Duluth software company sues founder to block competition
EmpowerMX, a Duluth-based maker of software for airlines, has filed a lawsuit against its founder, Barry Sinex. The company aims to block Sinex from re-entering the aviation industry and becoming a competitor, as he threatened to in a Dec. 13 e-m...
EmpowerMX, a Duluth-based maker of software for airlines, has filed a lawsuit against its founder, Barry Sinex.
The company aims to block Sinex from re-entering the aviation industry and becoming a competitor, as he threatened to in a Dec. 13 e-mail to Greg Sandbulte, EmpowerMX's CEO. EmpowerMX contends that Sinex's proposed activities would violate a noncompete agreement he signed Oct. 31, 2005, after leaving the company.
But Sinex considers the noncompete agreement void in light of what he views as the company's poor management and decline in the value of shares he still owns in the business.
At the time he left EmpowerMX -- then known as Sinex Aviation Technologies Corp. -- Sinex controlled more than 2 million shares of the company. As part of the noncompete agreement, he was authorized to sell a portion of his shares in the privately held business, but Sinex said he still retains about 10 percent of the company's total equity.
The agreement Sinex signed said that "in the event of a sale, merger, consolidation or other significant change of ownership," the noncompetition provisions of the contract would be null and void if "holders of common stock are paid less than $1 per share for their stock."
Sinex argues that the company has undergone "a significant change of ownership" because of repeated private offerings that have badly diluted the value of shareholders' investments in the company. After a recently authorized round of preferred stock is sold, Sinex figures common shares, such as those he owns, will be unable to fetch even $1 apiece.
Sandbulte declined to publicly discuss the case in detail.
"Given the ongoing nature of this legal action, I'm not able to comment at this time," the EmpowerMX CEO said.
But Mary Giesler, the company's legal counsel, sent a memo to Sinex claiming that the 2005 contract still remains in full effect. She said the agreement "provides that your non-compete obligation becomes null and void only if the consideration 'holders of common stock' receive in such a transaction is less than $1 per share. In other words, the basis for terminating the non-compete obligation is not what you may think your shares are worth, but what you actually received in connection with a 'sale, merger, consolidation or other significant change in ownership of the company.' "
EmpowerMX filed a complaint against Sinex Dec. 17 and successfully obtained a temporary restraining order from Sixth Judicial District Judge Shaun Floerke. The court will consider whether to give that injunction more staying power.
Sinex said that regardless of the outcome, the noncompete clause in the 2005 agreement he signed is scheduled to expire in October.
So far, Sinex says he has done nothing to directly compete with EmpowerMX. Instead, Sinex said he simply served the company notice of his intentions.
"I didn't want to go behind anyone's back and be accused of backstabbing," he said.
Sinex said he feels he has few alternatives to salvage some value from his work. He developed a computer software package that helps airlines track and manage their aircraft maintenance and repairs. That software became the backbone of a product now used by Air Canada, American Airlines, Continental, Frontier, Southwest and US Airways.
Dun & Bradstreet, a financial information firm, estimated EmpowerMX's sales at about $4.2 million last year. Sandbulte wouldn't discuss the company's sales figures but said they were greater than reported.
Although EmpowerMX enjoys a sizable market for its products, Sinex said the company still lost about $4 million last year.
"We shouldn't be talking about a burn rate -- much less a burn rate like that -- with an 8-year-old company," said Sinex, adding: "I feel extraordinarily bad for all the people who invested in this company."
Sinex still believes EmpowerMX can operate profitably with the right leadership. Toward that end, Sinex said he offered to help EmpowerMX explore a strategic sale of the company last year but met with rejection.
EmpowerMX employs about 40 people in Duluth and 12 in the Twin Cities, Sandbulte said. He noted that the company also employs about two dozen on a contract basis in India.
PETER PASSI covers business and development. He can be reached weekdays at (218) 279-5526 or by e-mail at email@example.com .