VIA FEDERAL EXPRESS (OVERNIGHT DELIVERY) AND EMAIL
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Posted On: 08/23/2019 5:24:09 PM
VIA FEDERAL EXPRESS (OVERNIGHT DELIVERY) AND EMAIL
CytoDyn Inc.
1111 Main Street, Suite 660
Vancouver, WA 98660
Attn: Dr. Nader Pourhassan, CEO
TEL (215) 735-8700
FAX (215) 735-5170
Re:
Re: Employment Agreement Dated As Of November 16, 2018 Between CytoDyn Inc., Cytodyn
Operations, Inc. (collectively, the "Company"
and Richard G. Pestell ("Dr. Pestell" (the
"Employment Agreement"
Dear Dr. Pourhassan:
My firm represents Dr. Richard G. Pestell, the Company's Chief Medical Officer ("CMO" pursuant to
the terms and conditions of the above-referenced Employment Agreement, a member of the Company's
board of directors (the "Board", the Vice Chairman of the Board, and the Company's largest
shareholder.
In accordance with Section 4.1 of the Employment Agreement, Dr. Pestell hereby notifies the Company
as to conduct and conditions constituting "Good Reason" (as defined in the Employment Agreement)
for him to resign as an employee of the Company as a result of material breaches by the Company of
the Employment Agreement and a material diminution in Dr. Pestell' s authority, duties or
responsibilities, without his consent.
The conduct and conditions which afford Dr. Pestell the right to resign his employment for Good
Reason are set forth in detail below, and include the Company having: (1) endangered the existence
of its oncology research laboratory and programs; (2) prohibited Dr. Pestell from communicating
with employees and others with whom he must reasonably interact to properly execute his duties and
responsibilities as CMO; (3) excluded Dr. Pestell from meetings and discussions regarding matters
within the purview of the CMO; and (4) having supplanted his role as CMO with the hiring of a
"Chief Science Officer."
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AgreementAgreementAgreementAgreement
Section 2.2 of the Employment Agreement sets forth Dr. Pestell's duties and
responsibilities as the Company's Chief Medical Officer:
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 3 of 13 PagelD #: 112
KAUFMAN. COR EN & RESS, P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 2
Subject to the direction and authority of the Board of Directors of the Company (the "Board", the
Executive shall have direct responsibility for providing direction and leadership for the Company's
pipeline and development programs in oncology and immunology for PRO 140. The Executive will be
actively engaged in assisting to define the overall business strategy and direction for the
Company's clinical development plans, including strategic development and implementation of
clinical programs, collaboration with strategic partners and further exploration of new and
existing patent protection for PRO 140 in oncology and immunology. The Executive will also have
oversight responsibilities for the Company's Scientific Advisory Board. The Executive shall report
to, and be subject to the lawful direction of, the Board and the Chief Executive Officer of the
Company (the "CEO". The Executive agrees to perform to the best of his ability, experience, and
talent those acts and duties, consistent with the position of Chief Medical Officer, as the CEO
shall from time to time reasonably direct.
In recent weeks, the Company, often acting through its CEO, has breached virtually every facet of
this provision by engaging in conduct with the purpose and effect of inhibiting and obstructing Dr.
Pestell's performance of his duties.
Failure to Support the Oncology Research Laboratorv
The Company's cancer research laboratory is essential for the development of the Company's
programs in oncology, has a number of unique characteristics that cannot be readily replicated
(including the experience and longevity ofits team members), and is required to conduct oncology
research activities that have been announced to the public. Indeed, the laboratory's unique assets
were, in part, the basis for the Company's acquisition of ProstaGene last year, as part of which
the Company made a strategic decision to develop and focus on its oncology program. Following the
acquisition, the Company touted the benefits of acquiring the "prestigious laboratory ...
operat[ing] under the guidance of Dr. Pestell" 1 and represented to the public that
See February 19, 2019 Press Release, CytoDyn to Initiate 8 Pre-Clinical Animal Studies with
Leronlimab (PRO 140)for Melanoma, Pancreatic, Breast, Prostate, Colon, Lung, Liver, and Stomach
Cancer at an Estimated Cost of $1.5 million, which Could Lead to 8 Phase 2 Clinical Studies.
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 4 of 13 PagelD #: 113
KAUFMAN. COR EN & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 3
cancer research is one of the "pillars" of the Company's business. 2 Dr. Pestell is the face of the
Company's oncology program and, as the Employment Agreement makes clear, has "direct
responsibility" for directing and leading the Company's "development programs in oncology."
Currently, the laboratory is, in accordance with the stated goals of the Company's oncology
research strategy, engaging in two primary activities: 1) studying the functional synergy between
CCR5 inhibitors with PARP inhibitors, to provide data which will enable the Company to find
strategic partners in the oncology space; and 2) conducting research to support potential pre
clinical studies regarding melanoma, pancreatic, prostate, colon, lung, liver, and stomach cancer
(collectively, the "8 IND".
As you are no doubt aware, the laboratory is administered through the Baruch S. Blumberg Institute
("Blumberg", pursuant to a Master Sponsored Research Agreement dated January 1, 2017 between
Blumberg and the Company, as successor in interest to ProstaGene. On May 6, 2019, two Statements of
Work were initiated under the Master Sponsored Research Agreement, for preclinical studies relating
to the effectiveness of leronlimab (PRO 140) for metastatic colon cancer and for metastatic breast
cancer. Staff, including researchers recruited from other countries, were recently hired to carry
out these preclinical studies.
On July 8, 2019, however, Dr. Pestell learned that the Company - apparently at the direction of the
CEO -had decided to cancel these studies. Dr. Pestell was not consulted regarding this decision,
despite his authority and responsibilities regarding the development and implementation of the
clinical oncology programs. Rather, Dr. Pestell indirectly learned of this decision when he
received Cash Forecasts for the July 8, 2019 meeting of the Board's Finance Committee, and observed
that all funding for pre-clinical laboratory activity during the third and fourth quarters of 2019
and during 2020 had been removed from the Company's budget.3 Dr. Pestell was informed by CFO
Michael Mulholland that the Company intended to terminate the two Statements of Work for the
preclinical studies. On July 9, 2019, the Company sent a letter to Blumberg terminating the
contracts.
The next day, July 10, 2019, the Company sent a second letter to Blumberg "rescind[ing]" its
termination from the day before and advising that the Statements of Work "remain in effect"
2 See November 26, 2018 Press Release, CytoDyn Announces Initiation of Metastatic Triple Negative
Breast Cancer Trial and Reiterates Phase 3 Goal in Cancer.
3 These funds were apparently reallocated from the oncology franchise to HIV-related reproductive
monkey studies. Thus, the change in funding was not done to reduce expenditures, as those funds
were just moved to a different segment of the business.
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 5 of 13 PagelD #: 114
KAUFMAN. COR E N & RESS, P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 4
(the "Rescission Letter". Suffice it to say that the contracts are not secure, as the Company
remains in default of its payment obligations to Blumberg.
Blumberg' s President Timothy Block responded to the Rescission Letter on July 12, 2019, explaining
that "[p]erhaps it can be appreciated how disturbing and threatening the events of the past week
have been to the overall program stability and operations within BSBI, and in particular, to those
working on the project (several scientists have been recruited and relocated to the area expressly
for this work)." Dr. Block also noted that the Company currently owes $71,428.00 to Blumberg for
work performed but not yet paid for. For these reasons, Blumberg has requested (1) immediate
payment for all funds owed, (2) 1-year notice for termination going forward, and (3) 6 months of
advance payment for future work. The relationship between the Company and Blumberg has thus been
needlessly thrown into turmoil. On July 19, 2019, Lou Kassa, Blumberg's Executive Vice President &
COO, advised the Company that if Blumberg does not "receive payment by July 26th, we might have to
terminate our staff since the Cytodyn revenue is covering their salaries and benefits." As of the
date of this letter, to Dr. Pestell's knowledge, the issues raised in Dr. Block's letter have yet
to be resolved.
The erratic conduct and decision-making described above is detrimental to the Company because,
among other reasons, it has endangered the existence of the preclinical laboratory, which is
essential to the Company's ability to maintain and develop its oncology program and which cannot be
replicated in any kind of timely, cost-effective, or efficient manner. In his capacity as CMO, Dr.
Pestell bears responsibility for "the Company's pipeline and development programs in oncology and
immunology for PRO 140" and is to be "actively engaged" in defining "overall business strategy and
direction for the Company's clinical development plans, including strategic development and
implementation of clinical programs." Certainly, decisions concerning the cancellation of
preclinical research contracts and the funding of the preclinical research laboratory fall within
the purview of Dr. Pestell's responsibilities and authority. There is no excuse for excluding him
from involvement in recent decisions regarding these matters, and the Company's actions in doing so
constitute a material breach of Section 2.2 of the Employment Agreement. Further, by failing to
support the Company's oncology program and research laboratory, the Company, at the direction of
its CEO, has undercut Dr. Pestell's ability to "provid[e] direction and leadership" in these areas
and unreasonably interfered with his ability to fulfill the obligations outlined in the Employment
Agreement. 4
4 The Company has similarly failed to support the Company's Scientific Advisory Board (the
"SAB", for which Dr. Pestell has "oversight responsibilities" under the Employment Agreement.
Despite the Company's representation to the public in March 2018 that a SAB would
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 6 of 13 PagelD #: 115
KAUFMAN, COR EN & RESS, P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 5
Severe Restrictions on Contact Between Dr. Pestell and Other Emplovees. Team Ad.embers. and
Strategic Partners
The Company, acting through its CEO, has unduly interfered with Dr. Pestell's performance of his
duties under Section 2.2 of the Employment Agreement by prohibiting and/or restricting his ability
to communicate with key individuals, including the Company's other employees, the Company's legal
team, members of his research team, and various strategic partners.
On June 24, 2019, the CEO sent an email to Dr. Pestell and the Company's counsel at Lowenstein
Sandler LLP which instructed Dr. Pestell to "not reach out to Steve [Skolnick], Jamie [O'Grady], or
any of CytoDyn's legal team for any matter," without first obtaining permission from the CEO. On
July 3, 2019, the CEO sent another email to Dr. Pestell which expanded his restriction regarding
communications to "anybody affiliated to CytoDynfor any CytoDyn 's [sic} business." The CEO then
provided a list of individuals he did not want Dr. Pestell to speak with, which included, but was
"not limit[ed]" to: all Amarex Clinical Research LLC ("Amarex" personnel, including Dr. Kush Dhody
(VP, Clinical Operations), Dr. Karem Kazempour (President
& CEO), Tariq Shah (Regulatory & Scientific Analyst), and Hana Mekonnen (Statistician); Dr. Bruce
Patterson; the Company's Senior Science Advisor Dr. Jonah Sacha; the Company's counsel at
Lowenstein Sandler; the Company's patent attorney Chandra Edit; the Company's Chief Technology
Officer Nitya Ray; the Company's Senior VP of Business Development Brendan Rae; the Company's
investment banker Marek Ciszewski; the Company's CFO Michael Mulholland; and the Company's
Controller Craig Eastwood. Later that same day, Dr. Pestell asked the CEO for clarification
regarding any additional individuals with whom he should not speak. The CEO replied, "Anyone that
has anything to do with CytoDyn (for example shareholders)."
Insubsequent correspondence on July 5, 2019, Dr. Pestell identified numerous issues about which he
needed to speak with people listed in the CEO's July 3 email, and asked for further clarification
regarding the manner in which these communications should be handled. The CEO responded that for
most of the people on the list the CEO needed to be included in any calls and copied on all email
communications, but that Dr. Pestell should have "no communications" with Marek Ciszewski and "no
communication . . . for the next 4 weeks" with Michael Mulholland or Craig Eastwood. The CEO
reiterated these restrictions in another email, on July 10, 2019, and advised that Dr. Pestell
could have communications with "your own people who you brought to
be created, the SAB members still have not received contracts or payments relating to their
membership. In response to Dr. Pestell's recent requests for funding of the SAB, the CEO stated, on
July 5, 2019, that no SAB would be formed "until after September [2019]."
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 7 of 13 PagelD #: 116
KAUFMAN. COR EN & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 6
us," but not with anyone that had a relationship with CytoDyn prior to Dr. Pestell's involvement
with the Company. 5
The CEO's directives in this regard are patently unreasonable and constitute a material breach of
the Employment Agreement. By way of example (without limitation), these restrictions have hindered
and will continue to hinder Dr. Pestell's performance of his duties as CMO in at least the
following respects:
• Dr. Pestell cannot "be actively engaged in assisting to define the overall business strategy" if
he cannot freely communicate with other executives or key personnel at the Company;
• Dr. Pestell cannot engage in Company fundraising, which constitutes a significant portion of his
day-to-day work (and is needed to fund the programs for which Dr. Pestell is responsible), 6
without being able to communicate with the Company's financial team, bankers, fund raising
entities, or shareholders;
• Dr. Pestell cannot "provid[e] direction and leadership for . . . pipeline and development
programs in oncology and immunology for PRO 140" or maintain sufficient safety standards for such
programs without being able to regularly and freely communicate with Amarex personnel7;
5 Dr. Pestll also received an email on July 8, 2019 from Mr. Mulholland, apparently sent
at the CEO's request, in which Dr. Pestell was advised to "not contact directly" the Company's
internal management, the Company's bankers or attorneys, or the media, and to instead route all
such communications through the CEO.
6 In addition to stifling Dr. Pestell's ability to meet fundraising goals, the Company recently
purported to impose new contingencies upon the payment of Dr. Pestell's fundraising-related bonus.
On June 19, 2019, the CEO emailed Dr. Pestell telling him that his bonus had been "approved and
evaluated by [the] compensation committee" but would be paid out "50% after first
$15 million raised. 50% after second $15 million." Although Section 3.1 of the Employment Agreement
provides the Board with discretion to pay the bonus partially in cash and partially in stock, it
does not include the 50% holdback pending further fundraising that is described in the CEO's June
19, 2019 email.
7 Amarex is the Company's clinical research organization and provides critical services for
the Company's clinical trials, including clinical trial writing and regulatory and medical
monitoring of the trial. Maintaining a close working relationship and timely interactions with
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 8 of 13 PagelD #: 117
KAUFMAN. COR E N & RESS, P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 7
• Dr. Pestell cannot engage in "strategic development" or "collaboration with strategic
partners" without being able to have contact with key individuals involved in those efforts8; and
• Dr. Pestell ca1U1ot conduct "further exploration of new and existing patent protection for PRO
140 in oncology and immunology" without being able to communicate or coordinate with the Company's
patent counsel.
As the above examples demonstrate, Dr. Pestell ca1U1ot effectively perform his duties as CMO having
been barred from freely communicating with key individuals in programs for which he is responsible.
The restrictions described above have prevented and will continue to prevent Dr. Pestell from
performing his duties under the Employment Agreement and have stripped Dr. Pestell of the authority
granted to him, all in material breach of the Employment Agreement.
A p pointm ent of a Chie[ Science Officer ("CSO" ) ,
Whose Scope of Work Intrud es Upon the Re spon si bilities of the CM O
On July 1, 2019, the CEO sent an email to the members of the Board (other than Dr. Pestell),
copying the Company's CFO and legal counsel, in which he sought "board permission to terminate Dr.
Pestell's employment agreement with CytoDyn 'for cause'" (the "July 1 Email". The CEO proposed
naming Board Chairman Scott Kelly as interim CMO, despite the fact that Dr. Kelly's background is
in physical medicine and rehabilitation rather than oncology or clinical trials. As supposed
support for the CEO's attempt to fire Dr. Pestell "for cause," the CEO made a series of spurious
accusations regarding Dr. Pestell' s conduct, including, inter alia, that Dr. Pestell was
uncooperative and had misrepresented information regarding programs and patents. These accusations
are baseless and constitute misrepresentations by the CEO to the Board.9 Moreover,
Amarex is thus key to Dr. Pestell's role of "providing direction and leadership for . . .
development programs in oncology and immunology . . . and implementation of clinical programs."
8 The CEO has instructed Dr. Pestell to not communicate with such individuals, including but
not limited to Dr. William Olson of Regeneron, with whom Dr. Pestell was pla1U1ing to meet in an
effort to form a strategic partnership, and shareholder Billy Espy, who has been assisting Dr.
Pestell and Board member Carl Dockery in identifying strategic oncology opportunities with Goldman,
Sachs & Co.
9 Dr. Pestell denies the accusations set forth in the July 1 Email, and welcomes a
fair, independent and impartial investigation.
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 9 of 13 PagelD #: 118
KAUFMAN. COR E N & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 8
the various grievances lodged by the CEO in the July 1 Email are insufficient as a matter of law to
constitute "Cause," which is specifically defined in Section 4.1(b) of the Employment Agreement as:
(i) material acts or fraud intended to enrich the CMO at the Company's expense, (ii) conviction of
a felony, (iii) willful, continued, and uncured failure to perform duties or obligations; or (iv)
violation of the Covenants Agreement. At least one Board member, Carl Dockery, pushed back on this
improper attempt to fire Dr. Pestell, highlighting the imprudence of hastily firing "our public
face of the cancer program, our largest shareholder, a fellow board member, and our only claim to
expertise in cancer" without first conducting an appropriate investigation.
On July 14, 2019 - after the plan set forth in the July 1 Email had fizzled - the CEO proposed a
new plan to the Board: appoint Dr. Kelly to a newly-created Chief Science Officer ("CSO" position,
for which he would be paid $20,000 per month, plus a stock option. The proposal set foiih the
following scope of responsibilities for the CSO: "Manage CytoDyn's scientific, technological and
research operations; Oversee scientific functions of CytoDyn, including basic and applied research
projects, as well as the development of new processes, technologies or products; Combine
discipline-specific knowledge with leadership and business skills to promote the efficiency,
profitability and competitive position of CytoDyn."
On July 15, 2019, the Board voted 4-3 to approve Dr. Kelly as the Company's new CS0. 10 Dr. Pestell
voted "No" as to the creation of the CSO position and the appointment of Dr. Kelly because, as he
explained at the Board meeting: 1) the CSO's scope of work includes responsibilities which are
already within the purview of and being performed by Dr. Pestell, the CMO; 2) Dr. Kelly does not
have the necessary qualifications in research or clinical trials; and 3) the use of funds for this
purpose is not an appropriate strategic investment.
With respect to the first point, the responsibilities granted to the CSO unquestionably include
matters already under the authority of Dr. Pestell as CMO. In particular, the CSO's broad charge to
"[m]anage CytoDyn's scientific, technological and research operations" and "[o]versee scientific
functions . . . including basic and applied research projects" intrudes upon Dr. Pestell's
authority to lead the development and implementation of the Company's clinical research programs.
Given the overlap in responsibilities, as well as the events leading up to the creation of the CSO
position, the appointment of Dr. Kelly as CSO materially diminishes Dr. Pestell's role at
10 The Company filed a Form 8-K with the U.S. Securities and Exchange Commission on
July 19, 2019, announcing Dr. Kelly's new role as CSO.
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 10 of 13 PagelD #: 119
KAUFMAN, COREN & RESS, P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 9
the Company and effectively supplants his position as CMO, all of which constitutes a material
breach of Section 2.2 of the Employment Agreement.
Unreasonable Int erfere nce ·with Clinical Programs and Strategic Initiatives
In addition to the material breaches of the Employment Agreement set forth above, in recent months
the Company has on numerous occasions umeasonably interfered with Dr. Pestell's ability to conduct
the clinical programs and strategic initiatives for which he is responsible as CMO.
For instance, on June 20, 2019, the CEO demanded that the clinical trial office at Amarex "submit
the IND and protocol that you had made for colon cancer for submission to the FDA by tomorrow and
let [Professor] John [Marshall, Consultant to CytoDyn] know that we are not waiting for him any
longer," even though Dr. Pestell had determined that the protocol was unsafe because it would
likely lead to a higher incidence of side effects, placing patients at unnecessary risk. 11 Dr.
Pestell, Professor Marshall, and Amarex recommended a safer and more efficacious revised protocol,
but the CEO instead proposed submitting the original protocol with Dr. Pestell's name removed.
Ultimately, Amarex declined to submit the original protocol due to the safety concerns, and only
then did the CEO relent and follow Dr. Pestell' s recommendation.
In other instances, Dr. Pestell has been excluded from important decisions regarding studies and
programs within the scope of his duties as CMO. For example, on July 1, 2019 the Company issued a
press release regarding an anticipated collaboration with Dr. Bruce Patterson relating to
diagnostic tests using PRO 140 - a topic obviously within the scope of Dr. Pestell's
responsibilities for "development programs in oncology and immunology for PRO 140" and "exploration
of new and existing patent protection for PRO 140" - without providing Dr. Pestell with a chance to
review it first. After the release had been made public without his input, Dr. Pestell asked to
speak with the Company's patent counsel, Chandra Edit, about its impact on another of the Company's
patent applications and on a licensing agreement currently in discussion, but was told by the CEO
not to speak with her. Dr. Pestell still has not received a response to his inquiries regarding
this matter. 12
11 Dr. Pestell stands by this determination today, and has not retracted his
statements regarding the safety issues with the original protocol, as the July 1 Email alleges.
12 Dr. Pestell has previously recommended to the CEO and the Board that all cancer-related press
releases be reviewed by the CMO and by CytoDyn's legal counsel prior to release, to avoid
unnecessary risk to the Company due to statements which are inaccurate or cannot
be
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 11of 13 PagelD #: 120
KAUFMAN, COR E N & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 10
Dr. Pestell has similarly been excluded over the course of the last two months from public
interviews regarding the Company's research activities. The last public interview in which Dr.
Pestell participated was on June 4, 2019. 13 Since then, however, the CEO has conducted additional
interviews with Proactive Advisors relating to PRO 140 and the Company's oncology and immunology
programs, 14 which were conducted without Dr. Pestell's involvement or input. Given that Dr.
Pestell is the face of the Company's oncology program and is directly responsible for "pipeline and
development programs in oncology and immunology for PRO 140" under his Employment Agreement, there
is no excuse for excluding him from involvement with and participation in public interviews
relating to these topics.
Additionally, the Company recently interfered with Dr. Pestell's duties by defunding the
pre-clinical studies for which he is responsible. As noted above, the Company's most recent Cash
Forecasts (dated July 8, 2019) do not allocate any funds to pre-clinical research and development
for the next three years, even though the prior forecasts (dated June 3, 2019) had allocated a
total of $2,252,500. Obviously, Dr. Pestell cannot lead the Company's pre-clinical studies without
funding or support. Further, there are patents and samples which have already been acquired (and
which the CEO has made announcements to the public regarding), but which Dr. Pestell and his team
cannot develop or study without funding.
Dr. Pestell is also currently unable to move forward with certain studies for which he is
responsible because the Company has failed to sign the necessary contracts. The ProstaGene
Prognostic Test, for example, cannot move forward until the Company hires bioinformatician Dr.
Andrew Kossenkov to generate data for the Company's 51O(k) application to the FDA and for the
substantiated. This recommendation has not been followed. Of course, this issue is of particular
concern because misleading statements made to the public are both unlawful and harmful to the
Company and its shareholders.
13 See June 4, 2019 Interview with Proactive Investors, entitled "CytoDyn shows value of company
lies in their research and technology."
14 Videos of these interviews are posted publicly on Proactive Advisors' website. See
June 7, 2019 Interview ("CytoDyn to meet with FDA to finalize next steps on leronlimab drug trial
for HIV"; June 17, 2019 Interview ("CytoDyn CEO talks about latest HIV trial featuring its
flagship drug, leronlimab"; June 21, 2019 Interview ("CytoDyn to meet with FDA on prostate-cancer
test, applies HIV screening test to monotherapy trial"; June 24, 2019 Interview ("CytoDyn to meet
with FDA to discuss prostate cancer-detection test"; July 2, 2019 Interview ("CytoDyn anticipates
near-term revenue from cell diagnostic company IncellDX"; and July 8, 2019 Interview ("CytoDyn
brings on senior science advisor to develop leronlimab to treat HIV PrEP".
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 12 of 13 PagelD #: 121
KAUFMAN, COR E N & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 11
Company's contemplated licensing agreement with NanoString. Dr. Kossenkov possesses the unique
qualifications and expertise required for this work, but has not yet been hired because his
employment contract has not been finalized or signed. Despite having received the most recent
iteration of Dr. Kossenkov's contract from his counsel on June 13, 2019, the Company has not yet,
to Dr. Pestell's knowledge, had further substantive discussions regarding the contract or signed
it. In another example, the 8 IND study cannot move forward until Amarex receives a signed contract
to conduct work on the study. However, Dr. Pestell has been informed by Amarex that it has yet to
receive a contract for the 8 IND study.
Notice to the Company Pursuant to Section 4.1 of the EmpJoyment Agreement
Section 4.1(a) of the Employment Agreement provides that Dr. Pestell "may resign for Good Reason
provided he notifies the Company within ninety (90) days of the occurrence of any of the conditions
that he reasonable [sic] considers to be a 'Good Reason' condition and provides the Company with at
least thirty (30) days in which to cure the condition." Pursuant to Section
4.1 (b), "Good Reason" includes, inter alia, "a material breach by the Company of the terms of
th[e] [Employment] Agreement" or "a material diminution in the Executive's authority, duties or
responsibilities." See Sections 4.l (b)(l ) and 4.l(b)(3).
The conduct and conditions detailed above materially diminish Dr. Pestell's authority, duti es or
responsibilities without his consent and prevent him from carrying out his duties under the
Employment Agreement. Each "material breach by the Company of the terms of th[e] [Employment]
Agreement" enumerated above - including but not limited to placing the future of the preclinical
laboratory in jeopardy, defunding preclinical activities, placing undue restrictions on Dr.
Pestell's ability to communicate with others, appointing a CSO who has many of the same duties as
Dr. Pestell, and excluding Dr. Pestell from involvement in important decisions regarding matters
within his authority - have occurred within the 90 days prior to the date of this letter and
constitute Good Reason for Dr. Pestell's resignation under Section 4.l (b)(l ). And, because these
actions have had the effect of materially diminishing Dr. Pestell's authority, duties, and
responsibilities as CMO, Good Reason for his resignation also exists under Section 4.l (b)(3).
In accordance with Section 4.l(a), Dr. Pestell hereby provides the Company with thirty five (35)
days from the date of this letter to cure the conditions (and rescind the conduct) complained of in
this letter, if and to the extent any such cure is possible.
Unless the conditions described herein are cured in full - such that Good Reason for his
resignation no longer exists - within the aforementioned 35-day period, Dr. Pestell intends to
resign from the Company for Good Reason. In such event, he shall be entitled to receive, inter
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 13 of 13 PagelD #: 122
KAUFMA N. COR EN & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 12
alia, continued payment of his base salary for the remainder of his three-year employment term
(i.e., through November 2021), as well as the payment of any annual or supplemental bonus that is
payable but not yet paid and a pro-rata bonus for the fiscal year in which his resignation occurs.
See Employment Agreement, Section 4.l(c)(ii). In addition, in the event of Dr. Pestell's
resignation for Good Reason, "all stock options and other awards" Dr. Pestell has "shall vest and,
in the case of stock options or like awards, become exercisable, to the extent not already vested
and (if applicable) exercisable, on the Termination Date and the exercise period for all such stock
options shall be extended until the date that is one (1) year after the effective date of
termination of employment." See Employment Agreement, Section 4.1(c)(ii)(D). 15
* * *
In addition to claims arising under the Employment Agreement, Dr. Pestell preserves any and all
rights he may have to pursue claims relating to the Company's unlawful conduct (including but not
limited to that described herein), whether in his capacity as CMO, director, or shareholder.
CytoDyn Inc.
1111 Main Street, Suite 660
Vancouver, WA 98660
Attn: Dr. Nader Pourhassan, CEO
TEL (215) 735-8700
FAX (215) 735-5170
Re:
Re: Employment Agreement Dated As Of November 16, 2018 Between CytoDyn Inc., Cytodyn
Operations, Inc. (collectively, the "Company"
and Richard G. Pestell ("Dr. Pestell" (the "Employment Agreement"
Dear Dr. Pourhassan:
My firm represents Dr. Richard G. Pestell, the Company's Chief Medical Officer ("CMO"
pursuant to the terms and conditions of the above-referenced Employment Agreement, a member of the Company's
board of directors (the "Board"
, the Vice Chairman of the Board, and the Company's largest shareholder.
In accordance with Section 4.1 of the Employment Agreement, Dr. Pestell hereby notifies the Company
as to conduct and conditions constituting "Good Reason" (as defined in the Employment Agreement)
for him to resign as an employee of the Company as a result of material breaches by the Company of
the Employment Agreement and a material diminution in Dr. Pestell' s authority, duties or
responsibilities, without his consent.
The conduct and conditions which afford Dr. Pestell the right to resign his employment for Good
Reason are set forth in detail below, and include the Company having: (1) endangered the existence
of its oncology research laboratory and programs; (2) prohibited Dr. Pestell from communicating
with employees and others with whom he must reasonably interact to properly execute his duties and
responsibilities as CMO; (3) excluded Dr. Pestell from meetings and discussions regarding matters
within the purview of the CMO; and (4) having supplanted his role as CMO with the hiring of a
"Chief Science Officer."
The ComComComCom panypanypanypany HasHasHasHas MateriallyMateriallyMateriallyMaterially
BreachedBreachedBreachedBreached TheTheTheThe EmploymenEmploymenEmploymenEmploymen tttt
AgreementAgreementAgreementAgreement
Section 2.2 of the Employment Agreement sets forth Dr. Pestell's duties and
responsibilities as the Company's Chief Medical Officer:
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 3 of 13 PagelD #: 112
KAUFMAN. COR EN & RESS, P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 2
Subject to the direction and authority of the Board of Directors of the Company (the "Board"
, the Executive shall have direct responsibility for providing direction and leadership for the Company's
pipeline and development programs in oncology and immunology for PRO 140. The Executive will be
actively engaged in assisting to define the overall business strategy and direction for the
Company's clinical development plans, including strategic development and implementation of
clinical programs, collaboration with strategic partners and further exploration of new and
existing patent protection for PRO 140 in oncology and immunology. The Executive will also have
oversight responsibilities for the Company's Scientific Advisory Board. The Executive shall report
to, and be subject to the lawful direction of, the Board and the Chief Executive Officer of the
Company (the "CEO"
. The Executive agrees to perform to the best of his ability, experience, and talent those acts and duties, consistent with the position of Chief Medical Officer, as the CEO
shall from time to time reasonably direct.
In recent weeks, the Company, often acting through its CEO, has breached virtually every facet of
this provision by engaging in conduct with the purpose and effect of inhibiting and obstructing Dr.
Pestell's performance of his duties.
Failure to Support the Oncology Research Laboratorv
The Company's cancer research laboratory is essential for the development of the Company's
programs in oncology, has a number of unique characteristics that cannot be readily replicated
(including the experience and longevity ofits team members), and is required to conduct oncology
research activities that have been announced to the public. Indeed, the laboratory's unique assets
were, in part, the basis for the Company's acquisition of ProstaGene last year, as part of which
the Company made a strategic decision to develop and focus on its oncology program. Following the
acquisition, the Company touted the benefits of acquiring the "prestigious laboratory ...
operat[ing] under the guidance of Dr. Pestell" 1 and represented to the public that
See February 19, 2019 Press Release, CytoDyn to Initiate 8 Pre-Clinical Animal Studies with
Leronlimab (PRO 140)for Melanoma, Pancreatic, Breast, Prostate, Colon, Lung, Liver, and Stomach
Cancer at an Estimated Cost of $1.5 million, which Could Lead to 8 Phase 2 Clinical Studies.
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 4 of 13 PagelD #: 113
KAUFMAN. COR EN & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 3
cancer research is one of the "pillars" of the Company's business. 2 Dr. Pestell is the face of the
Company's oncology program and, as the Employment Agreement makes clear, has "direct
responsibility" for directing and leading the Company's "development programs in oncology."
Currently, the laboratory is, in accordance with the stated goals of the Company's oncology
research strategy, engaging in two primary activities: 1) studying the functional synergy between
CCR5 inhibitors with PARP inhibitors, to provide data which will enable the Company to find
strategic partners in the oncology space; and 2) conducting research to support potential pre
clinical studies regarding melanoma, pancreatic, prostate, colon, lung, liver, and stomach cancer
(collectively, the "8 IND"
. As you are no doubt aware, the laboratory is administered through the Baruch S. Blumberg Institute
("Blumberg"
, pursuant to a Master Sponsored Research Agreement dated January 1, 2017 between Blumberg and the Company, as successor in interest to ProstaGene. On May 6, 2019, two Statements of
Work were initiated under the Master Sponsored Research Agreement, for preclinical studies relating
to the effectiveness of leronlimab (PRO 140) for metastatic colon cancer and for metastatic breast
cancer. Staff, including researchers recruited from other countries, were recently hired to carry
out these preclinical studies.
On July 8, 2019, however, Dr. Pestell learned that the Company - apparently at the direction of the
CEO -had decided to cancel these studies. Dr. Pestell was not consulted regarding this decision,
despite his authority and responsibilities regarding the development and implementation of the
clinical oncology programs. Rather, Dr. Pestell indirectly learned of this decision when he
received Cash Forecasts for the July 8, 2019 meeting of the Board's Finance Committee, and observed
that all funding for pre-clinical laboratory activity during the third and fourth quarters of 2019
and during 2020 had been removed from the Company's budget.3 Dr. Pestell was informed by CFO
Michael Mulholland that the Company intended to terminate the two Statements of Work for the
preclinical studies. On July 9, 2019, the Company sent a letter to Blumberg terminating the
contracts.
The next day, July 10, 2019, the Company sent a second letter to Blumberg "rescind[ing]" its
termination from the day before and advising that the Statements of Work "remain in effect"
2 See November 26, 2018 Press Release, CytoDyn Announces Initiation of Metastatic Triple Negative
Breast Cancer Trial and Reiterates Phase 3 Goal in Cancer.
3 These funds were apparently reallocated from the oncology franchise to HIV-related reproductive
monkey studies. Thus, the change in funding was not done to reduce expenditures, as those funds
were just moved to a different segment of the business.
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 5 of 13 PagelD #: 114
KAUFMAN. COR E N & RESS, P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 4
(the "Rescission Letter"
. Suffice it to say that the contracts are not secure, as the Company remains in default of its payment obligations to Blumberg.
Blumberg' s President Timothy Block responded to the Rescission Letter on July 12, 2019, explaining
that "[p]erhaps it can be appreciated how disturbing and threatening the events of the past week
have been to the overall program stability and operations within BSBI, and in particular, to those
working on the project (several scientists have been recruited and relocated to the area expressly
for this work)." Dr. Block also noted that the Company currently owes $71,428.00 to Blumberg for
work performed but not yet paid for. For these reasons, Blumberg has requested (1) immediate
payment for all funds owed, (2) 1-year notice for termination going forward, and (3) 6 months of
advance payment for future work. The relationship between the Company and Blumberg has thus been
needlessly thrown into turmoil. On July 19, 2019, Lou Kassa, Blumberg's Executive Vice President &
COO, advised the Company that if Blumberg does not "receive payment by July 26th, we might have to
terminate our staff since the Cytodyn revenue is covering their salaries and benefits." As of the
date of this letter, to Dr. Pestell's knowledge, the issues raised in Dr. Block's letter have yet
to be resolved.
The erratic conduct and decision-making described above is detrimental to the Company because,
among other reasons, it has endangered the existence of the preclinical laboratory, which is
essential to the Company's ability to maintain and develop its oncology program and which cannot be
replicated in any kind of timely, cost-effective, or efficient manner. In his capacity as CMO, Dr.
Pestell bears responsibility for "the Company's pipeline and development programs in oncology and
immunology for PRO 140" and is to be "actively engaged" in defining "overall business strategy and
direction for the Company's clinical development plans, including strategic development and
implementation of clinical programs." Certainly, decisions concerning the cancellation of
preclinical research contracts and the funding of the preclinical research laboratory fall within
the purview of Dr. Pestell's responsibilities and authority. There is no excuse for excluding him
from involvement in recent decisions regarding these matters, and the Company's actions in doing so
constitute a material breach of Section 2.2 of the Employment Agreement. Further, by failing to
support the Company's oncology program and research laboratory, the Company, at the direction of
its CEO, has undercut Dr. Pestell's ability to "provid[e] direction and leadership" in these areas
and unreasonably interfered with his ability to fulfill the obligations outlined in the Employment
Agreement. 4
4 The Company has similarly failed to support the Company's Scientific Advisory Board (the
"SAB"
, for which Dr. Pestell has "oversight responsibilities" under the Employment Agreement. Despite the Company's representation to the public in March 2018 that a SAB would
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 6 of 13 PagelD #: 115
KAUFMAN, COR EN & RESS, P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 5
Severe Restrictions on Contact Between Dr. Pestell and Other Emplovees. Team Ad.embers. and
Strategic Partners
The Company, acting through its CEO, has unduly interfered with Dr. Pestell's performance of his
duties under Section 2.2 of the Employment Agreement by prohibiting and/or restricting his ability
to communicate with key individuals, including the Company's other employees, the Company's legal
team, members of his research team, and various strategic partners.
On June 24, 2019, the CEO sent an email to Dr. Pestell and the Company's counsel at Lowenstein
Sandler LLP which instructed Dr. Pestell to "not reach out to Steve [Skolnick], Jamie [O'Grady], or
any of CytoDyn's legal team for any matter," without first obtaining permission from the CEO. On
July 3, 2019, the CEO sent another email to Dr. Pestell which expanded his restriction regarding
communications to "anybody affiliated to CytoDynfor any CytoDyn 's [sic} business." The CEO then
provided a list of individuals he did not want Dr. Pestell to speak with, which included, but was
"not limit[ed]" to: all Amarex Clinical Research LLC ("Amarex"
personnel, including Dr. Kush Dhody (VP, Clinical Operations), Dr. Karem Kazempour (President
& CEO), Tariq Shah (Regulatory & Scientific Analyst), and Hana Mekonnen (Statistician); Dr. Bruce
Patterson; the Company's Senior Science Advisor Dr. Jonah Sacha; the Company's counsel at
Lowenstein Sandler; the Company's patent attorney Chandra Edit; the Company's Chief Technology
Officer Nitya Ray; the Company's Senior VP of Business Development Brendan Rae; the Company's
investment banker Marek Ciszewski; the Company's CFO Michael Mulholland; and the Company's
Controller Craig Eastwood. Later that same day, Dr. Pestell asked the CEO for clarification
regarding any additional individuals with whom he should not speak. The CEO replied, "Anyone that
has anything to do with CytoDyn (for example shareholders)."
Insubsequent correspondence on July 5, 2019, Dr. Pestell identified numerous issues about which he
needed to speak with people listed in the CEO's July 3 email, and asked for further clarification
regarding the manner in which these communications should be handled. The CEO responded that for
most of the people on the list the CEO needed to be included in any calls and copied on all email
communications, but that Dr. Pestell should have "no communications" with Marek Ciszewski and "no
communication . . . for the next 4 weeks" with Michael Mulholland or Craig Eastwood. The CEO
reiterated these restrictions in another email, on July 10, 2019, and advised that Dr. Pestell
could have communications with "your own people who you brought to
be created, the SAB members still have not received contracts or payments relating to their
membership. In response to Dr. Pestell's recent requests for funding of the SAB, the CEO stated, on
July 5, 2019, that no SAB would be formed "until after September [2019]."
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 7 of 13 PagelD #: 116
KAUFMAN. COR EN & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 6
us," but not with anyone that had a relationship with CytoDyn prior to Dr. Pestell's involvement
with the Company. 5
The CEO's directives in this regard are patently unreasonable and constitute a material breach of
the Employment Agreement. By way of example (without limitation), these restrictions have hindered
and will continue to hinder Dr. Pestell's performance of his duties as CMO in at least the
following respects:
• Dr. Pestell cannot "be actively engaged in assisting to define the overall business strategy" if
he cannot freely communicate with other executives or key personnel at the Company;
• Dr. Pestell cannot engage in Company fundraising, which constitutes a significant portion of his
day-to-day work (and is needed to fund the programs for which Dr. Pestell is responsible), 6
without being able to communicate with the Company's financial team, bankers, fund raising
entities, or shareholders;
• Dr. Pestell cannot "provid[e] direction and leadership for . . . pipeline and development
programs in oncology and immunology for PRO 140" or maintain sufficient safety standards for such
programs without being able to regularly and freely communicate with Amarex personnel7;
5 Dr. Pestll also received an email on July 8, 2019 from Mr. Mulholland, apparently sent
at the CEO's request, in which Dr. Pestell was advised to "not contact directly" the Company's
internal management, the Company's bankers or attorneys, or the media, and to instead route all
such communications through the CEO.
6 In addition to stifling Dr. Pestell's ability to meet fundraising goals, the Company recently
purported to impose new contingencies upon the payment of Dr. Pestell's fundraising-related bonus.
On June 19, 2019, the CEO emailed Dr. Pestell telling him that his bonus had been "approved and
evaluated by [the] compensation committee" but would be paid out "50% after first
$15 million raised. 50% after second $15 million." Although Section 3.1 of the Employment Agreement
provides the Board with discretion to pay the bonus partially in cash and partially in stock, it
does not include the 50% holdback pending further fundraising that is described in the CEO's June
19, 2019 email.
7 Amarex is the Company's clinical research organization and provides critical services for
the Company's clinical trials, including clinical trial writing and regulatory and medical
monitoring of the trial. Maintaining a close working relationship and timely interactions with
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 8 of 13 PagelD #: 117
KAUFMAN. COR E N & RESS, P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 7
• Dr. Pestell cannot engage in "strategic development" or "collaboration with strategic
partners" without being able to have contact with key individuals involved in those efforts8; and
• Dr. Pestell ca1U1ot conduct "further exploration of new and existing patent protection for PRO
140 in oncology and immunology" without being able to communicate or coordinate with the Company's
patent counsel.
As the above examples demonstrate, Dr. Pestell ca1U1ot effectively perform his duties as CMO having
been barred from freely communicating with key individuals in programs for which he is responsible.
The restrictions described above have prevented and will continue to prevent Dr. Pestell from
performing his duties under the Employment Agreement and have stripped Dr. Pestell of the authority
granted to him, all in material breach of the Employment Agreement.
A p pointm ent of a Chie[ Science Officer ("CSO" ) ,
Whose Scope of Work Intrud es Upon the Re spon si bilities of the CM O
On July 1, 2019, the CEO sent an email to the members of the Board (other than Dr. Pestell),
copying the Company's CFO and legal counsel, in which he sought "board permission to terminate Dr.
Pestell's employment agreement with CytoDyn 'for cause'" (the "July 1 Email"
. The CEO proposed naming Board Chairman Scott Kelly as interim CMO, despite the fact that Dr. Kelly's background is
in physical medicine and rehabilitation rather than oncology or clinical trials. As supposed
support for the CEO's attempt to fire Dr. Pestell "for cause," the CEO made a series of spurious
accusations regarding Dr. Pestell' s conduct, including, inter alia, that Dr. Pestell was
uncooperative and had misrepresented information regarding programs and patents. These accusations
are baseless and constitute misrepresentations by the CEO to the Board.9 Moreover,
Amarex is thus key to Dr. Pestell's role of "providing direction and leadership for . . .
development programs in oncology and immunology . . . and implementation of clinical programs."
8 The CEO has instructed Dr. Pestell to not communicate with such individuals, including but
not limited to Dr. William Olson of Regeneron, with whom Dr. Pestell was pla1U1ing to meet in an
effort to form a strategic partnership, and shareholder Billy Espy, who has been assisting Dr.
Pestell and Board member Carl Dockery in identifying strategic oncology opportunities with Goldman,
Sachs & Co.
9 Dr. Pestell denies the accusations set forth in the July 1 Email, and welcomes a
fair, independent and impartial investigation.
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 9 of 13 PagelD #: 118
KAUFMAN. COR E N & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 8
the various grievances lodged by the CEO in the July 1 Email are insufficient as a matter of law to
constitute "Cause," which is specifically defined in Section 4.1(b) of the Employment Agreement as:
(i) material acts or fraud intended to enrich the CMO at the Company's expense, (ii) conviction of
a felony, (iii) willful, continued, and uncured failure to perform duties or obligations; or (iv)
violation of the Covenants Agreement. At least one Board member, Carl Dockery, pushed back on this
improper attempt to fire Dr. Pestell, highlighting the imprudence of hastily firing "our public
face of the cancer program, our largest shareholder, a fellow board member, and our only claim to
expertise in cancer" without first conducting an appropriate investigation.
On July 14, 2019 - after the plan set forth in the July 1 Email had fizzled - the CEO proposed a
new plan to the Board: appoint Dr. Kelly to a newly-created Chief Science Officer ("CSO"
position, for which he would be paid $20,000 per month, plus a stock option. The proposal set foiih the
following scope of responsibilities for the CSO: "Manage CytoDyn's scientific, technological and
research operations; Oversee scientific functions of CytoDyn, including basic and applied research
projects, as well as the development of new processes, technologies or products; Combine
discipline-specific knowledge with leadership and business skills to promote the efficiency,
profitability and competitive position of CytoDyn."
On July 15, 2019, the Board voted 4-3 to approve Dr. Kelly as the Company's new CS0. 10 Dr. Pestell
voted "No" as to the creation of the CSO position and the appointment of Dr. Kelly because, as he
explained at the Board meeting: 1) the CSO's scope of work includes responsibilities which are
already within the purview of and being performed by Dr. Pestell, the CMO; 2) Dr. Kelly does not
have the necessary qualifications in research or clinical trials; and 3) the use of funds for this
purpose is not an appropriate strategic investment.
With respect to the first point, the responsibilities granted to the CSO unquestionably include
matters already under the authority of Dr. Pestell as CMO. In particular, the CSO's broad charge to
"[m]anage CytoDyn's scientific, technological and research operations" and "[o]versee scientific
functions . . . including basic and applied research projects" intrudes upon Dr. Pestell's
authority to lead the development and implementation of the Company's clinical research programs.
Given the overlap in responsibilities, as well as the events leading up to the creation of the CSO
position, the appointment of Dr. Kelly as CSO materially diminishes Dr. Pestell's role at
10 The Company filed a Form 8-K with the U.S. Securities and Exchange Commission on
July 19, 2019, announcing Dr. Kelly's new role as CSO.
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 10 of 13 PagelD #: 119
KAUFMAN, COREN & RESS, P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 9
the Company and effectively supplants his position as CMO, all of which constitutes a material
breach of Section 2.2 of the Employment Agreement.
Unreasonable Int erfere nce ·with Clinical Programs and Strategic Initiatives
In addition to the material breaches of the Employment Agreement set forth above, in recent months
the Company has on numerous occasions umeasonably interfered with Dr. Pestell's ability to conduct
the clinical programs and strategic initiatives for which he is responsible as CMO.
For instance, on June 20, 2019, the CEO demanded that the clinical trial office at Amarex "submit
the IND and protocol that you had made for colon cancer for submission to the FDA by tomorrow and
let [Professor] John [Marshall, Consultant to CytoDyn] know that we are not waiting for him any
longer," even though Dr. Pestell had determined that the protocol was unsafe because it would
likely lead to a higher incidence of side effects, placing patients at unnecessary risk. 11 Dr.
Pestell, Professor Marshall, and Amarex recommended a safer and more efficacious revised protocol,
but the CEO instead proposed submitting the original protocol with Dr. Pestell's name removed.
Ultimately, Amarex declined to submit the original protocol due to the safety concerns, and only
then did the CEO relent and follow Dr. Pestell' s recommendation.
In other instances, Dr. Pestell has been excluded from important decisions regarding studies and
programs within the scope of his duties as CMO. For example, on July 1, 2019 the Company issued a
press release regarding an anticipated collaboration with Dr. Bruce Patterson relating to
diagnostic tests using PRO 140 - a topic obviously within the scope of Dr. Pestell's
responsibilities for "development programs in oncology and immunology for PRO 140" and "exploration
of new and existing patent protection for PRO 140" - without providing Dr. Pestell with a chance to
review it first. After the release had been made public without his input, Dr. Pestell asked to
speak with the Company's patent counsel, Chandra Edit, about its impact on another of the Company's
patent applications and on a licensing agreement currently in discussion, but was told by the CEO
not to speak with her. Dr. Pestell still has not received a response to his inquiries regarding
this matter. 12
11 Dr. Pestell stands by this determination today, and has not retracted his
statements regarding the safety issues with the original protocol, as the July 1 Email alleges.
12 Dr. Pestell has previously recommended to the CEO and the Board that all cancer-related press
releases be reviewed by the CMO and by CytoDyn's legal counsel prior to release, to avoid
unnecessary risk to the Company due to statements which are inaccurate or cannot
be
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 11of 13 PagelD #: 120
KAUFMAN, COR E N & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 10
Dr. Pestell has similarly been excluded over the course of the last two months from public
interviews regarding the Company's research activities. The last public interview in which Dr.
Pestell participated was on June 4, 2019. 13 Since then, however, the CEO has conducted additional
interviews with Proactive Advisors relating to PRO 140 and the Company's oncology and immunology
programs, 14 which were conducted without Dr. Pestell's involvement or input. Given that Dr.
Pestell is the face of the Company's oncology program and is directly responsible for "pipeline and
development programs in oncology and immunology for PRO 140" under his Employment Agreement, there
is no excuse for excluding him from involvement with and participation in public interviews
relating to these topics.
Additionally, the Company recently interfered with Dr. Pestell's duties by defunding the
pre-clinical studies for which he is responsible. As noted above, the Company's most recent Cash
Forecasts (dated July 8, 2019) do not allocate any funds to pre-clinical research and development
for the next three years, even though the prior forecasts (dated June 3, 2019) had allocated a
total of $2,252,500. Obviously, Dr. Pestell cannot lead the Company's pre-clinical studies without
funding or support. Further, there are patents and samples which have already been acquired (and
which the CEO has made announcements to the public regarding), but which Dr. Pestell and his team
cannot develop or study without funding.
Dr. Pestell is also currently unable to move forward with certain studies for which he is
responsible because the Company has failed to sign the necessary contracts. The ProstaGene
Prognostic Test, for example, cannot move forward until the Company hires bioinformatician Dr.
Andrew Kossenkov to generate data for the Company's 51O(k) application to the FDA and for the
substantiated. This recommendation has not been followed. Of course, this issue is of particular
concern because misleading statements made to the public are both unlawful and harmful to the
Company and its shareholders.
13 See June 4, 2019 Interview with Proactive Investors, entitled "CytoDyn shows value of company
lies in their research and technology."
14 Videos of these interviews are posted publicly on Proactive Advisors' website. See
June 7, 2019 Interview ("CytoDyn to meet with FDA to finalize next steps on leronlimab drug trial
for HIV"
; June 17, 2019 Interview ("CytoDyn CEO talks about latest HIV trial featuring its flagship drug, leronlimab"
; June 21, 2019 Interview ("CytoDyn to meet with FDA on prostate-cancer test, applies HIV screening test to monotherapy trial"
; June 24, 2019 Interview ("CytoDyn to meet with FDA to discuss prostate cancer-detection test"
; July 2, 2019 Interview ("CytoDyn anticipates near-term revenue from cell diagnostic company IncellDX"
; and July 8, 2019 Interview ("CytoDyn brings on senior science advisor to develop leronlimab to treat HIV PrEP"
. Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 12 of 13 PagelD #: 121
KAUFMAN, COR E N & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 11
Company's contemplated licensing agreement with NanoString. Dr. Kossenkov possesses the unique
qualifications and expertise required for this work, but has not yet been hired because his
employment contract has not been finalized or signed. Despite having received the most recent
iteration of Dr. Kossenkov's contract from his counsel on June 13, 2019, the Company has not yet,
to Dr. Pestell's knowledge, had further substantive discussions regarding the contract or signed
it. In another example, the 8 IND study cannot move forward until Amarex receives a signed contract
to conduct work on the study. However, Dr. Pestell has been informed by Amarex that it has yet to
receive a contract for the 8 IND study.
Notice to the Company Pursuant to Section 4.1 of the EmpJoyment Agreement
Section 4.1(a) of the Employment Agreement provides that Dr. Pestell "may resign for Good Reason
provided he notifies the Company within ninety (90) days of the occurrence of any of the conditions
that he reasonable [sic] considers to be a 'Good Reason' condition and provides the Company with at
least thirty (30) days in which to cure the condition." Pursuant to Section
4.1 (b), "Good Reason" includes, inter alia, "a material breach by the Company of the terms of
th[e] [Employment] Agreement" or "a material diminution in the Executive's authority, duties or
responsibilities." See Sections 4.l (b)(l ) and 4.l(b)(3).
The conduct and conditions detailed above materially diminish Dr. Pestell's authority, duti es or
responsibilities without his consent and prevent him from carrying out his duties under the
Employment Agreement. Each "material breach by the Company of the terms of th[e] [Employment]
Agreement" enumerated above - including but not limited to placing the future of the preclinical
laboratory in jeopardy, defunding preclinical activities, placing undue restrictions on Dr.
Pestell's ability to communicate with others, appointing a CSO who has many of the same duties as
Dr. Pestell, and excluding Dr. Pestell from involvement in important decisions regarding matters
within his authority - have occurred within the 90 days prior to the date of this letter and
constitute Good Reason for Dr. Pestell's resignation under Section 4.l (b)(l ). And, because these
actions have had the effect of materially diminishing Dr. Pestell's authority, duties, and
responsibilities as CMO, Good Reason for his resignation also exists under Section 4.l (b)(3).
In accordance with Section 4.l(a), Dr. Pestell hereby provides the Company with thirty five (35)
days from the date of this letter to cure the conditions (and rescind the conduct) complained of in
this letter, if and to the extent any such cure is possible.
Unless the conditions described herein are cured in full - such that Good Reason for his
resignation no longer exists - within the aforementioned 35-day period, Dr. Pestell intends to
resign from the Company for Good Reason. In such event, he shall be entitled to receive, inter
Case 1:19-cv-01563-UNA Document 1-3 Filed 08/22/19 Page 13 of 13 PagelD #: 122
KAUFMA N. COR EN & RESS. P.C.
CytoDyn Inc.
Attn: Dr. Nader Pourhassan, CEO July 22, 2019
Page 12
alia, continued payment of his base salary for the remainder of his three-year employment term
(i.e., through November 2021), as well as the payment of any annual or supplemental bonus that is
payable but not yet paid and a pro-rata bonus for the fiscal year in which his resignation occurs.
See Employment Agreement, Section 4.l(c)(ii). In addition, in the event of Dr. Pestell's
resignation for Good Reason, "all stock options and other awards" Dr. Pestell has "shall vest and,
in the case of stock options or like awards, become exercisable, to the extent not already vested
and (if applicable) exercisable, on the Termination Date and the exercise period for all such stock
options shall be extended until the date that is one (1) year after the effective date of
termination of employment." See Employment Agreement, Section 4.1(c)(ii)(D). 15
* * *
In addition to claims arising under the Employment Agreement, Dr. Pestell preserves any and all
rights he may have to pursue claims relating to the Company's unlawful conduct (including but not
limited to that described herein), whether in his capacity as CMO, director, or shareholder.
(4)
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