Thought Convergence Sues Westerdal
Firm sued Name Intelligence founder Westerdal on May 1 over $16M deal gone wrong.
Earlier today we noted regarding a riff between Thought Convergence and Jay Westerdal, founder of Name Intelligence. I was just tipped off to a lawsuit filed by Thought Convergence against Westerdal earlier this month. Defendants also include Per Westerdal, Ray Bero, and Cameron Jones. The complaint is for alleged breach of securities exchange agreement, breach of employment and non-compete agreements, breach of fiduciary duty, breach of covenant of good faith and fair dealing, and accounting.
I’m going through the lawsuit as I publish this and will fill in more details later. But the introductory paragraph to the lawsuit gives a jist of what it’s regarding:
This case concerns a blatant breach of contract by the sellers of an internet business to TCI, the breach of an employment agreement and noncompete agreement by one of the sellers’ principals, Jay Westerdal, and Mr. Westerdal’s breach of fiduciary duties owed to Plaintiffs. Despite Mr. Westerdal’s assurances that his business was set for immediate and explosive growth and that Mr. Westerdal would commit his full business effort to running the business following its buyout, neither proved to be true. Rather, Mr. Westerdal materially misrepresented and omitted key information regarding the condition and nature of his business to extract a hyperinflated purchase price. Following the buyout, Mr. Westerdal failed to assist the business in any meaningful way, used firm assets as his own personal bank account, and began developing a competing business in violation of his duties and contractual obligations to plaintiffs…
I’ve read the lawsuit, and here are some of the more interesting items. First, TCI agreed to pay $16M in cash and stock for the firms (NI and Spry web hosting). TCI states that Westerdal told it he had a $60M cash offer on the table. $6M was paid upfront, in addition to 15% of the fully-diluted firm. $5M was due this May, and another $5M to be paid in May 2010.
TCI alleges:
-Westerdal stated the second and third installment of the purchase price for NI would “easily paid by the net profits”
-“J. Westerdal failed to keep regular business hours, failed to attend strategy and other business meetings and failed to manage employees and clients…”Instead, J. Westerdal would take extended vacations and brag to third parties that he need not attend to his duties as Chief Product Officer of NIL.”
-Westerdal loaned himself money from the firm bank account and gave himself raises without authorization
-Name Intelligence failed to disclose potential risks and liabilities concerning the use of third party copyright
-Some of the domains claimed by NI’s owners to have been purchased with their personal funds prior to the transaction may have actually been purchased with firm funds
-Westerdal violated his non-compete by creating a firm to person the .movie domain
-Westerdal attendied domain conferences on behalf of TCI but promoted his own business
opportunities instead, counting DotMovie
You may view the lawsuit here (pdf). Also see exhibits: 1 and 2.
