Spongetech Delivery Systems, Inc. (fka SPNGQ)

[loanranger]

http://sec.gov/Archives/edgar/data/1201251/000114420409037511/v154860_ex10-1.htm

July 9, 2009
This is a compensation arrangement between Wayne M. Celia, Dicon Technologies LLC (the “Company”), and SpongeTech Delivery Systems, Inc., the Company’s parent company (“SpongeTech”) effective July 1, 2009 and ending December 31, 2011 (the “Term”).

"8. You agree that you will not, at any time, during the Term of this Agreement, and for one (1) year following (a) the termination of this Agreement or your employment hereunder by the Company or SpongeTech for Cause, or (b) your termination of this Agreement for Good Reason, either directly or indirectly, engage in, with or for any enterprise, institution, whether or not for profit, business, or company, competitive with the “Business” of the Company or Spongetech as such Business may be conducted on the date thereof, as a creditor, guarantor, or financial backer, stockholder, director, officer, consultant, advisor, employee, member, or otherwise of or through any corporation, partnership, association, sole proprietorship or other entity; provided, that an investment by you, your spouse or your children is permitted if such investment is not more than four percent (4%) of the total debt or equity capital of any such competitive enterprise or business. Spongetech shall have the right in its sole discretion to waive this covenant not to non-compete. As used herein, the Term “Business” shall mean, with respect to the Company, the development, manufacture and distribution of products derived from “Hydrophilic Urethane Chemistry,” and with respect to Spongetech, the development, manufacture, sale and distribution of hydrophilic polyurethane and polyurethane sponge cleaning and waxing products."


I believe that the allegations in the SEC and DOJ complaints are 100% true and will be proven at trial should they get to that stage (for some reason felt a need to establish that). I also love a good stink……and I think one is abrewin':
If the attorneys for the trustee in the bankruptcy case are correct in their contention that Wayne Celia is a principal of the Proposed Purchaser, then he is in clear violation of the above clause in his employment agreement(see edit). (It may seem silly, but the filed agreement does not indicate that SM and WC actually signed it…..for this exercise I'm assuming that they did.) The clause applies regardless of whether in simple terms he was fired or he quit, justifiably or not.
In order to consummate the deal that's on the table, Whitaker will be able to justify to the court the abandonment or re-negotiation or settlement of existing contracts that Dicon may have by arguing that to do so is in the creditors best interests. In fact, the Trustee asserted Dicon's claim against WC prior to the negotiation wherein they agreed to the selling price and the lease assumption.

What he WON'T be able to do is make WC's employment contract go away altogether…..because Spongetech is a party to it and Spongetech is not likely to be amenable to agree without some consideration, the prospects of which are slim to none. Leaving the question, for me at least, of whether a party can essentially forgive the duties of another party in an agreement which involves a third party. And if not, could the employment agreement prove to be a stumbling block in the proposed asset sale?
It's reasonable to assume that WC has thought this through and decided that his participation with the Proposed Purchaser has a greater value than the potential cost of any action taken against him for his violation of the employment agreement.

The fun never stops.


edit: HOWEVER, it's possible that WC could establish that he was fraudulently induced to sign the agreement in the first place. In which case you can probably trash this whole post :O)