UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
washington,
d.c. 20549
|
FORM
8-K
|
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported): February 9,
2010
_______________________
CRYOLIFE,
INC.
(Exact
name of registrant as specified in its charter)
_________________________
|
Florida
|
1-13165
|
59-2417093
|
|
(State
or Other Jurisdiction
of
Incorporation)
|
(Commission
File Number)
|
(IRS
Employer
Identification
No.)
|
1655
Roberts Boulevard, N.W., Kennesaw, Georgia 30144
(Address
of principal executive office) (zip code)
Registrant's
telephone number, including area code: (770) 419-3355
_____________________________________________________________
(Former
name or former address, if changed since last report)
_________________________
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions (see General Instruction
A.2. below):
|
x
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
|
q
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
o
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
|
o
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
Section 8 Other Events
Item 8.01 Other Events.
On February 9, 2010, CryoLife, Inc.
(“CryoLife”) sent a letter to the shareholders of Medafor, Inc. (“Medafor”) and
issued a press release regarding the same. CryoLife also updated the
Frequently Asked Questions portion of the Medafor offer portion of its
website. These documents are available at www.cryolife.com/medaforoffer
and/or have otherwise been disseminated by CryoLife. The letter to
the Medafor shareholders and the press release, both dated February 9, 2010, and
the updated Frequently Asked Questions portion of the website are attached
hereto as Exhibits 99.1, 99.2 and 99.3, respectively.
This filing
and the exhibits hereto are provided for informational purposes only and are not
offers to purchase nor a solicitation of offers to sell shares of Medafor or
CryoLife. Subject to future developments, CryoLife may file a registration
statement and/or tender offer documents and/or proxy statement with the SEC in
connection with the proposed combination. Shareholders should read
those filings, and any other filings made by CryoLife with the SEC in connection
with the combination, as they will contain important
information. Those documents, if and when filed, as well as
CryoLife’s other public filings with the SEC, may be obtained without charge at
the SEC’s website at www.sec.gov and at CryoLife’s website at
www.cryolife.com.
Section
9 Financial Statements and Exhibits
Item
9.01(d) Exhibits.
(a)
Financial Statements.
Not applicable.
(b) Pro
Forma Financial Information.
Not applicable.
(c) Shell
Company Transactions.
Not applicable.
(d)
Exhibits.
|
Exhibit Number
|
Description
|
|
|
99.1
|
Letter
to the Medafor shareholders dated February 9, 2010
|
|
|
99.2
|
Press
Release dated February 9, 2010
|
|
| 99.3 | Frequently Asked Questions available at www.cryolife.com/medaforoffer |
- 2
- -
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, CryoLife, Inc. has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
| CRYOLIFE, INC. | |||
|
Date: February
9, 2010
|
By:
|
/s/ D.A. Lee | |
| Name: | D. Ashley Lee | ||
| Title: | Executive Vice President, Chief | ||
| Operating Officer and Chief | |||
| Financial Officer | |||
- 3
- -
EXHIBIT 99.1
February
9, 2010
Dear
Fellow Medafor Shareholder:
As you
have read in our press release dated February 2, 2010, CryoLife now owns
approximately 11 percent of Medafor (“the Company”). As a result,
CryoLife has acquired additional shareholder rights, including the right to call
a special meeting of Medafor shareholders. We did receive a letter
from Medafor’s board on January 22, 2010 indicating that Medafor’s board is
giving serious consideration to our proposal to acquire the outstanding shares
of Medafor for $2.00 per share in cash and stock. We at CryoLife
remain committed to engaging with Medafor in good faith negotiations about this
proposal in order to help maximize value for all
shareholders. However, it has been over two weeks since Medafor’s
board last communicated with us and almost four weeks since we sent our first
letter to the Company. Therefore, we sent another letter to Medafor’s
board on February 5, 2010, copied below, asking them to articulate their process
and timing in response to our letters.
We
believe our initial proposal to Medafor is compelling. We look
forward to engaging Medafor’s board to fully discuss the complete set of
opportunities that exist for both companies as a combined entity. We
are disappointed that Medafor’s board has not yet contacted us to explore this
opportunity in earnest. We find the continued delay on the part of
Medafor to be harmful to Medafor shareholders and, as Medafor’s largest
shareholder, we are prepared to take action on behalf of all shareholders to
ensure that the board upholds its fiduciary responsibilities.
Medafor
Today
CryoLife’s
goal is to acquire Medafor in order to maximize the potential of its hemostatic
technology and the related products, such as HemoStase. Medafor is
facing significant capital constraints that are restricting its ability to
invest in its technology and products and adequately maximize their market
rollout. The Company has been trying to raise funds for the last two
years in order to meet basic corporate needs such as working capital, but has to
our understanding largely been unable to do so. Furthermore, Medafor
received a going concern letter from its auditors at KPMG on September 11, 2009,
as a part of Medafor’s 2008 financial audit. Going concern
qualifications in financial audits are issued by accounting firms when there are
substantial doubts that a company will have the financial resources to remain in
business over the next 12 months. Common stock shareholders could
lose their entire investment in Medafor should the Company ultimately fail to
raise necessary funding and file for bankruptcy.
Medafor’s
capital constraints have forced the Company to repeatedly issue new shares in
order to raise capital. The Company has also issued new shares, in
lieu of cash, to compensate consultants and employees. This has
resulted in a continual dilution of shareholders, with common shares issued
almost tripling from approximately 7.7 million shares outstanding in 2005 to
20.9 million in 2009, along with additional warrants. Put another
way, holding all other factors constant, a share of Medafor common stock that
was worth $2.00 in 2005 would be worth $.73 today, due to the dilution caused by
the additional 13.2 million shares management has issued. Any
additional sales of common stock by Medafor will further dilute shareholders and
may reduce the value per share of Medafor stock.
In
addition, we believe that Medafor has also failed to provide adequate IP
protection for its hemostatic technology. Arista’s main patent is
patent protected only in the U.S., Germany and France.* As a result,
at least one competitor with prior affiliation to Medafor has been able to
launch and commercialize a competing product in Europe and other international
markets, negatively impacting CryoLife’s and Medafor’s
sales. CryoLife has repeatedly asked Medafor management to take
action to defend its IP and our investment. Medafor’s inability to
adequately protect its IP hinders its growth potential and adversely impacts the
Company’s value for its shareholders and commercial partners.
CryoLife
– a Better Way Forward
CryoLife
has the resources, expertise and financial strength to maximize the potential of
Medafor’s hemostatic technology and related products for the benefit of
shareholders and patients. In addition to cash, our current proposal
offers a stock component that will allow Medafor shareholders to take part in
CryoLife’s future successes.
We have a
proven and experienced management team (see the enclosed booklet) that has
brought several products to market, across multiple product lines, including
BioGlue, a leading global surgical adhesive. Our management team has
over 150 years combined experience in the medical device and related industries,
and are absolutely committed to our business. They have the skills
necessary to maximize the potential of Medafor’s underlying technology,
including manufacturing, product marketing and FDA label expansion
experience.
CryoLife
has a 50-person strong direct sales force that has helped our products achieve
market dominant positions. With this team, CryoLife has become one of
the worldwide leaders in sealants and vascular and cardiac
allografts. Our direct sales force operates in the U.S., UK and
Germany and we have sales representatives in over 70
countries. Combined with our access to world class cardiac and
vascular surgery centers across the U.S. and our relationships with over 1,000
cardiac and vascular surgeons, we are confident our sales force and distribution
network would maximize Medafor’s hemostatic technology for all
shareholders.
Our
strong track record is evidenced in our success as Medafor’s largest
distributor. We increased HemoStase’s sales from $1.5 million in 2008
to $6.0 million in 2009, demonstrating quarterly sequential revenue growth in
each quarter that we have sold the product.
In
addition, CryoLife’s strong cash and liquidity position allows us to make
significant investments in R&D, marketing, product rollouts and the
protection of our IP. Presently we have cash balances in excess of
$34 million plus availability under our line of credit of $14.5
million. In 2009 alone, we invested $24.8 million in R&D and
marketing. If we are successful in acquiring Medafor, we plan to
invest a significant amount of capital in further developing and marketing their
hemostatic technology and related products like HemoStase.
Page 2 of
4
Summary
We hope
that the Medafor board will engage with us in discussions over the details of
our proposal in a timely manner. We encourage Medafor shareholders to
continue to voice your opinions to Medafor’s management and the board and learn
more about CryoLife and our successful history of growth by visiting www.cryolife.com and
www.cryolife.com/medaforoffer.
Ultimately,
our proposal is about creating value for all Medafor shareholders and ensuring
that more doctors and patients have access to their hemostatic technology and
the related products. A combination of CryoLife and Medafor would create a
dynamic company poised for significant additional growth, and we would like you
to consider being a part of our future success. I look forward to
communicating with you again in the near future.
|
Sincerely,
|
|
| /s/ Steven G. Anderson | |
|
Steven
G. Anderson
|
|
|
Founder,
CEO and President
|
* Certain
letters mailed to Medafor shareholders erroneously referenced the U.S., Germany
and the U.K.
Letter to
Medafor Board of Directors dated February 5, 2010:
February
5, 2010
VIA
FEDEX
Michael
F. Pasquale, Chairman of the Board
Medafor,
Inc.
Dear
Michael,
Thank you for your response, which we
received on January 22, 2010. We are encouraged by your statement
that you are giving consideration to our proposal to acquire all of the
outstanding shares of Medafor's common stock. We and our advisors are
prepared to meet with you and your advisors to answer any questions you may have
about our offer and to discuss your perspective on Medafor’s
valuation. To that end, we would appreciate greater detail on the
board's timing and process for considering our proposal and entering into direct
discussions with us. A timely response is appreciated as it has been
approximately two weeks since your last communication and three weeks since we
submitted our proposal.
We urge you to enter into discussions
with us in a timely manner as delaying negotiations with us simply delays the
creation of value for your shareholders. We believe that CryoLife's
resources and financial strength will maximize the potential of Medafor and its
hemostatic technology for the benefit of patients and shareholders.
Page 3 of
4
Although we prefer to work with you and
your advisors to negotiate a mutually agreeable transaction, in the event that
you continue to delay or refuse to meet with us, we will be forced to consider
all our options. This includes exercising our right to call a special
shareholders meeting as provided for under your bylaws.
We are prepared to commit all the
resources necessary to complete a transaction expeditiously. We
believe that a combination of CryoLife and Medafor makes strategic and financial
sense for the shareholders of both companies and we hope you will work with us
in a productive manner.
I look forward to receiving your
response with an update on the board's process and timing as soon as possible,
as well as the contact details for your advisors. We believe that
your other shareholders would welcome this information as well.
|
Very
truly yours,
|
|
|
Steven
G. Anderson
|
|
|
President,
CEO and Chairman of the Board
|
|
cc:
|
Board
of Directors of Medafor
|
|
|
Gary
J. Shope
|
|
IMPORTANT
This
letter is provided for informational purposes only and is not an offer to
purchase nor a solicitation of offers to sell shares of Medafor or
CryoLife. Subject to future developments, CryoLife may file a
registration statement and/or tender offer documents and/or proxy
statement with the SEC in connection with the proposed combination of the
two companies. Shareholders should read those filings, and any
other filings made by CryoLife with the SEC in connection with the
combination, as they will contain important information. Those
documents, if and when filed, as well as CryoLife’s other public filings
with the SEC, may be obtained without charge at the SEC’s website at
www.sec.gov and at CryoLife’s website at
www.cryolife.com.
|
Page 4 of
4
EXHIBIT 99.2
N
E W S R E L E A S E
FOR
IMMEDIATE RELEASE
Media
Contacts:
D. Ashley
Lee
Executive
Vice President, Chief Financial Officer and
Chief
Operating Officer
Phone:
770-419-3355
Nina
Devlin
Edelman
Phone:
212-704-8145
CryoLife
Sends Letter to Medafor, Inc. Shareholders
ATLANTA, GA (February 9, 2010) --
CryoLife, Inc. (NYSE: CRY), an implantable biological medical device and
cardiovascular tissue processing company, announced today that it has sent the
following letter to Medafor shareholders.
Important
Information for Medafor Shareholders
February
9, 2010
Dear
Fellow Medafor Shareholder:
As you
have read in our press release dated February 2, 2010, CryoLife now owns
approximately 11 percent of Medafor (“the Company”). As a result,
CryoLife has acquired additional shareholder rights, including the right to call
a special meeting of Medafor shareholders. We did receive a letter
from Medafor’s board on January 22, 2010 indicating that Medafor’s board is
giving serious consideration to our proposal to acquire the outstanding shares
of Medafor for $2.00 per share in cash and stock. We at CryoLife
remain committed to engaging with Medafor in good faith negotiations about this
proposal in order to help maximize value for all
shareholders. However, it has been over two weeks since Medafor’s
board last communicated with us and almost four weeks since we sent our first
letter to the Company. Therefore, we sent another letter to Medafor’s
board on February 5, 2010, copied below, asking them to articulate their process
and timing in response to our letters.
We
believe our initial proposal to Medafor is compelling. We look
forward to engaging Medafor’s board to fully discuss the complete set of
opportunities that exist for both companies as a combined entity. We
are disappointed that Medafor’s board has not yet contacted us to explore this
opportunity in earnest. We find the continued delay on the part of
Medafor to be harmful to Medafor shareholders and, as Medafor’s largest
shareholder, we are prepared to take action on behalf of all shareholders to
ensure that the board upholds its fiduciary responsibilities.
Medafor
Today
CryoLife’s
goal is to acquire Medafor in order to maximize the potential of its hemostatic
technology and the related products, such as HemoStase. Medafor is
facing significant capital constraints that are restricting its ability to
invest in its technology and products and adequately maximize their market
rollout. The Company has been trying to raise funds for the last two
years in order to meet basic corporate needs such as working capital, but has to
our understanding largely been unable to do so. Furthermore, Medafor
received a going concern letter from its auditors at KPMG on September 11, 2009,
as a part of Medafor’s 2008 financial audit. Going concern
qualifications in financial audits are issued by accounting firms when there are
substantial doubts that a company will have the financial resources to remain in
business over the next 12 months. Common stock shareholders could
lose their entire investment in Medafor should the Company ultimately fail to
raise necessary funding and file for bankruptcy.
Medafor’s
capital constraints have forced the Company to repeatedly issue new shares in
order to raise capital. The Company has also issued new shares, in
lieu of cash, to compensate consultants and employees. This has
resulted in a continual dilution of shareholders, with common shares issued
almost tripling from approximately 7.7 million shares outstanding in 2005 to
20.9 million in 2009, along with additional warrants. Put another
way, holding all other factors constant, a share of Medafor common stock that
was worth $2.00 in 2005 would be worth $.73 today, due to the dilution caused by
the additional 13.2 million shares management has issued. Any
additional sales of common stock by Medafor will further dilute shareholders and
may reduce the value per share of Medafor stock.
In
addition, we believe that Medafor has also failed to provide adequate IP
protection for its hemostatic technology. Arista’s main patent is
patent protected only in the U.S., Germany and France. As a result,
at least one competitor with prior affiliation to Medafor has been able to
launch and commercialize a competing product in Europe and other international
markets, negatively impacting CryoLife’s and Medafor’s
sales. CryoLife has repeatedly asked Medafor management to take
action to defend its IP and our investment. Medafor’s inability to
adequately protect its IP hinders its growth potential and adversely impacts the
Company’s value for its shareholders and commercial partners.
CryoLife
– a Better Way Forward
CryoLife
has the resources, expertise and financial strength to maximize the potential of
Medafor’s hemostatic technology and related products for the benefit of
shareholders and patients. In addition to cash, our current proposal
offers a stock component that will allow Medafor shareholders to take part in
CryoLife’s future successes.
Page 2 of
5
We have a
proven and experienced management team (see the enclosed booklet) that has
brought several products to market, across multiple product lines, including
BioGlue, a leading global surgical adhesive. Our management team has
over 150 years combined experience in the medical device and related industries,
and are absolutely committed to our business. They have the skills
necessary to maximize the potential of Medafor’s underlying technology,
including manufacturing, product marketing and FDA label expansion
experience.
CryoLife
has a 50-person strong direct sales force that has helped our products achieve
market dominant positions. With this team, CryoLife has become one of
the worldwide leaders in sealants and vascular and cardiac
allografts. Our direct sales force operates in the U.S., UK and
Germany and we have sales representatives in over 70
countries. Combined with our access to world class cardiac and
vascular surgery centers across the U.S. and our relationships with over 1,000
cardiac and vascular surgeons, we are confident our sales force and distribution
network would maximize Medafor’s hemostatic technology for all
shareholders.
Our
strong track record is evidenced in our success as Medafor’s largest
distributor. We increased HemoStase’s sales from $1.5 million in 2008
to $6.0 million in 2009, demonstrating quarterly sequential revenue growth in
each quarter that we have sold the product.
In
addition, CryoLife’s strong cash and liquidity position allows us to make
significant investments in R&D, marketing, product rollouts and the
protection of our IP. Presently we have cash balances in excess of
$34 million plus availability under our line of credit of $14.5
million. In 2009 alone, we invested $24.8 million in R&D and
marketing. If we are successful in acquiring Medafor, we plan to
invest a significant amount of capital in further developing and marketing their
hemostatic technology and related products like HemoStase.
Summary
We hope
that the Medafor board will engage with us in discussions over the details of
our proposal in a timely manner. We encourage Medafor shareholders to
continue to voice your opinions to Medafor’s management and the board and learn
more about CryoLife and our successful history of growth by visiting www.cryolife.com and
www.cryolife.com/medaforoffer.
Ultimately,
our proposal is about creating value for all Medafor shareholders and ensuring
that more doctors and patients have access to their hemostatic technology and
the related products. A combination of CryoLife and Medafor would create a
dynamic company poised for significant additional growth, and we would like you
to consider being a part of our future success. I look forward to
communicating with you again in the near future.
Sincerely,
Steven G.
Anderson
Founder, CEO and
President
Page 3 of
5
Letter to
Medafor Board of Directors dated February 5, 2010:
February
5, 2010
VIA
FEDEX
Michael
F. Pasquale, Chairman of the Board
Medafor,
Inc.
Dear
Michael,
Thank you for your response, which we
received on January 22, 2010. We are encouraged by your statement
that you are giving consideration to our proposal to acquire all of the
outstanding shares of Medafor's common stock. We and our advisors are
prepared to meet with you and your advisors to answer any questions you may have
about our offer and to discuss your perspective on Medafor’s
valuation. To that end, we would appreciate greater detail on the
board's timing and process for considering our proposal and entering into direct
discussions with us. A timely response is appreciated as it has been
approximately two weeks since your last communication and three weeks since we
submitted our proposal.
We urge you to enter into discussions
with us in a timely manner as delaying negotiations with us simply delays the
creation of value for your shareholders. We believe that CryoLife's
resources and financial strength will maximize the potential of Medafor and its
hemostatic technology for the benefit of patients and shareholders.
Although we prefer to work with you and
your advisors to negotiate a mutually agreeable transaction, in the event that
you continue to delay or refuse to meet with us, we will be forced to consider
all our options. This includes exercising our right to call a special
shareholders meeting as provided for under your bylaws.
We are prepared to commit all the
resources necessary to complete a transaction expeditiously. We
believe that a combination of CryoLife and Medafor makes strategic and financial
sense for the shareholders of both companies and we hope you will work with us
in a productive manner.
I look forward to receiving your
response with an update on the board's process and timing as soon as possible,
as well as the contact details for your advisors. We believe that
your other shareholders would welcome this information as well.
Very truly
yours,
Steven G.
Anderson
President, CEO and
Chairman of the Board
cc: Board
of Directors of Medafor
Gary J. Shope
Page 4 of
5
|
IMPORTANT
This
letter is provided for informational purposes only and is not an offer to
purchase nor a solicitation of offers to sell shares of Medafor or
CryoLife. Subject to future developments, CryoLife may file a
registration statement and/or tender offer documents and/or proxy
statement with the SEC in connection with the proposed combination of the
two companies. Shareholders should read those filings, and any
other filings made by CryoLife with the SEC in connection with the
combination, as they will contain important information. Those
documents, if and when filed, as well as CryoLife’s other public filings
with the SEC, may be obtained without charge at the SEC’s website at
www.sec.gov and at CryoLife’s website at
www.cryolife.com.
|
About
CryoLife, Inc.
Founded
in 1984, CryoLife, Inc. is a leader in the processing and distribution of
implantable living human tissues for use in cardiac and vascular surgeries
throughout the U.S. and Canada. The Company's CryoValve® SG
pulmonary heart valve, processed using CryoLife's proprietary SynerGraft®
technology, has FDA 510(k) clearance for the replacement of diseased, damaged,
malformed, or malfunctioning native or prosthetic pulmonary
valves. The Company’s CryoPatch® SG
pulmonary cardiac patch has FDA 510(k) clearance for the repair or
reconstruction of the right ventricular outflow tract (RVOT), which is a surgery
commonly performed in children with congenital heart defects, such as Tetralogy
of Fallot, Truncus Arteriosus, and Pulmonary Atresia. CryoPatch SG is
distributed in three anatomic configurations: pulmonary hemi-artery, pulmonary
trunk, and pulmonary branch. The Company's BioGlue®
Surgical Adhesive is FDA approved as an adjunct to sutures and staples for use
in adult patients in open surgical repair of large vessels. BioGlue
is also CE marked in the European Community and approved in Canada and Australia
for use in soft tissue repair. The Company's BioFoam®
Surgical Matrix is CE marked in the European Community for use as an adjunct in
the sealing of abdominal parenchymal tissues (liver and spleen) when cessation
of bleeding by ligature or other conventional methods is ineffective or
impractical. BIOGLUE Aesthetic™ Medical Adhesive
is CE marked in the European Community for periosteal fixation following
endoscopic browplasty (brow lift) in reconstructive plastic surgery and is
distributed by a third party for this indication. CryoLife
distributes HemoStase®, a
hemostatic agent, in much of the U.S. for use in cardiac and vascular surgery
and in many international markets for cardiac, vascular, and general surgery,
subject to certain exclusions.
For
additional information about the company, visit CryoLife’s Web
site:
www.cryolife.com.
END
Page 5 of
5
EXHIBIT 99.3
ADDITIONAL
IMPORTANT INFORMATION
This document
is provided for informational purposes only and is not an offer to purchase nor
a solicitation of an offer to sell shares of Medafor or
CryoLife. Subject to future developments, CryoLife may file a
registration statement and/or tender offer documents and/or proxy statement with
the SEC in connection with the proposed combination. Shareholders
should read those filings, and any other filings made by CryoLife with the SEC
in connection with the combination, as they will contain important
information. Those documents, if and when filed, as well as
CryoLife’s other public filings with the SEC, may be obtained without charge at
the SEC’s website at www.sec.gov and at CryoLife’s website at
www.cryolife.com.
Website
FAQ
Why
is CryoLife acquiring a stake in Medafor?
We have
acquired this significant stake in Medafor as a first step in our efforts to
acquire full control of HemoStase and Medafor’s hemostatic
technology. We are taking this step in order to help HemoStase and
related products realize their full potential. If we are successful,
we believe that our experienced management team, strong direct sales force,
international distribution network, and financial strength will allow us to
drive additional growth of HemoStase and related products, and create value for
CryoLife and Medafor shareholders. In the event we are unable to
acquire control of Medafor in the near term, we believe we will be able to
recover the value of this investment in the future.
How
much of Medafor does CryoLife now own?
CryoLife
believes it owns approximately 11 percent of the outstanding Medafor common
stock and that it is now the largest single shareholder of Medafor, in addition
to being Medafor’s largest distributor.
What
are the terms of the proposal CryoLife made most recently to
Medafor?
On
January 13, 2010, CryoLife sent a letter to Medafor’s management and board
requesting to enter into discussions with them regarding a potential acquisition
by CryoLife of the remaining outstanding common stock of Medafor for $2.00 per
share in a combination of cash and CryoLife stock, subject to completion of
reasonable due diligence. This would provide Medafor shareholders
with certain value through a cash component, as well as the opportunity to
participate in future upside through continued ownership of the combined company
under CryoLife leadership.
We
believe this proposal to Medafor represents full and fair value, reflecting both
the upside from the growth potential of HemoStase and the product’s underlying
technology, as well as the downside presented by the IP restrictions on this
product.
Our
proposal also represents a significant premium to the price at which we believe
Medafor’s own board and management have recently offered to convert debt into
equity.
What
is the breakdown between cash and stock?
Negotiations
with the Medafor board would allow us to determine the right mix of cash and
stock. We believe a cash/stock offer is appropriate and attractive,
as the cash component would provide Medafor shareholders with immediate and
certain value, while the stock portion would allow shareholders to participate
in future upside through continued ownership of the combined
company. We think the prospects for CryoLife are strong and that
Medafor shareholders will be able to realize additional value by owning our
stock. It is also important to note that ownership of CryoLife stock
would provide shareholders with further liquidity, as they would be able to
trade this stock on the New York Stock Exchange. That said, given the
current economic climate, we recognize that cash may be more important to some
shareholders, and we are therefore prepared to evaluate how this is best
addressed.
What
has been the reaction of Medafor’s board to the recent CryoLife
proposal?
CryoLife
received a letter from Medafor’s board on January 22, 2010 that stated that
Medafor’s board was considering its options. CryoLife has not heard
from Medafor’s board since that communication. As a result, we have
sent the Medafor board a follow up letter encouraging them to provide greater
detail on the timing and process for considering our proposal and entering into
direct discussions with us. CryoLife remains committed to entering
into friendly negotiations with Medafor’s board and management, but, in the
event that Medafor’s board continues to delay, we may consider additional
actions to facilitate a transaction with Medafor that would not require the
approval of current board members.
Why
did CryoLife choose to make this proposal public?
CryoLife
has made every effort to work with Medafor as partners in an amicable and
productive manner. We have made numerous attempts to engage with
Medafor’s management and board about a potential value-creating acquisition of
the company by CryoLife. Prior to Medafor’s most recent communication
asking us for additional time, Medafor had summarily rejected all of our
overtures and refused to negotiate with us. By providing our fellow
Medafor shareholders with complete and timely information about our proposal, we
hope to encourage Medafor’s management and board to come to the
table.
Is
the proposal made to the Medafor board available to Medafor
shareholders?
Not at
this time. It is our hope that by making our proposal public, we will
encourage Medafor’s management and board to engage in discussions with us, or at
least remove any legal barriers that would prevent us from purchasing additional
shares from Medafor shareholders.
What
can Medafor shareholders who wish to sell their shares to CryoLife
do?
We
encourage shareholders to make their voices heard to Medafor’s management and
board by contacting them directly.
Why
is CryoLife purchasing additional shares from some investors but not making its
proposal available to all?
We have
purchased some additional shares from Medafor shareholders in order to bring our
holding to over 10 percent and to obtain the additional right of being able to
call a special shareholders meeting. At this time, we remain hopeful
that we can engage in friendly negotiations with Medafor’s board about our
proposal. While we may make some additional purchases of Medafor
stock from time to time, we encourage shareholders to make their voices heard to
Medafor’s management and board by contacting them directly. If
Medafor’s board refuses to enter into negotiations with us, we will consider our
other options.
How
does CryoLife intend to effect an acquisition of Medafor without agreement from
their management/board if Medafor refuses to negotiate?
It is our
hope that having demonstrated our commitment to a value-creating transaction by
publicly announcing our proposal, Medafor’s management and board will agree to
engage in discussions with us. Further, we believe that as a
substantial shareholder of Medafor, we have a right to a voice in Medafor’s
management, and we will exercise that right to its fullest potential in order to
remove any impediments that currently block Medafor shareholders from being able
to sell their shares to us. If necessary, we may consider additional
actions to facilitate a transaction with Medafor that would not require the
approval of current board members.
Why
should Medafor sell itself to CryoLife?
Medafor
needs to accelerate its rollout of HemoStase and the underlying hemostatic
technology. Such a rollout inherently requires a significant outlay
of capital. We think CryoLife can facilitate this rollout in a way
that would prevent the need for repeatedly accessing traditional equity
markets. Accessing equity markets will likely produce unnecessary
further dilution for Medafor’s current shareholders. We note that
current management has increased outstanding shares by more than 13 million
shares since 2005 (at that time there were only 7.7 million shares outstanding),
and has not been able to generate an exit strategy that provides value to
existing Medafor shareholders. At the same time, as Medafor’s largest
distributor, we feel that integrating our two companies would produce the
greatest revenue growth and profitability for this technology, and increase
returns for both Medafor and CryoLife shareholders.
How
has Medafor failed to help HemoStase reach its full potential? What
will CryoLife do differently?
Medafor
has failed to maximize the potential of HemoStase and the product’s underlying
technology for its shareholders. Medafor’s capital constraints
prevent it from conducting significant research and development and investing in
its sales force and distribution network in a meaningful way. With
significantly greater resources, CryoLife would remedy this.
Our
management team has over 150 years combined experience in the medical device
business. We have a direct sales force in the U.S. and an
international distribution network comprised of both direct employees and third
party representatives who are focused on cardiac, vascular and general
surgeons. HemoStase is a perfect complement to CryoLife’s BioGlue
technology; together BioGlue and HemoStase offer a full range of products to our
surgeon customers to assist them in the control and prevention of
bleeding. We have already demonstrated our ability to sell HemoStase
(having achieved $6 million in sales in 2009) and have the resources available
to us to ensure that HemoStase and related products properly penetrate the
market.
How
did CryoLife come to this current proposal?
The
proposal price results from a detailed analysis of Medafor, its products, and
the market conducted by CryoLife in conjunction with its financial and legal
advisors. The valuation is consistent with comparable company
valuations, similar M&A transactions, and other relevant metrics and
methodologies. We believe our proposal to Medafor represents full and
fair value, reflecting both the upside from the growth potential of HemoStase
and the product’s underlying technology, as well as the downside presented by
the significant IP restrictions on this product. Of course, our
analysis is based upon the best information available to us. We
remain open to negotiating our proposal further with Medafor’s management and
board, and have indicated our desire to enter into discussions and consider
further information about Medafor. Any final offer will be contingent
upon the conclusion of reasonable due diligence.
In the
event that Medafor’s board does not engage in negotiations with us, we plan to
provide additional detail with regard to our valuation of Medafor directly to
shareholders.
Does
CryoLife’s Medafor stake give CryoLife any additional powers outside those of a
normal shareholder?
Minnesota
corporate law gives special rights to persons who own 3% or more of the common
stock in Medafor. Thus, CryoLife has the right to propose amendments
to the Articles of Incorporation or bylaws of Medafor at a regularly scheduled
meeting of shareholders, and if a meeting has not been held during the last 15
months, CryoLife can demand one.
Additionally,
as an owner of more than 10% of Medafor’s outstanding shares, CryoLife has the
right to call a special shareholders meeting pursuant to Medafor’s
bylaws. CryoLife remains committed to entering into friendly
negotiations with Medafor’s board and management, but, in the event that
Medafor’s board continues to delay, a special shareholders meeting would afford
CryoLife the opportunity to seek to replace the Medafor board in order to
maximize value for all Medafor shareholders.
What
are CryoLife’s next steps?
We hope
to begin negotiations with the Medafor board. If necessary, however,
we may consider additional actions to facilitate a transaction with Medafor that
would not require the approval of current board members.
When
does CryoLife plan to communicate with Medafor shareholders?
Outside
of this information, if we are unable to meet with or reach agreement with the
Medafor board in a timely fashion, we plan to continue to communicate with
Medafor shareholders directly about our offer for Medafor and our strategy for
the company going forward.
What
is the timing for this process?
If
Medafor’s board agrees to negotiate with us and we ultimately reach agreement,
we believe this process could take several months. If Medafor’s board
refuses to negotiate with us, then we will evaluate our options.
Who
can shareholders contact if they have questions?
You may
contact Nina Devlin at Edelman at 212-704-8145 for more
information. You may also leave a question at the following email
address medaforinfo@cryolife.com and someone will contact you.
Statements
made in this document that look forward in time or that express management's
beliefs, expectations or hopes are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These
statements include those regarding future actions we may take with respect to
Medafor, our efforts to acquire full control of HemoStase and Medafor’s
hemostatic technology, our ability to help HemoStase realize its full potential
and drive additional sales of HemoStase and related products, and create value
and increase returns for CryoLife and Medafor shareholders, our belief that we
will be able to recover the value of our investment in Medafor, our plans to
communicate with Medafor shareholders about our offer for Medafor and our
strategy for the company going forward at a future date, and our beliefs
regarding the potential timing of a transaction. These future events
may not occur as and when expected, if at all, and, together with our business,
are subject to various risks and uncertainties. These risks and
uncertainties include that any transaction with Medafor may not occur or may be
delayed due to circumstances and events beyond our control, including legal
impediments, we may not be able to realize the anticipated benefits of a
transaction with Medafor, our plans to acquire Medafor may change, our plans to
communicate publicly regarding the proposed transaction may change and may be
influenced by various legal and regulatory considerations, and Medafor’s
management may act in ways that differ from our current
expectations. The timing of and our ability to communicate with
Medafor shareholders may be impacted by the actions of Medafor
management. Also, the success of any transaction between CryoLife and
Medafor is subject to risks facing both companies. These risks
include that CryoLife is significantly dependent on revenues from BioGlue and
there are a variety of risks affecting BioGlue, CryoValve SG pulmonary heart
valves and other SynerGraft processed tissues and products may not be accepted
by the marketplace, the CryoValve SG pulmonary heart valve has a one year shelf
life, the CryoPatch SG has a one year shelf life, we are dependent on the
availability of sufficient quantities of tissue from human donors, the CryoValve
SG pulmonary heart valve post-clearance study requested by the FDA may not
provide the expected positive results, our products and tissues we process and
preserve have allegedly caused and may in the future cause injury to patients,
and we have been and may be exposed to tissue processing and product liability
claims and additional regulatory scrutiny as a result, the possibility that the
FDA could impose additional restrictions on our operations, issue a 483, or
warning letter, or require a recall, or prevent us from processing and
distributing tissues or manufacturing and distributing other products, our
failure to adequately comply with government regulations could result in loss of
revenues and customers as well as additional compliance expense, our ability to
borrow under our credit facility may be limited, the credit facility limits our
ability to pursue significant acquisitions, the financial and credit liquidity
crisis may adversely affect our ability to borrow money or raise capital, the
current economic crisis and future economic crises may adversely affect our
business and financial condition, there are limitations on our use of net
operating loss carry-forwards that could result in our inability to use them
fully or at all, adverse regulatory action outside of the U.S. could affect our
business, physicians have been and may be reluctant to implant or use our
preserved tissues or products, our existing insurance policies may not be
sufficient to cover our actual claims liability, current economic conditions may
impact demand for our tissues and products, intense competition may affect our
ability to operate profitably, we may be unable to obtain adequate insurance at
a reasonable cost or at all, uncertainties related to patents and protection of
proprietary technology may adversely affect the value of our intellectual
property, uncertainties related to patents and protection of proprietary
technology for products distributed by us may adversely affect our ability to
distribute those products, we are dependent on key personnel, we may not be
successful in obtaining necessary clinical results and regulatory approvals for
products and services in development, and our new products and services may not
achieve market acceptance, we may be unable to effectively leverage our existing
sales force to sell HemoStase, the lawsuit we filed against Medafor regarding
our distribution agreement with Medafor may continue to adversely impact our
relationship with Medafor and could hamper or prevent us from distributing
HemoStase, Medafor may in the future attempt to terminate our distribution
agreement, rapid technological change could cause our services and products to
become obsolete, extensive government regulation may adversely affect our
ability to develop and sell products and services, we have experienced operating
losses and negative cash flows in the past, and we must continue to address the
underlying causes in order to continue to operate profitably and generate
positive cash flows, investments in new technologies and acquisitions of
products or distribution rights may not be successful, if we are not successful
in expanding our business activities in international markets, we will be unable
to pursue one of our strategies for increasing our revenues, continued deflation
of foreign currencies relative to the U.S. dollar could materially and adversely
impact our foreign revenues, and future healthcare policies, healthcare
reimbursement methods, and healthcare reimbursement policies may affect the
availability, amount, and timing of our revenues, financial condition, and
profitability. These risks and uncertainties include the risk factors
detailed in our Securities and Exchange Commission filings, including our Form
10-K filing for the year ended December 31, 2008, our Form 10-Q filing for the
quarter ended March 31, 2009, our Form 10-Q filing for the quarter ended June
30, 2009, our Form 10-Q filing for the quarter ended September 30, 2009, and the
Company's other SEC filings. Medafor’s business is also subject to a
number of risks, including the risk that HemoStase does not have adequate
intellectual property protection, that additional regulatory approvals may not
be obtained in a timely fashion, if at all, and that product liability lawsuits
could be filed in connection with the use of HemoStase. In addition,
the acquisition of Medafor by CryoLife, if it occurs, could result in unexpected
costs or liabilities to CryoLife due to potential non-compliance by Medafor
under applicable laws and regulations, although CryoLife is currently not aware
of any material non-compliance, or due to other factors that we are not
currently able to predict, as we have not had the opportunity to perform a due
diligence review with respect to Medafor. The Company does not
undertake to update its forward-looking statements. In addition, the
calculation of the estimated percentage of Medafor’s outstanding shares owned by
CryoLife is based on 20,950,445 shares outstanding, the number of outstanding
shares shown on Medafor’s shareholder list as updated on January 21,
2010. This calculation does not take into account any shares that may
have been repurchased or issued by Medafor since that date. As a
result, CryoLife’s actual percentage ownership of Medafor’s outstanding common
stock may be greater or less than 11%.