Last month, reports unveiled a deal Theranos offered to investors, where CEO Elizabeth Holmes would give up shares from her personal stake in return for promises not to sue. Turns out Holmes is about $25 million in debt to her company.
Holmes’ debt was revealed in a document Theranos sent to a group of investors it is courting for the deal, people familiar with the matter told The Wall Street Journal. The deal, which would see Holmes surrendering her majority stake in the company, is aimed at investors who participated in Theranos’ latest financing rounds. It was not publicly disclosed.
Theranos’ board approved the deal in February, and investors have until April 14 to decide if they’ll take it, the WSJ said.
Holmes’ $25 million debt stems from an agreement she made with the company that let her use an option to purchase more stock without paying upfront, the WSJ reported. She agreed to pay for the shares later, a source told the WSJ.
Option grants are traditionally intended to push executives to perform better for their shareholders, said Nell Minow, vice chair of ValueEdge Advisors, as quoted by the WSJ. But under the deal, Theranos is able to cancel the shares or forgive Holmes’ debt, the source said.
“It subverts the entire premise of an option grant,” Minow said.
Theranos has been on a regulatory roller coaster since the fall of 2015, when the WSJ first reported accuracy problems with its blood-testing technology.
The Centers for Medicare and Medicaid Services has investigated the company’s Newark, CA, lab and issued sanctions, including banning Holmes from owning or operating a lab for at least two years. Theranos’ chief operating officer jumped ship; and its early partner, drugstore giant Walgreens, terminated their relationship, closing 40 Theranos Wellness Centers in Arizona and losing its $50 million investment in the company.
While the company scrambled to right its ship—it has stacked its scientific advisory board and formed a new compliance committee—it ultimately abandoned its fingerprick blood tests altogether. It closed its clinical labs and laid off 340 employees in the process.
Now, Theranos is focusing on a tabletop blood-testing system it debuted at the American Association for Clinical Chemistry’s annual meeting last summer. Industry watchers noted the device, which does not need to be used in a lab, could be a way to keep Theranos, whose owners and operators are banned from running a lab, alive.