Explore the legal challenges faced by a Pepperell, Massachusetts-based online retailer in retaining a key employee in this M&A tale. Delve into negotiations, oral promises, and court decisions, emphasizing the importance of formal agreements with key employees in business sales.
M&A Stories
September 5, 2018
In this M&A tale, a Pepperell, Massachusetts-based online retailer faced a legal challenge involving a key employee and the sale of its assets. The owner, primarily based in California, aimed to sell the company, and promised the key employee a share of the proceeds if the sale reached $5 million.
The negotiations unfolded with a Las Vegas competitor, initially agreeing on a $3 million closing deal, with an additional $1 million contingent on post-sale revenue growth. The key employee claimed an oral promise of $175,000, while the owner asserted offering a conditional bonus to ensure her cooperation.
Despite failed negotiations with Las Vegas, a subsequent offer from a Philadelphia competitor led to a $2.25 million sale agreement. The lower price was due to uncertainties about the key employee’s commitment.
In a legal twist, the key employee sought attachment of the seller’s inventory before the closing to secure her claim on the sales proceeds. The court, applying Massachusetts law, found insufficient evidence to support her claim, emphasizing the absence of a written agreement.
The case highlights the importance of formalizing agreements, especially involving key personnel, in the business sale process.
Case Reference:
Lockwood v. Madeiros, LLC, Civil Action No. 4:18-cv-40143-DHH, United States District Court, D. Massachusetts (August 27, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
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