BOSTON, Mar 11, 2009 (BUSINESS WIRE) -- Orthofix International N.V. (NASDAQ: OFIX) (the Company) announced today
it sent a letter to its shareholders, which is included below, opposing
the proposal being made by Ramius LLC to nominate Steven Lee to the
Company's Board of Directors at a Special Meeting of Shareholders
scheduled for April 2, 2009.
Dear fellow Orthofix shareholder:
In advance of the Orthofix Special Meeting of Shareholders scheduled for
April 2, 2009, we wanted to communicate some concerns that the Board of
Directors has about a second Ramius nominee for the Orthofix Board,
Steven Lee. In addition to having serious concerns about the
qualifications of Peter Feld, in February 2009 we also notified Ramius
of our concerns regarding Mr. Lee. Since that time, additional issues
have come to light that raise further questions about the
appropriateness of nominating Mr. Lee for the Orthofix Board.
Ramius is Ignoring the Serious Perceptual Issues That Would Be
Created By Steven Lee Based on His Leadership of PolyMedica during a
U.S. Department of Justice Investigation and His Board Membership at ICN
Pharmaceuticals During a U.S. Securities and Exchange Commission
Investigation
Steven Lee served on the Board of Directors of ICN Pharmaceuticals (now
called Valeant Pharmaceuticals International) from 2001 to 2004.
Following the initiation of an investigation by the Securities and
Exchange Commission, Valeant restated nearly a decade of financial
statements as a result of inappropriate backdating of stock options.
This activity apparently took place during Mr. Lee's tenure as a
Director and a member of the Compensation Committee. We are concerned
about the impact that this information could have on Orthofix and its
shareholders if Mr. Lee were to assume a seat on our Board of Directors.
Even more concerning for shareholders, however, is Ramius' reaction to
questions about Mr. Lee's history with PolyMedica Corporation, a
Massachusetts-based medical products company that he founded and served
as President, CEO and Chairman of the Board from 1990 to 2002. During
Mr. Lee's tenure with PolyMedica, the company became embroiled in a
federal investigation. In 2001 two qui tam, or whistleblower,
lawsuits were filed in federal court in Miami and Boston against
PolyMedica Corporation and its subsidiaries. These lawsuits alleged,
among other things, that the subsidiaries violated the False Claims Act
by submitting claims to Medicare without proper documentation of medical
necessity, resulting in overbilling to federal health care programs.
In 2004, after Mr. Lee left the company, PolyMedica
paid a $35 million settlement to the United States government to resolve
civil allegations, as well as to settle administrative sanctions
related to the alleged misconduct. This settlement concluded an
investigation lasting approximately five years that included onsite
searches of PolyMedica's operations by FBI agents in response to federal
search warrants, the removal of company documents, and subsequent
shareholder lawsuits.
Ramius Responded to These Concerns By
Calling Government Investigations "Commonplace"
In Ramius' February 25th and March 9th letters to
Orthofix shareholders they addressed Mr. Lee's history, stating: "It
is fairly commonplace for companies who rely on government reimbursement
to be investigated from time to time." Ramius either
does not understand the healthcare industry, or worse, believes that a
five-year investigation resulting in $35 million in fines paid to the
government is of no concern. Given the stringent focus that Orthofix has
placed on compliance and integrity following the Blackstone acquisition,
Ramius' dismissive treatment of serious government investigations as
"commonplace" occurrences is outrageous.
To be clear, the PolyMedica lawsuit involved a five-year federal
government investigation, using taxpayer funds, which was begun after
company employees brought whistleblower allegations to the government's
attention. In this kind of lawsuit, called a qui tam case, the
government has the choice to get
involved in the case if it determines that the allegations are serious
and legitimate enough to warrant the use of government resources. It is
far from "commonplace" for numerous governmental bodies to investigate
and coordinate activities and garner tens of millions of dollars in
fines in order to settle claims. In this case, according to the
Department of Justice's own press release, "the investigation was
spearheaded by the Federal Bureau of Investigation's West Palm Beach
Office and the Office of the Inspector General, HHS. Attorneys from the
Justice Department's Civil Division, the U.S. Attorney's Office for the
Southern District of Florida, the U.S. Attorneys' Office for the
District of Massachusetts and the U.S. Department of Health and Human
Services' Office of the General Counsel negotiated the civil settlement."
As a result of this investigation and settlement, PolyMedica was also
subjected to a five-year government compliance oversight program, which
carried over even when the company was subsequently acquired by Medco in
2007.
Ramius' Treatment of This History of Serious Government Action
Conflicts with Orthofix's Commitment to Compliance Efforts
In contrast to Ramius' treatment of government investigations as
"commonplace," Orthofix has taken a proactive approach in building
strong corporate governance and compliance programs. We believe that Mr.
Lee's presence on our Board would detract from these positive steps.
Ramius' February 25th letter to Orthofix shareholders
attempts to dismiss these concerns about Mr. Lee, stating, "We find it
interesting that Orthofix would use this diversion to try to discredit
Mr. Lee, when Orthofix itself is currently the target of an
investigation by the Department of Health and Human Services, Office of
the Inspector General..." In fact, it is
precisely because Orthofix, under the current management team and Board
of Directors, takes compliance matters so seriously that we object so
strongly to Mr. Lee's presence on the Board.
Orthofix recently implemented Integrity Advantage(TM),
our Corporate Compliance and Ethics Program. This program incorporates
industry best practices for compliance, and is designed to meet U.S.
Sentencing Commission Guidelines for effective organizational compliance
and ethics programs. This program was implemented under the leadership
of the company's recently appointed Senior Vice President and Chief
Compliance Officer, a health care attorney with significant regulatory
compliance experience whose hiring was approved by the Board. Orthofix's Integrity
Advantage program is designed to promote legal compliance and
ethical business practices throughout the company's domestic and
international businesses.
We believe that Steven Lee's presence on the Orthofix Board would
detract from the progress we have made on compliance matters, and
shareholders should question Ramius' judgment in nominating him to the
Orthofix Board.
Orthofix's Current Board of Directors is Highly Qualified and Has
Instituted Best-in-Class Corporate Governance Practices
The current Orthofix Board is comprised of highly qualified individuals
specifically chosen for their business and healthcare expertise. This
Board has also implemented best-in-class corporate governance practices
to guide Orthofix, including:
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No staggered or classified Board members; all directors stand for
election annually,
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The roles of Chairman and CEO are held by separate individuals,
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The Audit, Compensation, and Nominating & Governance Committees are
comprised of independent directors,
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The Board regularly meets without the CEO at least two times per
quarter,
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The Company uses outside advisers as necessary,
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The Board conducts regular CEO performance reviews,
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A Board education program is in place,
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A Board self-assessment is conducted once per year,
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Shareholder rights are promoted by the company's articles of
association, including
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No anti-takeover defenses,
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No supermajority voting requirements,
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Shareholders can call a special meeting,
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Shareholders can act by written consent,
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Shareholder vote is required to change articles of association.
Mr. Lee's experiences with PolyMedica and ICN Pharmaceuticals would
stand in contrast to the current Board's depth of commitment to
compliance and integrity issues.
Orthofix and Blackstone Are On The Right Track Today - Support Your
Board In Continuing This Progress
Significant recent indications of progress and improved performance at
Blackstone validate our strategy. On February 12, the Company released
its full year 2008 results and 2009 guidance, showing substantial
improvement in the operating performance of the spinal implant and
biologic business, including increased revenue, a higher gross profit
margin and lower adjusted operating expenses. These encouraging results
followed a number of other recent positive developments, including:
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On February 11, 2009, Orthofix announced the acceleration of the
launch date of Trinity(R) Evolution(TM), the next generation adult stem
cell-based allograft developed in collaboration with the
Musculoskeletal Transplant Foundation (MTF). The limited market
release is now expected to occur by May 1st of this year, two months
ahead of schedule. This development followed a December 15, 2008
announcement that Orthofix and MTF had achieved a major development
milestone, which was also ahead of schedule.
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Orthofix also initiated the limited market release of two new
products, the Firebird(TM) pedicle screw system and the PILLAR(TM) SA
interbody device, both of which are expected to be fully launched in
the first quarter of 2009.
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In December 2008 Orthofix made a $10 million partial debt repayment,
ahead of the scheduled maturity date. At December 31, 2008 our
debt-to-EBITDA ratio as defined in our amended credit facility was 3.4
versus the maximum allowable ratio of 4.0. This gave us approximately
$49 million of available debt capacity at December 31, 2008. When the
maximum allowable debt-to-EBITDA ratio decreases to 3.5 at September 30th
of this year, we expect the last 12 months' total EBITDA used in the
calculation of the leverage ratio to be significantly higher than the
amount used in the calculation at December 31, 2008. This is because
the calculation will no longer include the increase in inventory
reserve of $11.5 million recorded in the third quarter of 2008.
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In February 2009, the Company made a second, $7 million, partial debt
repayment and announced a consolidation plan that will create cost
savings and synergies between the operating groups of the Company.
Further, industry analysts have recognized Orthofix's progress and, as a
result, have questioned Ramius' previously stated intent to sell
Blackstone.
"Orthofix is in a position where it must execute its current strategy
through 2009 to achieve its guidance. Ramius, an investment management
firm with a stake in OFIX, has made an aggressive push to hold a special
shareholders meeting to call into questions the suitability of the
Blackstone acquisition, and is attempting to appoint four new
individuals to the Orthofix board of directors. We believe any attempt
to divest the Blackstone business in a fire sale would disrupt
Orthofix's current strategies and limit the company's near-term and
long-term potential."
Canaccord Adams, February 18, 2009
"On one hand, we agree that the Ramius proposal to sell the Blackstone
unit would likely result in an immediate increase in shareholder value,
but this may not necessarily be the best long-term strategic move for
the company. We believe management is taking appropriate steps to
successfully turn around its spine business."
Susquehanna
International Group, February 24, 2009
"In our opinion, OFIX's decision to judiciously employ improving cash
flows to pay down debt is sound. OFIX has steadily made prepayments to
reduce the principle amount owed and the strategy to further delever as
cash flows improve is crucial to avoid a covenant breach as the leverage
ratio will come down to 3.25x in Q4:09 and 2.85 in Q1:10. OFIX's
projection of an improving EBITDA run rate is consistent with our model,
and we do not expect OFIX to break any covenants."
Jefferies &
Company, Inc, February 18, 2009
Reject the Ramius Proposals and Vote the Company's BLUE Proxy Card
Sincerely,
Orthofix Board of Directors
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For assistance in voting your shares, please call
Georgeson
199 Water Street, 26th Floor New York, NY 10038 Toll
free (800) 323-4133 Banks and Brokerage Firms please call
(212) 440-9800
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About Orthofix
Orthofix International, N.V., a global medical device company, offers a
broad line of minimally invasive surgical, and non-surgical, products
for the spine, orthopedic, and sports medicine market sectors that
address the lifelong bone-and-joint health needs of patients of all
ages-helping them achieve a more active and mobile lifestyle. Orthofix's
products are widely distributed around the world to orthopedic surgeons
and patients via Orthofix's sales representatives and its subsidiaries,
including BREG, Inc. and Blackstone Medical, Inc., and via partnerships
with other leading orthopedic product companies. In addition, Orthofix
is collaborating in R&D partnerships with leading medical institutions
such as the Orthopedic Research and Education Foundation, Rutgers
University, the Cleveland Clinic Foundation, Texas Scottish Rite
Hospital for Children and National Osteoporosis Institute. For more
information about Orthofix, please visit www.orthofix.com.
Forward-Looking Statements
This communication contains certain forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements, which may include, but are not limited to, statements
concerning the projections, financial condition, results of operations
and businesses of Orthofix and its subsidiaries and are based on
management's current expectations and estimates and involve risks and
uncertainties that could cause actual results or outcomes to differ
materially from those contemplated by the forward-looking statements.
Factors that could cause or contribute to such differences may include,
but are not limited to, risks relating to the expected sales of its
products, including recently launched products, unanticipated
expenditures, changing relationships with customers, suppliers and
strategic partners, risks relating to the protection of intellectual
property, changes to the reimbursement policies of third parties,
changes to and interpretation of governmental regulation of medical
devices, the impact of competitive products, changes to the competitive
environment, the acceptance of new products in the market, conditions of
the orthopedic industry and the economy, corporate development and
market development activities, including acquisitions or divestitures,
unexpected costs or operating unit performance related to recent
acquisitions and other factors described in our annual report on Form
10-K and other periodic reports filed by the Company with the Securities
and Exchange Commission.
Important Additional Information
Orthofix International N.V. ("Orthofix") has filed a definitive proxy
statement, dated February 26, 2009, with the SEC in connection with a
special general meeting of shareholders of Orthofix to be held on April
2, 2009 at which Ramius Capital and certain of its affiliates propose to
make changes to the composition of Orthofix's board of directors.
SHAREHOLDERS ARE URGED TO READ ORTHOFIX'S DEFINITIVE PROXY MATERIALS AND
ANY OTHER RELEVANT SOLICITATION MATERIALS FILED BY ORTHOFIX WITH THE SEC
BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Investors and shareholders
may obtain a free copy of the proxy statement and other materials filed
by Orthofix with the SEC at the SEC's website at www.sec.gov,
at Orthofix's website at www.orthofix.com,
or by contacting Georgeson, 199 Water Street, 26th Floor, New York, NY
10038 or by calling (212) 440-9800 (bankers and brokers) or toll-free
(800) 323-4133 (all others).
Orthofix and its directors and certain executive officers are
participants in the solicitation of proxies in connection with the
special general meeting of shareholders. The names of such persons are:
James F. Gero, Peter J. Hewett, Jerry C. Benjamin, Charles W. Federico,
Dr. Guy J. Jordan, Ph.D., Thomas J. Kester, CPA, Alan W. Milinazzo,
Maria Sainz, Dr. Walter P. von Wartburg, Kenneth R. Weisshaar, Robert S.
Vaters, Michael Simpson, Bradley R. Mason, Raymond C. Kolls, J.D., and
Michael M. Finegan. Information regarding such participants, as well as
each such person's respective interests in Orthofix (whether through
ownership of Orthofix securities or otherwise), is set forth in
Orthofix's definitive proxy statement dated February 26, 2009, which may
be obtained free of charge at the SEC's website at www.sec.gov,
Orthofix's website at www.orthofix.com,
or by contacting Georgeson, 199 Water Street, 26th Floor, New York, NY
10038 or by calling (212) 440-9800 (bankers and brokers) or toll-free
(800) 323-4133 (all others).
SOURCE: Orthofix International N.V.
Orthofix International N.V.
Dan Yarbrough, 617-912-2903
Vice President of Investor Relations
danyarbrough@orthofix.com
Copyright Business Wire 2009