monies advanced by Gary.

Q    All right.  And you called them “loans”,

didn’t you?

A    Yes.

Q   Because that’s what they were, weren’t they?

A    No, they were advances.  But, you know-

Q   Loan, advance?

A   Right, yeah. To the best of my knowledge,

yeah.

Q    The bottom line is:  If it’s a loan or

advance, unless there’s a credit that applies to it, you

owe it back, don’t you?

A   Unless there’s a credit applied, yeah.

Q    So we then got -we go down the line a little

bit and say– you say principal now is 227,325. And

85

whatever that time period was.

Q   And you gave a copy of this to

 

Mr. Dillabaugh?

A   No, I don’t think so.

Q   All right.  Well, let’s look at — did you do

this in his presence – put this document together in his

presence or by yourself?

A   By myself.

Q   And what did you use to put the document

together?  What was your backup information?


10

 

A   Well, like, the notes you’ve used in exhibits

before and then other items that I probably have a record

of.

Q   All right. Lefs go- !just want to- I

don’t want to, obviously, go through–

A   It’s a summary.

Q    I understand.  And I don’t want to go through

every number on it, but I want to make sure I understand

what you did.

A    Yes.

Q   All right.  You started offwith principal and

interest of 129,233.98. Where did you get that, do you

know?

A    Probably from some document.

,?C

Q    You don’t know where, though?

:MR.

 

LUELLEN:  Yeah, it’s Number 3 or 4 there.

87

then you’ve got out at the right-hand side “8,127.90” in

parens, 12.5 percent interest.  So you applied in 2002

for 2002 an interest factor of 12.5, correct?

A   No.

Q    Well, what’s the 12.5?

A   As I said in my first statement regarding

this, rm sitting here trying to assume what

Mr.

 

Dillabaugh believes he’s owed, and he’s asking for

12.5. So rm looking at all of the numbers and applying

12.5 percent to them so I can get an understanding of

what– if he just made a straight loan, what he would be

looking at. And that would then be used, in my

calculations, as to what I think might be a reasonable

offset against that.

Q   And rm just asking you, did you use 12.5?

A   Well, no, obviously, because there’s blanks

here.

 

In some cases I did; in other cases, I didn’t.

Q   Okay.  Let’s go on down

 

to 12/31/02. You’ve

got principal again of 227,325. And then you go – let’s

go over to the next page.  You’ve got principal and

interest then of9,298.56. Do you know what interest

rate you used for that?

A   I have no idea, sir.

Q   Okay. Then you’ve got additional principal-

what was that– of 58,300?

 

(Pages 88 to 91)

 


88 90


A

 

Correct. I Q  An advance by Gary Dillabaugh to you?

Q

 

And that was additional loans? 2 A   I believe so.

A

 

I assume advances, yeah. 3 Q   And that get’s us to 385,625, right?

Q    Okay.  Okay.  So !bat gets us then to 4 A

 

I believe so.


12/31/03, an amount of325,625, correct? 5 Q   Then you add back in the 17,081 fortbe bank

A

 

Correct. 6    principal and interest and the Oatley note, correct?

Q   Okay. Then you run down, but you don’t add 7 A

 

Yes.


the interest in for ‘0 1,’02, or ’03 down below, is that

 

8 Q    You’d add !bat to the 385-, wouldn you?

correct?

 

9 A   rm sorry, yeah?

A   Well– 10 Q    Wouldn’t you?  You’d add those to the 385-, so

Q

 

You have- II you’re now getting over $400,000, correct?

A

 

Yeah, yeah.  There’s blanks, uh-huh. 12 A  Correct.

Q

 

Okay.  Up above the 12/31/03, there’s some 13 Q  All right. But you haven’t done any of the


entry that

 

Ican’t quite make out. It looks like “D.” 14    interest on that; you’re just doing the principal now?

A    D. Oatley. 15 A    Correct.

Q

 

What was that? 16 Q   And then in ’06 and ’07, no additional

A

 

That’s, I believe, a reference has been made 17    principal.  I take it that means you didn’t get any

before about a Don Oatley loan. I believe it’s Sefton or

 

18    further advances from Mr. Dillabaugh?

betvveen Gary -I think between Gary   it’s related to

 

19 A   Correct.

Sefton, myself, and Gary. And I can’t remember the exact

 

20 Q   All right.  Then 12/31107, the principal is

association.

 

21    then 385- plus these other tvvo items, which would get you

Q

 

Was it the one that Gary took over? 22   up to well over– it’d be around $405,000, per my rough

A

 

Yes. 23    math.

Q    And paid? 24 A

 

Correct.

A

 

I believe he paid it, yeah. 25 Q   And then you’d have interest for  – that


89

9!

I

 

Q    All right.  And was that at your request? I wasn’t computed at all in that amount?

A    What? 2 A

 

Correct.

Q    That he take over tbe Oatley loan and pay it. 3 Q

 

Right. So you were doing this in an

A

 

I don — I can’t remember, sir. 4 attempt – I mean, you were doing this from your ovro


5

 

Q     Well, why would he have done it, then, in your 5   records; this wasn’t from input from Gary Dillabaugh, was

mind?  Why would he take over a loan? 6

 

it?

A     Well, he was happy and that was a benefit.   He 7 A

 

I cant remember if Gary had given me some

took over another one as well to No:rv.rest Bank.

 

8    stuff, what he was using.  I can’t remember.

Q    And you didn1 ask

 

him to do !bat? 9 Q   Okay.

A

 

I can’t remember. 10 A   !mean, but …


II

 

Q   Let’s go on dovro. below 2004.  You’ve got II But you were sitting down doing this, not in

principal and interest, and you’ve got principal of

 

12  his presence, but by yourself?

325,625.  And then you’ve got a bank principal and 13 A

 

Correct.

interest of 17,081.48.  What’s !bat? 14 Q

 

And you were doing this in ’08 sometime to try

A

 

I think that’s that No:rv.rest situation I 15   to figure out the amount that was due – or the amount

referred to.

 

!6  that had been loaned by Mr. Dillabaugh exclusive of

Q    Okay.  And !ben D. Oatley interest, !bat’s 17

 

interest?


18   $3,000? 18 A   No.

A

 

Correct. 19 Q  What were you trying to do?

Q

 

That’s from the Oatley note. 20 A  As I said before, I was trying to determine,

A

 

Correct. 21    if!was Gary —

Q

 

Then we go to ’05.  There’s an additional 22 Q    Yeah.

$60,000.  What is !bat? 23 A

 

–what number do I think I was owed? And

A    Additional principal.   That would be an 24

 

this is an attempt to come up with that. And he’s, you

advance.

 

25   know, using in- obviously something like 12.5 percent

 

(Pages 92 to 95)

92

interest. And I never completed these because we never

got that far.  And

 

iflcould understand where Gary

thought what he was owed, and then I could take a look at

what I

 

think I may feel is owed to me as an offset and I

have a negotiating position with Mr. Dillabaugh.

Q    I

 

just want to make sure I understand.  These


7

 

three numbers- 385,625, 17,081.48, and 3,000 –there

wasn’t any question

 

inyour mind, at that time, that

those were amounts that were advances that had been made

either in the form of taking over promissory notes,

11    paying interest on bank loans, or giving money directly

12

 

to you, that would be, in essence, in Mr. Dillabaugh’s

13

 

column before any offsets were applied?

14 A

 

These notes here, as I’ve said before, were me

IS   trying to determine what I think Gary — where Gary might

be coming from in determining what he thinks he’s owed.

Q

 

Okay. And exclusive of interest and

offsets-

A

 

Correct.

Q

 

— did you have any disagreement v.rith these

numbers that you thought were the numbers Gary would be

happy v.rith?

A

 

I never got that far, sir.  I never got to

compare them or anything.   I never got to compare them.

Q

 

Have you ever gone back and looked at this

94

Gary returned using this heading to me.

Q

 

Do you recall sending R- read the text of

that,

 

if you would.

A     Yeah,

 

Idid.  Yeah,Irecognize that, yeah.

Q

 

Okay.  What you say is, “After viewing all the

data, my proposal is as follows:  At 12/31108 the number

owing is

 

$350,000.” You then go on and say, “This is the

rough number we agreed to.”  What are you talking about

when you say “we agreed to”?

A

 

I have no idea.

Q

 

Okay.  “But reflecting a final number taking

into account that you received money from the company

(approx., $285,000) travel expenses (plus other

expenses), non-promoted business opportunities, and of

course ‘stock options’ (which were an additional expense

to the company). I have not broken it dovm into

categories such as principal, interest and/or any credit

of either of the aforementioned ‘perks’.  As far as a

proposed payment plan, I suggest the following: $50,000

before end of2008 and $100,000 on or before end of

2009,” etcetera, etcetera.

 

“If payments are not made,

interest will accrue at 8 percent.”

When you were coming up with 350,000, were you

proposing to pay 350,000?

A

 

It appears that way, yes.

93

from the standpoint of, you know, What do I think

actually exclusive of interest and credits?

A   No.

Q

 

No.  So you just don’t know if this is

accurate or not?

6

 

A   No.

7

 

MR. LUELLEN: If!could, Mr. Ellerton, please

make sure that you let him finish his question before you

answer.

TilE

 

WITNESS:  Oh, rm sorry. Yeah.  Okay.

:MR.

 

LUELLEN:  It makes her job a lot easier.

(Exhibit Numbers 11 and 12 were marked for

identification.)

Q

 

(By Mr. Davenport) Let’s go to Exhibit Number

11 now. Can you identify Exhibit Number 11 for me?

A

 

It appears to be an email from Gary


Dillabaugh.

Q

 

Ifyou would, go dovm to the middle of the

page.  The one that says, “From:  Jim Ellerton.”

A   Right.

Q

 

Okay.  That would be an e-mail from you to


Mr.

 

Dillabaugh, right?

A

 

Yeah, although I don’t recognize the heading

on this page as anything I’ve ever seen before other

than– this must have been something I sent and then

95

Q

 

And this was the methodology by which you were

going to pay it?  Do you know how you got to that

proposal that you were willing to pay 350,000?

A

 

Yeah, I think Ijust, you know, basically took

what I was, you know, looking at, I think – prior

exhibits possibly – and just basically made an offer of

that.

Q

 

So in coming up with this offer of350,000,

was that after taking offsets?

A

 

It looks like it, yes.


11

 

Q   And do you have any recollection of what you

12

 

went through, how you computed the offset you felt you

were entitled to at all?

A

 

No.  Ijust– you know, it was just one of

those kind of, you know, How about this?

Q

 

Do you have any documentation that would show

how you came up v.rith this?

A   No.

Q

 

Did you ever discuss with Gary how you came up

with it?

A

 

No.

Q

 

Did you get a response to this?

A

 

I believe I did, yeah.

Q

 

What was the response?

A

 

I believe it was, you know, No, you owe me

 

 

 

(Pages 96 to 99)

96

I

 

something in the vicinity of700-and-some-odd-thousand

dollars.

Q

 

Let’s take a look at Exhibit Number 12 now.

Now, this is dated two days later, February 13th. This

is an e-mail from you

 

to Mr. Dillabaugh, right?

A   Yes.

Q

 

And you were, at this point, negotiating back


and forth to

 

try to solve how much he was going to be

paid, right?

A

 

I believe so, yeah.


II

 

All right. You say, “Gary: The numbers I

started from approx. $400,000 before any interest and

credit for money (via Sefton), opportunities for stock,

(ground floor pricing), stock options (granted), expense

paid trips, ongoing opportunities to work with very good

group (same sort of situations as before)”.

So when you say, The numbers I started from

were 400,000 before any interest and credit for money,

was that just- a $400,000 number was the gross amount

that had been advanced by him?

A   I believe this is

 

M- the term is it’s

approximately 400,000.  I think that’s pretty well–

Exhibit A in our interrogatories is in the vicinity of 24     400,000.

25

 

Now, am I correct that you started with a

98

I

 

part of this– of this trial proceeding or this

litigation, rve taken a stronger look at the benefits

Mr.

 

Dillabaugh had received and in consultation with

counsel as to some of the legalities of his position.  At

this point, rm kind of stepping back and seeing where we

go with

 

it.

Q

 

All right.  Are you aware of anything


whatsoever that is in writing —

 

rm not talking about

conversations; we’ve already been dovm that road- are

you aware of anything that’s in writing, whatsoever, that


II

 

reflects the fact that you and Mr. Dillabaugh agreed that

you were going to get credits, offsets, et cetera, as

you’ve described them, against the amount that he was

lending you?

A

 

I believe that 123,000 note reflected that.

Q

 

All right. Let’s take a look at that.

MR. LUELLEN: Exhibit 4, I believe.

THE WITNESS: Exhibit 4.

MR.DAVENPORT:  Yes.

Q

 

(By Mr. Davenport)  Do you see anything,

whatsoever, in that promissory note that talks about

credits, offsets at all?

A    Other than the number reflects such.

Q

 

And do you have idea how much the credits or

offsets were?

97

I

 

$400,000 figure and you say it’s before interest, credit,

etcetera.  And you– eventually, then, you had offered

350, and this was an explanation to

 

!rim of how you had

gotten to it?

A    A partial one, yes.

Q

 

Okay.  So what you had done was started with

400 and then made deductions of $50,000, and made an

offer of350-?


9

 

A Correct.

Q

 

All right.  And at that time, did you think

that was fair?

A    Obviously.  Otherwise, I wouldn’t have written

it.

Q

 

So what you were asking for at that time was,

Don’t apply any interest to this whatsoever, the money

that’s been lent, and I should get a $50,000 credit for

benefits?  That’s what you were saying–

A    I guess, in essence, that’s what I was saying,

yes.

Q

 

All right.  Are you still willing to do that

today?

A    No.

Q

 

Why not?

A   Well, I mean,basically when you look at

subsequent events, and on further analysis of looking as

IA Other than using Exhibit 10, 12/31/02.Q

 

Go ahead.

A   Well, if you look at just some of those notes,

4 12/31102 principal of227,325.

Q

 

Okay. Is that your answer?

A    Yeah.

Q

 

Yau think there was a credit that was given?

A    Yes.

Q

 

For over $100,000 to get to that number?

A

 

Yes.


II

 

Q And you think that was done by Mr. Dillabaugh

A

 

Well, this was presented by Mr. Dillabaugh, so

yes.

Q

 

Do you have any other thing you could identify

for me that’s — you’ve produced a lot of documents, and

rve looked through them.  I haven’t seen anything.  But

is there anything else you could identify for me that

represents an agreement betv.reen you and

 

Mr. Dillabaug

that you would be entitled to credits or offsets against

the amount he advanced to you?

A   No.

Q

 

Why didn’t you do anything in writing?

A

 

It seemed that we put things in writing when

we both agreed to something.  And as I said before,

Mr.

 

Dillabaugh indicated he was quite happy to let thing

99?hs

 

 

 

(Pages 100 to 103)

 

 

100

just keep going.  He was happy with what he was

receiving, benefits from me and/or Sefton. So he felt

there was no need to – there was always an understanding

at some point we would put it in writing. But if

Mr. Dillabaugh had asked for

 

it, we probably would have

sat down and come to an agreement and put something

 

in

writing.

8 Q   So you’re saying there was an understanding at

9

 

some point you would put in writing what credits or

10

 

benefits you were entitled to?

[]

 

Correct.

Q   And you never did it?

A

 

Correct.

Q   And you have no idea what

 

Mr. Dillabaugh’s

thought processes were about what he thought you’d get as

credits or benefits; and likewise, he had no ability

 

to

know what you were thinking about, did he?

A   No.

Q   So would you sort of describe it as an

agreement to agree?

A   Yeah.

Q

 

Okay.

A

 

Or disagree, as the case may be.

Q   We do know that at one point, you thought the

benefit or credit should be $50,000; that’s clear. At

102

I

 

stock from Sefton Resources, Inc., and from Ellerton

personally.”  Now, he paid for those shares of stock,

didn’t he?

A

 

I believe so.

Q    So why was that a benefit to him?

A

 

Well, it wasn’t offered to a lot of people;

just some close associates.

Q   Well, the stock was publicly traded, wasn’t

it?

A   No.


[]

 

It wasn’t? Not in ’99?

12

 

A    No.

13 Q    So what you’re saying is that by the ability

to buy before it became publicly traded, that was a

benefit that you should get some offset from the amounts

he lent you?

A

 

That’s one way of saying it, yes.

Q   All right.  Do you know much?

A   No.

Q    Okay.  Let’sgotoasof0ctober2000.

“Dillabaugh participated in IPO of Sefton Resources,

Inc., and received 36,114,” etcetera, etcetera. Did he

pay for those?

A

 

Yeah, I believe he did.

Q   All right.  So what you’re saying, again, is

101

I

 

one point, you were willing to accept that?

2

 

A    Correct.

Q   All right. I want to go back to your answers

to interrogatories now on this credit issue again.

 

And

it’s Exhibit B.

A    Exhibit

 

B of Exhibit A?

Q   Yes.

8

 

A    Of Exhibit 1?

Q

 

Yes.  All right.  Let’s look at this exhibit.

Can you tell me: Did you put this together?


[[

 

In conjunction with my counsel, yes.

Q   All right. And this is to represent credits

that you were entitled to is that right?  You can go

back and look at your answer, of course.

 

Ifyou look

at M- to help you out a little bit here- if you look at

Interrogatory Number 5, it’s the bottom of page 4 and top


[7

 

of page 5. And that’s where you reference Exhibit B.

A    Okay.

Q  So these are the benefits that you believe –

I guess to put it in your term -M are

 

in the basket of

things that you think that you’re entitled to a credit

for?

A

 

Correct.

Q

 

Lets go through these. In 1999,you say,


“Dillabaugh was able to purchase preferred shares of

103

even though he paid for these shares, that was a benefit

that you ought to get some credit for?

A

 

Yeah.  The price of those shares was obviously

less than the market or the offering of the IPO.  So they

weren’t offered to anyone; just  people that basically

were associates.

Q   Do you know what the price was?

A    Not offthe top of my head, no.

Q   Was it more than three pence?

A

 

Yeah, the IPO was at five pence, I believe.


[]

 

Q  Okay. So it’s now worth less than- on the

12

 

market than it was when it came out?

13

 

A   Ifs trading for less.

Q

 

All right. Let’s go to May 3I,200I.


“Dillabaugh purchased additional share options.” Again,

he purchased these options, correct; they weren’t given

to him?

A

 

I don’t know what these -M I mean, rd have to

see the reference to May 31 to know what they were.

Q  Well, let’s seeM- actually, I think we have

that. Does that refresh your recollection if he

purchased them?

A

 

Is this-

Q    Its 23.  It’s one of them, yes.

A

 

Then, yes, it appears that he M- that I

 

 

 

(Pages 104 to 107)

104

I

 

provided him an opportunity to buy some options that

other people had before, as I explained.

Q

 

Okay. And he purchased them?

A

 

I believe so.

Q

 

All right.  Thank you.  Let’s go to the next


one, April 2, 2001.  “Dillabaugh converted outstanding

amount due from E!lerton into shares of Sefton,

Resources, Inc.,” et cetera, et cetera.  Was this

something that v.ras given to

 

him?

A

 

rd have to see what it pertained to.  Number 11   73?

MR. LUELLEN: Ask and you shall receive.

THE WITNESS:  Then, yes, he’s paying for them

by

 

offsetting advances against those.

Q

 

(By Mr. Davenport)  Right.  Let’s go March 5,

2003.  “Ellerton allots 3,000 [sic] shares of Sefton

Resources, INc., to Dillabaugh. ”  Did he pay for those?

MR. LUELLEN:  Mr. Davenport, I apologize.

THE WTINESS:  Three million.

MR. LUELLEN:  It was 3 million.

Q

 

(By Mr. Davenport)  I mean 3 million.  rm

sorry.  Three million shares of Sefton to Dillabaugh.

Did he pay for those?

A    I can’t remember, sir.

Q

 

Let’s go to the next one, July 14,2004.

106

I

 

Basically, the board of directors recognized

that Gary- because, as I say, I discussed this

 

with

them — that Gary had helped me and that this was

something they could do to reward

 

Gary, and that’s what

they did.

Q

 

Is the board of directors today — of Sefton


today aware of the position you’re taking that benefits

that Mr. Sefton got from Sefton– benefits that

Mr. Dillabaugh got from Sefton should be offset against

monies he personally lent you?

A

 

Yes.

Q

 

And what’s their position on that?

A   There isn’t, other

 

than aware of it.

Q

 

Have they told you they agree with that or

disagree with it?

A   Not

 

in so many terms, no.

Q

 

Have they taken any position vvith you on it?

A    No.  They understand what it is, and they

understand that that may be okay.

Q

 

Who has told you that they think that may be

okay?

A  Let’s see.

 

It would be – the old directors

would be Karl Arleth.

Q

 

What’s the name again?

A    Karl Arleth.

105

I

 

“Dillabaugh receives 15,000 [sic] shares of Sefton

Resources, Inc.,”  Those are options, aren’t they?

I mean 15 million. rm sorry.

A  I don’t- it doesn’t say options.

 

It says,

“Dillabaugh received 15,000,000 shares of Sefton

Resources, Inc.”

Q

 

You don’t recall that those were options?

A   I don’t think they were options, no.

Q    September 9, “Board of Directors of Sefton

Resources, Inc., approves additional stock options and

consultant compensation to Dillabaugh.”  Do you see that?

A   Yes.

Q

 

You’re saying that was a benefit that he got

that you’re entitled to something for?

A   Correct.

Q

 

Even though the board of directors in total

did this?

A   Correct.

Q

 

Now, the board of directors in total granted

him stock options and consultant compensation.  And

you’re saying, I should get a credit of some sort from

that against what he loaned me?

:rvrn…

 

LUELLEN:   Asked  and answered.

THE WITNESS:  Yes.


Q

 

(By Mr. Davenport)  Why?

107

I

 

How do you spell that?

A   A-R-L-E-T

 

-H. K-A-R-L is his first name.

Q

 

He’s told you that he thinks this position

you’re taking is okay?

A   Well, Karl said that before, yes. Karl is no

longer a director, but he’s a shareholder.

Q

 

Where is he located?

A    Denver, Colorado. Jeremy Delmar-Morgan.

Q

 

Delmar?

A    Morgan.  D-E-L-M-A-R, hyphen, M-0-R-G-A-N,

United Kingdom.  Tony Ashton.

Q

 

Has Mr. Delmar-Morgan told you that he thinks

this is acceptable that you are taking the position that

things, including compensation, that

 

Mr. Dillabaugh got

from Sefton can be offset against personal obligations

you have to him?

A   Yes.

Q

 

Anybody else told you that?

A   Tony Ashton.

Q

 

Where is he located?

A    Canada.

Q

 

He’s told you the same thing?

A    Yes.

Q

 

Okay. Now, these are not current directors,

right?

 

30 (Pages 108 to Ill)

108

I A    Yes, they are.

Q

 

Which two are cmTent?

A   Jeremy Delmar-Morgan and Tony Ashton.

Q

 

Has there been any disclosure to shareholders,

public shareholders, that you’re taking this position?

A   No.

Q

 

Why not?

A

 

Well, it’s not — it’s a situation between


Mr. Dillabaugh and myself individually.


Q

 

Well, you understand, I assume, Mr. Ellerton, II    that if, in fact, things that the corporation

gave/transferred/paid to Mr. Dillabaugh are used to

offset a personal obligation of yours, that that’s income

to you?


!5 MR. LUELLEN: Objection again.

!6

 

THE WITNESS: Again, that- you know, we’ve

responded to that one before.

 

Ifmy accountant feels

that that is indeed the case, then so be it.

Q

 

(By Mr. Davenport)  Have you talked– and


you’re talking about your personal accountant?

A

 

Yes.

Q

 

Have you talked to the accountant for the

company about this?

A

 

The auditors for the company were -know of


the litigation between myself and Mr. Dillabaugh, and I

110

1 A

 

I can’t remember.

2

 

Q   But you’re saying thats a benefit that you

should get something for?

A

 

Correct.

Q

 

And why is that?

A

 

Well, again, this was an opportunity that was


7

 

offered to very, very few people, and Mr. Dillabaugh was

one we extended this offer to.

Q

 

Who extended the offer to Mr. Dillabaugh?

A

 

Sefton.

Q   The board?

A

 

The board, but at my recommendation.


!3

 

Q   When you extended this, at your

recommendation  — when this was extended, were you doing

this because Gary Dillabaugh was a good employee too?

A

 

No.  It was because Gary was, you know–

basically, as I said before, from

 

Gary assisting.  I

mean, these were offered to employees and nonemployees,

but people that we knew, close associates and so forth.

Q

 

What you’re telling me, Mr. Ellerton, is that

you recommended to the board of Sefton that Gary

Dillabaugh be able to exchange these shares because of

something personally he’d done with you?

A

 

No. The shares were- this came about as a

result of us offering shares, a private placement of

109

I

 

just informed them that our litigation relates to a

2

 

dispute between the two of us in which — litigating is

3

 

to what I may or may not owe Mr. Dillabaugh.

Q    Have you told the auditors that your position

is that for salaries, stocks, stock options that

Mr. Dillabaugh got from Sefton, that you are claiming

that you get a benefit or a deduction, if you will,

against amounts that you otherwise might owe

Mr. Dillabaugh?

MR. LUELLEN:  Objection, irrelevant.

11

 

THE WITNESS: No.

12

 

Q   (By Mr. Davenport)  The answer is no?

!3

 

Correct.

14

 

Q    Why not?

!5 A

 

I don’t see the need at this point.  How would

that affect the accounts of the company?

Q    I’m just asking you.  It’s your —

A

 

Yeah.  And my question is — I don’t see it

because

 

it won’t affect the accounts of the company.

Q

 

Let’s go to January 26 through March 31, ’06.

“Dillabaugh was able to exchange shares of TEG Oil

 

& Gas

Canada, Inc., for shares

 

in Sefton Resources, Inc.”  .Are

you aware if he paid for that or not?

A

 

Yes, he did.

Q    How much did he pay?

111

I

 

shares in one of the company’s subsidiaries.  That was

the offer to close associates.  And then later on, Sefton

decided not to take the subsidiary public and offered

shares or cash to those new subsidiary shareholders other

than Sefton for shares in Sefton or cash.

Q

 

Okay. And my question is: You said you made

a recommendation to the board that Gary Dillabaugh be

able to participate in this?

A

 

In the initial offering of the shares to the

subsidiary.


II

 

Right. And I asked you if that was because he

12

 

was a good employee, and I believe your answer was, No,

!3

 

it was because he’d provided me with some personal

advances.

A

 

Correct.

Q

 

Is that right?

A

 

Correct.

Q

 

All right.  So, again — well, let me ask you

this way: Do you see any conflict of interest in making

that recommendation

 

to the board?

A

 

No, because we offered the same thing to

others that had helped me and/or the company as well.

Q

 

All right.  So everybody got it offered to

them?

A

 

Not everybody; but certain select people, yes.

 

31 (Pages 1!2 to 115)

 

Q

 

Anybody who had helped the company or helped

you?

A    Correct.

 

In other words, there was some


outside of that.  But, yeah.

Q

 

All right.  Let’s go to as of March 31, 2006.


112

114

 

at prevailing market rates.

 

11

Now, what is that about in terms of getting a

credit back?

A  I don’t know. I mean, I have to- I’m just

assuming that – I’d have to see what documentation I was


11

 

Dillabaugh had been granted 15,000,000 stock options in

Sefton Resources, Inc., of which 5,000,000 had vested and

had received a total of 44,962,345 shares of Sefton

Resources, Inc., which include the shares received

 

in

exchange of TEO Oil

 

& Gas Canada, Inc.,11   Mr. Dillabaugh

paid for all of these, didn’t he?

A    Well,

 

if you got options, you don’t pay for

them; they’re granted to you.  Then the company has –

that’s billed against the profit and loss, so it’s a cost

of

 

the company.  But Mr. Dillabaugh hadn’t paid at that

time.

Q   And

 

any shares he got, he paid for; they were


not given to him?

A   No, unless they were exchanged for expenses

accrued or whatever.  I don’t

 

think any were given, no.

Q

 

November I, 2007, “Dillabaugh enters into a

consulting agreement ‘.Vith Sefton Resources, Inc.”  Did

that actually ever happen?

A    I can’t remember.

Q

 

Why did you put it down?

looking at at the time I provided this. But basically

Mr.

 

Dillabaugh provided dental service to the employees.

I believe it was at a discount, and then Sefton covered

those expenses on behalf of the employees.

Q Looking – are there any other benefits that

you think fall into the basket that you’re entitled to

some credit in this situation, any others you can think

of?

A    Yeah.  Therewereopportunitiessuchas

purchasing stock in General Mining, which is a company

myself and some associates had that we offered to

Mr.

 

Dillabaugh.  And Mr. Dillabaugh received medical

benefits, insurance benefits, travel opportunities,

things of that nature as well.

Q   What were the travel opportunities?

A   Well, I basically  – we had an annual meeting

in London every year, and Gary would come to that

meeting.  It was not necessarily to come, but we would go

and- actually, we went several times to London and

other opportunities: Canada; Ventura, California.

 

It

A  I can’t remember. I’m assuming I had

something that related to that.

3

 

Q   Then in December– June 27, ’08, “Dillabaugh


113

115

 

was not necessary that

 

Gary attend, but we offered those

opportunities for him to come at the company’s expense.

Q   And when you would do that, you’d say, Gary,

 


enters into a settlement agreement ‘.Vith Sefton Resources,

Inc.”  That’s the one we previously  –

A   November the 1st. Dillabaugh was offered a

consulting agreement ‘.Vith Sefton Resources, Inc.

Q   And that’s a benefit that you’re saying, even

though it wasn’t signed, you should get some recompense

for–

A   Again, it’s the basket thing, yeah.

Q    Okay.  The next one is June 27th, ’08,

“Dillabaugh enters into a settlement agreement

 

‘With

Sefton Resources, Inc.”  That’s the one we talked about

where he got the $15,000?

why don’t you come along on this?  Was the reason for

that that you thought, Well,rll give him that benefit

and later get a credit against what I owe him?

A   I mean, not that specifically but as part of

the overall thought process, yes.

Q    Can you identify for me any benefits that Gary

Dillabaugh got in this whole basket of benefits that

other employees of Sefton did not get?

A    Some employees got none of those things, no

stock options, the  –

Q   And who were those employees who got no stock

options?


16

17

18   it?

A   Correct.

Q   That made no mention of offsets or anything in

A    Off the top of my head — rd have to go back

and check.

Q   Can you identify anything specifically for me?

 

A

Q


No.

No, it did not?

A    Oh, the field personnel in California, as an

example.

 

A   No, it did not.

Q

 

Right. Okay.  “Various times including during

2008, Dillabaugh provides dental services to employees of

Sefton Resources, Inc., which services were paid for by

Sefton.

 

It is uncertain if such services were rendered

Q    No, rm not talking about field.  rm talking

about people that were –

A    They were employed, yeah.

Q   The seven or eight people you’ve talked about?

A    Right, yeah. A couple of those would be field

 


32 (Pages 116to 119)

l!6

I

 

employees in California.

Q

 

All right.  So the field employees did not get

the same kind of benefits Gary Dillabaugh got?

A

Right,

 

or they would not get as many shares as


Gal)’.

Q

 

Right  Did anybody else not get the same kind


of benefits Gary got?

A

 

You know, in some cases, Gary and I were the

only ones that went to London as opposed to

 

Harry or

Bruce or Tony or even other directors.

Q

 

Let’s drop off travel expenses and the trips


for a minute.  The other benefits that you’ve gone

through, were there any other employees, exclusive of

field personnel, that did not get the same benefits that

Gary Dillabaugh got?

A

The opportunities in TEG Canada to purchase

shares of that nature, not all of them would get that,

no.

Q

 

Anything else you can identify?

A

Pretty well all ofthat, as I was saying

aside from that or did not get as many shares as

 

Gary

got.

Q

 

Can you be any more specific about things that

Gary got that you can say, Hey, he got that because I was

going to get a credit back for it and other people didn’t

118

I

 

Q  Anything else he got?

A

I think we’ve outlined those in the basket of

things and the opportunities listed here.

Q    And now that we’ve gone through all ofthis,

does this help you at

 

all in tenns of saying, Hey, I

think the credit or offset I ought to get is X, Y, or Z

dollars; help you at

 

all in ability to further analyze

this?

A

No.

Q   What would you have to do to analyze what you


think

 

you’re entitled to as a credit? Vhat process would

you go through?


l3 A   I believe rve

 

answered that.  I would consult

Mth my attorney as to the legalities of some of these

issues, and I would consult Mth some close friends and

associates as to what I -what they think their counsel

l7

 

would be as to what- you know, how I might arrive at

some number.

Q   Nothing else you can tell me today?

A

Or that what the courts might deem

appropriate.

Q   And you have no idea what position you may

take before the Court, at this time, as to what credit or

benefit dollar amount you’re entitled to?

A

I have- rve answered that. At this point,

117

I

 

get it?

A

 

No. I think your- no. As I said, the

general thought process was opportunities that Gary got

for the possibility of offsetting this    or provided

because of helping me out.  The position with the

company, Gary got that.  Others would not have gotten

that, that are employed with the company.

Q   What position?

A

This corporate secretary and the opportunities

to travel and have coverage of medical, not everybody


ll

 

would have gotten that. They were hired for a specific

12   job, but they certainly- we would not have hired Gary

l3

 

as a corporate secretary and/or as a consultant if it

wasn’t for helping me.

Q

 

What did he get from a benefit standpoint as a

corporate secretary?

A

Privileged information regarding the

opportunities the company had and the value of the

company and the situations of the company was — how it

was – basically inside information; and from that, the

shares that he could buy, the ground floor opportunity,

options that he could get.

Q

 

So he got inside information as a corporate

secretary?

A

Correct.

119

l no.

Q    Now, let’s talk– let’s think about the

compensation that was paid to

 

Mr. Dillabaugh, the

$285,000 that you put, you know, on the exhibit- or on

the answers to interrogatories.  Do you remember that?

A

Yes.

Q   Now, you’re saying that should be in the

basket, the compensation he got?

A

Yes.

Q    All right.  When you throw it in the basket,


ll

 

is it the gross amount that he was paid or is it after

12   tax dollars he was paid that go into the basket, dollars

l3

 

that he’s paid taxes on?

A

I can’t remember.

Q

 

What do you mean you can’t remember?  Was

there ever any agreement on that?


l7 A  

 

No, !just can’t remember if that 285- was

gross or net after taxes.

Q    But as you sit here, which way do you think

the benefit ought to work? Would it be that

 

if you were

claiming a full- he got paid $285,000 gross before

taxes.

A

Uh-huh.

Q   And you were claiming some portion of that?

Would you do it on the net that he got after taxes or

 

33 (Pages 120 to 123)

120

would you do

 

it on the gross that he got? I

 

A

 

Oh, I don’t know what his tax position is, so 2

I really don’t know. 3

Q

 

Well, would you want to do it on the basis of 4

dollars he received

 

that he paid taxes on or before he 5

paid taxes on it? 6

 

A

 

fd probably deal with gross since I know what 7


that

 

number was. 8

Q    So you would be claiming a benefit on his 9

gross salary or some portion of it and he’d then have to

 

10


!I

 

pay taxes on it? !I

 

A

 

Not necessarily.

 

12

Q    Well, I thought that’s what you just said. 13

 

A

 

No, !just– as I said before, I mean, rm 14

looking at a basket.  Whether that contributes anything 15

or a lot at this point

 

in time, I don’t know. rmjust 16

looking at a basket that I would consult with my counsel 17


12:36 p.m.)

Q  (By

 

Mr.Davenport) Mr.Ellerton, you realize


you’re still under oath?

 

 

 

A

 

Yes.

Q   Okay. Why don’t we take a look back at your Exhibit A

 

again.

 

A

 

Exhibit A– Tab A on Exhibit 1?

Q    Yes. And to my understanding, the last advances or loans -whatever we want to call them for today’s purposes M- made by

 

Mr. Dillabaugh to you occurred -well, the lion’s share of it is sort of at

the end of M- middle of’OS.  There’s two other

entries -M rm just using your numbers now -two other entries: one, a negative 5,000; and another, 5,000

in

 

’06.

 

A

 

Yeab.

Q   My question is: Looking back through all of


122

 

 

and my associates as to what number might reflect a

 

18

reasonable offset.

 

19

Q

 

Did you ever discuss this basket concept with 20


Mr.

 

Dillabaugh? 21

 

A

 

I don’t believe so.

 

22

Q    When — let’s go back and take a look at the 23


dollar amounts that you got that’s

 

inExhibit A. 24

 

A

 

Okay. 25

these advances that were made by

 

Mr. Dillabaugh to you, what was your understanding as to when they were due, they were to be paid?

A    I don’t think there ever was an understanding.

Q    Okay.  So to your knowledge, there was no due date?

A    Other than the 123- on that December one, all

of these didn’t -M and all the written documents didn’t

121

 

MR. DAVENPORT:   By the way, I’m happy to take

a break now, go to lunch, come back; whatever you guys

want to do.

4

 

MR. LUELLEN: Wbat are you thinking?

MR. DAVENPORT:   Oh, it would probably be best

maybe to grab lunch.  It’ll go faster if you let me just

have a little time to review everything that I’ve got to

do and wrap it up, and then you can go.

MR. LUELLEN:  Sure.  That’s fme.

MR. DAVENPORT:  Soit’s20to 12:00. You

 

can


get something now -M a little quicker

 

if you go now.

MR. LUELLEN:  Y

 

eab.

MR. DAVENPORT:  So let’s go now and come back

at M- your pleasure.   What time would you guys like to


123

have a time framework other than just, you know, what M-

a statement of what was owed and when, other than that

Exhibit4.

Q  And that Exhibit 4 is the promissory note for 5 123,000?

 

 

 

A

 

Right. That was the other one that actually

had, you know, a term on it, yeah.

Q   And it was due upon demand, when the demand

was made?

A   No.

 

It was outlined that it was due on

December the 31st, 2003.

Q

 

Look in the body ofthatfurtber, if you will.

Let me pull my copy out.  And if you’ll see-M I’ve got

the wrong notes here.  What’s the exhibit number on it?

come back? 15

MR. LUELLEN:   You know, we can be reasonably 16

prompt, so … 17

MR. LUELLEN:  4 (sic). THE WITNESS:  4 (sic).

Q    (By

 

Mr. Davenport)  Ifyou’ll note in the

 

MR. DAVENPORT:   Back in an hour?

MR. LUELLEN:  Oh, yeab.  No more than an hour.

MR. DAVENPORT:   Yeah.  Let’ssaybackinan

hour.

THE WITNESS:  Okay.

MR. LUELLEN: Okay.

MR. DAVENPORT:  Okay. Very good.

(A lunch break was taken from 11:39 a.m. until

middle of the second paragraph, it says that, under 1,

“The total unpaid principal balance hereof together with

all accrued but unpaid interest hereunder may, at the

option of holder, and without demand or notice of any

kind, be declared, and thereupon immediately shall

become,

 

in default and due and payable.”  Do you see

that?

MR. LUELLEN:  Object to the form.

 


34 (Pages 124 to 127)

124

I

 

Q   (By Mr. Davenport)  And you can read all the

language

 

if you want to.

A   Right.

 

It starts out by saying:  “In the


event of nonpayment when due,” so that would occur

after- you know, after December the 31st, 2003.

Q   And it further goes on and says, “At the


option of the holder” –

A   Right.

Q

 

– “and without demand or notice of any kind,


be declared, and thereupon immediately shall become, in

11

 

default and due and payable.”  Does that mean to you that

even though you have a due date of December 31,2003,

that there had to be a demand made by

 

Mr. Dillabaugh for

it to be payable?

A   I really don’t know. I don’t- I really

don’t know.

Q

 

Okay.  Fair enough.  Exclusive of the $123,500

promissory note, you’re saying there was no due date for

the rest of these loans made, that you’re aware of?

A    Not that rm aware of, no.

Q

 

Would you think that based upon that, then

they would be due when

 

Mr. Dillabaugh made demand?

A   No. They would be- we always planned to

have a negotiation whereby that, you know, this would be

the amount this – that would be due, and this is when it

126

I A

 

Well, it’s an addendum to a promissory note.

Q

 

Correct.  The one that Mr.Dillabaugh took


over?

A

 

It appears so, yeah.

Q

 

And who was responsible on the promissory note


before you took it over?

A

 

I believe it was Sefton.

Q

 

Okay. And would you agree that this is


additional amounts that

 

Mr. Dillabaugh, in fact, advanced

you

 

by taking over this note– or advanced Sefton?

11

 

A  Well, I don’t know because he’s paying it to

Sefton, not me.

 

If he was paying it to me, and then I

pay Sefton, then that would be – but I can’t remember.

It

 

looks   this note seems to be bet.veen Gary and

Sefton.

Q

 

All right.  You just don’t remember?

A   No.

(Exhibit Numbers 14 through 16 were marked for

identification.)

Q

 

(By Mr. Davenport)  All right. Let’s start

with Exhibit Number 14. And the reason rve pulled this

exhibit is because in your answers to interrogatories, on

page 6-

A   OfExhibit I?

Q

 

Yes.  The question was, “Please identify any

125

I would be due and/or how it would be paid.

Q

 

So you’re saying that before any amount is

due, you have to have this negotiation?

A    Yeah.

Q

 

All right. And that negotiation hasn’t

occurred?

A   Well, an attempt was made this year, but never

materialized.

Q

 

So given the fact that you’ve had that, you

know, that negotiation that never worked out, if you

will–

A   Right.

Q

 

-what’s your view of whether or not the

money is now due and owing, aside from your setoffs and

!5  everything else? Is it now due and subject, in your

view, to some setoffs?

A    Yeah.

Q

 

All right. And that occurred after your

negotiations failed in 2008?

A   Correct.

(Exhibit Number 13 was marked for

identification.)

Q

 

(By Mr. Davenport)  Can you take a look at

Exhibit Number 13 for me, please.  Is that the Oatley

promissory note we’ve previously heard testimony about?

127

I and all written or oral agreements bet.veen you and

Mr.

 

Dillabaugh that are relevant to your contention that

the loans

 

Mr. Dillabaugh made to you were forgiven or


4

 

subject to offset.” And then you reference a number of

Bates stamp numbers, some of which we’ve already looked

at; some of which we haven’t And here’s a couple we

7

 

haven’t looked at. ELL00033, can you identify what that

is?

A   No.

Q

 

Is it in your handwriting?

A   No.

Q

 

Okay. Have you ever seen it before?

A  I might have done it, but I don’t recollect

it

Q

 

Do you have any idea what it is?

A    Well, it appears to be – it looks like Gary’s

v.rriting where he’s outlining some numbers.  I don’t know

if it’s to me or Sefton or what it is.

Q

 

Okay.  Well, the reason rm asking you about

it is in your answer to the interrogatory, you name this

document as something that has some relevance to the

right to offsets against loans made by

 

Mr. Dillabaugh.

Does this appear to you to relate to that in any way?

A    I said that this document —

Q

 

Yeah.  Read your answer to interrogatory.

 

J

avernick & Stenstrom, LLC

3131 South Vaughn

Way, Suite 224, Aurora, Colorado  80014  (720) 449-0329  FAX (720) 449-0334

35 (Pages 128 to 131)

IThat may help.

128

I Q This is in your handwriting?
2 A Which answer now? 2 A Yeab.
3 Q Eleven. 3 Q All right.
4 A Number!!? 4 A I dont see how that pertains to
5 Q Uh-huh.  You should probably read the question 5Mr. Dillabaugh’s complaint.
6    t oo. 6 QAll right.  What’s in the left-han
7 A Yeah.  (Reviewed document.)Okay. 7you know?
8 Q And then you reference this document, ELL0033. 8A Isuspect they reflect shares. It

130

d column; do

 

rm just trying to find out why. 9


they reflect shares.

 

looks like

A

 

I don’t know. 10

Q  Okay.

 

You just don’t have any idea why it was II

listed?

 

12

A   No. 13

Q    Okay.

 

Let’s go to 15, and the question is 14

exactly the same. Again, this document is referenced in

 

15

response to Interrogatory Number 11, and

 

rm just trying 16

to find out

 

why, if, in fact, you do, think it has any 17

relevance to this arrangement about offsets?

 

18

A

 

I don’t think it has any relevance to the 19

arrangement of offsets.

 

20

Q    Okay.  That was easy.  16 — 21

MR. DAVENPORT: And, Jack, let me tell you:

 

I 22


don’t believe you’ve seen this yet. Gary brought this in

 

23

to me.

 

It does not have a Bates stamp number on it, but 24

I just saw it for the first time yesterday as well.

 

It 25


Q

 

Do you have any idea why you would have prepared this?

A    Maybe I bought them from

 

Gary.  I don’t know. AsIsay,Idon’t have any recollection of any v.rritten documents pertaining to this.

Q

 

You have no idea–Imean, you have no

recollection of

 

Mr. Dillabaugh transferring 45,000 shares of Sefton into your children’s ffi.As?

A   My children don’t have ffi.As.

 

Q

 

Have they ever?

A

 

Ithink one of them has.


Q

 

You just have no recollection of this transaction at all.

A

 

No.  Well, other than I saw some correspondence with Computershare, who’s a registrar, saying shares were, Ithink, from Mr. Dillabaugh into

129

relates to some -you know, some things about this stock

that was transferred by

 

Gary to the kids.  So I want to

ask-

MR. LUELLEN:  Allegedly.

MR. DAVENPORT:  Allegedly, fine. We’ll find


some of these names.

Q

 

Do you have any idea why that happened?

A    No.  Maybe I bought them on behalf of my kids.

I don’t know.  I don’t have any documentation that says

how those came about, whether they were gifted by


131

 

 

out,

 

I guess, ififs allegedly.

Q

 

(By Mr. Davenport) Would you look at Exhibit

Number 16–

A   Yeah.

Q    —

 

for me, please.  What is that?

A

 

I mean, it– as you say, it looks like-

it’s in my writing relating to- obviously those look

like shares to my son, Bret; his wife, Sonya; my son,

14     David; and Molly McCue

 

is David’s girlfriend at the time;

and my daughter, Stephanie.

Q

 

Okay.  Well, are you aware that it is

Mr.

 

Dillabaugh’s position- and ifs obviously set forth

in the complaint– that you promised to tender 45,000

shares of Sefton Resources to him as repayment for him

providing 45,000 shares for your children’s IRAs? Are

you aware that he’s contended that?

A

 

Yes.

Q

 

What’s your position on that?

A   I disagree. I have no v.rritten documents or

25    communications relating to that whatsoever.

6

 

Mr. Dillabaugh, whether they were sold by Mr. Dillabaugh.

I

 

have no idea.

Q

 

Well, who would? Who could verify?

A

 

Mr. Dillabaugh or, I would imagine,

Computershare. I actually asked Computershare after

seeing that for -because when you change shares from

one person to another, you have to fill out a form that

13

 

basically said what’s the — what is the gift or the —

what was the cash consideration.  And they didn’t have a

copy, so I’m assuming Mr. Dillabaugh has a copy.

Q

 

Do you have something on the corporate records

in-house about this?

A   No.  This is not a corporate matter, no.

Q

 

All right.  You’re aware further that

Mr. Dillabaugh has contended that you promised to provide

1.4

 

million stock options in Sefton to him; and despite

demands, you haven’t done so.  What’s your position on

that?

A    Politely, horse manure.

Q

 

Never occurred?


Javerrrick

& Stenstrom, LLC

3131 South Vauglm Way, Suite 224, Aurora, Colorado 80014 (720) 449-0329 FAX (720) 449-0334

 

 

(Pages 132 to 135)

132

I

 

A Never occurred.

(Exhibit Number 17 was marked for

identification.)

Q

 

(By Mr. Davenport)  Would you look at Exhibit

Number  17 for me, please.  This is,

 

ril represent to

you, the 26(a)(l) initial disclosures, which counsel are

required to do in this case and which both parties have

done, listing people who have knowledge, may have

relevant testimony, etcetera, about the case, including

exhibits.  And rm not going to look at the exhibits, but

what I want to look at is the people that you’ve listed.

And with the understanding that the reason for listing

these, again to refresh you, is you need to disclose who

may have relevant information about the case.  And you’ve

listed yourself, Gary Dillabaugh, and then Jeremy

Delmar-Morgan.

:MR.

 

LUELLEN:  I object to the form because

counsel prepares this, not

 

Mr. Ellerton.

MR. DAVENPORT: I understand. I understand,

but he’s the only one I can take the deposition of, so

that’s why rm doing it. I can’t take Jack’s deposition;

I can just take yours,

 

Mr. Ellerton.

THE WITNESS:  Which you’re doing.

Q

 

(By Mr. Davenport)  Do you have any idea why

Jeremy Delmar-Morgan was listed as somebody with likely

134

I

 

knew of the associationIhad with Gary and of my

position

 

with Gary.  So to what extent, details, and

whatever he knew at this -you know, I have no clear

opinion at this point other than he was aware of the

relationship and

 

Mr. Dillabaugh’s employment and how it

came about.

MR. DAVENPORT: Let me just, Jack, say

something that I don’t think needs to be said, but rm

going to do

 

it in fairness anyway.  Sefton’s not a party

to this litigation, and, therefore, rm going to call

these people and talk to them. I think rm perfectly

fine to do that, but Ijust wanted let you know that was

going to occur.

MR. LUELLEN: I appreciate that. No problem.

MR. DAVENPORT:  !just think ifs a matter of

courtesy.

Q

 

(By Mr. Davenport)  So just to see if!need


to,

 

quite frankly, Mr. Ellerton, take their deposition or

not– all these depositions cost us money, and rm not

in the business of taking unnecessary depositions.  So

rm going to give them a call. But I would like to know

from you what you think they may know.

A   That’s a toughie. I can’t remember off-hand

other than they would be familiar with Gary’s association

with the company, how it came to be, and the fact that

133

I

 

having discoverable information about this case?

A   Well, we’ve already discussed that when you

asked me what directors of Sefton or officers knew of the

relationship I had vv:ith Mr. Dillabaugh with respect to

the dealings with him. And I quoted Mr. Delmar-Morgan,

Mr.

 

Harry Barnum –

Q

 

Okay. But what I want to do is go through

each one of them.

A    Okay.

10

 

Let me be very —

II

 

A  All right.

Q

 

— candid with you about this.

A   Okay.

Q

 

I want to see if I need to take these people’s

depositions. Okay?

A   That’s fme.

Q

 

If they don’t know anything, I don’t want to

waste my time, your time, your money or anybody else’s

time or money.

A   Right.

Q

 

So do you have any idea what this gentleman,

Mr. Delmar-Morgan, may know about this case– about the

issues in this case?

A   Well, Mr. Delmar-Morgan was the one that

negotiated the settlement with Gary. Mr. Delmar-Morgan

135

I

 

they knew of my position regarding offsets and so on.

Beyond that, you know, it’s whatever they determined

themselves or might have had a conversation with me or

even Gary. And I have no clue as to what their

conversations with Gary might have been.

Q

 

And your information may be that some of these

individuals may know of your position that you’re

entitled to an offset for some of the monies, or all of

the monies potentially, that Gary Dillabaugh loaned you?

A    Yes, I believe so.


II

 

Q   All right.  And that would go for all of these

12

 

people. Now, do you have any knowledge that any of these

13

 

people have contended that they were party to any

conversations where they heard the two of you talking

about that?

A   Gary and I?

Q    Yes.

A   I don’t think any of them were party to Gary

and I’s particular conversations.

 

In other words, they

weren’t part of anything with that.

Q

 

Is there anybody you can think of whatsoever,

Mr. Ellerton, that may have been a party, may have

overheard, been involved in any way, with the agreement

you’ve testified about offsets that you and

Mr. Dillabaugh allegedly had?

 

 

 

(Pages 136 to 139)

136

1

 

A      I- you know,  again,  off the top of my head,

2   I don’t know. These people may be- they may not–

they would not have heard —

 

Gary — the conversations

Gary

 

and I had were between Gary and I.

Q

 

Okay.

A

 

So, I mean, the – so there were no other


parties associated

 

with that.

Q

 

When you–

A

 

I have informed them–

Q

 

Sorry.


11

 

A   — and I don’t know what Gary has done about

them.  So, you know, beyond that, I don’t know.

Q    Fair enough.  How am I going to ask this?

When you were borrowing money or getting money from Gary

Dillabaugh, were you advising the Sefton board of that?

A

 

You know, I can’t remember.  I knowtheylmew

of it because Gary wasn’t the only one that was providing

me money.  And certainly they must have knovm of it

because when we did the IPO, some of my shares were

transferred in lieu of money to them or other people.  So

they must have been aware of it, yes.

Q

 

And I assume what they were aware of was it in

general tenns, not the specifics.

A

 

In general terms, correct.

Q

 

Who else did you have similar transactions as

138

I

 

Q And where is Ms. Schneider located?

A

 

Seattle, Washington.

Q

 

How do you spell Schneider?  S-C-H-

A  S-C-H-N-E-1-D-E-R.

Q    — D-E-R?

A

 

Yeah, something like that.

Q

 

Do you have an address or phone number?

A

 

I do, but not off the tOp of my head.

Q

 

Okay. Is she– was she associated with


Sefton at all?


11

 

A   No.  She’s just a personal friend.

12

 

Q   All right.  And did you borrow money from her?

13

 

A   Yes, I did.

Q

 

And how much?

A

 

Several hundred thousand dollars.

Q

 

Have you paid it back?

A

 

The portion that she loaned me was converted

into stock.

Q

 

Stock in Sefton?

A

 

In Sefton.  And the money that she loaned the

company has been bought back from her.

Q

 

Has been -R rm sorry. What?

A

 

Has been purchased back from her.

Q    Okay.

A

 

They had an — individually they had an

137

I

 

you had with Mr. Dillabaugh with?

A

 

Well, Mr. Dillabaugh is unique in the sense

that he’s

 

R- you know, this particular situation arose.

But there were other parties that loaned me money that

had, you know, options to convert or opportunities.

Let’s see. There would be – again, this is not a

complete list.  Off the top of my head, there would be

John Kelly.

Q

 

And where is Mr. Kelly located?


10

 

A    Denver, Colorado.

11

 

Q   Is he- do you know his phone number?

12

 

A   No.  Off the top of my head, no, sir.

13 Q

 

Do you know how much Mr. Kelly advanced you?

A

 

Td have to look it up, yeah.  I think it was

probably in the vicinity of27,500, thereabouts.

Q

 

And over what period of time?

A

 

Again, Td have to look at my records.

Q

 

. Was he an employee of Sefton?

A

 

No.  He’s a personal friend.

Q   All right.  And have you claimed any offsets

against that amount?

A

 

No.  Mr. Kelly converted all of his into

stock, which was an offset he had, an option he had.

Q    Okay.  Who else?

A   Nelly Schneider.

139

I

 

understanding with me that if they invested in the

company, I would

 

-R I would buy it back from them at that

cost at any point in time, and I was — she chose to do

that.  So I was paying and then the company took over

that obligation.

Q

 

And has she been paid back in full?

A

 

I think it’ll be — almost, yes.

Q   All right. Anybody else?

A

 

Oh, yeah.  Let’s see.  There would be Len

Schmidt.

11

 

Q   Where’s Mr. Schmidt located?

12

 

A     Denver, Colorado.

13 Q

 

Okay.  How much did you borrow from him?

A

 

I borrowed from Len probably in the vicinity


of

 

50- or $60,000. And Len put into the company maybe,

in various ways, about half a million dollars.

Q

 

Has he been paid back?

A

 

With mine, he converted his to stock.  With


respect to the company, he bought stock from an overhang

in the open market, and he has a loan

 

R- an outstanding

loan with the company for approximately 200,000.

Q

 

Who else?

A

 

Bob Schmidt was Len’s brother.

Q

 

How much did you borrow from him?

A

 

I can’t remember the number, but Bob is

 

140


deceased and his wife, Sylvia Schmidt, now has taken

over.  Again, he converted some of

 

it for stock- I

think he converted all of his for stock, and he bought

stock on the overhang from — in the London market, and

he’s bought shares in Sefton over time.

Q

 

Is there anybody-

A  I havent finished the list.

Q    I know, and rm going to maybe shorten the

list a little bit.


I 0 A   Right, right.

Q   Is there anybody that you borrowed from that


you’ve

 

claimed the similar types of credits that you’ve

claimed for

 

Mr. Dillabaugh?

A   No.

 

Mr. Dillabaugh is unique in his

particular association with the company. None of these

people basically became employed or received any benefits

in

 

the nature that Mr. Dillabaugh did.

Q

 

Okay.  All right.  Who else have you borrowed


from?

A    Susan Rupp, R-U-P-P.

Q

 

Howmuch?

A   I can’t remember. Again,

 

it was converted

into stock.

Q   Okay. I’m really not interested in anybody

that you borrowed money from that you converted into

142


positions in the company.

MR. DAVENPORT:   Givemeacoup1eofminutes

with

 

Mr. Dillabaugh.  I think we’re about done.

MR. LUELLEN:  Okay.

(A recess was taken from 1:04 p.m. until


6

 

1:12 p.m.)

(Exhibit Number  18 was marked for

identification.)

Q    (By

 

Mr. Davenport)  Mr. Ellerton, I’ve placed


in

 

front of you  – rather, the court reporter has placed

in

 

front of you– what’s been marked as Exhibit  18.

This relates to this issue of transfer of shares to your

children.  And if you will look at the bottom, there is

an e-mail from

 

Gary Dillabaugh to Lucie Heath.  Who is

Lucie Heath?

A   I believe she’s involved -with Computershare,

who is Sefton’s registrar.

Q    And do you see where he says, “Hi, Lucie.

Hope you were playing for the long weekend and not off on

some boring business conference.  I expect there is the

possibility that you were scrutinizing an AGM

 

in some

exotic locale,” etcetera?

A   Right.

Q    Then at the top, “A year ago, I transferred

25    some shares and was wondering

 

if you might be able to

141


stock that didn’t have this offset arrangement as was

done with

 

Mr. Dillabaugh. So if there are no- none

like that, I don’t need to go through this whole- are

there many more?

A    No.  I mean, but, as I say, the offset can be

considered something like that for Nelly Schneider where,

you know, she was- had the opportunity. But, you know,

if she wanted to sell the stock back at the price she

purchased it, thafs a type of offset that I took on

personally; there was that. Canada Southern basically

bought stock in the company which I guaranteed that they

could put to the company for their- I think the

vicinity of the amount of that was about S250,000.  And

Magellan, the amount of that was about $200,000.  These

are both corporations.  One is in New York, and one is in

Canada.

Lefs see. I’m sure there are others, but-

because there was quite a few.  But, at this point,

you’re asking me sitting here. I’d have to go back and

check my records, yeah.  But Gary’s was unique in the

sense that he was the only one that was employed by the

company or got stock options and/or opportunities-

well, not opportunities.  Some of those people got

opportunities:

 

Mr. Schmidt and others of that nature got

opportunities for getting ground floor and shareholding

I confirm that the original transfer was from me.Currently the shareholders are,” and it lists BretEllerton, Sonya Shaw, Stephanie Ellerton, and MollyMcCue, who I think we went through before.

A   Right.  Only the shares seem to be different

on this one.

Q

 

It lists a number of shares.

A   Right.

Q

 

And then at the top- going back to the first


page again -the e-mail comes back to Gary saying,

 

“H

Gary.

 

I was in Luxembourg,” etcetera, etcetera.  “I

can confirm that the transfers as below were processed

from your holding to the individuals on 21 March 200

Do you see that?

A   Correct.

Q    Do you have any reason to deny that – the

fact that

 

Mr. Dillabaugh transferred these shares, after

having looked at this, to your children and their

spouses, etcetera?

A   No. And thafs what I said. I then followed


this up with an e mail to Lucie saying, What was the

compensation received for it or what? And they had n

record of it, so it might have been a

 

gift. I might have

bought them on behalf of my kids. My kids might hav

bought them.  I don’t know.

143i,.”o

e

 

 

 

(Pages 140 to 143)


3

 

(Pages

144 to 147)

I

QAll right. 144 1 with what he thinks the amount of his offset is, please 146
2 AMr. Dillabaugh would have the record of that. 2 let me know, and I would like to redepose him on it.
3 QAnd if Mr. Dillabaugh says that he did it at 3 :MR.LUELLEN:  A, we will supplement in
4 your request and you were going to pay him back — 4 accordance with the rules as required.  And B, we can
5 A   I would denyit. Otherwise there would be 5 talk about whether or not a second deposition is

 

correspondence that you’ve seen. And we seemed to put a

lot of things down in and around that time as to what

transpired.  And there was no mention of that, so I have

no

 

record of that


10

 

Q   Was Mr. Dillabaugh in the habit of making

11

 

gifts to your children?

12

 

A    I doubt it.

Q

 

Do you think he ever made any gifts to your

children?

A    No.  I think they may have purchased them from

him.  rmjust giving you a

 

range of possibilities.   On

those forms, they say, Is

 

it a gift or what remuneration


18 you are – did you receive for these transfers of shares?

19

 

Q   Okay.  How would I get ahold of your children?

I

 

mean, if that’s what rm going to have to do to see

what their position on this is?

A    I could give you the phone numbers.  I don’t

know them off the top of my head. I could-


24

 

Q   Yeah.  Would you mind doing that?  I just — I

25    mean, we’ve got to get to the bottom of this.

6    appropriate at such time.

 

7

 

MR. DAVENPORT:  Okay.  And I understand.  I

knew that would be your position.  Ijust wanted to make

sure that rm not saying this deposition is over for that

purpose.  rm saying the deposition is still over, and

with that MN rm still open – and with that, rm done

for today.

MR. LUELLEN:  Fine.

MR.DAVENPORT: Thankyou,Mr.Ellerton.


15

 

THE WITNESS: Oh, you’re welcome.

16 (The deposition was concluded at 1:16 p.m., on

17

 

Tuesday, November 25, 2008.)

18

19

20

21

22

23

24

25

 

A    Yeah, that’s fmc.

Q     So would you M-

MR. DAVENPORT:   Is that agreeable, Jack, if he

 


145

 

I I,

 

JOHN J. ELLERT ON, do hereby certifY that!

have read the above and foregoing deposition, and that

the above and foregoing transcript and accompanying


147

 

 

eMmails me the phone numbers or you e-mail me the phone

numbers?

MR. LUELLEN:  Yeah.

 

rnpass them on to you.


7 MR. DAVENPORT:  Okay. That would be great.

THE WTINESS: I mean, the easiest way is the

transfer  form that  Mr.  -M

Amendment sheet(s), if any, constitute a true and

complete record of my testimony.

6

Amendment sheet(s) attached []

No changes, therefore no Amendment  sheet(s) attached  [

 

J

9

10

 

MR. DAVENPORT:   Okay.  Yeah, but that’d be 10

11  great. I just – 11

12

 

THE WITNESS:  All right.  Okay.  Yeah. 12

JOHN J. ELLER TON

MR. DAVENPORT: You know, we just need to get

to the bottom of it.

THE WITNESS:  Okay. No problem.  Yeah.

MR. DAVENPORT:  Just facts– getting facts.


17

 

THE WITNESS:   Yeah.

MR. DAVENPORT:  Okay. That’s all

 

I have for


today. I do want to say that I may, at some point, have

to redepose Mr. Ellerton if he comes up with some idea of

what he thinks that this offset should be, because I

still don’t know what the offset should be.  So I guess

what I’m asking, Jack, for is if there is aM- I mean,

obviously there’s a duty to supplement, as we all know,

in discovery.  And if at any time Mr. Ellerton comes up

13 Subscribed and sworn to before me this

14

 

dayof ,2008.

15 My commission expires:——–

16

17

18


Notary Public

 

 

19


20

21

22

23

24

25

40 (Page I 48)

148

I

 

DEPOSITION OF JOHN J. ELLER TON


2

REPORTER’S CERTIFICATE

L Wendy Evangelista, Registered Professional

Reporter and Notary Public in and for the State of

Colorado, do hereby certifY that prior to the

commencement of the examination the Witness was by me

first duly sworn to testifY the truth; that said

deposition was taken

 

in shorthand by me at the time and

place hereinabove set forth and was thereafter reduced to


II

 

typewritten form under my supervision, as per the

12

 

foregoing transcript; that the same is a full, true, and

13   correct transcription of my shorthand notes then and

there taken.

I further certify that I am not related to,

employed by, nor counsel for any of the parties or

attorneys herein, nor otherwise interested

 

in the event

of the within action.

My commission expires August 12, 2012; and I

have hereunto set my hand December 8, 2008.


21

22

Registered Professional Reporter


and

Notary Public


25

 

 

 

Page I

A ability 20:18 100:16102:13 118:7able 24:21 26:1 59:8

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II

 

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Page2

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Javemick

& Stenstrom, LLC

3131 South Vaugho Way, Suite 224, Aurora, Colorado 80014 (720) 449-0329 FAX (720) 449-0334

 

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Javemick

& Stenstrom, LLC

3131 South Vaughn Way, Suite 224, Aurora, Colorado  80014  (720) 449-0329  FAX (720) 449-0334

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Javernick

& Stenstrom, LLC


 

3131 South Vaughn Way, Suite 224, Aurora, Colorado 80014 (720) 449-0329 FAX (720) 449-0334

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Javemick

& Stenstrom, LLC

3!31 South Vaughn Way, Suite 224, Aurora, Colorado  80014  (720) 449-0329  FAX (720) 449-0334

 

 


Page

 

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Javernick

& Stenstrom, LLC


 

3131 South Vaughn Way, Suite 224, Aurora, Colorado 80014 (720) 449-0329 FAX (720) 449-0334

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Javemick

& Stenstrom, LLC

3131 South Vauglm Way, Suite 224, Aurora, Colorado  80014  (720) 449-0329  FAX (720) 449-0334

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Javernick

& Stenstrom, LLC

3131 South Vaughn Way, Suite 224, Aurora, Colorado  80014  (720) 449-0329  FAX (720) 449-0334

Page I

–  —   ——-

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transferred 28:5 64:19

66:9 129:2 136:20

142:24 143:17

transferring 63:13

65:12 66:22 130:16

transfers 37:5 143:12

132:19,19 146:7

understanding 5:II

22:15 23:2,18 24:5,19

24:22 25:6 29:22

35:11,11,21,24 36:3,5

41:12 43:13 56:23

57:24 59:19 65:16,21

66:3,5,13,17 71:4

80:15 86:6 96:15110:7,7121:24133:10vested 112:7

via 96:13

vice 8:19,20

vicinity 96:1,23 137:15

139:14 141:13

81:11 82:2,8,13 83:7 46:14 49:20 59:16 144:18 73:24 76:18 83:14 view 15:12,13 16:4 28:1
83:11 85:3 86:1 87:13 60:2 63:9 64:23 65:21 transpired 144:8 87:10 100:3,8 122:8 48:25 125:13,16
88:19 89:15 91:23 66:6,7,9,21 67:7,15 trave194:13 114:18,20 122:19,21132:12 viewing 94:5
92:4,15 93:1 95:4,5 67:21,24 69:5 70:19 116:11117:10 139:1 Virgin 7:15
96:22 97:10 99:7,11 73:10 75:12,15 76:19 trial62:10 73:1 98:1 undoubtedly 21:4 vis-a-vis 46:4
101:21103:20 105:8 76:22 83:15 84:18 trick5:2 unique 137:2 140:14
106:20 112:20 114:11 85:1 92:8 97:10,14 trip 39:8 141:20 w
114:12 117:2 118:2,6 112:16 114:6 118:23 trips 96:15 116:11 Unit4:15 walk41:10
118:11,16 119:2,19 120:16 121:7,14 true 147:4 148:12 United 6:3 8:12 12:16 want 5:2 24:4 25:24
122:21124:21128:17 123:1 128:25 129:14 truth 148:8 46:20 107:11 32:8,14,15 33:15,15
128:19 130:20,25 133:18,18,19 137:16 try 4:23 5:5 23:23 university 6:3,7 33:19 36:20 40:14
134:8,11,15,22 139:3 140:5 144:7 78:17 91:14 96:8 unless 29:25 53:1 86:21 41:10 45:9 48:9,13
135:18,21 137:14 145:25 146:6 148:9 trying  19:15 26:21,24 86:23 112:19 62:2 63:7,9,15 66:7
139:7 140:3 141:12 times 5:21 66:6 113:22 27:14 37:21 54:7 65:7 unnecessary 134:20 70:4 74:13 80:21,23
142:3 143:4 144:13 114:24 70:24 78:20 87:7 unpaid 123:19,20 85:13,14,16,17 92:6
144:15 today4:25 17:8,19 91:19,20 92:15 128:9 unsigned  57: 13,22 I 01:3 120:4 121:3
thinking73:14 82:10 19:1628:2130:831:8 128:16 until14:1124:17  26:10 122:9 124:2 129:2
83:21,22,23 100:17 31:24 46:4 72:15 Tuesday 2:3  146:17 35:24 40:19 64:23 132:11 133:7,14,17
121:4 73:14 79:10,25 80:17 turn 40:1 67:21 74:11121:25 145:19
thinks 92:16 107:3,12 82:22,24 97:21 106:6 twelve 35:5 142:5 wanted  18:6 134:12
145:21 146:1 106:7 118:19 145:19 Twenty 9:18,19 use 1:6 37:13 63:23 141:8 146:8
third 42:14 146:12 two 19:18 25:8,14 68:22 69:1,14,14 Washington  4:12  138:2
third-party 79:6 83:12 today’s 122:10 27:23 51:15 58:18 79:17 85:8 87:15 wasn’t 29:7 33:24 42:3
Thomas 12:12,15 together 25:1 27:19,20 65:24 72:6 79:9 90:21 used 11:6 35:5 45:12 91:1,5 92:8 102:6,8
though 85:24 103:1 27:20,22,25 39:13 96:4 108:2 109:2 68:19 71:9,15 77:9,17 102:11 113:9 117:14
105:16 113:9 124:12 49:13 58:17 68:2 122:12,13 135:14 77:20 85:10 87:12,22 136:17
thought 11:6 35:14 81:22 84:13 85:5,9 type6:5141:9 108:12 waste 133:18
72:17 73:12 82:21 101:10 123:19 types 19:18 140:12 using27:17 36:21 Waterhouse 3:9
83:3,4 92:3,21 100:15 told46:3 106:14,20 typewritten 148:11 53:13 91:8,25 94:1 way 5:2 15:16,24 16:1
100:15,24115:5,8 107:3,12,18,22 109:4 typical37:25 38:8 99:1 122:13 17:5 38:1,2,24 50:24
117:3 120:13 Tony 8:9,13 107:11,19 typically 37 :23 usually 54:I 65:17 67:1,20 70:17
thoughts 83: 12 108:3 116:10 T-E-K6:22 80:14 94:25 102:17
thousand 7:13 37:17 top 24:10101:16 103:8

v

111:19119:19121:1
51:15 138:15 115:16 136:1 137:7

u

vague73:25 127:23 135:23 145:8
three 41 :7 80:2,2 92:7 137:12 138:8 142:24 uh-huh 15:14 20:7 valuable 11:10 ways 17:3 139:16
103:9 104:19,22 143:9 144:23 41:14 45:10 73:4 valuation 79:19 weekendl142:19
through 6:12 15:4,5 Toronto6:7 88:12 119:23 128:5 value 59:5,8 60:15,23 welcome 146:15
17:23 19:24 22:9,20 total20:!3 23:9 61:9 unable 11:19 61:14 73:10 79:7,21 Wendy 2:5 148:4
26:20 38:22 39:1,23 81:9 84:11105:16,19 uncertain 113:25 80:23 117:18 went 9:24 10:2 11:5
40:21,24 41:10 61:16 112:8 123:19 under 5:13 21:14 43:3 variety 24:24,25 37:5 12:19 35:7 56:11
64:1 69:11 72:11 84:8 touch 10:8 55:25 57:15 122:3 various 17:24 23:1 32:5 70:13 84:8 95:12
85:14,16 95:12 99:16 toughie 134:23 123:18 148:11 75:17113:22139:16 114:24 116:9 143:4
101:24 109:20 116:13 traded 7:8 102:8,14 undergoing 43:7 Ventura 114:25 weren’t 15:19 19:7
118:4,12 122:17 trading 79:10,17,25 understand 4:21 5:2,13 verbal34:5 63:4,7,8,17 86:15 103:5,16
126:18133:7 141:3 103:13 11:1,4 19:4 22:11 63:20 66:3,5 67:5,6 135:20
143:4 transaction 130:22 23:8,12 31:7 32:14 verbally 16:8 we’ll18:5 21:9 34:6
throw 119:10 transactions  136:25 36:22 48:8 60:21 70:8 verify68:10 131:8 46:13,15 63:5 71:19
thrown 69:12 transcript 147:3 148:12 70:21 74:15 78:16 versus 42:17 129:5
time4:21 6:15 7:22 9:7 transcription 148:13 85:16,17 92:2,6 very 24:20 34:12 52:1 we’re 4:23 5:8 24:4
10:3 11:19 13:23 transfer 36:24 37:1,10 106:18,19 108:10 64:20 74:10 79:23 26:22 28:3,22 34:13

 

Javernick

& Stenstrom, LLC

3131 South Vaughn Way, Suite 224, Aurora, Colorado  80014  (720) 449-0329  FAX (720) 449-0334

 

34:16 41:1,2 46:3 X $367,751.70 22:7 28:7


33:21 34:22 35:5,8,14 2/10/03 2:22


Page I

I

 

 

53:16 59:20 61:24 X2:11,13 3:1 118:6 $40,000 3:11 38:15 56:9,12 87:2,3,5,9,10 2/13/08 3: I 0

67:5 70:12 81:19 $400,000 72:23 73:2,23 87:15 91:25 202:15121:10

142:3

 

y 90:11 96:12,19 97:1 12/1102 3: II 200 27:10 82:5

we’ve 10:8 17:13 19:16

 

y 118:6 $405,000 90:22 12/3142:1 200,000 139:21

37:2,5 38:14 49:12 yeah 9:20 11:3,12 $5,0002:22 53:19 55:8 12/31100 2:18,20,24 3:3 2000 55:17 56:8 102:20

58:8 98:9 108:16 21:25 25:19 26:7,9 56:1 82:1 41:18 56:2,20 200122:25  23:11,17


118:2,4 125:25 127:5 36:21 39:15,16 42:12 $50 39:10 12/311012:19 23:20 24:6,13 27:21 31:24

133:2 144:25 46:22,22,22 54:23 $50,000 94:19 97:7,16 12/31/02 2:21 87:18 32:10 33:3 34:19 65:8

whatsoever 5:4 29:2 59:19 63:9 80:3,11,20 100:25 99:1,4 103:14 104:6

31:22 33:22 76:23 81:2 82:15 83:7 84:16 $57,500 42:7 12/31/03 88:5,13 2002 43:1 44:3,14 47:2

97:15 98:8,10,21 85:25 86:6,18,19,23 $60,000 89:23 139:15 12/31107 90:20 49:22 54:13 87:2,3

129:25 135:21 88:3,12,12,25 90:9 $62,361.61 3:5 12/31108 94:6 2003 50:11 51:16 53:19

Whichever 36:24 91:22 93:10,23 94:4,4 $65,661.88 23:20 12:00 121:10 104:16 123:11 124:5

while 10:7 13:3 16:7 94:4 95:4,23 96:10 12:36 122:1 124:12 143:13

60:7 99:6 100:21 102:24 0 120-something-dollars 2004 89: II 104:25

whole 115:10 141:3 103:3,10 109:18 0124:18 29:16,22 36:17 2006 112:5

wife 129:13 140:1 112:4 113:11 114:14 31:11 33:8,21 35:6 123 122:24 2007 65:8 84:22 112:21

willing 39:3 45:24 95:3 115:23,25 121:12,19 57:8 58:3 88:8 123,000 52:5,25 67:4 20081:15 2:3  16:15

97:20 101:1 121:20 122:16 123:7 02 12:22 13:6 14:19,22 98:15 123:5 84:23 94:20 113:23

wish26:16  56:23 125:4,17 126:4 15:1 35:13,13 50:5 123,500 43:1 125:19 146:17 147:14

 

withholding 14:1,5 127:25 128:7 129:9 86:7 88:8 123-and-some-odd-t… 148:20

Witness 21:6 22:4 49:2

 


130:2 137:14 138:6

03 35:13,13 88:8 34:3 2009 94:21

54:16 62:15 73:8 74:3 139:9 141:20 144:24 05 35:13 89:22 122:12 125 3:11 2012148:19

74:9 86:1 93:10 98:18 145:I ,6, I 0,12,15,17 06 35:13,24 90:16 126 3:12 2050 4:15


 

104:13,19 105:24 year 13:7 16:15 50:12 109:20 122:15 128 3:13,14 21143:13

108:16 109:11 121:22 67:25 70:9 84:15,19 07 90:16 129,233.98 85:21 2161:19

123:16 132:23 145:8 84:20 114:22 125:7 08 65:2,3,6 91:14 113:3 133:11 125:21,24 22 2:18

145:12,15,17 146:15 142:24 113:12 13th 96:4 227,325 86:25 87:19

 

148:7

years 6:16 7:3,5 9:1,18

08CV2877 I :8 1323:15 99:4

wondering 142:25 10:8 27:21 38:19,19 135,750 25:5 27:11,12 23 103:24

word II :6 23:13 36:23 47:2 80:22 1 14 3:12 104:25 126:18 251:15 146:17

words 35:12 37:10 Yep 57:2 12:15 20:21,24 40:1 126:21 25th 2:3

47:23 112:3 135:19 yesterday   128:25 101:8 112:21 122:7 140,750 27:11 26 109:20

work 12:19 14:25 18:4 York 141:15 123:18 126:24 1423:17 26(a)(1) 3:15 132:6

18:6 19:23 22:9,20 1st 113:6 1437 1:2 27 113:3

 

26:20 96:15 119:20 z 1,349,261 79:5 15 3:13 7:3,5 9:1 105:3 27th 113:12

worked6:15 59:17 60:2

 

z 118:6 1.4131:21 128:14 27,500 137:15

125:10 1:04 142:5 15,000 78:20 105:1 285119:17

 

worry 24:16 $ 1:12 142:6 15,000,000 105:5 112:6 29017 1:22

worth 79:20 80:15,17

 


$10,000 83:22

1:16 146:16

16 3:14 126:18 128:21

81:3 103:11 $100,000 94:20 99:9 10 3:7 34:4 35:18,25 129:8 3

worthless 80:12 $123,000 63:1 51:5,10,14 52:4 54:18 16th 1:19 3 1:9 2:20 38:19 40:1

wouldn’t31:6  52:11 $123,500 2:21 43:14,18 82:3 84:1,3 99:1 1600 1:10,11 2:4,4 40:21,24 41:12,15

68:12 90:8,10 97:12 124:17 10:30 74:8,11 169,791.17 86:8 42:9,15,16 55:25 59:1

Wozniak 1:18 $15,000 75:21 78:6,9 10:4174:12 17 3:15 132:2,5 85:25 86:1 104:20,21

wrap 121:8 113:15 10014:12 17,08190:5 3,000 92:7 104:16

writing 36:8,12 84:7 $190,441 25:4 27:8 102 4:15 17,081.48 89:14 92:7 3/18/02 24:24 25:4 27:8

98:8,10 99:22,23 $2 73:10 75:6,6 113:8 79:12,14,18 18 3:17 142:7,11 35:24

100:4,7,9127:17 $2,028,668 59:10 60:25 93:12,15,15 128:4,16 190,44127:12 30 57:21


 

129:12 $200,000141:14 UP 79:8 80:7 1999 57:21,23 101:24 30th 57:23

written 18:5 19:!7 20:5 $250,000141:13 11/30/99 3:5 303-407-4494 1:21


34:5 40:8 41:4 63:5,6 $285,000 59:13 61:1,3 11:39121:25 2 303-407-4499 1:20

97:12 122:25 127:1 74:20,23 94:13 119:4 1100 1:19 22:1822:12,2125:12 303-571-1600  1:12

 

129:24 130:13 119:21 12 3:10 56:2,5,11 93:12 27:3 29:8 33:22 38:19 303-863-9800 I:12

wrong21:9123:14 $3,000 89:18 96:3 148:19 42:7,8 56:7,8 57:6 3122:25 23:11,16 24:6

wrote 38:18 $300 39:6,9 12.5 24:129:11,19 58:1 86:4 104:6 24:13,17 27:2129:16

 

$350,000 94:7 31:25 32:25 33:7,10 2,028,668 74:19 29:18,21 31:11 32:10

Javernick

& Stenstrom, LLC


 

3131 South Vaughn Way, Suite 224, Aurora, Colorado 80014 (720) 449-0329 FAX (720) 449-0334


age 14
33:3,8,21 34:19 43:1 583:6
49:22 50:5,11 51:15 58,300 87:25
54:13 57:8 58:2
103:14,19 109:20 6
112:5 124:12 6 2:23 55:13,14 126:23
31st 55:17 123:11 6P 80:21
124:5 6/22/0124:11,12 27:5
325,625 88:5 89:13 65,000 25:7,17 27:4
326,19125:6 27:12 65,66127:13
33 79:12 65,661.88 29:13 86:4
33P79:8 69 6:15
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95:8 7 3:3 41:4 56:14,17
36,114 102:22 700-and-some-odd-t•••
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367,751.70 25:2 28:24 73104:11
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385 90:8,10,21
385,625 90:3 92:7 8
391,85227:13 8 3:5 40:21,24 57:11,12
94:22 148:20
4 8,127.90 87:1
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49:13 85:25 98:17,18 80203 4:13
101:16 123:3,4,15,16 80224 4:16
4,000 37:6 84 3:7
4,500 37:6
4/15/02 37:6 9
4/2/012:18,20  3:3 9 3:6 58:10,13 105:9
56:20 9,298.56 87:21
4/22/02 37:6 9/20/07 3:13
400 97:7 9/27/02 38:15
400,000 82:14 96:18,22 9:03 2:4
96:24 9:30 26:10
412:20 9:33 26:II
42 2:21 9:50 40:19
44,962,345  112:8 9:53 40:20
45,000 129:18,20 93 3:8
130:16 96 3:10
99 102:11
5
5 2:22 53:12,16,17
101:16,17104:15
5,000 37:7 122:14,14
5,000,000 112:7
5-year 38:18,20
5/211012:19
5/311013:4
50 139:15
50027:10
5000 27:11
52111:13
53 2:22
55 2:23
56 3:3
573:5
57,500 41:25 42:19,21

 

J

avernick & Stenstrom, LLC

3131 South Vaughn Way, Suite 224, Aurora, Colorado  80014  (720) 449-0329  FAX (720) 449-0334

DISTRJCT COURT, CITY AND COUNTY OF DENVER, COLORADOCourt address:  1437 Bannock Street, Room 256 Denver, Colorado 80202Phone Number:  720-865-8301Plaintiff:

GARY DILLABAUGH

v.

Defendant:

JOHN J. ELLERTON

Jack R. Luellen, #29017

BEATTY

 

& WOZNIAK, P.C.

2 I 6 Sixteenth Street, Suite

 

II00 Denver, CO  80202-5Il5

Phone Number: 303-407-4499

Fax Number: 303-407-4494

 

jluellen@bwenergylaw.com

Attorneys for Defendant John J. Ellerton

 

 

 

A COURT USE ONLY A
Case Number:  08CV2877 Div.: 3 

 

RESPONSES    TO  PLAINTIFF’S    FIRST  SET  OF  INTERROGATORIES AND  FIRST  REQUEST  FOR  PRODUCTION   OF DOCUMENTS·TO DEFENDANT, JOHN J. ELLERTON

 

Defendant, John J. Ellerton (“EIIerton”), by and through his counsel, Beatty

 

& Wozniak, P.C., hereby responds to Plaintiff’s First Set of Interrogatories and First Request for Production of Documents as follows:

 

PRELIMINARY  STATEMENT

 

Discovery is ongoing in this matter and Ellerton has not completed his discovery, his investigation of the facts or his preparation for trial.  The responses set forth herein are based on Ellerton’s knowledge and information as of the date of these responses and Ellerton specifically and expressly reserves the right to supplement and/or amend these responses.

GENERAL OBJECTIONS

 

Ellerton objects to the Interrogatories and the Requests to the extent they seek disclosure of information protected by the attorney-client privilege, the attorney work-product doctrine or any other applicable privilege or protection from discovery.

Ellerton objects to the Interrogatories to the extent they seek disclosure of trade secrets, confidential commercial or business information, or any other non-public private information. Ellerton will not disclose such information unless and until the Court enters a protective order limiting access to and disclosure of confidential, proprietary and trade secret information.

Ellerton objects to Plaintiffs “Definitions and “Instructions” to the extent they seek to impose any burden or obligation upon Ellerton beyond the requirements of the Colorado Rules of Civil Procedure. Ellerton will respond in accordance with the Rules.

Ellerton objects to each  Interrogatory and Request to the extent that it uses the term “Loan” to mean and refer to a specific legal transaction with certain attendant legal terms and obligations. Ellerton responds to the following Requests and Interrogatories by considering the term “Loan” to mean the providing of any funds by Dillabaugh to Ellerton, including, but not limited to, exchanges more accurately referred to as cash advances.

INTERROGATORIES

INTERROGATORY NO.1:

Please describe in detail each loan of money, shares of Sefton Resources, Inc., or any other property that was made by Mr. Dillabaugh to you. Your description should include, but may not be limited to, the dates of the loan, the amounts of the loan, and the terms of the loan. ·

RESPONSE:

Objection.  Ellerton objects to this Interrogatory to the extent it assumes that there were loans of the type described in the Interrogatory made by Dillabaugh  to Ellerton. Furthermore, Ellerton objects to the phrase “but may not be limited to” as vague and ambiguous. In responding to this Interrogatory, Ellerton assumes that the phrase is intended to mean the equivalent of”but is not necessarily  limited to.”

Subject to and without waiving the foregoing objections and the General Objections, Ellerton responds to Interrogatory No.  1 as follows:

2

As of the time of these Responses, following a diligent search, Ellerton has been able to locate and identify records that indicate that Dillabaugh made payments to Ellerton of the sums and on the dates  identified on the attached Exhibit “A”, which is incorporated herein by this reference.

Ellerton has identified 7 promissory notes or other written agreements  that pertain,  or may pertain, to any payments made by Dillabaugh to Ellerton. Those agreements are reflected in documents bates numbered ELL00233, ELL00061, ELL00051, ELLOOI28, · ELL00063 and ELL00073.  The first three documents identified  are promissory notes and are described further as follows:

Document Number

Date

Princi12a! Interest Rate

Term

ELL00233 11/30/1999 $62,361.41

10%

Due 05/3112000
ELL00061 12/3112002 $123,500.00

10%

Due 12/3112003
ELL00051 02/10/2003 $5,000.00

10%

Due 05/3112002*

 

ELL00128 is a letter agreement dated December 31, 2000, which outlines the common stock that had been or was being assigned, transferred or sold to Dillabaugh through the efforts of Ellerton and sets forth a schedule of amounts owed by El!erton with a proposal to create a loan bearing 12% interest to repay such amounts, with an amortization schedule to be agreed upon prior to March 31, 2001. The only copy of this letter agreement currently known to Ellerton does not appear to have been executed by Dillabaugh.

The remaining two documents, ELL00063 and ELL00073, each relate to agreements pursuant to which Dil!abaugh has to purchase certain share options.

In ELL00063, dated May 31, 2001, it is stated that Dillabaugh wished to purchase the options (or “shares”) by applying money from outstanding amount owed by “Ellerton, though there are no terms.”

In

ELL00073, dated April2, 2001, Dillabaugh converted $57,500 of the outstanding debt from Ellerton into 6,325,000 shares of Sefton Resources, Inc. which left “an outstanding debt of

$71,733.98 (as of 12/31/2000) which [E!lerton and Dillabaugh] agree to discuss payment terms shortly.” The letter was signed and agreed to by Dillabaugh on April 13, 2001.

*

 

This note is payable to Lisa L. Dillabaugh, bears a “Draft” stamp and on its face is due prior to the date of its making.  Ellerton makes no representation as to the validity of this note, nor does Ellerton know if this note relates to the issues raised by Dillabaugh in his Complaint herein.


.)

INTERROGATORY  NO. 2:

Please describe the current payoff status of every loan made by you by Mr. Dillabaugh.

RESPONSE:

Subject  to  and  without  waiver  of  the  General  Objections,  Ellerton responds to Interrogatory No.2 as follows:

Without regard to any offsets or other consideration due to Ellerton as a credit for any amounts due to Dillabaugh, including the credit of $57,500 reflected  in the April 2, 2001 letter a,areement described in Response to Interrogatory No. 1, with the exception of the payments identified on Exhibit A, and without regard to any  legal defenses, the balances reflected  on Exhibit A remain outstanding.

INTERROGATORY NO.

3: Please state the amount of money you presently owe Mr. Dillabaugh and describe in detail how you computed the amount owed.

RESPONSE:

Subject to  and without  waiver  of the  General  Objections,  Ellerton responds to Interrogatory No. 3 as follows:

Without regard to any offsets or other consideration due to Ellerton as a credit for any Y’ amounts due to Dillabaugh, including the credit of$57,500 reflected in the April2, 2001letter ,., ·

agreement described in Response to Interrogatory No. 1, with the exception of the payments identified on Exhibit A, and without regard to any legal defenses, the balances  reflected  on Exhibit A remain outstanding.

INTERROGATORY NO.4:

In paragraph 4 of your Answer to Amended Complaint you admit that Mr. Dillabaugh made “at least one loan” to you, and you admit that you agreed to pay interest on that loan. Please explain which loan you are referring to in paragraph 4 of your Answer, and state the interest rate that you agreed to.

RESPONSE:

Subject to  and without  waiver  of the  General  Objections,  Ellerton responds to Interrogatory No. 2 as follows:

Without foreclosing to the possibility of additional loans or similar transactions between Ellerton and Di!labaugh, in paragraph 4 of Ellerton’s  Answer to Amended Complaint (the “Answer”), Ellerton referred to that certain loan of $123,500 represented by a promissory note dated December 31, 2002, as evidenced in the document numbered GD 0018. That promissory note speaks for itself and references an interest rate of 10% per annum.

INTERROGATORY NO.5:

In paragraphs 20 and 24 of your Answer to the Amended Complaint, you state that the loans made to you by Mr. Dillabaugh were forgiven as a result of benefits conferred upon Mr. Dillabaugh. Please explain what benefits were conferred upon Mr. Dillabaugh that resulted in the. forgiveness of the loans that Mr. Dil!abaugh made to you. As part of your description, please include the date the benefit was conferred, the exact nature of the benefit, and the amount of any loan that was forgiven as a result of the benefit.

RESPONSE:

Subject to  and  without  waiver  of the  General  Objections,  Ellerton responds to Interrogatory No.5 as follows:

—–

As consideration for the amounts paid or advanced  by Dillabaugh to Ellerton, Ellerton provided certain benefits to and opportunities  for Dillabaugh  that Dillabaugh  otherwise  would not have been able to receive. These benefits and opportunities were conferred upon Dillabaugh solely as a result of the amounts paid or advanced by Dillabaugh and with the express understanding that there would be offsets or other consideration against any amounts due from Ellerton to Dillabaugh, though such agreement and understanding was not formalized in  a wTi.tten agreement. The benefits conferred upon Dillabaugh include those identified and described on Exhibit “B” hereto, which is incorporated herein by this reference.

Furthermore, Dillabaugh’s employment and other services with and for Sefton Resources, Inc. were primarily as a result of the efforts of Ellerton. As a result, Dillabaugh received significant opportunities, including, but not limited to, compensation above prevailing rates, bonuses, stock options, benefits of employment including insurance, travel, options in TEG Oil

&

 

Gas Canada, Inc., Sefton Resources, Inc., and General Mining, including opportunities to

participate in stock or options acquisitions in advance of others.

As set forth by Ellerton in several documents, including those identified in the Response to Interrogatory No. 11, Ellerton and Dillabaugh did not agree on, or substantively discuss, the valuation of the offsets to be accorded to Ellerton as a result of the opportunities afforded, and benefits derived by, Dillabaugh, and Ellerton has made no such calculations.

INTERROGATORY  NO.6:

In paragraphs 20 and 24 of your Answer to the Amended Complaint, you state that the loans made to you by

Mr. Dillabaugh were subject to offset as a result of benefits conferred upon Mr. Dillabaugh.  Please explain what benefits were conferred· upon Mr. Dillabaugh that resulted in the offset of the loans that Mr. Dillabaugh made to you.  As part of your description, please include the date the benefit was conferred, the exact nature of the benefit, and the amount of any loan that was forgiven as a result of the benefit.

RESPONSE:

Subject to and without waiver of the General Objections, Ellerton responds to Interrogatory No. 6 as follows:

Please see the above response to Interrogatory No. 5 which is responsrve to this Interrogatory and is incorporated herein by this reference.

INTERROGATORY NO.7:

Please describe how you used the money

Mr. Dillabaugh loaned to you.

RESPONSE:

Objection. This Interrogatory seeks information that is irrelevant and not likely to lead to the discovery of admissible evidence.

Subject to and without waiver of the foregoing objections and the General Objections, Ellerton responds to Interrogatory No. 7 as follows: Monies received from Dillabaugh were used to pay expenses related to the business of Sefton Resources, Inc., and/or its affiliates, and for personal expenses incurred by Ellerton.

INTERROGATORY  NO.8:

Please describe any and all communications between you and

Mr. Dillabaugh concerning the loans that you described in your response to Interrogatory No.1.

RESPONSE:

Objection. This Interrogatory is overly broad and unduly burdensome. Dillabaugh and Ellerton have had a larger number of written and verbal communications over a several year period relating to the subject matter of this Interrogatory.  It  is  impossible  for Ellerton to  describe all such communications. Further, many of the communications between Ellerton and Dillabaugh relating to the subject matter here have been in the form of written communications, including email communications, which have been or are being produced by Ellerton.

INTERROGATORY NO.9:

Please describe any and all written or oral communications between you and

Mr. Dillabaugh related to the 45,000 shares of Sefton Resources, Inc. which Mr. Dillabaugh transferred to you and/or your promise to provide stock options in Sefton Resources, Inc. to Mr. Dillabaugh.

RESPONSE:

Subject  to  and  without  waiver  of the  General  Objections,  Ellerton responds to Interrogatory No. 9 as follows:

To the best knowledge, information and belief of Ellerton, there was no transfer of shares as described in this Interrogatory.

INTERROGATORY NO. 10:

Please identify any and all written or oral agreements between you and

Mr. Dillabaugh concerning either the loans you identified in your response to Interrogatory No. 1, and state the terms of those agreements.

RESPONSE:

Please see the identification of the promissory notes and other agreements identified in Response to Interrogatory No. 1 above, which is responsive to this Interrogatory, and the reference to the agreement between Ellerton and Dillabaugh with respect to offsets or other consideration resulting from the benefits conferred upon Dillabaugh by Ellerton in Response to Interrogatory No. 5, which is responsive to this Interrogatory, each of which are incorporated herein by this reference.

INTERROGATORY NO. 11:

Please identify any and all written or oral agreements between you and

Mr. Dillabaugh that are relevant to your contention that the loans Mr. Dillabaugh made to you were forgiven or subject to offset.

RESPONSE:

Subject  to  and without  waiver  of the  General  Objections,  Ellerton responds to Interrogatory No. 11 as follows:

Reference is made to the following documents, which constitute written documentation of such agreement and understandings: ELL00128, ELL00073, ELL00063, ELL00033, and ELL00028, the email correspondence between Ellerton and Dillabaugh around the days of February 13-18, 2008, as reflected in documents ELL0008, ELL00012, and ELL00013, and the correspondence from Dillabaugh to Ellerton dated September 20,2009 at GD0025.

 

 

INTERROGATORY NO. 12:

 

Please explain your reasoning that led to the terms of the proposal you made to Mr. Dillabaugh in an e-mail dated February 9, 2008 and which is shown

on document marked GD0013.

 

RESPONSE:

 

Subject to and without waiver of the General Objections, Ellerton responds to Interrogatory No. 12 as follows:

Ellerton’s email dated February 9, 2008 was an effort by Ellerton to reach an accommodation fair to both Ellerton and Dillabaugh. The “proposal” took into account both monies provided by Dillabaugh as well as the benefit and opportunities received by Dillabaugh as a result of the efforts of Ellerton.

 

INTERROGATORY NO. 13:

 

Please state whether you still maintain the position that you took in an e-mail to Mr. Dillabaugh dated February 13,2008 wherein you stated that the amount loaned to you by Mr. Dillabaugh was approximately $400,000 before any interest or credit for money, opportunities for stock, or stock options, and explain why you took that position.

 

RESPONSE:

 

Subject to and without waiver of the General Objections, Ellerton responds to Interrogatory No. 13 as follows:

Ellerton does not contest the validity of the February 13, 2008 email, which speaks for itself, or the statements made therein and has not changed his position with respect to such positions.

 

INTERROGATORY NO. 14:

 

Please explain why you denied the allegations contained in paragraph 5 of Mr. Dillabaugh’ s Amended Complaint.

 

RESPONSE:

 

Subject to and without waiver of the General Objections, Ellerton responds to Interrogatory No. 14 as follows:

Except as specifically stated in the response to Paragraph 5 contained in the Answer, Ellerton disputed the interest calculations contained in paragraph 5 of the Amended  Complaint and therefore denied such allegations.

 

INTERROGATORY NO. 15:

 

Please explain why you denied the allegations contained


in

 

paragraph 8 of Mr. Dillabaugh’s Amended Complaint.

 

RESPONSE:

 

Subject to and without waiver of the General Objections, Ellerton responds to Interrogatory No. 15 as follows: Dillabaugh neither earned nor was entitled to the stock options referenced in paragraph 8 of the Amended Complaint and Ellerton further denied the allegation that there is a continuing obligation with respect to any such stock options.

 

INTERROGATORY NO. 16:

 

Please explain why you denied the allegations contained in paragraph 9 of Mr. Dillabaugh’s Amended Complaint.

 

RESPONSE:

 

Subject to and without waiver  of the General Objections, Ellerton responds to Interrogatory No. 16 as follows:

Ellerton does not believe that Dillabaugh  ever provided  shares of Sefton Resources  to Ellerton for IRAs for any of Ellerton’ s children.

 

REQUESTS FOR PRODUCTION OF DOCUMENTS

 


REQUEST  FOR PRODUCTION NO. 1:

Please produce any documents supporting your answers to the above interrogatories.

RESPONSE:

Subject to and without waiver of the General Objections, all documents responsive to this Request in the possession, custody or control of Ellerton which have been located as of the date of these responses, following a diligent search for the same, either are being produced or previously have been produced.

REQUEST  FOR PRODUCTION  NO.2:

Please produce all documentation  related to the loans made to you by Mr. Dillabaugh.

RESPONSE:

Subject to and without  waiver of the General Objections, all documents responsive to this Request in the possession, custody or control of Ellerton which have been located as of the date of these responses, following a diligent search for the same,  either are being produced or previously have been produced.

REQUEST  FOR  PRODUCTION  NO.3:

Please produce  all documentation  showing or supporting your position that the loans made to you by Mr. Dillabaugh were forgiven or offset due to benefits conferred upon Mr. Dillabaugh.

RESPONSE:

Subject to and without waiver of the General Objections, all documents responsive to this Request in the possession, custody or control of Ellerton which have been located as of the date of these responses, following a diligent search for the same, either are being produced or previously have been produced.

REQUEST  FOR  PRODUCTION  NO.4:

Please provide  all documentation  supporting your calculation of the amount still due and owing to Mr. Dillabaugh as a result of the loans he made to you.

RESPONSE:

Subject to and without waiver of the General Objections, all documents responsive to this Request in the possession, custody or control of Ellerton which have been located as of the date of these responses, following a diligent search for the same, either are being produced or previously have been produced.

REQUEST FOR PRODUCTION  NO.5:

Please produce all documentation  related to the 45,000 shares of Sefton Resources, Inc. which Mr. Dillabaugh provided to you.

RESPONSE:

Objection. This  Request  incorrectly  assumes  that  such  shares  were provided to Ellerton.  As such, Ellerton cannot respond to this Request.

REQUEST  FOR PRODUCTION  NO.6:

Please produce  all documentation  supporting or related to the proposal you made in the e-mail in Interrogatory No. 10 and the position you took in the e-mail referenced in Interrogatory No. 11.

RESPONSE:

Objection. This Request is vague and unintelligible because the interrogatories referenced therein are inconsistent with the Request. As a result, it is impossible for Ellerton reasonably to understand or determine what documents are being requested in this Request. If, and only to the extent that, Dillabaugh intended to reference Interrogatories 12 and 13, then, subject to and without waiver of the General Objections, all documents responsive to this Request in the possession, custody or control of Ellerton which have been located as of the date of these responses, following a diligent search for the same, either are being produced or previously have been produced.

Dated this 1″ day of August, 2008.

. BEATTY&WoZNIAK,

 

c –

 

 

 

2R:>rub1

Jack R. Luellen, #29017

BEATTY & WOZNIAK,

 

P.C.

216 Sixteenth Street, Suite 1100

Denver, CO  80202-5115

Phone Number: 303-407-4499

Fax Number: 303-407-4494

 

jluellen@bwenergylaw.com

 

ATTORNEYS FOR DEFENDANT JOHN J. ELLERTON

 


9

CERTIFICATE OF SERVICE

The undersigned hereby certifies that on this 1″day of August, 2008, a true and correct copy of the foregoing RESPONSES TO PLAINTIFF’S FIRST SET OF INTERROGATORIES  AND FIRST REQUEST FOR PRODUCTION  OF DOCUMENTS

TO DEFENDAA’T, JOHN J. ELLERTON

was served via U.S. Mail, properly directed as follows:

Gary C. Davenport Krista L Tushar

McGloin, Davenport,  Severson and Snow

1600 Stout Street, Suite 1600

Denver, Colorado 80202-3103

garyd@mdsslaw.comkristat@mdsslaw.com

102832

10

 

 

Exhibit A

Responses to Plaintiffs First Set of Interrogatories and First Request for Production of Documents

Date Bates No.

Description

Amount
3/5/1999 ELL00220 Exhibit 1 – Cash advances, etc. 6,000.00
4/16/1999 ELL00220 Exhibit 1 -Cash advances, etc. 2,550.00
5/19/1999 ELL00220 Exhibit 1 -Cash advances, etc. 7,000.00
6/18/1999 ELL00220 Exhibit 1 – Cash advances, etc. 10,000.00
6/30/1999 ELL00220 Exhibit 1 -Cash advances, etc. 5,000.00
7/11/1999 ELL00220 Exhibit 1 – Cash advances, etc. 6,000.00
8/3/1999 ELL00220 Exhibit 1 -Cash advances, etc. 3,000.00
11/30/1999 ELL00220 Exhibit 1 -Cash advances, etc. 3,000.00
1/16/2000 ELL00220 Exhibit 1 – Cash advances, etc. 2,000.00
2/5/2000 ELL00220 Exhibit 1 -Cash advances, etc. 4,000.00
2/18/2000 ELL00220 Exhibit 1 -Cash advances, etc. 10,000.00
4/3/2000 ELL00220 Exhibit 1 -Cash advances, etc. 2,000.00
4/13/2000 ELL00227 Gary Dillabaugh Check 4524 10,000.00
4/28/2000 ELL00220 Exhibit 1 – Cash advances, etc. 5,000.00
61212000 ELL00220 Exhibit 1 -Cash advances, etc. 5,000.00
612012000 ELL00226 Gary Dillabaugh Check 7450 10,000.00
6/21/2000 ELL00220 Exhibit 1- Cash advances, etc. 15,000.00
71612000 ELL00220 Exhibit 1 -Cash advances, etc. -9,500.00
7/10/2000 ELL00220 Exhibit 1 – Cash advances, etc. -5,500.00
8/3/2000 ELL00220 Exhibit 1 -Cash advances, etc. 2,000.00
9/8/2000 ELL00220 Exhibit 1 – Cash advances, etc. 2,000.00
10/9/2000 ELL00226 $5000 cash from Gary 5,000.00
11/27/2000 ELL00220 Exhibit 1 -Cash advances, etc. 18,060.00
11/30/2000 ELL00230 Summary page 3,000.00
12/18/2000 ELL00220 Exhibit 1 -Cash advances, etc. 3,000.00
6/22/2001 ELL00070 $12500 from G. Dillabaugh 12,500.00
3/18/2002 ELL00074 Gary $58500 (Also see ELL00075 forcheck 8411)  58,500.00
3/25/2002 ELL00074 Gary $25000 25,000.00
4/14/2002 ELL00076 Gary $200 cash 200.00
.  4/22/2002 ELL00077 Deposit slip for $4000 identifying fromGary Dillabaugh – Check drawn on account of Neal Freeman payable to Gary Dillabaugh attached  4,000.00
5/15/2002 ELL00079 Gary $4500 4,500.00
512012002 ELL00108 Check 9645 from Gary for $5000 5,000.00
5/20/2002 ELL00108 Check 8339 from Gary for $15000 15,000.00
6/5/2002 ELL00078 Gary $3500 3,500.00
6/14/2002 ELL00080 Cashier’s Check from RM Coin toEllerton  16,891.70
6/21/2002 ELL00082 Gary $1500 1,500.00
6/29/2002 ELL00082 Gary $2000 2,000.00
8/12/2002 ELL00084 Gary $50

50.00

8/12/2002 ELL00084 Dillabaugh check 9702 6,000.00
9/10/2002 ELL00085 Gary $300 300.00
9/25/2002 ELL00086 Dillabaugh check 9762 3,000.00
9/27/2002 ELL00087 Dillabaugh check stub 9759 40,000.00
11/6/2002 ELL00088 Gary $2500 cash 2,500.00
12/13/2002 ELL00090 Gary $2500 2,500.00

 

 

 

 

Exhibit A

 

Responses to Plaintiffs First Set of Interrogatories and First Request for Production of Documents

 

1/4/2003 ELL00047 Gary $500 500.00
1/13/2003 ELL00047 Gary $200 200.00
1/15/2003 ELL00049 Gary $1600 1,600.00
1/17/2003 ELL00047 Gary $500 500.00
2/5/2003 ELL00050 Gary $2000 2,000.00
2/10/2003 ELL00032 Lisa 5,000.00
2/19/2003 ELL00050 Gary $1500 1,500.00
3/3/2003 ELL00052 Gary $2000 2,000.00
3/10/2003 ELL00052 Gary $1700 1,700.00
4/1/2003 ELL00053 $7500 from Gary 7,500.00
4/1/2003 ELL00053 30,000 from Gary on behalf of JJE intoSefton  30,000.00
4/11/2003 ELL00054 Gary $500 500.00
4/16/2003 ELL00054 Gary $1500 1,500.00
4/23/2003 ELL00057 Gary $500 500.00
4/24/2003 ELL00055 Gary $300 300.00
4/29/2003 ELL00055 Gary $500 500.00
5/5/2003 ELL00056 Gary $200 200.00
5/11/2003 ELL00056 Gary $600 600.00
5/19/2003 ELL00057 Gary $500 500.00
5/30/2003 ELL00057 Gary $500 500.00
06/00/2003 ELL00032 Brent 20,000.00
8/27/2003 ELL00058 Gary $400 cash 400.00
9/26/2008 ELL00032 EFTTEG 3,000.00
10/1/2003 ELL00032 Sefton EFT 1,500.00
10/3/2003 ELL00032 Sefton EFT 750.00
10/3/2003 ELL00032 Sefton EFT 600.00
10/8/2003 ELL00032 Sefton EFT 400.00
10/15/2003 ELL00032 Sefton EFT 1,000.00
10/15/2003 ELL00058 Gary $300 300.00
6/30/2005 ELL00043 Gary $50,000 for Canada Paper 50,000.00
12/31/2005 ELL00045 Ellerton check 8742 to Dillabaugh -5,000.00
12/14/2006 ELL00044 Dillabaugh check 12625 5,000.00
0010010000 ELL00083 Gary $200 US Winton Manbour 200.00
Total $367,751.70

 

 

 

 

Exhibit B

 

Responses to Plaintiff’s First Set of Interrogatories and Requests for Production

 

Date Event and Benefit
1999 Dillabaugh was able to purchase preferred shares ofstock from Sefton Resources, Inc. and from Ellerton personally 
As of October 2000 Dillabaugh participated in IPO of Sefton Resources,Inc. and received 36,114 pre-split shares and 3,972,540 post-split shares 
May 31,2001 Dillabaugh purchased additional share options (SeeELL00063].  Options were subject to restrictions. 
April 2, 2001 Dillabaugh converted outstanding amounts due fromEllerton into shares of Sefton Resources, Inc., which shares had been obtained by Ellerton in connection with the IPO of Sefton Resources, Inc.  (See ELL00073).  Shares were subject to same restrictions as had been imposed upon Ellerton. 
March 5, 2003 Ellerton allots 3,000,000 shares of Sefton Resources,Inc. to Dillabaugh. 
July14, 2004 Dillabaugh receives 15,000,000 shares of Sefton Resources, Inc.
September 9, 2004 Board of Directors of Sefton Resources, Inc. approves additional stock options and consultant compensation to Dillabaugh
January 26-March 31, 2006 Dillabaugh was able to exchange shares of TEG Oil&Gas Canada, Inc. for shares in Sefton Resources, Inc.

 

 

As of March 3 I, 2006 Dillabaugh had been granted 15,000,000 stock option in Sefton Resources, Inc. of which 5,000,000 had

I

vested ands had received a total of 44,962,345 shares

of Sefton Resources, Inc., which include the shares received in exchange for shares ofTEG Oil

& Gas Canada, Inc.

November1, 2007 Dillabaugh enters into a consulting agreement withSefton Resources, Inc. 
June 27,2008 Dillabaugh enters into a Settlement Agreement with Sefton Resources, Inc.
Various times includingduring 2008 

Dillabaugh provides dental services to employees of

Sefton Resources, Inc., which services were paid for by Sefton.

It is uncertain if such services were rendered at prevailing market rates.

 

GO  0017

 

 

JOHN

 

 

J. ELLERTON

 

i90 Washington Street, #1001 Denver, Colorado 80203 (T)I{F) 303/860-0027

 

Gary Dillabaugh

9868 West Gin:on Drive Lakewood, Colorado 80227

Decem!= 3 I, 2001

Reference: Further Addendum to !Ul 1/QO,

04/02/0 I and 0513 l/0 I Agr=nents:

 


SUIIl.ll:liuizing the current status of the aforementioned agr=ents and recent ev ts:

At I 213!!00 balance outstanding (principal and interest)

was S 129.233.98 from which S57500 was paid for 6.325.000 new Sefton shares (57.500 old T&G Resources Inc. shares). This left a balance  owing  ofS7!.733.98  (at  IUll/01)

At Mav 31. 200 I interest ofS3.709.53

 

was earned (on 71,733.98@ 12.5% per annum) and S26,700. -was converted into 2.200.000 new Sefton shares leaving a balance of$48,743.51 (71,733.98   +3709.53-  26,700.00).

At June 22. 200 I  interest earned on 548,743.51

 

was S36725 and an additional  loan ofS12500. was  made  giving  aoalance  owing  ofS61,610.76  (at 06/22101): .

At  !213!/0! additional interest’ofS4.05LI2 was earned (12.5% on 561,610.76 for 199 days) giving a balance of principal and interest ofS65.661.88 (at 12f.l 110 1).

In addition to above (conversion ofS84,?00 into 8.525.000 shares of Sefton Resources leaving a balance      of$65,66!.88):-


.

-:::.. . .   .

Remaining options (at£ 0.01 per

 

share of Sefton Resources Inc.)  are 21,000,000 (after 500,oo0. toM. Walker and 500,000 to K. Ar!eth- from original22,000,000)

For

 

J. Ellen:on assuming S 10.000 owed to Sefton by yourself, 243,174 Sefton shares purchased by yourself through Seymour Pierce Lewis (October 2001) will be deducted from the  aforementioned total (8,525,000) resulting in:

Shares owed at 12f.l!/01 8,281,826
Principal & Interest at  I Ul!/0 I $65.661.88
And Options available at lUll/01 21.000,000

 

Regard

1′-V l.l:

 

 

1<. g.,z….nH,., ·!4 t-sovc.


‘ -* v..p

 

f/’5-

 

)17/ D l.. 4 a C:O,- 1-1 G –


— — – ·- · ———–nJ.

 

1 1

i)

{y_C ).’—

_ =-‘··.:..

“-C ‘-:….’   _…….ccc.cl?c…’i


,_k-=-;«:; · – /’ ·

JOHN J.

ELLERTON

790 Washington Street, #1001

Denver, Colorado USA 80203 (T): 303-860-0027 (Home)

303-773-7141 (Business)

April 2, 200

 

I

 

Dillabaugh

9868 West Girton Dr. La.'<ewood, CO 80227

i.

 

 

RE: Follow-up to 12/31100 Letter


Gary:

a follow-up to our 12/31100 letter (copy enclosed) [tis my understanding that:

. 1 9 -9


As of 12/31100 you are converting $57,500 of the outstanding debt ($.1:7,92Q.9 ) into 6,325,000 shares of Seftou Resources, Inc. held by myself- subject

 

to rules imposed on me as part of the 12/08/00 !PO of Sefton (I year hold & 1 year lrading through Seymour Pierce Ellis…).

B.

And c.

–P,733.96

This

will leave an outstanding debt of$65,5:::9.:M (as of 12/31100) which we agree to discuss payment terms shortly.


Remaining options of21,500,000 Sefton shares for $326,409.

If you agree, kindly execute both copies of this letter, returning one to myself.

AGREED TO THIS

 

ISDAY OF April. 2001.

BY: { ( .   

 

.cti-7:-..t-‘–t:;f-

Dillal:iimgh ‘-”


i

I

PROMISSORY NOTE

$123,500 Date: December 31, 2002

Denver, Colorado

FOR VALUE RECEIVED, the undersigned (the ”M:aker”) promises to pay to the order of

Gary Dillabaugh (hereafter called “Holder”), at Denver, Colorado (or at such other place as the Maker may designate and notify the Holder) the principal amount of One Hundred Twenty Three Thousand and Five Hundred Dollars($123,500.00) with interest from the date hereof of 10% per annum, which principal amount and interest thereon shall be paid to Holder on December 31,2003.

In

the event of nonpayment when due of any amount payable hereunder, or upon the occ=ence of any event of default or if the Maker should become insolvent (as defined in the Uniform Commercial Code as ineffect at that time), or apetition inbankruptcy be filed by or a.,aainst the Maker, (1) the total unpaid principal balance hereoftogether’With all accrued but unpaid interest hereunder may, at the option of the Holder, and without d=and or notice of any kind, be declared, and thereupon immediately shall become, indefault and due and payable, (2) the Maker will pay all expenses of the Holder in the collection of this Note, including reasonable attorneys fees.

The Maker shall be privileged to prepay this Note in whole orinpart without penalty with or without the consent of the Holder.                                                            ·

This Note

is to be construed inall respects and enforced according to the laws of the State of Colorado.

CUsersSef!onProm NotesPromissory Not Ellerton.doc

DRAFT

PROlVIISSORY  NOTE

$5.000.00 Date: Februarv 10. 2003

Denver, Colorado

FOR VALUE RECEIVED, the undersigned (the “Maker”) promises to pay to the order  of Lisa

 

L. Dillabaugh. (hereafter called “Holder”), at the principal office of the Maker in Denver,

Colorado (or at such other place

 

as the Holder may designate and noth-‘}r the Maker) the principal   · amount of Five Thousand  and 00/100  dollar ($5,000.00) with interest from the date hereof of

10% annum, which principal amount and interest thereon shall be paid on or before Mav 31. 2002.

In

 

the event of nonpayment when due of any amount payable hereunder, or upon the oc=ence of any event of default, or if the Maker should become insolvent (as defined in the Uniform Co=ercial Code as in effect at that time), or a petition in banlauptcybe filed by or against the Maker, (I) the total unpaid principal balance hereof together with all accrued but unpaid interest hereunder may, at the option of the Holder, and without demand or notice of any kind, be declared, and thereupon i=ediately shall become, in default and due and payable, (2) the Maker will pay all expenses of the Holder in the collection of this Note, including reasonable attorney’s fees and legal expenses, and (3) the Holder may exercise from time to time any rights and remedies available to the Holder under the Uniform Co=ercial Code as in effect at that  time in Colorado or other applicable jurisdiction or otherwise available to Holder, or (4) do any  of the foregoing.

The Maker shall be privileged to prepay this Note in whole or in part without penalty with or without the consent of the Holder.

Tois Note is to be construed in all respects and enforced according to the laws of the State of Colorado.

 

 

 

JOEN J. ELLERTON

6001 So.

Yosemite St., #’E-205

Greenwood Village Colorado, USA

80111


(T)/(.F):

3()3-770-9572

December

 

31, 2000

Dillabaugh

9868 West Girton

 

Dr.

Lakewood,

 

CO 80227

RE:

 

Stock/Options and Loan Agreement:

Sefton Resources, Inc. (TEG Resou.”Ces, Inc.)

&

 

J. Ellenon · ·


Dear C-a.-y:

Enclosed are the following:

Exhibit

 

A: Stai:ement of money loaned by yourself and

interest ea.-:ted etc., throug.h 12/31/00

b..

 

Exhibit B:Copy of previous correspondence dated 11112/99 -relating


to above matter

and

ExJ:uoit

 

c: ProspecttlS dated 12/8/00 in which Sefton Resources, Inc. (formerly TEG Resources, Inc.) Went public, which includes the current status of stock and options held by J. Ellerton & G. Dillabaugh – as to numbers (including stock/option splits) etc.


This

letter 0utlines the current situation and agreement between ourselves:

Current situation with respect to co=on stock for G. Dillabaugh:

550,000 Sefton shares (5,000 pre-split shares in TEG) from J. Ellerton Consultants.

in

 

process of being issued by transfer agents.

Conversion of25 preferred  shares (and accumulated :Oividends through 4/1100) into  co=on stock ofTEG Resources,  Inc. issued  to  G. Dillabaugb. by TEG.

in process ofbeing issued Sefton stock in exchange.

(ill)

 

Purchase oflO,OOO shares ofTEG co=on stock by G. Dillabaugh. Issued to G. Dillabaugh by TEG Resources, Inc.

in process ofbeing issued Sefton stock

 

in exchange.


·.

 

Current situation with respect to loans etc.,

 

by G. Dillabau ‘l. to J. Ellerton:

See Exln”bit A- which includes $5,000 premium owed by

 

J. Ellerton for G.

Dillabaugh investing in TEG’s pre…””erred

 

shares.

Guanmee by G. Dillabaugh of $27,500 loan to

 

J. Eller.:on by Wells Fargo (cu…””Tently being amortized).


For assistance by yourself in the above matters,

 

I, (J. Ellerton) agree to comp=ate you as follows:

Repayment of cash advances (and aforementioned $5,000 premium) in form of

loan (see 12131/00 statement of principal and interest) bearing 12% per

 

annum, amortization schedule to be determined prior to 3/31/2001 – accumulate intere:,1: until silch date.

Options to conven portion or

 

all principal and interest 😮 Sefton co=on stock

held by

 

J. Ellerton (number of shares and pricing listed below). time of conversion to be determined byMarch31, 2001.

Options to acquire Sefton co=on stock from

 

J. Ellerton as follows:

6,325,000 Sefton shares for $57,5000 (57,500 TEG shares of$1.00/sbare formrd split 110 to 1 into Sefton shares).

(ii”)

 

21,500,000 Sefton shares for $326,409 (prior to 119/04- 195,455 TEG shares at $1.67/sbare).

This

 

is in addition to assurances by J. Ellerton of the repayment of the aforementioned Wells Fargo loan and any other items yet to be determined.

If

 

this is your understanding at this time, kindly indicate such by executing both copies of this letter and returning one copy to me.

AGREED TO THIS DAY OF— 2001.

G. Di!labaugh


 

-·jv ·

ELLOO

29

 

 

EXHIBIT A

Cash Advances/Preferred Share Premium and Interest Throughl2/31/00

Amount DateRecv’d #of Days Interest Total

(Princioal)

 

(or Owed) (for interest) (at 12%)


A.

 

Tnrougb. 716100

 

1.

 

6,000 3/3/99 491 968.55 6,968.55

2.

2,500

4/16/99

447

374.75 2,924.75

 

3. 7,000 5/19/99 414 952.77

 

7,952.77

 

4. 10,000 6/18/99 384 1,262.47 11,262.47

 

5.

 

Premium 5,000 6130199 372 611.51 5,611.51

6. 6,000

 

7111199 361 712.11 6,712.11

. 7. 3,000

813!99 338 333.3 7 3,333.37

 

8. 3,000 11130/99 219 216.00 3,216.00

9. 2,000 1116/00 172 113.10 2,113.10

10. 4,000

 

215100 152 199.89 4,199.89

11. 10,000 2118/00 142 466.85 10,466.85

12. 2,000 4/3/00 94 61.81 2,061.8!

13. 10,000 4113/00 84 276.16 10,276.16

1

 

Ll. 5,000 4/28/00 69 113.42 5,113.42

15. 5,000

 

6/2100 34 55.89 5,055.89

16. 15.000 6/21100 15 73.97 15.073.97

Sub-Total

 

95,550 6,792.62 102,342.62

Payments  ..

 

(8,207.38) (6,792.62) (15,000)

Net

 

87,342.62 0 87,342.62

From

 

717/00 to

12/31/00

Net

 

a. 87,3<12.62 7/6/00 178 5,111.34 92,453.96

b.

 

2,000 8130100 123 80.88 2,080.88

c. 2,000 9/8/00 114 74.96 2,074.96

d.

 

5,000 10/9/00 83 136.44 5 136.44

e.

 

l8,C60 11/27/00 34 201.88 18,261.88

 

t:

 

3,000 12118/00 13 12.82 3.012.82


Total

 

117.40?.62 5.618.32 123.020.9<1


I.Ellerton


;;;:’!.


‘– 1;; v

 

‘$

 

ro’:;>c).(l. C J..


.

                   I / 1


ELLOO

JOHN J. ELLERTON

 

 

790 Washington Street, #1001 Denver, Colorado USA 80203


(T);

303-860-0027 (Home)

303-773-7141 (Business)

May31,2001

GmyDillabaugh

9868 West Girton Drive Lakewood, CO 80227

 

RE:

 

Addendum to 12/31/00 Agreement and 4/2/01 Addendum


Dear

 

Gary:

As a follow-up to the above mentioned agreement (copy enclosed), the following additions have been agreed to:

As a result of Mendes

 

& Associates  not exercising  his 20,000 old  s…’:tare  options  (ar

$1.00/share) with

 

J. Ellerton (as of end ofFeb ’01) then 50% of those pass onto yourself

i.e., 1,100,000 new shares for a consideration of$10,000 (US).

As a result ofM. Schlueter not exercising 20,000 old share options (at $.167/share)

_with

 

J. Elierton (as of end of Feb ’01) then 50% of these pass onto yourself i.e., 1,100,000 new shares for a consideration of $16,700 (US).

It

 

is my understanding  that you wish to purchase these shares for the above indicated price by applying said money from orr-..,–tmding amount owed by myself{See enclosure

-in addition to that outlined

 

L.; April2, ’01 addendum to 12/3l!OO agreement).

Tthese·above mentioned [terns do not alter the options

 

as per Item 3 [in particular 3c

&

 

(ii)] of the 12131/00 agreement oilier than 3 (a) is to be extended to 6/30/01 from 3/31101.


If this is your understanding at this time, kindly indicate such by executing both copies of this letter and retuming one copy to me.

Rega;P ·

J

ELL000 3

 

 

I.


I’UOMISSOI!Y  NOTE

 

Dalc:

 

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date,

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f’Jt... .i’

– j£1

 

BValter‘1

for value  occcivcd,  I,

 

lhN””t

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fl’ililo t.m  ) promise. to pny  to —    )) ‘ .1..-fl·IMlY.!J or order


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DoUars with interest  from


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at Ihe rule of -1 per cent, per (}·rl rhJ i>l>, payable


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,$ll

 

II\ VI ,lilj  ll  · Prillcipalpayaule  an;l interest payable at 2 lJ 1’1′ 1ilJ!J ntl :bt1,  fll()l 11Q1l_,..Sl

IT IS AGREE lrnl  if  this  note  Is  not  pnitl  when  tlue or declared  due  hereunder,  the cnllre principal  ond  occtued  interesl  U(etcon  5holl

 

drilY  lnfcrcst  at  the fllle

of n

 

t:1 percent  per ormum,  nnd  lint  fnllure to make  nny  payment  of  ptinclpnl  or  ln!e s! when due or any dc:fnuh  nmler ony encumbrance  or’.    .,


I

,@l,l

“1:”)4

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fl

 

 

‘l

<:>. ‘I

ogrecmenl

 

$ccuring this nule shall cnnse the whole note to become due nt once, or the interest to he count.etlns prlm:lpul, utthe option of the lmlder of the note. Th11 m ken nml   l(ij cntlorseu  l.er tJI  severally  wntve  ptt:SCilllllCII!  for p ymcnt,  tnut st,  notice  of  non-pnyrmnt  onrl of  flmlest,  ontl  ogroe  to  any  eAicns!on  uf  lime  of  p ymeut  oml  pnninl payments bcfme, nl or ortcr maturity, and If this note or intcrestthen on h not poid wlten tlue, or suh Is brought; ugu:c lo puy allrcnsonablc costs of collection, lnclutling allomey’s feu. ·


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IC3I

Duo Date

 

Wfr” 3. ), ) 1J P I


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IL

 

–·N-o – >iF1ll7’Wi · 11W61PmJm No. I02U. Uev. :Z-t15,   llrlldlonll’uhllshlnt, 17_41 Wouc St., Dnm·or, CO 80202 ·-(JOJ) 292·2500- fi·!l’l

“‘

DISTRICT COURT, CITY AND COUNTY OF DENVER,  COLORADOCourt address: 1437 Bannock Street, Room 256 Denver, Colorado 80202Phone Number: 720-865-8301Plaintiff:

GARY DILLABAUGH

v.

Defendant:

JOHN J. ELLERTON

Jack R. Luellen, #29017

BEATTY

 

& WOZNIAK, P.C.

216 Sixteenth Street, Suite 1100

Denver, CO 80202-5115

Phone Number: 303-407-4499

Fax Number: 303-407-4494

 

jluellen@bwenergylaw.com

Attorneys for Defendant John J. Ellerton

 

 

-‘.COURT  USE  ONLY.6.
Case Number: 08CV2877 Div.: 3

 

 

DEFENDANT’S  FIRST SUPPLEMENTAL  RESPONSES TO PLAINTIFF’S  FIRST SET OF INTERROGATORIES

 

Defendant, John J. Ellerton (“Ellerton”), by and through his counsel, Beatty

 

& Wozniak, P.C., hereby provides his First Supplemental Response to Plaintiffs First Set ofinte!Togatories as follows, with the understanding that the Preliminary Statement and General Objections set forth in Ellerton’s Responses to Plaintiffs First Set of Interrogatories and First Request for Production of Documents to Defendant, John J. Ellerton (the “Initial Responses”) apply to the supplemental responses set forth herein:


INTERROGATORIES

INTERROGATORY  NO.3:

Please state the amount of money you presently  owe Mr. Dillabaugh and describe

in detail how you computed the amount owed.

SUPPLEMENTAL  RESPONSE:

Subject to and without waiver of the General Objections, Ellerton responds to Interrogatory No. 3 as follows:

With respect to offsets and other consideration due to Ellerton, please see Exhibit B attached to the Initial Responses. Despite a good-faith effort, it is impossible for Ellerton to quantify the value of each specific item of benefit conferred upon or received by Dillabugh for which Ellerton is ep.titled to credit, offset or other consideration.

Nevertheless, Ellerton has been able to estimate that the value of the benefits for which credit, offset or other consideration is due to Ellerton to be not less than $2,028,668, which amount was calculated as follows:

Compensation from Sefton Resources: $285,000 Settlement Agreement with Sefton: $15,000 Shares of Sefton Resources: $1,349,261

3,846,721 shares

Current mid-range valuation of £0.225 (based upon recent valuation of between 11.8 and 33.6 pence)

Resulting value of £770,787 (3,425,721 * £0.225) = $1,349,261 (at

exchange rate as of date of these Supplemental Responses)

Options in Sefton Resources: $379,407

1,000,000 granted

in September 2004 and fully vested at a price of £0.06 o 1,000,000 * £0.225less option price of£0.06 = £165,000 = $288,811

300,000 granted

in 2007 for a price of£0.0525

o 300,000

* £0.225 less option price of £0.0525 = £51,750 = $90,596

INTERROGATORY NO.5:

In paragraphs 20 and 24 of your Answer to the Amended Complaint, you state that the loans made to you by Mr. Dillabaugh were forgiven as a result of benefits conferred upon Mr. Dillabaugh.  Please explain what benefits were conferred upon Mr. Dillabaug.l. 1:.tl.at resulted in the forgiveness of the loans that Mr. Di!labaugh made to you. As part of your description, please include the date the benefit was conferred, the exact nature of the benefit, and the amount of any loan that was forgiven as a result of the benefit.

SUPPLEMENTAL   RESPONSE:

Please see the Supplemental Response to Interrogatory No.3, which is responsive hereto and incorporated herein by this reference.

2

INTERROGATORY NO.6:

In paragraphs 20 and 24 of your Answer to the Amended Complaint, you state that the loans made to you by Mr. Dillabaugh were subject to offset as a result of benefits conferred upon Mr. Dillabaugh.  Please explain what benefits were conferred upon Mr. Dillabaugh that resulted in the offset of the loans that Mr. Dillabaugh made to you.  As part of your description, please include the date the benefit was conferred, the exact nature of the benefit, and the amount of any loan that was forgiven as a result of the benefit.

SUPPLEMENTAL RESPONSE:

Please see   the Supplemental Response to Interrogatory No. 3, which is responsive hereto and incorporated herein by this reference.

Dated thisJ2 ay of September, 2008.

BEATTY

 

& WOZNIAK, P.C.


c.

 

Jack R. Luellen, #29017

BEATTY

 

& WOZNIAK, P.C.

216 Sixteenth Street, Suite 1100

Denver, CO  80202-5115

Phone Number: 303-407-4499

Fax Number: 303-407-4494

 

jluellen@bwenergylaw.com

 

ATTORNEYS FOR DEFENDANT JOHN J. ELLERTON

 


3

 

CERTIFICATE OF SERVICE

 


The undersigned hereby certifies that on this of September, 2008, .a true and correct copy of the foregoing

DEFENDANT’S  FIRST SUPPLEMENTAL  RESPONSES  TO

 

PLAINTIFF’S  FIRST SET OF INTERROGATORIES

 

was served via U.S. Mail, properly directed as follows:

Gary C. Davenport Krista

L. Tushar

McGloin, Davenport, Severson and Snow

1600 Stout Street, Suite 1600

Denver, Colorado 80202-3103

garyd@mdsslaw.com kristat@mdsslaw .com

107412


 


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