FILED

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COMPLAINT- 1
NEWMAN DU WORS LLP 1201 Third Avenue, Suite 1600 Seattle, Washington 98101 (206) 274-2800 14 JAN 10 PM 4:06 KING COUNTY SUPERIOR COURT CLERK E-FILED CASE NUMBER: 14-2-01133-4 SEA

SUPERIOR COURT OF THE STATE OF WASHINGTON IN AND FOR THE COUNTY OF KING

BIONET SYSTEMS LLC, a Washington limited liability company, COLIN BRYAR, an individual, SARAH BRYER, an individual, HEATHER E. ERDMANN, an individual, J.B. CAPITAL LLC, a Washington limited liability company, ROBERT W. JOHNSON, an individual, STEVE MOORE, an individual, WILLARD B. SAMMS, an individual, SHARON M. SAMMS, an individual, Plaintiffs, v. SCOUT ANALYTICS, INC., a Washington corporation, MARK UPSON, an individual, JOHN CONNORS, an individual, ADAM LUDWIN, an individual, IGNITION MANAGING DIRECTORS FUND III, LLC, a Delaware limited liability company, IGNITION VENTURE PARTNERS III, LP, a Delaware limited partnership, RRE VENTURES IV, LP, a Delaware limited partnership, Defendants.

NO. _______________ COMPLAINT FOR DAMAGES AND INJUNCTIVE RELIEF JURY DEMANDED

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Plaintiffs BIONET SYSTEMS LLC, a Washington limited liability company, COLIN BRYAR, an individual, SARAH BRYER, an individual, HEATHER E. ERDMANN, an individual, J.B. CAPITAL LLC, a Washington limited liability company, ROBERT W. JOHNSON, an individual, STEVE MOORE, an individual, WILLARD B. SAMMS a/k/a ROBIN SAMMS, an individual, SHARON M. SAMMS, an individual (collectively, Plaintiffs) file this Complaint against defendants SCOUT ANALYTICS, INC., a Washington corporation, MARK UPSON, an individual, JOHN CONNORS, an individual, ADAM LUDWIN, an individual, IGNITION MANAGING DIRECTORS FUND III, LLC, a Delaware limited liability company, IGNITION VENTURE PARTNERS III, LP, a Delaware limited partnership, RRE VENTURES IV, LP, a Delaware limited partnership (collectively, Defendants) on personal knowledge of their own activities and on information and belief as to the activities of others as follows: I. 1. NATURE OF THE CASE

Plaintiffs collectively hold a near supermajority (63%) of the Series A

Preferred and 73% of the Common shares issued by Defendant Scout Analytics, Inc. (Scout). 2. Defendants Mark Upson, John Connors and Adam Ludwin (collectively,

the Individual Defendants) serve on Scouts Board of Directors and constitute three of the four voting members. 3. Defendant Connors is a partner at Defendants Ignition Managing Directors

Fund III and Ignition Venture Partners III (collectively, Ignition). Defendant Ludwin is a partner with Defendant RRE Ventures IV (RRE). Collectively, Defendants Ignition and RRE hold nearly half of Scouts Series B Preferred and 64% of Scouts Series C and C-1 Preferred shares. Neither Ignition, RRE, nor any Individual Defendant holds any of Scouts Series A Preferred or Common shares. 4. Scout is a closely-held corporation and, as such, Defendants owe a fiduciary

duty to Scouts Series A Preferred and Common shareholders. Defendants have instead engaged in self-dealing, corporate waste, and gross negligence to the detriment of Scouts
COMPLAINT- 2
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Series A Preferred and Common shareholders. 5. In particular, Defendants have voted to approve a sale proposal by

ServiceSource International, Inc. (ServiceSource)a proposal that eliminates the economic interests of Scouts Series A Preferred and Common shareholdersrather than explore or investigate a proposal by Catalyst Investors III, LLP (Catalyst) which offers a much higher valuation but no post-merger payments to Scouts management and its Series B, C and C-1 Preferred shareholders. 6. As a result of Defendants oppressive management of Scout, the value of

Scouts Series A Preferred and Common sharesof which Plaintiffs hold the vast majorityhas been and will continue to be adversely impacted. 7. Plaintiffs are suing to recover their damages and obtain an injunction

preventing the sale of Scout to ServiceSource, as well as further wrongful conduct by Defendants. II. 8. PARTIES

Plaintiff Bionet Systems LLC (Bionet) is a Washington limited liability

company whose members are all residents of the State of Washington. Bionet holds 69.37% of Scouts Common and 25.03% of Scouts Series A Preferred shares. Its founder, Mark DiSalle, serves on Scouts Board of Directors. 9. Plaintiff J.B. Capital LLC (J.B. Capital) is a Washington limited liability

company. J.B. Capital holds 15.84% of Scouts Series A Preferred shares. 10. Plaintiffs Colin Bryar and Sarah Bryar are Washington residents. As

husband and wife, they own 5.43% of Scouts Series A Preferred shares. 11. Plaintiffs Robert W. Johnson and Heather E. Erdmann are Washington

residents. Johnson holds 1.36% of Scouts Series A Preferred shares in his own name. As husband and wife, Johnson and Erdmann own another 1.81% of Scouts Series A Preferred shares. 12. Plaintiff Steve Moore is a Washington resident. Moore holds 3.55% of

Scouts Common and 12.67% of Scouts Series A Preferred shares.

COMPLAINT- 3
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13.

Plaintiffs Willard B. Samms, Jr. a/k/a Robin Samms and Sharon M. Samms

are Washington residents. As husband and wife, they own 0.63% of Scouts Series A Preferred shares. 14. Defendant Scout Analytics, Inc. (Scout) is a Washington corporation

with its principal place of business in Issaquah, Washington. 15. Defendant Mark Upson is an individual, the president and chief executive

officer of Scout, and a member of Scouts Board of Directors. Plaintiffs are informed and believe, and on that basis allege, that Upson currently resides in Issaquah, Washington. 16. Defendant Ignition Managing Directors Fund III is a Delaware limited

liability company. Plaintiffs are informed and believe, and on that basis allege, that the members of this LLC are domiciled in the States of Washington and California. 17. Defendant Ignition Venture Partners III is Delaware limited partnership.

Plaintiffs are informed and believe, and on that basis allege, that the members of this partnership are domiciled in the States of Washington and California. 18. Defendant RRE Ventures IV (RRE) is a Delaware limited partnership.

Plaintiffs are informed and believe, and on that basis allege, that the members of this partnership are domiciled in the State of New York. 19. Defendants Ignition Managing Directors Fund III and Ignition Venture

Partners III (collectively, Ignition) hold 47.06% of Scouts Series B and 27.84% of Scouts Series C and C-1 Preferred shares. 20. 21. Defendant RRE holds 35.72% of Scouts Series C and C-1 Preferred shares. Defendant John Connors is an individual and a member of Scouts Board of

Directors. He is also a partner with Defendant Ignition. Plaintiffs are informed and believe, and on that basis allege, that Connors currently resides in Bellevue, Washington. 22. Defendant Adam Ludwin is an individual and a member of Scouts Board of

Directors. He is also a partner with RRE. Plaintiffs are informed and believe, and on that basis allege, that Ludwin currently resides in New York, New York. 23. Each Defendant aided and abetted the actions of the other Defendants as
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COMPLAINT- 4

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set forth below, in that each Defendant had knowledge of those actions, provided assistance and benefitted from those actions. Each of the Defendants was the agent of each of the remaining Defendants, and in doing the things hereinafter alleged, was acting within the course and scope of such agency and with the permission and consent of the other Defendants. III. 24. JURISDICTION AND VENUE

This court has subject matter jurisdiction over the subject matter of this

action pursuant to RCW 2.08.010. 25. This Court has personal jurisdiction over Defendants Scout, Upson and

Connors because they are residents of the State of Washington. 26. This Court has personal jurisdiction over all Defendants pursuant to

Washingtons long-arm statute, RCW 4.28.185(1)(a) because Defendants transacted business as described herein in the State of Washington. 27. This Court has personal jurisdiction over all Defendants pursuant to

Washingtons long-arm statute, RCW 4.28.185(1)(b) because Defendants committed the tortious acts as described herein in the State of Washington. 28. Venue is proper in this Court pursuant to RCW 4.12.025(1) because at least

one defendant resides in King County, Washington. Venue is also proper in this Court pursuant to RCW 4.12.020(3) because King County, Washington is the county where Defendants committed the torts alleged herein. IV. 29. FACTS

Defendant Scout Analytics, Inc. (Scout) is a company that offers

multiple platforms through which other companiesparticularly information service providers, media publishers and software companiesleverage user data. 30. Scout is authorized to issue two classes of stock: Common and Preferred.

The Preferred Stock is designated as either Series A, Series B, Series C or Series C-1. 31. There are four member of Scouts Board of Directors. They are Defendant

John Connors, Defendant Adam Ludwin, and Defendant Mark Upson, Scouts president
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and chief executive officer. Mark DiSalle is a fourth member and the chairman of the Board 32. Defendant Connors is employed by Defendant Ignition. Defendant Ludwin

is employed by Defendant RRE. Ignition and RRE collectively own 47.06% of Scouts Series B Preferred and 63.56% of Scouts Series C and C-1 Preferred shares. Neither Ignition nor RRE own any of Scouts Common or Series A shares. 33. Mark DiSalle is employed by Plaintiff Bionet Systems LLC (Bionet). In

contrast to Ignition and RRE, Bionet owns 69.37% of Scouts Common and 63.56% of Scouts Series A Preferred shares. And Bionet owns none of Scouts Series B, C or C-1 Preferred shares. 34. Subject to certain exceptions that are not at issue here, Scouts Articles of

Incorporation prevent Scout from effecting a sale of the company or from changing the rights and privileges of any holder of Preferred shares, without first obtaining the written consent of the holders of at least a majority of the then outstanding shares of all Preferred stock. 35. Scouts bylaws also contain strict notice requirements for any meeting at

which Scouts shareholders will be called to act on a plan of merger or sale of assets. 36. Scouts bylaws further require that Scouts Board of Directors act in the

best interests of Scouts shareholders. 37. But Defendants have not acted in the best interests of Scouts shareholders.

Instead, Defendants have acted in the best interests of Scouts management (represented on Scouts Board by Defendant Upson) and Defendants Ignition and RRE (who hold the great majority of Scouts Series B, C and C-1 Preferred shares). As such, Defendants have engaged in self-dealing, have wasted corporate profits and have acted with gross negligence towards Scouts Series A and Common shareholders. 38. In early December, Scout and its Board predicted that it would be out of

cash within the first quarter of 2014. So they solicited and received two proposals for financing. The first is a proposal for an investment (the Investment Proposal) by
COMPLAINT- 6
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Catalyst Investors III, LP (Catalyst). The Investment Proposal is based upon a valuation of Scout at $40 million. 39. The second proposal (the Sale Proposal) involves an acquisition by

ServiceSource International, Inc. (ServiceSource). The Sale Proposal is based upon a much smaller valuationonly $31 million. But the Sale Proposal offers post-merger payments of proceeds to Defendants Ignition, RRE and Scouts management. Scouts Series A Preferred and Common shareholders, on the other hand, receive nothing under the Sale Proposal and their shares would be cancelled. 40. Because of its low valuation, Defendants initially found the Sale Proposal

unacceptable and told ServiceSource that its offer would need to involve a valuation at $40 million or higher. 41. But ServiceSource refused to adjust its valuation and remarked that the

parties were too far apart to warrant further discussion. 42. 43. Shortly thereafter, Scouts Board of Directors held a vote on the proposals. Because of his employment with Bionetwhich holds a majority of Scouts

Common and a significant percentage of Scouts Series A Preferred sharesMark DiSalle believed a vote on the proposals posed a conflict of interest for him. So he abstained from voting. 44. Noting that the Sale Proposal offered post-merger payments to the other

directors and/or their employers but no benefits for any of Scouts Common or Series A Preferred shareholders, DiSalle also urged the other directorsDefendants Upson, Connors and Ludwinto abstain from voting. But they refused. 45. Despite the glaring differences in valuation, Scouts Board of Directors

voted in favor of the Sale Proposalnot the more lucrative Investment Proposal. 46. In so doing, Defendants acted in service of their self-interests and the

interests of their employers, not Scouts shareholders to whom they owed a duty of care, loyalty and accountability. 47. On December 18, 2013, Plaintiffs via their counsel sent a letter to
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COMPLAINT- 7

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Defendants complaining that the Sale Proposal vote posed a significant conflict of interest. Citing Scouts Articles of Incorporation, the letter also noted that Scout lacked authority to proceed with the merger absent sufficient notice and written consent of the holders of at least a majority of the then outstanding shares of all Preferred stock. 48. Defendants responded by promising to submit the Sale Proposal for

shareholder vote. But Defendants broke that promise, choosing instead to proceed with the due diligence associated with the Sale Proposal. 49. Unless Defendants are immediately enjoined, they will finalize the sale of

Scout to ServiceSourcewhich only serves their individual interests and completely eliminates the economic interests of Plaintiffs and the other Series A Preferred and Common shareholders. V. FIRST CAUSE OF ACTION Breach of Fiduciary Duty (All Defendants)

50.

Plaintiffs incorporate by reference the allegations set forth in Paragraphs 1

through 49 as though fully set forth herein. 51. Directors of a corporation are fiduciaries that owe the highest duty of

loyalty to both the corporation and its minority shareholders. Saviano v. Westport Amusements, Inc., 144 Wn. App. 72 (2008). 52. By virtue of their positions on Scouts Board of Directors, the Individual

Defendants have the power to control and did control Scouts business and corporate affairs. 53. Defendants are required to use their ability to control and manage Scout in a

fair, just, and equitable manner; maximize shareholder value; act in furtherance of the best interests of Scouts shareholders; refrain from abusing their positions of control; and not favor their own interests at the expense of Plaintiffs and the other Series A Preferred and Common shareholders. 54. By virtue of the acts and conduct alleged herein, Defendants have breached

the fiduciary duties of care, loyalty, and accountability to Plaintiffs and the other Series A
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Preferred and Common shareholders. 55. Defendants have violated their fiduciary duties by voting in favor of and

recommending the Sale Proposal, which provides them a substantial financial benefit to the great detriment of Plaintiffs and the other Series A Preferred and Common shareholders. 56. Defendants have caused other violations of Scouts Articles of

Incorporation and continue to endanger the economic interests of Plaintiffs and the other Series A Preferred and Common shareholders. 57. As a direct result of Defendants wrongful conduct and actions, Plaintiffs

and the other Series A Preferred and Common shareholders have suffered considerable damage in an amount to be proven at trial. VI. SECOND CAUSE OF ACTION Minority Shareholder Oppression (All Defendants) 58. Plaintiffs incorporate by reference the allegations set forth in Paragraphs 1

through 57 as though fully set forth herein. 59. 60. Scout is a closely-held corporation. The shareholders of closely-held corporations are fiduciaries of each other

and must act loyally, in good faith, and honestly with the other shareholders. 61. But Defendants have breached those obligations and, in so doing, have

oppressed the rights of Scouts Series A Preferred and Common shareholders. 62. Defendants actions have violated the agreements and representations that

were relied upon by Plaintiffs and the other Series A Preferred and Common shareholders. 63. Defendants have engaged in burdensome, harsh, and wrongful conduct via

their roles on Scouts Board of Directors. Their actions show a lack of probity and fair dealing and are a visible departure from the fair play that Plaintiffs and the other Series A Preferred and Common shareholders are entitled to expect. 64. By virtue of the acts and conduct alleged herein, Defendants have
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oppressed the rights of Plaintiffs and the other Series A Preferred and Common shareholders. 65. As a direct result of Defendants wrongful conduct and actions, Plaintiffs

and the other Series A Preferred and Common shareholders have suffered considerable damage in an amount to be proven at trial. VII. THIRD CAUSE OF ACTION Corporate Waste (All Defendants)

66.

Plaintiffs incorporate by reference the allegations set forth in Paragraphs 1

through 65 as though fully set forth herein. 67. By virtue of the acts and conduct alleged herein, Defendants misused

corporate assets for their own gain and have misused and wasted Scouts corporate assets. 68. As a direct result of Defendants wrongful conduct and actions, Plaintiffs

and the other Series A Preferred and Common shareholders have suffered considerable damage in an amount to be proven at trial. VIII. FOURTH CAUSE OF ACTION Injunctive Relief (All Defendants) 69. Plaintiffs incorporate by reference the allegations set forth in Paragraphs 1

through 68 as though fully set forth herein. 70. Plaintiffs and the other Series A Preferred and Common shareholders have

suffered, and will continue to suffer, irreparable injury from Defendants continued activities, which have resulted and will continue to result in violations of Scouts Articles of Incorporation and the unfair and oppressive elimination of the economic interests of Plaintiffs and the other Series A Preferred and Common shareholders. 71. It is appropriate for the Court to issue an injunction compelling Defendants

to take such steps as are necessary to protect the economic interests of Plaintiffs and the other Series A Preferred and Common shareholders, in particular by voiding the merger and acquisition offered by the Sale Proposal.

COMPLAINT- 10

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COMPLAINT- 11

IX.

FIFTH CAUSE OF ACTION Unjust Enrichment (All Defendants)

72.

Plaintiffs incorporate by reference the allegations set forth in Paragraphs 1

through 71 as though fully set forth herein. 73. Defendants benefitted and intend to continue benefitting from their self-

dealing as described herein. 74. 75. Defendants appreciate or know they received the aforementioned benefits. The circumstances of Defendants acceptance or retention of the

aforementioned benefitsto the detriment of Plaintiffs and the other Series A Preferred and Common shareholdersmake it inequitable for them to retain the benefits without providing sufficient value in exchange. X. PRAYER FOR RELIEF

WHEREFORE, Plaintiffs respectfully request that the Court enter judgment against Defendants and in favor of Plaintiffs as follows: 1. That the Court award Plaintiffs all quantifiable and measurable unique damages sustained by them by reason of Defendants acts complained of herein. 2. That the Court issue an injunction prohibiting continuing acts of oppressive conduct including the merger and acquisition offered by the Sale Proposal. 3. That the Court award Plaintiffs damages as compensation for their injuries resulting from Defendants oppressive conduct. 4. That the Court award Plaintiffs their attorneys fees, expert fees, costs and expenses of this litigation. 5. That the Court award Plaintiffs pre- and post-judgment interest as allowed by law. 6. That the Court award Plaintiffs such other and further relief as this Court may deem just and proper.

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RESPECTFULLY SUBMITTED this 10th day of January 2014. NEWMAN DU WORS LLP

By: John DuWors, WSBA No. 33987 Attorney for Plaintiffs

COMPLAINT- 12

NEWMAN DU WORS LLP

1201 Third Avenue, Suite 1600 Seattle, Washington 98101 (206) 274-2800