( HEPH) founder and Chief Executive Richard Hollis was fired "for cause" by his board last week, triggering a clause in his employment contract that strips him of millions of dollars in severance payments.
Hollis's termination as CEO of the San Diego-based drug company that bears his name was effective March 18 but disclosed publicly Monday night in a filing with the
Securities and Exchange Commission
The departure of a drug or biotech company CEO is a fairly common event, especially in the current troubled economic environment. Yet, these management changes are typically performed with a certain amount of public discretion that allows the executive to depart with his reputation intact and his financial nest egg bolstered with a generous severance package.
Last week's firing of Hollis, however, wasn't very demure. The 8-K filing Monday states that a special committee of Hollis-Eden's board, made up of non-employee directors, terminated Hollis "pursuant to Section 4.3 of his employment agreement."
Monday's disclosure doesn't include any details about Section 4.3 of Hollis's employment agreement, but a quick search through SEC filings reveals that this particular section of Hollis's contract defines various conditions under which he could be fired "for cause."
These conditions include being in material breach of his employment contract; participating in any activity or engaging in behavior that is competitive or injurious to the company; committing fraud against the company; stealing company funds or property for his personal use; or conviction of "any crime involving dishonesty or moral turpitude," according to Hollis's employment agreement that is included in the company's proxy statements filed with the SEC.
Hollis-Eden spokesman Scott Rieger confirmed that Hollis was fired "for cause" but wouldn't disclose the specific activity or behavior that caused the board to fire him. Voice mail messages left for two of the company's independent directors weren't returned. Hollis could not be reached for comment.
The "for cause" firing means that Hollis loses millions of dollars in potential severance payments, and receives just his accrued salary and benefits through March 18, according to his employment agreement.
If Hollis had been terminated "without cause," he would have been entitled to a lump sum payment of five times his 2008 salary plus five times his bonus from the previous year, in addition to other benefits, according to his employment agreement.
Hollis earned $554,000 in salary in 2008. His 2008 bonus hasn't yet been disclosed by the company. He earned a $266,000 bonus in 2007, according to company filings with the SEC.
Based on those compensation figures, Hollis would have taken home nearly $4.1 million in severance had he been terminated from the company "without cause."
Hollis founded Hollis-Eden in 1994 and took the company public in 1997. The company's claim to fame -- and the reason for its eventual downfall -- was an anti-radiation sickness drug called Neumune. Developed shortly after the Sept. 11, 2001, terrorist attacks, Neumune was supposed to be a major weapon in the U.S. government's bio-terrorism defense war chest, or so Hollis claimed repeatedly.
But the blockbuster government contract for Neumune that was long promised by Hollis never materialized, and when the U.S. government announced officially in March 2007 that it had no intention of buying a single dose of the drug, Hollis-Eden shares cratered and never recovered.
Since then, Hollis-Eden has tried to develop drugs for cancer and other diseases with little success. In early February, the company announced a major downsizing, including layoffs. The stock price, which was once as high as $30 a share in 2003, closed Monday at 48 cents.
James Frincke, Hollis-Eden's chief operating officer, was appointed interim CEO after Hollis's termination.
Know what you own: Other companies involved in bio-terrorism projects include
Human Genome Sciences
Advanced Life Sciences
At the time of publication, Feuerstein's Biotech Select model portfolio had no positions in any stocks mentioned.
Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
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