Equity Dispute

A senior engineer at a fast-growing AI startup found himself targeted just as the company entered acquisition talks with a multi-billion-dollar public company. Management invoked their repurchase rights to claw back vested shares (valued at $233K at the time) for pennies on the dollar. 

Th governing equity agreements, however, provided no such authority. MGMT’s repurchase rights were exercisable if (1) the client was terminated for cause or (2) if he missed deliverables. Neither occured. Nevertheless, MGMT claimed to have terminated the client (yet continued assigning work and praised his work during investor meetings, including the pitch to the acquiring company). Among other tactics, MGMT attempted to retroactively alter a certified stock purchase agreement by changing vesting cliffs, conditioning equity on an unattached Statement of Work that they then insisted precluded any grant of equity.

With the merger closing in two days, the parties held numerous Zoom conferences with both the company and its board of directors resulting in a revised offer of over half a million for the client’s equity. We responded with a drafts of a Section 220 Demand, Motion for Declaratory Judgment, and standstill agreement indicating our willingness to table the dispute until after the merger but we would first require board recognition of our rights. Preferring to start anew, the company eventually offered 1 million shares to resolve the matter netting the client $1.14M.