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Until Death, or Some Other Sticky Problem, Do Us Part

Around the same time, D'Artagnan's lawyer wisely suggested the parties sign a buy-sell agreement.

On Having a Buy-Sell

Come on. The company's been around since the mid-'80s and we're just getting around to a buy-sell? Imagine a husband asking for a prenuptial 10 years into the marriage. It's a little ridiculous. --The Lawyer Buy-sell agreements dictate what happens to a partner's ownership shares if he or she leaves the business (see "How to Write a Buy-Sell Agreement"). In the form Daguin and Faison chose, if a partner died, the survivor would be offered his or her shares at a determined price (the formula they used was a multiple of EBITDA). "Initially," Faison says, "the idea was to make sure that if one of us got hit by a truck, we wouldn't have any succession problems." At the same time, Daguin and Faison took out life insurance

On Taking Out Insurance

Normally, the company itself takes out the insurance policies, not the partners. When someone dies, the company gets the proceeds and buys back the shares. If partners take out personal insurance, there are some tax complications--and weird motivation, if one wanted to kill the other. --The Finance Guy on each other, so that if one died, the insurance payment would fund the survivor's share purchase. They also included what's known as a shotgun clause. The idea is that, if things go south between partners, the shotgun clause provides a fair price for one partner to buy out the other and a lawsuit-free way for the business to survive. For Daguin and Faison, this would become key.

By 1999, D'Artagnan was on track to produce $20 million in annual revenue, and it was still growing fast--suppliers were now approaching them, which meant new products and new customers. Then, at Christmas, the highest sales week of the year, some consumers reported they'd gotten sick from D'Artagnan products. A Centers for Disease Control and Prevention investigation found several D'Artagnan items from a single factory tested positive for listeria,

On Protecting Your Assets

For liability issues, when selling a product it's essential to have a legal entity such as a corporation or an LLC. A partnership--i.e., no legal entity--is worthless for protecting either partner's assets. --The Finance Guy a dangerous bacteria. Together, Faison and Daguin responded immediately. They voluntarily recalled all 70,000 pounds of very expensive meat that the factory had processed. Daguin put her name and phone number on press releases for consumers and journalists, and organized calls to all 3,576 people that had bought the products directly from D'Artagnan. On the operations side, Faison fired the plant that had produced the tainted meat, hired a new factory, and required daily and third-party sanitation monitoring. "They handled it very well," says Saul Zabar, who sells D'Artagnan products from his Manhattan retail store, Zabar's. Even a CDC epidemiologist noted that the owners response was "aggressive." But many retailers were angry, and even if they weren't, they needed someone to supply products, and it was five months before D'Artagnan was selling those products again. For the first time, the company lost money--a lot of it.