Dees Resignation - Open Financial Issues.
Pursuant to a February 29, 2016 press release and 8-k filing, the Company announced the resignation of its CEO Craig Dees " for personal and health reasons and not as a result of any disagreement with the Company." See the following link to the 8-K disclosure: Http://www.sec.gov/Archives/edgar/data/315545/000119312516483451/d149981d8k.htm
. Due to HIPAA privacy considerations, the nature of the health reasons will likely never be made public. The related press release also provided " The Board added that in this transition it has designated the company's Audit Committee to review a number of company procedures, policies and practices, including executive compensation and expenses." The full press release can be found at the following link: https://pvct.com/pressrelease.html?article=20160229.1 . During the March 2, 2016 conference call addressing the Dees resignation, a caller asked if Dees’ executive salary was continuing, or if the Company had any other continuing financial payment obligations in the future. Peter responded that the conference call questions and answers must be limited to the scope of the 8-K filing regarding the resignation, and any financial disclosures regarding same would be addressed in a future 10-K or 10-Q filing. I couldn't find a transcript of the question and answer portion of the conference call, but a link to the audio of same can be found on the Company website. Another potentially relevant financial question relates to the manner in which Dr. Dees has been compensated prior to his resignation, particularly if his health condition interfered with his ability to perform his responsibilities as CEO. Peter acknowledged in the conference call that he and Eric had been handling all the Company public speaking responsibilities since 2014, and acknowledged that same was in part was due to Dees health condition. Of course CEO responsibilities would extend beyond public presentations, and we do not have access to the level of services performed by Dr. Dees over the past couple years. The answers to the above compensation questions may possibly be found in Dr. Dees employment agreement with the Company, as same would address employment termination attributable to disability and other reasons.
As part of the Kleba settlement, Dees, Scott, Wachter and Culpepper were required to enter into Amended and Restated Executive Employment Agreements effective April 28, 2014, and all were disclosed in 8-K filing. Dr. Dees Employment Agreement can be found at the following link: http://www.sec.gov/Archives/edgar/data/315545/000119312514172822/d720290dex101.htm
. All four of the executive officers entered into similar five-year Employment Agreements. You'll note that Section 3 of the Dees Employment Agreement contains the negotiated $500,000 base salary plus bonus provisions dictated by the Kleba settlement agreement. Section 5 contains the termination provisions. An employee’s "Disability" for termination purposes is defined as "being unable to render the services required to be rendered by him during the Employment Period for a period of 180 days during any 12 month period." Compensation would end upon disability, and I would assume the Company has good disability insurance coverage to provide benefits for any disabled executive employee. Certain further financial rights of the employee are triggered if there is "Disability". Was Dr. Dees disabled, and if so, when did he become disabled? If disability occurred in the past, when did compensation end and disability insurance payments begin? Section 6 of the Employment Agreement outlines other potential financial consequences of termination based upon the reasons for termination. If the employee voluntarily resigns without Good Reason or is terminated for Cause, then the Company has no further financial obligations to the employee after the date of termination. Cause and Good Reason are defined in the Employment Agreement, and would not seem to be applicable to the Dees termination. If the employee's termination is due to "Disability", then the Company shall continue to pay the employee an amount equal to his Base Salary ($500,000) for a period of 24 months, to be paid in accordance with the Companies normal payroll practices through the end of the fiscal year in which the termination occurs, and then in one lump sum payable to employee in the first month of the fiscal year following termination. Assuming the Base Salary is paid in equal monthly installments, and an effective termination date of March 1, 2016 based upon "Disability", Dees would be entitled to $41,667 each month for 10 months in 2016, and would be entitled to a lump sum payment in January 2017 of $583,338 ($41,667 times 14 months). Any accrued bonus would also have to be paid. If Dees termination was not related to Disability, then it is unlikely the Company has any further salary financial obligation after the date of termination.
Dees termination also has implications for his repayment obligations under the Kleba settlement. The 8-K filing of the Kleba settlement documents can be found at the following link: http://www.sec.gov/Archives/edgar/data/315545/000119312514299064/d754969dex106.htm
. As you may recall, the Kleba settlement required Dees, Scott, Wachter and Culpepper to each repay the Company $2,240,000 from past bonuses. In addition, each also had to repay 25% of the plaintiff’s legal expenses and 25% of the Company’s legal expenses in defending the Kleba lawsuit. If each of the executive officers satisfied certain conditions, he could reduce his individual $2,240,000 bonus repayment obligation to $1,120,000. Regardless, the repayment had to be made within five years, with a minimum of $200,000 withheld from each employee's salary over the five-year term. In order to be eligible to repay the reduced $1,120,000 bonus repayment amount, the employee must make the minimum $200,000 a year repayment, remain employed for the entire five-year employment term ending December 31, 2018, as well as satisfying other conditions. The five-year employment term requirement is waived under the Settlement Agreement, if the employee is terminated for certain reasons, including "Disability" as defined in his Employment Agreement. Consequently, if Dees termination was due to Disability, then he would only be obligated to repay the Company the $1,120,000 bonus amount, +25% of the legal expenses, and not the total $2,240,000 bonus amount. If Dees termination was not do to Disability, then he may be obligated to repay the entire $2,240,000 bonus amount, +25% of the legal expenses, on an accelerated basis.
The above analysis is just one person's opinion based upon a review of the Dees Employment Agreement and Settlement Agreement made part of the public record in 8K filings. There may be other information public or private that would alter any of the conclusions outlined above. The purpose of the analysis is only to highlight open financial issues related to Dr. Dees resignation.
I would assume when the Company files its next 10-K or 10-Q, we should have further disclosure regarding the financial arrangements surrounding Dr. Dees resignation.