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Krell Founders Sue Equity Fund To Return To Company

Updated! Stamford, Conn. – Krell founders Dan and Rondi D’Agostino have filed a lawsuit here against private-equity fund KP Capital Partners and current KP-allied Krell executives to regain their management roles at the high-end audio company they founded in 1980.
In their lawsuit, the founders contend they were locked out of the company’s Orange, Conn., offices about three months ago in violation of their employment agreements after trying to assert their right to fire a KP-backed executive. They also contend that KP used “fraudulent, overreaching and unconscionable tactics” in “a scheme to usurp the assets of old Krell [owned 100 percent by the D’Agostinos] at a discount, and exert complete control of new Krell, despite only purchasing a minority ownership interest.”
KP Capital Partners, a New York City private-equity fund, purchased a 40 percent stake in Krell Industries in April. Dan and Rondi D’Agostino continued to hold the other 60 percent and were to remain CEO and president, respectively, the suit said. Dan D’Agostino was also to stay on as chief product designer. Both founders also held two of five board seats.
KP executive Ling Kwok, however, “improperly terminated the employment of each of the founders, and effectively terminated their ownership and roles as minority managers, literally locking them out of the company,” the suit said.
In another development, KP filed its own suit against the D’Agostinos, said Walter Schneider, who the company promoted from COO to the position of president. KP’s lawsuit “states clearly the reasons this situation has gone sour” and states “some of the misrepresentations that related to the original purchase,” he said. “Obviously some seller’s remorse set in.”
Schneider said Krell is “focusing on business and letting the lawyers work on the issues between the investors and the founders. At Krell, he said, “There is stability,” and the company plans to introduce its first Blu-ray player and other products at January’s CES.
Separately, Todd Eichenbaum has been promoted to Krell’s director of engineering and new product development, Krell said in a written statement. Eichenbaum has been lead engineer on more than 50 Krell products during the past decade, the company said. Peter McKay continues as international sales and marketing VP, and Bill McKiegan remains U.S. sales and marketing VP, Krell said.
In a written statement, Krell also said the D’Agostinos “remain as co-owners and continue to be involved with the company through its board of managers.” The D’Agostino’s suit, however, contends otherwise.
The D’Agostino’s suit also contends that, as part of a scheme to usurp Krell’s assets, KP used such tactics as “interfering with plaintiff’s ability to pursue other strategic partners; conspiring with old Krell’s bank to force plaintiffs into the subject transaction by … contributing to the bank’s suspension of its financing during the time the parties were negotiating; [and] threatening old Krell that said bank would force it into bankruptcy if the KP deal was not consummated on the terms proposed by KP (such coerced terms included granting KP an option to buy majority control of the business after one year for $130,000 if the company did not reach certain financial earmarks, despite the fact that KP would control the company’s finances after the deal closed.”
KP also threatened that “it would acquire plaintiff’s assets at a deep discount in bankruptcy if the KP deal was not consummated on the terms proposed by KP,” and it “falsely accusing plaintiffs of theft and concealment [and] falsely accusing plaintiffs of insubordination as a pretext to support their wrongful termination of the individual plaintiffs as officers and managing members.”
The acts of KP and its allied Krell executives “constitute fraud, fraudulent concealment, fraud in the inducement, professional negligence, gross negligence, breach of fiduciary duties … civil theft, conversion, multiple violations of the Connecticut Unfair Trade Practices Act … tortious interference with contractual relations and business expectancies, and unjust enrichment.”
The D’Agostinos are asking the court to install them to their previous positions or appoint a receiver who would control the company while deciding which persons to install in various management positions. The founders also seek compensatory and punitive damages.