NanoMech seeking way out of exit deal with former CEO

Bankrupt tech company NanoMech is asking a judge to allow it to reject a separation deal it has with the company’s former chief executive.

In a filing Wednesday, Springdale-based NanoMech called the agreement burdensome, said it isn’t necessary for its future operations and has determined the deal is of no value to the company. NanoMech argues bankruptcy law allows a trustee or debtor in possession to reject executory contracts or a leases.

With the approval of bankruptcy court, NanoMech is acting as a debtor in possession, which allows the business within certain limits to operate normally as the bankruptcy unfolds.

CEO Jim Phillips retired weeks before NanoMech filed for Chapter 11 bankruptcy protection in April in U.S. Bankruptcy Court for the District of Delaware.

In response to emailed questions, Joshua Silverstein, a professor at the W.H. Bowen School of Law at the University of Arkansas at Little Rock who researches and writes about bankruptcy law, said he’s not familiar with this particular case but said bankruptcy law does give debtors the right to reject contracts in instances that don’t exist in nonbankruptcy law.

In the court documents, NanoMech said Phillips’ separation deal includes a $400,000 severance payment, $452,000 in accrued unpaid salary, and a payment of $155,283. The deal called for an initial payment of $500,000 with the remainder to be paid in monthly installments over 24 months, beginning in mid-March.

Earlier in July, Bankruptcy Judge John Dorsey approved a plan by NanoMech to question Phillips regarding his time as chief executive officer under Rule 2004 of the Federal Rules of Bankruptcy Procedure. This rule requires people to answer questions, in a manner similar to a deposition, about dealings with the company, but they are allowed to have attorneys present if they wish.

NanoMech said in court filings its investigation shows Phillips spent more than $750,000 in company funds on personal expenses and also awarded himself a compensation package the company could ill afford.

Phillips contends that NanoMech’s allegations are gross mischaracterizations of the truth or outright fabrications. He said his exit from NanoMech came because of pressure from preferred shareholders and that the compensation package he received was heavily negotiated and no surprise to anyone at the company. He also argued that money spent on travel was for legitimate marketing and promotional attempts to raise the company’s profile and drum up potential customers in the automotive and aerospace industries.

Earlier this week, a judge approved the sale of NanoMech’s assets free of liens and other legal encumbrances to P&S Holdings for $8 million. P&S is a subsidiary of Houston-based Vinmar International Ltd., a global marketing, distribution and project-development company serving the petrochemical industry.

NanoMech, founded in 2002, develops nanotechnology for use in machining and manufacturing, lubrication and packaging, coatings and also develops specialty chemicals. Nanotechnology is the manipulation of matter at the atomic and molecular scale.

NanoMech claimed $7.2 million in assets and owes nearly $19 million to its creditors, according to bankruptcy filings.