cryolife42521810cc.htm
Filed by
CryoLife, Inc.
Pursuant
to Rule 425
under the
Securities Act of 1933
and
deemed filed pursuant to Rule 14a-12
under the
Securities Exchange Act of 1934
Subject
Company: Medafor, Inc.
Commission
File No. 021-39452
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.
The language below contains certain
statements made during a conference call on February 18, 2010 by members of the
management of CryoLife, Inc. with respect to Medafor, Inc.
Certain statements made by
D. Ashley Lee, CryoLife’s Executive Vice President, Chief Operating Officer and
Chief Financial Officer
We continue efforts on the business
development front to find complimentary products or companies that we can
acquire to leverage our existing infrastructure and sales force to deliver more
value to our shareholders. In connection with that, I’d like to
update you on our proposal to acquire the remaining outstanding shares of
Medafor.
We believe that a combination of
Medafor with CryoLife would create a significant amount of shareholder value for
both Medafor and CryoLife shareholders. We believe that their MPH
technology has tremendous untapped potential and that a combination of Medafor
with CryoLife would enable the technology to reach its full
potential. An accelerated development and roll-out of the technology
would require a significant amount of resources, including financial resources,
an extensive distribution network and an experienced management team – resources
that CryoLife currently has.
Last week Medafor sent a letter to its
shareholders indicating that they were declining our offer to enter into
discussions regarding our proposal to acquire the remaining shares of the
company, including our offer to discuss any relevant information they had that
would support a valuation that was different from what was reflected in our
proposal. We responded in a letter to Medafor’s Board of Directors
this past Tuesday that we remain committed to meeting with them to discuss our
proposal and any other information they had that could potentially support a
higher valuation. However, in the event that they continue to decline
our meeting requests, we will evaluate all options that are currently available
to us, including calling a special shareholders’ meeting, initiating a proxy
contest, or launching a tender offer, and will act accordingly.
Certain statements made by
Steven G. Anderson, CryoLife’s Chairman, President and Chief Executive
Officer
I would
like to make a few comments to the Medafor shareholders listening to our
conference call today.
As Ashley
said, we think that a combination of CryoLife and Medafor provides an excellent
opportunity for shareholders of both companies. We believe Medafor's technology
has a great deal of promise, but that the company faces a number of significant
challenges that will keep it from maximizing this potential - challenges we
don't think it can address on its own. We have made a proposal to Medafor
because we think that we are strong in areas where Medafor is weak and that we
can help Medafor overcome its challenges. The Medafor Board's present stance of
not even talking to us denies Medafor shareholders of the opportunity to even
explore the possibility of a business combination with CryoLife. Whether
Medafor's management likes it or not, the reality is that with CryoLife's 11%
stake in Medafor, the two companies are business partners and we will assert our
rights as their largest shareholder.
Medafor's
difficulty in securing working capital is a good illustration of a weakness we
can help the company to overcome. Over the last two years, Medafor's management
has attempted to secure more working capital in order to access better cash
flow. This has been very difficult for management to accomplish because of the
financial environment in the U.S. and the illiquidity issues facing the company.
Medafor has been further hindered by a "going concern" letter issued to the
company in September 2009 by KPMG, Medafor's auditor, in connection with their
2008 audit of Medafor. A letter like this is issued by an auditing firm when
they feel that the company may not have the capital resources to survive for the
next twelve months. Both of these situations have negatively affected
management's ability to adequately fund the company.
We, on
the other hand, currently have over $35 million in cash. We also have a line of
credit with GE Financial for $14.5 million. That gives us a significant amount
of working capital with which to operate our combined companies and invest in
their future growth.
We are
also aware that in the recent past, Medafor's management has been paying some of
its vendors and consultants with stock because of their cash flow restrictions.
This has further diluted your stock position in your company. As a matter of
fact, Medafor had 7.5 million in outstanding common stock in 2005. We believe
that close to 21 million common shares have been issued as of the end of 2009.
That's almost a three-fold dilution of your ownership position, with little or
nothing to show for it. If you had a share of Medafor stock in 2005 that was
valued at $2.00 a share, this same share is now worth $0.73 cents as a result of
this continued dilution, all other things remaining neutral. As the largest
shareholder of Medafor stock, we're going to take the steps we have to take to
end this practice of indiscriminate stock dilution. We do not want our stock
position diluted and we will be discussing this issue with your senior
management.
Medafor's
disregard for its shareholders is also evidenced by the fact that your CEO, CFO
and CTO and VP of Sales do not live in the Twin Cities. I was disappointed to
learn that two of Medafor's officers live in Pennsylvania, one lives in Colorado
and one lives in Maryland. When they travel to the Twin Cities, the company, and
therefore its shareholders, must pay for airline tickets, all meals and other
expenses. These are unnecessary expenses for a small company like Medafor. I've
started my own company from scratch and I know from experience the importance of
having management on site every day -- watching, learning, and improving -- for
a small company to be successful. Absentee landlords don't work. And, as the
largest shareholder in Medafor, we want this practice to stop
immediately.
As
evidence that management is not executing effectively, let me point out that
Medafor has existed for 10 years and only has one significant product,
Arista. Arista was designed and patented to be a product platform. Management
has not implemented a program to develop any significant additional products.
CryoLife started as a one-product company 25 years ago focused on cardiovascular
reconstructive surgery. We have brought several products, across multiple
product lines, to market and all of them were developed or invented in our
research laboratories. In order to maximize the potential of Medafor's MPH
technology platform, we have already negotiated an exclusive consulting
agreement with Dr. James Drake, one of the inventors of Medafor's MPH
technology. In the event we are successful in acquiring control of Medafor, Dr.
Drake will be working closely with our staff biochemists to develop additional
products using the MPH technology platform. We're ready to move the MPH
technology forward and we're hopeful that you will give us the opportunity to do
so.
We are
asking that you contact your Board of Directors and your senior management to
let them know what your feelings are about our proposal to combine our two
companies.