Miffed CEO Sues Bain for $20 Million

CHICAGO (CN) - Bain Capital promised the CEO of a takeover target $22 million over five years, but fired him within the year because Bain only wanted to "take out" a competitor, the ex-CEO claims in court.

Richard Roy Jr. sued Applied Systems, its former CEO James Kellner and Bain Capital Partners in Cook County Court.

Roy says he founded Artizan Internet Services, specializing in insurance software, and sold it to Applied Systems in December 2010. Bain Capital had bought Applied Systems, insurance management, in 2006.

Roy says Kellner was a friend and the "two men had an amicable history of doing business with each other on an honorable handshake basis, where each man's word was his bond."

Roy claims he had rejected two $20 million buyout offers before making the deal with Applied Systems because "he believed in Jim Kellner and in Kellner's promises that Artizan would continue to operate independently within the Applied platform with the Artizan management team intact."

He claims that "Kellner worked with Mr. Roy to develop salary, bonus and performance payment terms that in total could deliver an economic value of $22,000,000 over five (5) years, if Artizan reached certain revenue performance targets over the five (5) year period."

Roy claims that "the linchpin of the deal was that Mr. Roy, his fellow Artizan equity holders and his team would continue to be involved with Applied so that Artizan would have the best chance of realizing its revenue performance targets inside the Applied platform, and so that Mr. Roy and his other equity holders could realize the benefit of their deal."

But Roy says that Kellner "knew that Bain had no intention to pay $22,000,000 for Artizan. Therefore, Mr. Kellner knew that most of the salary, bonus and performance payment terms he was proposing in bad faith to Mr. Roy were illusory and would never actually be paid by Applied."

In fact, Roy claims, "Bain wanted to ready Applied for a sale or 'exit' (to use a private equity term) over the next few years and wanted to grow Applied through acquisitions. On information and belief, Bain had already expressed reservations about whether Mr. Kellner was a 'deal guy' who could identify and close accretive acquisitions. Mr. Kellner was desperate to show Bain that he too was a 'deal' guy just like the Bain guys, and could grow Applied through acquisitions. Bain apparently was not persuaded and has since replaced Mr. Kellner with Mr. Reid French, an executive with a much stronger merger and acquisition background than Mr. Kellner." (Parentheses in original.)

French became CEO of Applied Systems in September 2011.

Less than one year after Applied bought Artizan, Roy says, he was fired without cause, "despite receiving many 'trust me' assurances from Mr. Kellner before the deal closed that this would never happen. ... Given other changes made by Applied with respect to certain Artizan product lines post-termination, the performance payments have no chance of being paid."

Roy claims Applied and Bain "only wanted Artizan's software capability, products, and 'high-end' customers and clients. ... From the defendants' standpoint, there was no business reason to keep Mr. Roy and the Artizan management staff or to pay them. Defendants only wanted to 'take out' a competitor and capture complimentary competing assets."

Roy seeks $20 million in damages for breach of implied contract, unjust enrichment, fraudulent inducement, and intentional interference.

He is represented by Gregory Casimer with Lathrop & Gage.

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