Shareholders of Bovie Medical Corp. (AMEX:BVX) are suing the company, alleging that mismanagement and nepotism have caused the company to miss out on commercialization and acquisition opportunities.
According to the lawsuit, filed in the U.S. District Court for Middle Florida, the defendants’ alleged misconduct caused lawsuits that pushed two of Bovie’s "critical technologies" off the market, cost it the rights to a third "most promising" technology and prevented the Clearwater, Fla.-based company from diving into the "extremely lucrative" gastroenterological probe market.
"At the same time, certain of the individual defendants have engaged in self-dealing, including hiring relatives and providing them with senior positions within Bovie for which these persons lacked the necessary expertise or which they were otherwise incapable of performing, supporting other relatives who are on the Bovie payroll but do not perform any work for the company, and placing long-term ‘consultants’ who were effectively employees on the board as purported ‘independent’ directors," according to court documents.
In March, Salient and Medtronic (which bought Salient last month for $480 million) succeeded in forcing Bovie’s Seer and Boss monopolar and bipolar saline-enhanced radio-frequency devices from the worldwide market, in return for $750,000 from Medtronic and the chance to strike an OEM contract with Salient Surgical. (Bovie already has such a deal going with Medtronic.)
Bovie Medical president and CEO Andrew Makrides said the company decided to settle after considering the cost of continuing to fight the suit and the possibility that it still might lose the case.
The lawsuit, filed last summer in the U.S. District Court for Delaware, accused Bovie of violating a trio of patents licensed to Portsmouth, N.H.-based Salient. That company’s Aquamantys system competes with the Bovie products and is based on patents licensed from Medtronic.
The shareholders’ suit seeks compensation for "loss of revenues which [Bovie] would have earned through the exploitation of technologies, including the Seer and Boss technologies, and any sums which the company was caused to pay for legal fees and to indemnify any individual defendant in the Salient action," according to the complaint.
It also accuses executive vice president and COO Moshe Citronowicz, Bovie’s "primary decision-maker," according to the suit, of participating in board meetings despite not holding a seat and of forcing the company to "retain two of his brothers, [Arik] Zoran and [Yechiel] Citronowicz."
"Y. Citronowicz studies at a religious school in London, England and currently does no work for the company," according to court documents.
The shareholders, represented by plaintiffs Bruce Arbit and Curt Coulter, also allege that the defendants are responsible for a breach of contract lawsuit filed by former director and engineer Steve Livneh and his companies, Henvil Corp. Ltd. and Lican Development Ltd., "for the rights to certain patents for the company’s most promising future technologies." And they accuse Bovie’s management of precipitating another lawsuit by Erbe USA Inc. against Bovie and a former employee "for breaching certain agreements and misusing Erbe’s confidential and trade secret information, preventing Bovie from entering the extremely lucrative market for
gastroenterological probe products," according to the lawsuit.
The suit also names as defendants Robert Saron, former chief sales & marketing officer, chairman and CEO and currently president and a Bovie director; George Kromer, a Bovie research analyst and director; director Michael Norman; registered representative and director August Lentricchia; director and former comptroller Steven MacLaren; director Gregory Konesky; former director and gastroenterologist Dr. Peter Pardoll; and vice president and general counsel Leonard Keen, a patent attorney who "has acted as business, legal, technology and information technology consultant to Bovie since 1999," according to court documents.
The lawsuit accused MacLaren, who has a consulting contract with Bovie for "executive level accounting and analytical and SEC filings work through an entity called Ronin Consulting Group Inc.," of maintaining a material relationship with the firm in violation of his status as an independent director.
"Ronin Consulting does not maintain any other major clients. Almost all of MacLaren’s income is derived from his consulting agreement with Bovie," the lawsuit alleges.
The suit also alleges that Konesky, an electrical engineer, of holding down a 12-year consulting gig with Bovie " for which he gets paid every month, although, upon information and belief, he has no experience or expertise in the surgical industry."
"Konesky does not have other employment other than his employment at Bovie," according to the suit. "Neither MacLaren nor Konesky are independent directors and were effectively employees with material relationships to the company at the time that they were nominated to the Board as purported ‘independent’ directors," according to the complaint.
Pardoll resigned from the board March 15 and has acted as a consultant to Bovie since at least 1995, earning up to $60,000 per year, according to the suit.
"During that time, and due to his personal relationship with Citronowicz, Pardoll was extensively involved in causing Bovie to develop and produce a gastroenterological generator for gastroenterological tools which did not exist and for which there was no market, called the ICON-GI, notwithstanding that Bovie had no experience in the gastroenterological market," the lawsuit alleges. "Given that there was no market for the ICON-GI, most of the generators were returned or not purchased. Citronowicz, rather than the Board’s nominating committee, proposed Pardoll for the board, and he was made a board member over the objections of other board members, who believed that Pardoll did not fit the definition of an ‘independent director’ as he was effectively an employee of Bovie."
Keen has acted as business, legal, technology and information technology consultant to Bovie since 1999, according to the suit
"Since 2008, he has also been closely involved in attempts to sell the company and valuing the company, although he is not an investment banker," according to the complaint.
The lawsuit seeks amounts which [Bovie] has paid to relatives of Citronowicz who are currently employed by the company, or who were employed by the company since 2008, including Arik Zoran and Yechiel Citronowicz," "any sums" paid in legal fees to defend or indemnify Citronowicz and Makrides in the Livneh litigation, recovery of any damages from that case "including the loss of any revenues which Bovie would have earned or was projected to earn as a consequence of marketing the Livneh technologies." "(defined below);
The suit also seeks compensation for "amounts which Bovie paid in settlement and for legal fees incurred in the Erbe action and the loss of revenue it sustained from being unable to enter the gastroenterological probe market."
And the plaintiffs want "all bonuses, stock options and other awards and remuneration earned by any of the individual defendants since 2008" as well as "damages which the company has sustained as a result of the individual defendants’ failure to take steps to maximize shareholder value once it decided to put the company up for sale," according to court documents.
The lawsuit also seeks a series of corporate reforms designed to prevent the kind of misconduct it alleges and the "removal of Zoran from his position has head of research and development, and the termination of any agreement with Y. Citronowicz for payment, and the institution of a committee of independent directors to engage in a search for the hiring of a new head of research and development," according to the suit.