Preview
FILED
DALLAS COUNTY
11/20/2014 5:17:17 PM
GARY FITZSIMMONS
DISTRICT CLERK
Cause No. DC-14-09959-E
PRODAGIO HOLDINGS, INC.; § IN THE DISTRICT COURT OF
IMAGITEK HOLDINGS, LLC; and §
MARA S. HENDERSON, individually and §
derivatively on behalf of PRODAGIO, LLC §
§
Plaintiffs, §
§
v. § DALLAS COUNTY, TEXAS
§
PRODAGIO INTERMEDIARY, LLC §
PRODAGIO, LLC, 221 PRO, LP, §
SBOF II (Prodagio), LLC §
PRODAGIO PARTICIPATION, LLC, §
DIANA MASSARO, SHAWN KELLY, §
RICK PONTIN, ED OLKKOLA §
and BHARTI SUBRAMANIAN §
§
Defendants. § 101st JUDICIAL DISTRICT
FOURTH AMENDED ORIGINAL PETITION AND VERIFIED APPLICATION FOR
TEMPORARY RESTRAINING ORDER AND TEMPORARY INJUNCTIVE RELIEF
Plaintiffs Prodagio Holdings, Inc., Imagitek Holdings, LLC, and Mara S. Henderson,
individually and derivatively on behalf of Prodagio, LLC, (collectively “Plaintiffs”) complain of
Defendants Prodagio Intermediary, LLC, Prodagio, LLC, 221 PRO, LP, SBOF II (Prodagio),
LLC, Prodagio Participation, LLC (collectively “Corporate Defendants”), Diana Massaro
(“Massaro”), and Shawn Kelly, Rick Pontin, Ed Olkkola, and Bharti Subramanian (collectively,
“Manager Defendants”) as follows.
NEED FOR IMMEDIATE ACTION
1. By this application for temporary restraining order and temporary injunction,
Plaintiffs seek the Court’s immediate help to preserve the status quo and to stop Defendants’
plans to plunder the company, Prodagio, LLC. Since the initiation of litigation, Defendants have
taken new steps to plunder Prodagio, LLC through a plan to devalue the shares of the company,
prioritize Defendants’ distributions over Henderson’s distributions, and convert loans entered
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into by the controlling managers and members with the company without board notification or
approval at above market terms into the new shares, all at the expense of the company, Prodagio,
LLC and minority member, Mara Henderson. These steps constitute an abuse of the Manager
Defendants’ authority, and are taken with the intent to harm Henderson’s interests, in a manner
that does not comport with the honest exercise of their business judgment, and create an
imminent risk of harm and exigent circumstances for the company, Prodagio, LLC.
2. Initially, Plaintiffs brought this action to enforce unsatisfied obligations owed to
Plaintiffs by Defendants. As discovery proceeded, Plaintiffs sought redress for Defendants’ false
promises and representations, breaches of contract and for defamation by Massaro and Prodagio,
LLC. Those claims remain to be litigated. However, the Defendants’ most recent actions require
immediate intervention to prevent irreparable harm to Prodagio, LLC and Mara Henderson.
DISCOVERY CONTROL PLAN
3. Plaintiffs intend to conduct discovery under Level 2 of Rule 190.3 of the Texas
Rules of Civil Procedure. For the purposes of the expected preliminary injunction hearing,
Plaintiffs seek expedited discovery, whether by agreement or by order.
PARTIES
4. Prodagio Holdings, Inc. (“Prodagio Holdings”) is a Texas corporation with its
principal place of business in League City, Texas.
5. Imagitek Holdings, LLC (“Imagitek”) is a Texas limited liability company with
its principal place of business in League City, Texas.
6. Mara S. Henderson is a Texas resident who lives in Harris County, Texas.
7. Prodagio, LLC (“Prodagio”) is a Delaware limited liability company with its
principal place of business in League City, Texas. Prodagio may be given notice by sending a
copy to Prodagio, LLC, 2525 South Shore Boulevard, Suite 202, League City, Texas 77573 and
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may be served process through its registered agent, Shawn Kelly, at 8226 Douglas Ave. #335,
Dallas, Texas 75225.
8. Prodagio Intermediary, LLC (“Intermediary”) is a Delaware limited liability
company with its principal place of business in Dallas, Texas. Intermediary is a Class B Member
of Prodagio. It may be given notice by sending a copies to Prodagio, LLC, 2525 South Shore
Boulevard, Suite 202, League City, Texas 77573 and Teakwood Capital, 8226 Douglas Ave.
#335, Dallas, Texas 75225, Attn: Shawn Kelly, and may be served process through its registered
agent Incorporating Services, Ltd., 3500 South DuPont Highway, Dover, Delaware 19901.
9. 221 PRO, LP (“221 PRO”) is a Delaware limited partnership with its principal
place of business in Austin, Texas. 221 PRO is a Class B member of Prodagio. It may be given
notice by sending a copy to Harris Preston & Partners, LLC, Attn: Charles Preston, Managing
Director, 600 Congress Avenue, Suite 200, Austin, Texas 78701 and may be served process
through its registered agent Capitol Services, Inc., 1675 South State Street, Suite B, Dover,
Delaware 19901.
10. SBOF II (Prodagio), LLC (“SBOF”) is a Delaware limited liability company with
its principal place of business in New York, New York. SBOF is a Class B member of Prodagio.
It may be given notice by sending a copy to SBOF II (Prodagio), LLC, c/o Sigular Guff
Advisers, LLC, 825 Third Avenue, 10th Floor, New York, New York 10022, and may be served
process through its registered agent Corporation Service Company, 2711 Centerville Road, Suite
400, Wilmington, Delaware 19808.
11. Prodagio Participation, LLC (“Participation”) is a Texas limited liability company
with its principal place of business in Dallas, Texas. Participation is a Class C Member of
Prodagio. It may be given notice by sending a copy to Prodagio, LLC, 2525 South Shore
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Boulevard, Suite 202, League City, Texas 77573 and may be served process through its
registered agent, Shawn Kelly, at 8226 Douglas Ave. #335, Dallas, Texas 75225.
12. Diana Massaro is an individual who resides and can be served with process at
4234 Drake Street, Houston, Texas 77005-1030.
13. Shawn Kelly is an individual who resides and can be served with process at 6706
Stefani Drive, Dallas, Texas 75225-2724. Kelly is a manager of Prodagio.
14. Rick Pontin is an individual who resides and can be served with process at 3203
Riva Ridge Road, Austin, Texas 78746-1424. Pontin is a manager of Prodagio.
15. Ed Olkkola is an individual who resides and can be served with process at 3030
McKinney Avenue, Apt. 501, Dallas, Texas 75204-7482. Olkkola is a manager of Prodagio.
16. Bharti Subramanian is an individual who resides and can be served with process
at 18732 Wainsborough Lane, Dallas, Texas 75287-5525. Subramanian is a manager of
Prodagio.
JURISDICTION AND VENUE
17. This Court has subject matter jurisdiction over this matter because the amount in
controversy falls within the Court’s jurisdictional limits.
18. This Court may exercise jurisdiction over Prodagio under Section 9 of the
Promissory Note (attached as Exhibit A) whereby Prodagio submitted to the Court’s jurisdiction:
Maker [Prodagio] hereby, and by acceptance hereof, Payee
[Prodagio Holdings], irrevocably submits to the exclusive
jurisdiction of any federal or state court located in Dallas, Texas
over any dispute arising out of or relating to this Note or any of the
transactions contemplated hereby and hereby irrevocably agrees
that all claims in respect of such dispute or any suit, action
proceeding related thereto may be heard and determined in such
courts.
Moreover, this Court has jurisdiction over Intermediary, Prodagio, 221 PRO, SBOF, and
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Participation because each entity maintains offices in Texas and/or conducts business in Texas.
This Court has jurisdiction over Massaro, Kelly, Pontin, Olkkola, and Subramanian because each
is a Texas resident. Further, each of the Defendants collectively committed all of the acts and
omissions relating to these claims in Texas. Defendants, in the conduct of their business
activities, have purposefully availed themselves of the benefits and protections offered by the
state of Texas.
19. Venue is proper in Dallas County, Texas under Texas Civil Practices & Remedies
Code §§15.002(a)(1) and (3), and because Prodagio consented to venue in Dallas, Texas.
20. Venue for the sole cause of action (defamation) asserted against Massaro and for
the sole cause of action against Kelly, Pontin, Olkkola and Subramanian (breach of fiduciary
duty) is proper in Dallas County, Texas, pursuant to Texas Civil Practice & Remedies Code
§15.005. The sole cause of action asserted against each arises out of the same series of
transactions or occurrences.
FACTS
21. Henderson is the founder and sole stockholder of Imagitek and sole manager of
Prodagio Holdings. She is also a manager and a Class A and Class D member of Prodagio.
Henderson Builds Imagitek, aka “Prodagio Software”
22. Henderson, through Prodagio Holdings and Imagitek, built Prodagio Software
into a successful software enterprise that provides various companies the technology to improve
business processes, simplify workflows, and save millions with its accounts payable automation
and contract management solutions.
23. In 2012, Prodagio Software was a successful entity with quality customers and a
healthy revenue base.
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Merger with Teakwood Capital
24. In February 2013, Imagitek and Teakwood Capital LP, a Dallas-based private
equity firm, merged Imagitek Ltd. into Prodagio. Prodagio Holdings, through Imagitek, provided
the going concern and company assets. And Teakwood Capital LP provided funding and
purchased equity in Prodagio through Intermediary.
25. With the investment, Prodagio intended to expand its sales force with the aim of
increasing worldwide sales, and, in addition to increase its Houston-based software engineering
and development staff.
26. At the time of the merger, Prodagio was worth at least $9,520,000, which
reflected the $9,170,000 invested by Intermediary and a Tax Gross Up Amount, of
approximately $315,000, paid by Intermediary. Exhibit G, Merger Agreement §6.2(c).1
27. As part of the transaction, Henderson assumed the position of Chief Executive
Officer (CEO) of Prodagio pursuant to a two year employment agreement.
Promissory Note and Modification
28. On February 5, 2013, as part of the merger, Prodagio and Prodagio Holdings
entered into a Promissory Note (the “Note”)2 for the benefit of Prodagio Holdings in the
principal amount of $500,000. Exhibit A. The Note provided that the outstanding principle
would accrue eight-percent (8%) interest per annum, compounded on an annual basis. Exhibit A,
Note Section 1(a). The Note included an attached payment schedule listing all principal and
interest payments beginning March 31, 2013, and continuing every three months thereafter until
the maturity date of December 31, 2014. The Note also provided that the interest rate would
increase to twelve-percent (12%) after the maturity date or in the event of default. Id. The Note
1
The Merger Agreement is attached as Exhibit G.
2
The Note is attached as Exhibit A.
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granted Prodagio Holdings the option to declare Prodagio in default and, therefore, accelerate all
unpaid principal and interest due under the Note, if Prodagio was more than five days late on any
payment. Id. ¶ 4.
29. Prodagio made no payments due under the Note. Specifically, Prodagio missed
payments due to Prodagio Holdings on March 31, 2013; June 30, 2013; and September 30, 2013.
Rather than exercise Prodagio Holdings’s right to declare Prodagio in default, Henderson, as the
sole stockholder of Prodagio Holdings, relied on representations made by Kelly and Pontin,
agents of Prodagio and Intermediary, that Prodagio intended to make and would make payments
due under the Note.
30. On December 30, 2013, Prodagio Holdings, again relying on these representations
about Prodagio’s intent and ability to make payments due under the Note, entered into the
Modification of Promissory Note Agreement (the “Modification”)3 with Prodagio. Under the
Modification, Prodagio Holdings agreed to suspend payments due under the note while interest
continued to accrue. Exhibit B, Modification ¶¶ 1-2. The Modification provided that payments
would “resume” on June 30, 2014 and continue every three months until the modified maturity
date. Id. ¶ 4. The Modification altered no other terms of the Note other than the payment
schedule. To date, Defendants have made no payments due under the Note or the Modification.
31. Prodagio’s failure to pay constitutes an Event of Default under the Note. The Note
provides that “[t]he entire unpaid principal and accrued interest and all other amounts owing
under this Note shall be immediately due and payable at the option of Payee. . . .” Prodagio
Holdings is the payee and opts to and does declare the entire unpaid principal, accrued interest
and all other amounts owing under the Note immediately due and payable.
3
The Modification is attached as Exhibit B.
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Reimbursement Agreement and Loan Agreement
32. While serving as CEO, Henderson made payments for Prodagio business
expenses in the amount of $235,103 that Prodagio promised to reimburse. Prodagio’s promise
and Henderson’s consideration constituted a Reimbursement Agreement. However, Prodagio has
made no reimbursement payments to Henderson. Prodagio, through its agents, have
acknowledged this outstanding debt to Henderson as recently as July 24, 2014.
33. Prodagio Holdings also loaned $85,000 to Prodagio while Henderson served as
CEO. Prodagio, Kelly, and Pontin promised orally and through email correspondence to repay
Prodagio Holdings for the loan. Their promise and Prodagio Holdings’s consideration constituted
a Loan Agreement. To date, Prodagio has not made any payments to Prodagio Holdings in
satisfaction of this agreement. Prodagio acknowledged this outstanding debt to Prodagio
Holdings as recently as July 24, 2014.
Severance Agreement
34. Prodagio terminated Henderson’s employment without cause. As a result of this
action, Henderson and Prodagio entered into a Confidential Severance Agreement and General
Release (the “Severance Agreement”)4 dated March 26, 2014. The Severance Agreement
provided that Henderson would be paid her Base Salary (i.e. $200,000) through the Separation
Date (i.e. March 26, 2014), six months of her Base Salary (i.e. $100,000), in prorated amounts on
Prodagio’s regular paydays as if Henderson was actively employed, and all accrued but unused
paid time off (“PTO”). Exhibit C, Severance Agreement at ¶ 1(a)(i)-(ii). Henderson never
received any payments due under the Severance Agreement, not even the Base Salary through
the Separation Date as she was not paid for any of the months she worked in 2013.
4
The Severance Agreement is attached as Exhibit C.
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Prodagio’s Operating Agreement
35. The Amended and Restated Operating Agreement (“Operating Agreement”)5 of
Prodagio was adopted on February 5, 2013. As members of Prodagio and signatories of the
Operating Agreement, each of the Corporate Defendants is bound to the terms of the Operating
Agreement. That Operating Agreement entitles Henderson, as a manager, to receive a schedule
of regular meetings of the Board of Managers and notice of any special meetings. Exhibit D,
Operating Agreement at ¶¶ 10.6-10.7. Henderson is also entitled to “all information to which
[she] is entitled to have access pursuant to” Delaware Limited Liability Company Act
(“DLLCA”) § 18-305. Exhibit D, Operating Agreement at ¶ 13.1. The scope of information
required under DLLCA § 18-305 is broad and includes the following:
• True and full information regarding the status of the business and financial condition
of the limited liability company;
• True and full information regarding the amount of cash and a description and
statement of the agreed value of any other property or services contributed by each
member and which each member has agreed to contribute in the future, and the date
on which each became a member; and
• Other information regarding the affairs of the limited liability company as is just and
reasonable.
36. Beginning in April 2014, Henderson repeatedly has requested from Prodagio
schedules of Prodagio’s financial information (i.e., “[t]rue and full information regarding the
status of the business and financial condition of the limited liability company”) and notice of
Board meetings, including a direct request to Pontin, the Board’s Chairman. Henderson has
requested this information for the express purpose of valuing her ownership interest in Prodagio,
to evaluate the status of the business and financial condition of Prodagio, to investigate potential
wrongdoing and/or mismanagement, and to determine whether to appoint someone else to as a
5
The Operating Agreement is attached as Exhibit D.
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member of Prodagio’s Board. Henderson has not received and does not have sufficient
information to permit her to perform these Board functions. Henderson has not received adequate
financial information in response to her requests, nor has she received a schedule of regular
Board meetings.
37. The Operating Agreement also requires that the “Managers shall meet at least
quarterly and in no event less than five (5) times per year.” Id. at ¶ 10.6. The managers of
Prodagio, other than Henderson, are Kelly, Pontin, Olkkola, and Subramanian, all of whom are
affiliated with the Dallas-based private equity firm Teakwood Capital. These managers have not
held quarterly meetings in 2014. To the extent the managers have met, the meetings have been
concealed from Henderson and the meetings have been in violation of the Operating Agreement.
Meeting Notices, Sort of
38. Henderson was notified of a Board meeting to be held on May 13, 2014. But then
Henderson was notified just days before that the meeting was cancelled. Henderson has since
learned from other employees of Prodagio that all managers, except Henderson, held the meeting
without providing notice to Henderson.
39. On Friday, October 10, 2104, at approximately 4:00 p.m., Kelly sent out a notice
of a special meeting of managers. The notice set the meeting for 10:00 a.m. Tuesday, October
14, 2014, the morning after a federal holiday. The purpose of the special meeting was to approve
a proposal to issue a new class of shares deemed to have a value of approximately $2.7 million,
which would be convertible to Class A shares and offered to all members on a pro rata basis.
Kelly provided no information along with the notice that would enable Henderson to evaluate
whether the proposal was in the best interests of Prodagio. Upon information and belief, Kelly
and Pontin provided financial information and other information to the other managers for this
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meeting.
40. Henderson objected to the meeting because it had been improperly called and she
had not been provided information sufficient to allow her to evaluate the proposal. Less than half
an hour after her objection, the meeting was cancelled.
41. These violations of the Operating Agreement have weakened the safeguards in
place to oversee the operations and financial condition of Prodagio. Upon information and belief,
the Manager Defendants, specifically including Kelly and Pontin, have perpetrated these
violations to hide their mismanagement of Prodagio to date.
A Potential Sale, a Recent Meeting Notice, and the Attempt to Devalue the Company and
Reap Benefits of a Sale
42. Prodagio is in the process of selling its assets. Specifically, Prodagio has been
shopping the software that is the company’s most significant asset over the last few months.
Despite repeated demands, Prodagio, at the direction of controlling member Intermediary, has
withheld from Henderson the management letters for August, September and October 2014. On
information and belief, Prodagio currently has two offers for the purchase of that software and
the management letters withheld would reflect those offers.
43. On Friday, November 7, 2014, at approximately 3:00 p.m., Kelly sent another
notice of a special meeting of Managers (“November Notice”).6 Exhibit F. The November
Notice sets the meeting for 10:00 a.m. on November 18, 2014, and states that the purpose of the
meeting is “to approve the sale of a new series of Class E units of the Company” that will
(1) issue for an aggregate issue price of $2,277,000, (2) “represent 80% of the Company’s
ownership,” (3) be “senior in distribution to all other classes of the Company’s equity”; and (4)
6
Because the complete attachments to the November Notice are too voluminous to file, the November Notice and
excerpts from its attachments are attached hereto as Exhibit F.
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be convertible to Class A units. Id. The notice also states that the new class of shares will “have
distribution preferences of three times (3x) the Class E Units’ purchase price” and “[w]ill have a
nine percent (9%) cumulative annual compounded preferred return.” Id.
44. The $2,277,000 issue price for 80% of Prodagio’s ownership necessarily values
Prodagio at $2,846,250. There does not appear to have been any third party valuation of the
company to suggest this is a fair valuation; despite Henderson’s repeated requests for relevant
financial information, no third party valuation has been provided. Id.
45. To the contrary, the current proposed valuation is completely at odds with prior
independent valuations and the limited financial information that Henderson has been able to
obtain. As noted above, as of February 5, 2013, the company was worth at least $9,520,000.
Exhibit G, Merger Agreement §6.2(c). As of August 2013, an independent third party valued
Prodagio’s intangible assets at $9,761,000.7 Exhibit H. The limited financial information that has
been provided8 reflects that Prodagio spent approximately $49,498 a month on Synerzip, an
outsourced offshore software development company. Yet, despite monthly payments to
Synerzip, there is no increase in intangible assets reflected on the financial statements provided
to date. The limited financial information provided reveals that intangible assets have not yet
been sold. The balance sheet for September 2013 lists intangible assets at $7,711,171, and the
balance sheet for September 2014 lists intangible assets of $7,536,548.56. Moreover, the net
revenues for the most recent month for which any financial information has been provided
(September 2014) reflects net revenues of $229,582.85. A company that was worth $9.52 million
in February 2013, had in August 2013 and still has today intangible assets of more than $7
7
The August 2013 valuation is attached as Exhibit H.
8
The statements herein presume authenticity of the financial statements delivered for the first time on October 30,
2014, but such authenticity cannot be determined at this time.
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million, has been spending $50,000 a month to increase such intangibles, has not sold such
intangibles (yet) and has monthly net revenues of more than $200,000 cannot fairly be valued at
$2,846,250 without a gross wasting of corporate assets or dramatic devaluation of shares.
46. If, by the actions of the Manager Defendants, Prodagio sells 80% of its value for
$2,777,000, that sale will harm both Prodagio and the existing shareholders. See generally
Carsanaro v. Bloodhound Technologies, Inc., 65 A.3d 618, 655 (Del. Ch. 2013) (noting that
“shares of stock are deemed an asset of the corporation,” which “can be exchanged for other
forms of currency (such as cash) or used for a variety of corporate purposes, including paying off
debts, acquiring tangible or intangible assets, compensating employees, or acquiring other
entities” and concluding that “[i]f a complaint contends that the corporation received too little for
its shares, then in one sense, the injury is suffered by the corporation, which was harmed because
it did not receive greater value in exchange”).
47. Further, if allowed to proceed, the Class E stock sale would wipe out (or, at least,
marginalize) Henderson’s rights to distributions in the event of a sale. Valued, as they are, at
$2,277,000, the Class E shares would give their holders distribution preferences in the amount of
$6,831,000 (i.e., three times the Class E Units’ purchase price).
48. The November Notice also proposes that 30,000 of Henderson’s Class D shares
be eliminated with no explanation, justification or contribution of consideration to Prodagio or
Henderson. Exhibit F. The elimination of shares is an injury to Prodagio and Henderson.
49. The November Notice states that another purpose of the meeting is to approve
changes to the Operating Agreement. These changes to the Operating Agreement include
revising the order of distributing Prodagio’s available cash and property-sale proceeds to
members by, for example, guaranteeing distributions to Class E and Class B members in excess
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of their contributions. Notably, Class A members, of which Henderson is the only member,
cannot receive a distribution until every other class member receives guaranteed distributions.
By giving preference to the Class E shares in the amount of $6,831,000 before the Class B shares
rights, which have preference to Henderson’s Class A shares, the proposed change, in effect,
would eliminate Henderson’s ability to any distribution in the expected sale price of Prodagio or
any of its assets.
50. On information and belief, the Manager Defendants intend to sell off the assets of
Prodagio and distribute proceeds to Class E and Class B members only, leaving Prodagio an
empty shell of a company, unable to pay the debts owed to Plaintiffs and Henderson’s ownership
interest completely worthless.
Manager Defendants’ Self-Dealing and Waste of Company Assets
51. On October 30, 2014, Prodagio produced limited financial information to
Henderson. While incomplete, the information produced is information that Henderson had been
requesting for months.
52. The limited financial information produced reflects self-dealing on the part of
Intermediary to the detriment of Prodagio. According to the limited financial information
produced for the period after Henderson’s resignation as CEO, Prodagio has been paying above
market interest on loans made by Intermediary to Prodagio between March and September of this
year. For example, the Balance Sheet for June 30, 2014, reflects a note to Intermediary of
$1,347,000, an interest payable in current liabilities to Intermediary of $27,268.76, and a
distribution of $13,802.05 to Intermediary that month for interest. Prodagio-SH000091, 92, 96.
The above market interest rate was not disclosed to or approved by the Board of Managers of
Prodagio. The interest rate paid in this self-dealing transaction appears to be nearly double the
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interest rate applied to the Note between Prodagio and Prodagio Holdings
53. Prodagio paid Intermediary that inflated interest even though Prodagio had not
paid debts owed to Prodagio Holdings and Henderson. Specifically, Prodagio paid 493.15,
3781.64, 9191.92, 13,802.05, 16,653.42, 21,146.71, and 21,668,30 in interest to Intermediary in
the months March through September 2014 respectively. During that same time period,
Prodagio paid zero to Prodagio Holdings even though payments of more than $200,000 were due
to Prodagio Holdings on the Note. Prodagio also failed to pay Henderson approximately
$300,000 due under the Severance Agreement and any interest on the undisputed loans of
$85,000 and $235,103.
54. In causing Prodagio to prioritize payments to Intermediary over other debts
Prodagio owed to others, Intermediary, and the Manager Defendants engaged in self-interested
transactions that should have been disclosed to the full Board of Managers. The concealed
misconduct has subjected Prodagio to the breach of contract claims brought by Henderson and
Prodagio Holdings and thus injured Prodagio.
55. The limited financial information produced also reflects gross wasting of
corporate assets. For example, at the direction of Kelly and Pontin, Prodagio has been paying
approximately $50,000 a month to an offshore development company with no new value
resulting according to the financial statements produced thus far.
56. In September 2014, Prodagio paid $52,500 in recruiting fees to Teakwood Capital
(or an affiliate reflected in the financial statements as TWC) even though it had been engaging in
layoffs of long term personnel since March 2014. Consistent with the layoffs, there had been no
recruiting fees paid between March 2014 and August 2014. Cf. Prodagio-SH000115 with
Prodagio-SH000108, 101, 94, 87, 80, 73. This payment is another example of self-dealing and
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breach of fiduciary duty by Intermediary that should have been disclosed to and for which
approval should have been obtained from the full Board of Managers of Prodagio.
57. In September 2014, Prodagio paid $47,717.94 in accounting fees. This is an
outrageous sum given the size of the company and the fact that Prodagio has already had two
audits conducted in 2014, the second of which was completed in July of 2014.
58. After significant effort had been invested by Henderson and other employees of
Prodagio before March 2014 to obtain an executed contract from Canon USA to license
Prodagio’s accounts payable software globally, Prodagio, under the control of Kelly, Pontin and
the other Intermediary representatives, cancelled the contract with Canon. Prodagio told Canon
that it would no longer be doing accounts payable software. This action was so inconsistent with
reasonable business judgment that Canon tracked down Prodagio’s former Vice President of
Marketing, Fabrice Buron, to ask him what was going on.
59. Pontin, Kelly, and Intermediary’s other representatives hired Diana Massaro to
be the new CEO of Prodagio even though Massaro had never before worked as a CEO of any
company and even though Massaro told Henderson that Massaro’s two biggest weaknesses were
sales and finance, which were the key qualities needed to run Prodagio.
60. Pontin, Kelly, and Intermediary’s other representatives allowed Massaro to hire
two of Massaro’s close friends as Vice Presidents of Prodagio and at annual salaries of $165,000
each. Prodagio ended up having to fire each of those individuals and pay severance to them
approximately six months after their hiring.
61. Pontin, Kelly, and Intermediary’s other representatives had Prodagio hire two
other Vice Presidents of Sales, paid a Teakwood Capital related entity recruiting fees for the
hires, and then fired those same individuals within approximately four months.
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62. Appointment of a Receiver is required to prevent the further wasting of corporate
assets and to prevent the imminent devaluation of Prodagio.
The Defamatory Statements
63. In or about April 2014, Massaro told George Sofka and, upon information and
belief, other Prodagio employees that Prodagio was in dire financial condition due to
Henderson’s conduct and that Henderson had cooked the books and put liabilities off balance
sheet. These statements were false.
CONDITIONS PRECEDENT
64. All conditions precedent to Plaintiffs’ claims for relief have been performed or
have occurred.
CLAIMS
Count One: Breach of Contract
65. Plaintiffs incorporate herein all of the preceding paragraphs.
66. The Note, the Modification, the Reimbursement Agreement, the Loan Agreement,
the Severance Agreement, and the Operating Agreement (collectively the “Agreements”) are
valid, enforceable contracts.
67. Plaintiffs are the proper parties to sue to enforce the terms of the Agreements.
Plaintiffs have performed, or have substantially performed, any and all necessary conditions
precedent, dependent obligations, and/or dependent covenants owed under the Agreements.
Plaintiffs are, and have been, entitled to the Corporate Defendants’ performance of their
obligations under the Agreements.
68. The Corporate Defendants have materially breached their contractual obligations
to Plaintiffs, including the express terms set out above and/or implied covenants within the
Fourth Amended Original Petition 17
3374026v1/014438
Agreements as described above.
69. Plaintiffs have suffered significant injury resulting directly from the Corporate
Defendants’ breach of the Agreements.
Count Two: Unjust Enrichment
70. Plaintiffs incorporate herein all of the preceding paragraphs.
71. As a result of their wrongful conduct described above, the Corporate Defendants
have and will continue to be unjustly enriched under the laws of the state of Texas. Henderson
conferred benefits upon the Corporate Defendants to which they were not entitled. The Corporate
Defendants have been unjustly enriched at the expense of Henderson by the receipt of, at a
minimum, business expenses paid by Henderson that the Corporate Defendants promised to
reimburse and loans made by Henderson to the Corporate Defendants that the Corporate
Defendants promised to repay.
72. The Corporate Defendants
Preview
FILED DALLAS COUNTY 11/20/2014 5:17:17 PM GARY FITZSIMMONS DISTRICT CLERK Cause No. DC-14-09959-E PRODAGIO HOLDINGS, INC.; § IN THE DISTRICT COURT OF IMAGITEK HOLDINGS, LLC; and § MARA S. HENDERSON, individually and § derivatively on behalf of PRODAGIO, LLC § § Plaintiffs, § § v. § DALLAS COUNTY, TEXAS § PRODAGIO INTERMEDIARY, LLC § PRODAGIO, LLC, 221 PRO, LP, § SBOF II (Prodagio), LLC § PRODAGIO PARTICIPATION, LLC, § DIANA MASSARO, SHAWN KELLY, § RICK PONTIN, ED OLKKOLA § and BHARTI SUBRAMANIAN § § Defendants. § 101st JUDICIAL DISTRICT FOURTH AMENDED ORIGINAL PETITION AND VERIFIED APPLICATION FOR TEMPORARY RESTRAINING ORDER AND TEMPORARY INJUNCTIVE RELIEF Plaintiffs Prodagio Holdings, Inc., Imagitek Holdings, LLC, and Mara S. Henderson, individually and derivatively on behalf of Prodagio, LLC, (collectively “Plaintiffs”) complain of Defendants Prodagio Intermediary, LLC, Prodagio, LLC, 221 PRO, LP, SBOF II (Prodagio), LLC, Prodagio Participation, LLC (collectively “Corporate Defendants”), Diana Massaro (“Massaro”), and Shawn Kelly, Rick Pontin, Ed Olkkola, and Bharti Subramanian (collectively, “Manager Defendants”) as follows. NEED FOR IMMEDIATE ACTION 1. By this application for temporary restraining order and temporary injunction, Plaintiffs seek the Court’s immediate help to preserve the status quo and to stop Defendants’ plans to plunder the company, Prodagio, LLC. Since the initiation of litigation, Defendants have taken new steps to plunder Prodagio, LLC through a plan to devalue the shares of the company, prioritize Defendants’ distributions over Henderson’s distributions, and convert loans entered 3374026v1/014438 into by the controlling managers and members with the company without board notification or approval at above market terms into the new shares, all at the expense of the company, Prodagio, LLC and minority member, Mara Henderson. These steps constitute an abuse of the Manager Defendants’ authority, and are taken with the intent to harm Henderson’s interests, in a manner that does not comport with the honest exercise of their business judgment, and create an imminent risk of harm and exigent circumstances for the company, Prodagio, LLC. 2. Initially, Plaintiffs brought this action to enforce unsatisfied obligations owed to Plaintiffs by Defendants. As discovery proceeded, Plaintiffs sought redress for Defendants’ false promises and representations, breaches of contract and for defamation by Massaro and Prodagio, LLC. Those claims remain to be litigated. However, the Defendants’ most recent actions require immediate intervention to prevent irreparable harm to Prodagio, LLC and Mara Henderson. DISCOVERY CONTROL PLAN 3. Plaintiffs intend to conduct discovery under Level 2 of Rule 190.3 of the Texas Rules of Civil Procedure. For the purposes of the expected preliminary injunction hearing, Plaintiffs seek expedited discovery, whether by agreement or by order. PARTIES 4. Prodagio Holdings, Inc. (“Prodagio Holdings”) is a Texas corporation with its principal place of business in League City, Texas. 5. Imagitek Holdings, LLC (“Imagitek”) is a Texas limited liability company with its principal place of business in League City, Texas. 6. Mara S. Henderson is a Texas resident who lives in Harris County, Texas. 7. Prodagio, LLC (“Prodagio”) is a Delaware limited liability company with its principal place of business in League City, Texas. Prodagio may be given notice by sending a copy to Prodagio, LLC, 2525 South Shore Boulevard, Suite 202, League City, Texas 77573 and Fourth Amended Original Petition 2 3374026v1/014438 may be served process through its registered agent, Shawn Kelly, at 8226 Douglas Ave. #335, Dallas, Texas 75225. 8. Prodagio Intermediary, LLC (“Intermediary”) is a Delaware limited liability company with its principal place of business in Dallas, Texas. Intermediary is a Class B Member of Prodagio. It may be given notice by sending a copies to Prodagio, LLC, 2525 South Shore Boulevard, Suite 202, League City, Texas 77573 and Teakwood Capital, 8226 Douglas Ave. #335, Dallas, Texas 75225, Attn: Shawn Kelly, and may be served process through its registered agent Incorporating Services, Ltd., 3500 South DuPont Highway, Dover, Delaware 19901. 9. 221 PRO, LP (“221 PRO”) is a Delaware limited partnership with its principal place of business in Austin, Texas. 221 PRO is a Class B member of Prodagio. It may be given notice by sending a copy to Harris Preston & Partners, LLC, Attn: Charles Preston, Managing Director, 600 Congress Avenue, Suite 200, Austin, Texas 78701 and may be served process through its registered agent Capitol Services, Inc., 1675 South State Street, Suite B, Dover, Delaware 19901. 10. SBOF II (Prodagio), LLC (“SBOF”) is a Delaware limited liability company with its principal place of business in New York, New York. SBOF is a Class B member of Prodagio. It may be given notice by sending a copy to SBOF II (Prodagio), LLC, c/o Sigular Guff Advisers, LLC, 825 Third Avenue, 10th Floor, New York, New York 10022, and may be served process through its registered agent Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. 11. Prodagio Participation, LLC (“Participation”) is a Texas limited liability company with its principal place of business in Dallas, Texas. Participation is a Class C Member of Prodagio. It may be given notice by sending a copy to Prodagio, LLC, 2525 South Shore Fourth Amended Original Petition 3 3374026v1/014438 Boulevard, Suite 202, League City, Texas 77573 and may be served process through its registered agent, Shawn Kelly, at 8226 Douglas Ave. #335, Dallas, Texas 75225. 12. Diana Massaro is an individual who resides and can be served with process at 4234 Drake Street, Houston, Texas 77005-1030. 13. Shawn Kelly is an individual who resides and can be served with process at 6706 Stefani Drive, Dallas, Texas 75225-2724. Kelly is a manager of Prodagio. 14. Rick Pontin is an individual who resides and can be served with process at 3203 Riva Ridge Road, Austin, Texas 78746-1424. Pontin is a manager of Prodagio. 15. Ed Olkkola is an individual who resides and can be served with process at 3030 McKinney Avenue, Apt. 501, Dallas, Texas 75204-7482. Olkkola is a manager of Prodagio. 16. Bharti Subramanian is an individual who resides and can be served with process at 18732 Wainsborough Lane, Dallas, Texas 75287-5525. Subramanian is a manager of Prodagio. JURISDICTION AND VENUE 17. This Court has subject matter jurisdiction over this matter because the amount in controversy falls within the Court’s jurisdictional limits. 18. This Court may exercise jurisdiction over Prodagio under Section 9 of the Promissory Note (attached as Exhibit A) whereby Prodagio submitted to the Court’s jurisdiction: Maker [Prodagio] hereby, and by acceptance hereof, Payee [Prodagio Holdings], irrevocably submits to the exclusive jurisdiction of any federal or state court located in Dallas, Texas over any dispute arising out of or relating to this Note or any of the transactions contemplated hereby and hereby irrevocably agrees that all claims in respect of such dispute or any suit, action proceeding related thereto may be heard and determined in such courts. Moreover, this Court has jurisdiction over Intermediary, Prodagio, 221 PRO, SBOF, and Fourth Amended Original Petition 4 3374026v1/014438 Participation because each entity maintains offices in Texas and/or conducts business in Texas. This Court has jurisdiction over Massaro, Kelly, Pontin, Olkkola, and Subramanian because each is a Texas resident. Further, each of the Defendants collectively committed all of the acts and omissions relating to these claims in Texas. Defendants, in the conduct of their business activities, have purposefully availed themselves of the benefits and protections offered by the state of Texas. 19. Venue is proper in Dallas County, Texas under Texas Civil Practices & Remedies Code §§15.002(a)(1) and (3), and because Prodagio consented to venue in Dallas, Texas. 20. Venue for the sole cause of action (defamation) asserted against Massaro and for the sole cause of action against Kelly, Pontin, Olkkola and Subramanian (breach of fiduciary duty) is proper in Dallas County, Texas, pursuant to Texas Civil Practice & Remedies Code §15.005. The sole cause of action asserted against each arises out of the same series of transactions or occurrences. FACTS 21. Henderson is the founder and sole stockholder of Imagitek and sole manager of Prodagio Holdings. She is also a manager and a Class A and Class D member of Prodagio. Henderson Builds Imagitek, aka “Prodagio Software” 22. Henderson, through Prodagio Holdings and Imagitek, built Prodagio Software into a successful software enterprise that provides various companies the technology to improve business processes, simplify workflows, and save millions with its accounts payable automation and contract management solutions. 23. In 2012, Prodagio Software was a successful entity with quality customers and a healthy revenue base. Fourth Amended Original Petition 5 3374026v1/014438 Merger with Teakwood Capital 24. In February 2013, Imagitek and Teakwood Capital LP, a Dallas-based private equity firm, merged Imagitek Ltd. into Prodagio. Prodagio Holdings, through Imagitek, provided the going concern and company assets. And Teakwood Capital LP provided funding and purchased equity in Prodagio through Intermediary. 25. With the investment, Prodagio intended to expand its sales force with the aim of increasing worldwide sales, and, in addition to increase its Houston-based software engineering and development staff. 26. At the time of the merger, Prodagio was worth at least $9,520,000, which reflected the $9,170,000 invested by Intermediary and a Tax Gross Up Amount, of approximately $315,000, paid by Intermediary. Exhibit G, Merger Agreement §6.2(c).1 27. As part of the transaction, Henderson assumed the position of Chief Executive Officer (CEO) of Prodagio pursuant to a two year employment agreement. Promissory Note and Modification 28. On February 5, 2013, as part of the merger, Prodagio and Prodagio Holdings entered into a Promissory Note (the “Note”)2 for the benefit of Prodagio Holdings in the principal amount of $500,000. Exhibit A. The Note provided that the outstanding principle would accrue eight-percent (8%) interest per annum, compounded on an annual basis. Exhibit A, Note Section 1(a). The Note included an attached payment schedule listing all principal and interest payments beginning March 31, 2013, and continuing every three months thereafter until the maturity date of December 31, 2014. The Note also provided that the interest rate would increase to twelve-percent (12%) after the maturity date or in the event of default. Id. The Note 1 The Merger Agreement is attached as Exhibit G. 2 The Note is attached as Exhibit A. Fourth Amended Original Petition 6 3374026v1/014438 granted Prodagio Holdings the option to declare Prodagio in default and, therefore, accelerate all unpaid principal and interest due under the Note, if Prodagio was more than five days late on any payment. Id. ¶ 4. 29. Prodagio made no payments due under the Note. Specifically, Prodagio missed payments due to Prodagio Holdings on March 31, 2013; June 30, 2013; and September 30, 2013. Rather than exercise Prodagio Holdings’s right to declare Prodagio in default, Henderson, as the sole stockholder of Prodagio Holdings, relied on representations made by Kelly and Pontin, agents of Prodagio and Intermediary, that Prodagio intended to make and would make payments due under the Note. 30. On December 30, 2013, Prodagio Holdings, again relying on these representations about Prodagio’s intent and ability to make payments due under the Note, entered into the Modification of Promissory Note Agreement (the “Modification”)3 with Prodagio. Under the Modification, Prodagio Holdings agreed to suspend payments due under the note while interest continued to accrue. Exhibit B, Modification ¶¶ 1-2. The Modification provided that payments would “resume” on June 30, 2014 and continue every three months until the modified maturity date. Id. ¶ 4. The Modification altered no other terms of the Note other than the payment schedule. To date, Defendants have made no payments due under the Note or the Modification. 31. Prodagio’s failure to pay constitutes an Event of Default under the Note. The Note provides that “[t]he entire unpaid principal and accrued interest and all other amounts owing under this Note shall be immediately due and payable at the option of Payee. . . .” Prodagio Holdings is the payee and opts to and does declare the entire unpaid principal, accrued interest and all other amounts owing under the Note immediately due and payable. 3 The Modification is attached as Exhibit B. Fourth Amended Original Petition 7 3374026v1/014438 Reimbursement Agreement and Loan Agreement 32. While serving as CEO, Henderson made payments for Prodagio business expenses in the amount of $235,103 that Prodagio promised to reimburse. Prodagio’s promise and Henderson’s consideration constituted a Reimbursement Agreement. However, Prodagio has made no reimbursement payments to Henderson. Prodagio, through its agents, have acknowledged this outstanding debt to Henderson as recently as July 24, 2014. 33. Prodagio Holdings also loaned $85,000 to Prodagio while Henderson served as CEO. Prodagio, Kelly, and Pontin promised orally and through email correspondence to repay Prodagio Holdings for the loan. Their promise and Prodagio Holdings’s consideration constituted a Loan Agreement. To date, Prodagio has not made any payments to Prodagio Holdings in satisfaction of this agreement. Prodagio acknowledged this outstanding debt to Prodagio Holdings as recently as July 24, 2014. Severance Agreement 34. Prodagio terminated Henderson’s employment without cause. As a result of this action, Henderson and Prodagio entered into a Confidential Severance Agreement and General Release (the “Severance Agreement”)4 dated March 26, 2014. The Severance Agreement provided that Henderson would be paid her Base Salary (i.e. $200,000) through the Separation Date (i.e. March 26, 2014), six months of her Base Salary (i.e. $100,000), in prorated amounts on Prodagio’s regular paydays as if Henderson was actively employed, and all accrued but unused paid time off (“PTO”). Exhibit C, Severance Agreement at ¶ 1(a)(i)-(ii). Henderson never received any payments due under the Severance Agreement, not even the Base Salary through the Separation Date as she was not paid for any of the months she worked in 2013. 4 The Severance Agreement is attached as Exhibit C. Fourth Amended Original Petition 8 3374026v1/014438 Prodagio’s Operating Agreement 35. The Amended and Restated Operating Agreement (“Operating Agreement”)5 of Prodagio was adopted on February 5, 2013. As members of Prodagio and signatories of the Operating Agreement, each of the Corporate Defendants is bound to the terms of the Operating Agreement. That Operating Agreement entitles Henderson, as a manager, to receive a schedule of regular meetings of the Board of Managers and notice of any special meetings. Exhibit D, Operating Agreement at ¶¶ 10.6-10.7. Henderson is also entitled to “all information to which [she] is entitled to have access pursuant to” Delaware Limited Liability Company Act (“DLLCA”) § 18-305. Exhibit D, Operating Agreement at ¶ 13.1. The scope of information required under DLLCA § 18-305 is broad and includes the following: • True and full information regarding the status of the business and financial condition of the limited liability company; • True and full information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each member and which each member has agreed to contribute in the future, and the date on which each became a member; and • Other information regarding the affairs of the limited liability company as is just and reasonable. 36. Beginning in April 2014, Henderson repeatedly has requested from Prodagio schedules of Prodagio’s financial information (i.e., “[t]rue and full information regarding the status of the business and financial condition of the limited liability company”) and notice of Board meetings, including a direct request to Pontin, the Board’s Chairman. Henderson has requested this information for the express purpose of valuing her ownership interest in Prodagio, to evaluate the status of the business and financial condition of Prodagio, to investigate potential wrongdoing and/or mismanagement, and to determine whether to appoint someone else to as a 5 The Operating Agreement is attached as Exhibit D. Fourth Amended Original Petition 9 3374026v1/014438 member of Prodagio’s Board. Henderson has not received and does not have sufficient information to permit her to perform these Board functions. Henderson has not received adequate financial information in response to her requests, nor has she received a schedule of regular Board meetings. 37. The Operating Agreement also requires that the “Managers shall meet at least quarterly and in no event less than five (5) times per year.” Id. at ¶ 10.6. The managers of Prodagio, other than Henderson, are Kelly, Pontin, Olkkola, and Subramanian, all of whom are affiliated with the Dallas-based private equity firm Teakwood Capital. These managers have not held quarterly meetings in 2014. To the extent the managers have met, the meetings have been concealed from Henderson and the meetings have been in violation of the Operating Agreement. Meeting Notices, Sort of 38. Henderson was notified of a Board meeting to be held on May 13, 2014. But then Henderson was notified just days before that the meeting was cancelled. Henderson has since learned from other employees of Prodagio that all managers, except Henderson, held the meeting without providing notice to Henderson. 39. On Friday, October 10, 2104, at approximately 4:00 p.m., Kelly sent out a notice of a special meeting of managers. The notice set the meeting for 10:00 a.m. Tuesday, October 14, 2014, the morning after a federal holiday. The purpose of the special meeting was to approve a proposal to issue a new class of shares deemed to have a value of approximately $2.7 million, which would be convertible to Class A shares and offered to all members on a pro rata basis. Kelly provided no information along with the notice that would enable Henderson to evaluate whether the proposal was in the best interests of Prodagio. Upon information and belief, Kelly and Pontin provided financial information and other information to the other managers for this Fourth Amended Original Petition 10 3374026v1/014438 meeting. 40. Henderson objected to the meeting because it had been improperly called and she had not been provided information sufficient to allow her to evaluate the proposal. Less than half an hour after her objection, the meeting was cancelled. 41. These violations of the Operating Agreement have weakened the safeguards in place to oversee the operations and financial condition of Prodagio. Upon information and belief, the Manager Defendants, specifically including Kelly and Pontin, have perpetrated these violations to hide their mismanagement of Prodagio to date. A Potential Sale, a Recent Meeting Notice, and the Attempt to Devalue the Company and Reap Benefits of a Sale 42. Prodagio is in the process of selling its assets. Specifically, Prodagio has been shopping the software that is the company’s most significant asset over the last few months. Despite repeated demands, Prodagio, at the direction of controlling member Intermediary, has withheld from Henderson the management letters for August, September and October 2014. On information and belief, Prodagio currently has two offers for the purchase of that software and the management letters withheld would reflect those offers. 43. On Friday, November 7, 2014, at approximately 3:00 p.m., Kelly sent another notice of a special meeting of Managers (“November Notice”).6 Exhibit F. The November Notice sets the meeting for 10:00 a.m. on November 18, 2014, and states that the purpose of the meeting is “to approve the sale of a new series of Class E units of the Company” that will (1) issue for an aggregate issue price of $2,277,000, (2) “represent 80% of the Company’s ownership,” (3) be “senior in distribution to all other classes of the Company’s equity”; and (4) 6 Because the complete attachments to the November Notice are too voluminous to file, the November Notice and excerpts from its attachments are attached hereto as Exhibit F. Fourth Amended Original Petition 11 3374026v1/014438 be convertible to Class A units. Id. The notice also states that the new class of shares will “have distribution preferences of three times (3x) the Class E Units’ purchase price” and “[w]ill have a nine percent (9%) cumulative annual compounded preferred return.” Id. 44. The $2,277,000 issue price for 80% of Prodagio’s ownership necessarily values Prodagio at $2,846,250. There does not appear to have been any third party valuation of the company to suggest this is a fair valuation; despite Henderson’s repeated requests for relevant financial information, no third party valuation has been provided. Id. 45. To the contrary, the current proposed valuation is completely at odds with prior independent valuations and the limited financial information that Henderson has been able to obtain. As noted above, as of February 5, 2013, the company was worth at least $9,520,000. Exhibit G, Merger Agreement §6.2(c). As of August 2013, an independent third party valued Prodagio’s intangible assets at $9,761,000.7 Exhibit H. The limited financial information that has been provided8 reflects that Prodagio spent approximately $49,498 a month on Synerzip, an outsourced offshore software development company. Yet, despite monthly payments to Synerzip, there is no increase in intangible assets reflected on the financial statements provided to date. The limited financial information provided reveals that intangible assets have not yet been sold. The balance sheet for September 2013 lists intangible assets at $7,711,171, and the balance sheet for September 2014 lists intangible assets of $7,536,548.56. Moreover, the net revenues for the most recent month for which any financial information has been provided (September 2014) reflects net revenues of $229,582.85. A company that was worth $9.52 million in February 2013, had in August 2013 and still has today intangible assets of more than $7 7 The August 2013 valuation is attached as Exhibit H. 8 The statements herein presume authenticity of the financial statements delivered for the first time on October 30, 2014, but such authenticity cannot be determined at this time. Fourth Amended Original Petition 12 3374026v1/014438 million, has been spending $50,000 a month to increase such intangibles, has not sold such intangibles (yet) and has monthly net revenues of more than $200,000 cannot fairly be valued at $2,846,250 without a gross wasting of corporate assets or dramatic devaluation of shares. 46. If, by the actions of the Manager Defendants, Prodagio sells 80% of its value for $2,777,000, that sale will harm both Prodagio and the existing shareholders. See generally Carsanaro v. Bloodhound Technologies, Inc., 65 A.3d 618, 655 (Del. Ch. 2013) (noting that “shares of stock are deemed an asset of the corporation,” which “can be exchanged for other forms of currency (such as cash) or used for a variety of corporate purposes, including paying off debts, acquiring tangible or intangible assets, compensating employees, or acquiring other entities” and concluding that “[i]f a complaint contends that the corporation received too little for its shares, then in one sense, the injury is suffered by the corporation, which was harmed because it did not receive greater value in exchange”). 47. Further, if allowed to proceed, the Class E stock sale would wipe out (or, at least, marginalize) Henderson’s rights to distributions in the event of a sale. Valued, as they are, at $2,277,000, the Class E shares would give their holders distribution preferences in the amount of $6,831,000 (i.e., three times the Class E Units’ purchase price). 48. The November Notice also proposes that 30,000 of Henderson’s Class D shares be eliminated with no explanation, justification or contribution of consideration to Prodagio or Henderson. Exhibit F. The elimination of shares is an injury to Prodagio and Henderson. 49. The November Notice states that another purpose of the meeting is to approve changes to the Operating Agreement. These changes to the Operating Agreement include revising the order of distributing Prodagio’s available cash and property-sale proceeds to members by, for example, guaranteeing distributions to Class E and Class B members in excess Fourth Amended Original Petition 13 3374026v1/014438 of their contributions. Notably, Class A members, of which Henderson is the only member, cannot receive a distribution until every other class member receives guaranteed distributions. By giving preference to the Class E shares in the amount of $6,831,000 before the Class B shares rights, which have preference to Henderson’s Class A shares, the proposed change, in effect, would eliminate Henderson’s ability to any distribution in the expected sale price of Prodagio or any of its assets. 50. On information and belief, the Manager Defendants intend to sell off the assets of Prodagio and distribute proceeds to Class E and Class B members only, leaving Prodagio an empty shell of a company, unable to pay the debts owed to Plaintiffs and Henderson’s ownership interest completely worthless. Manager Defendants’ Self-Dealing and Waste of Company Assets 51. On October 30, 2014, Prodagio produced limited financial information to Henderson. While incomplete, the information produced is information that Henderson had been requesting for months. 52. The limited financial information produced reflects self-dealing on the part of Intermediary to the detriment of Prodagio. According to the limited financial information produced for the period after Henderson’s resignation as CEO, Prodagio has been paying above market interest on loans made by Intermediary to Prodagio between March and September of this year. For example, the Balance Sheet for June 30, 2014, reflects a note to Intermediary of $1,347,000, an interest payable in current liabilities to Intermediary of $27,268.76, and a distribution of $13,802.05 to Intermediary that month for interest. Prodagio-SH000091, 92, 96. The above market interest rate was not disclosed to or approved by the Board of Managers of Prodagio. The interest rate paid in this self-dealing transaction appears to be nearly double the Fourth Amended Original Petition 14 3374026v1/014438 interest rate applied to the Note between Prodagio and Prodagio Holdings 53. Prodagio paid Intermediary that inflated interest even though Prodagio had not paid debts owed to Prodagio Holdings and Henderson. Specifically, Prodagio paid 493.15, 3781.64, 9191.92, 13,802.05, 16,653.42, 21,146.71, and 21,668,30 in interest to Intermediary in the months March through September 2014 respectively. During that same time period, Prodagio paid zero to Prodagio Holdings even though payments of more than $200,000 were due to Prodagio Holdings on the Note. Prodagio also failed to pay Henderson approximately $300,000 due under the Severance Agreement and any interest on the undisputed loans of $85,000 and $235,103. 54. In causing Prodagio to prioritize payments to Intermediary over other debts Prodagio owed to others, Intermediary, and the Manager Defendants engaged in self-interested transactions that should have been disclosed to the full Board of Managers. The concealed misconduct has subjected Prodagio to the breach of contract claims brought by Henderson and Prodagio Holdings and thus injured Prodagio. 55. The limited financial information produced also reflects gross wasting of corporate assets. For example, at the direction of Kelly and Pontin, Prodagio has been paying approximately $50,000 a month to an offshore development company with no new value resulting according to the financial statements produced thus far. 56. In September 2014, Prodagio paid $52,500 in recruiting fees to Teakwood Capital (or an affiliate reflected in the financial statements as TWC) even though it had been engaging in layoffs of long term personnel since March 2014. Consistent with the layoffs, there had been no recruiting fees paid between March 2014 and August 2014. Cf. Prodagio-SH000115 with Prodagio-SH000108, 101, 94, 87, 80, 73. This payment is another example of self-dealing and Fourth Amended Original Petition 15 3374026v1/014438 breach of fiduciary duty by Intermediary that should have been disclosed to and for which approval should have been obtained from the full Board of Managers of Prodagio. 57. In September 2014, Prodagio paid $47,717.94 in accounting fees. This is an outrageous sum given the size of the company and the fact that Prodagio has already had two audits conducted in 2014, the second of which was completed in July of 2014. 58. After significant effort had been invested by Henderson and other employees of Prodagio before March 2014 to obtain an executed contract from Canon USA to license Prodagio’s accounts payable software globally, Prodagio, under the control of Kelly, Pontin and the other Intermediary representatives, cancelled the contract with Canon. Prodagio told Canon that it would no longer be doing accounts payable software. This action was so inconsistent with reasonable business judgment that Canon tracked down Prodagio’s former Vice President of Marketing, Fabrice Buron, to ask him what was going on. 59. Pontin, Kelly, and Intermediary’s other representatives hired Diana Massaro to be the new CEO of Prodagio even though Massaro had never before worked as a CEO of any company and even though Massaro told Henderson that Massaro’s two biggest weaknesses were sales and finance, which were the key qualities needed to run Prodagio. 60. Pontin, Kelly, and Intermediary’s other representatives allowed Massaro to hire two of Massaro’s close friends as Vice Presidents of Prodagio and at annual salaries of $165,000 each. Prodagio ended up having to fire each of those individuals and pay severance to them approximately six months after their hiring. 61. Pontin, Kelly, and Intermediary’s other representatives had Prodagio hire two other Vice Presidents of Sales, paid a Teakwood Capital related entity recruiting fees for the hires, and then fired those same individuals within approximately four months. Fourth Amended Original Petition 16 3374026v1/014438 62. Appointment of a Receiver is required to prevent the further wasting of corporate assets and to prevent the imminent devaluation of Prodagio. The Defamatory Statements 63. In or about April 2014, Massaro told George Sofka and, upon information and belief, other Prodagio employees that Prodagio was in dire financial condition due to Henderson’s conduct and that Henderson had cooked the books and put liabilities off balance sheet. These statements were false. CONDITIONS PRECEDENT 64. All conditions precedent to Plaintiffs’ claims for relief have been performed or have occurred. CLAIMS Count One: Breach of Contract 65. Plaintiffs incorporate herein all of the preceding paragraphs. 66. The Note, the Modification, the Reimbursement Agreement, the Loan Agreement, the Severance Agreement, and the Operating Agreement (collectively the “Agreements”) are valid, enforceable contracts. 67. Plaintiffs are the proper parties to sue to enforce the terms of the Agreements. Plaintiffs have performed, or have substantially performed, any and all necessary conditions precedent, dependent obligations, and/or dependent covenants owed under the Agreements. Plaintiffs are, and have been, entitled to the Corporate Defendants’ performance of their obligations under the Agreements. 68. The Corporate Defendants have materially breached their contractual obligations to Plaintiffs, including the express terms set out above and/or implied covenants within the Fourth Amended Original Petition 17 3374026v1/014438 Agreements as described above. 69. Plaintiffs have suffered significant injury resulting directly from the Corporate Defendants’ breach of the Agreements. Count Two: Unjust Enrichment 70. Plaintiffs incorporate herein all of the preceding paragraphs. 71. As a result of their wrongful conduct described above, the Corporate Defendants have and will continue to be unjustly enriched under the laws of the state of Texas. Henderson conferred benefits upon the Corporate Defendants to which they were not entitled. The Corporate Defendants have been unjustly enriched at the expense of Henderson by the receipt of, at a minimum, business expenses paid by Henderson that the Corporate Defendants promised to reimburse and loans made by Henderson to the Corporate Defendants that the Corporate Defendants promised to repay. 72. The Corporate Defendants