Cardiogenesis Acquisition

9 Months Ended

Sep. 30, 2012

Cardiogenesis Acquisition [Abstract]

Cardiogenesis Acquisition

6.  Cardiogenesis Acquisition

Overview

On May 17, 2011 CryoLife completed its acquisition of all of the outstanding shares of Cardiogenesis for $0.457 per share or approximately $21.7 million.  CryoLife used cash on hand to fund the transaction and operates Cardiogenesis as a wholly owned subsidiary.

Cardiogenesis is a leading developer of surgical products used in the treatment of patients with severe angina resulting from diffuse coronary artery disease.  Cardiogenesis markets its revascularization technologies, which include the Holmium: YAG laser console and single use, fiber-optic handpieces.  These products are U.S. Food and Drug Administration (“FDA”) approved for performing a surgical procedure known as Transmyocardial Revascularization, used for treating patients with stable angina that is not responsive to conventional therapy.

Accounting for the Transaction

The Company recorded an allocation of the $21.7 million purchase price to Cardiogenesis’ tangible and identifiable intangible assets acquired and liabilities assumed based on their acquisition date fair values.  The allocation of the purchase price to intangible assets was based on valuations performed to determine the fair value of such assets as of the acquisition date.  Goodwill was recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired.  The liability amounts recorded included the Company’s estimate of contingent liabilities assumed.  The purchase price allocation was finalized as of December 31, 2011. 

CryoLife incurred approximately $3.0 million in transaction and integration costs related to the acquisition in both the nine months ended September 30, 2011 and the year ended December 31, 2011.  The Company does not expect to continue to incur significant transaction or integration costs in 2012.

Legal Action

As previously discussed in CryoLife’s Form 10-Q for the quarter ended June 30, 2012 and its prior filings, in 2008 CardioFocus, Inc. (“CardioFocus”) filed a complaint in the U.S. District Court for the District of Massachusetts (“Massachusetts Court”) against Cardiogenesis and a number of other companies.  The litigation related to an alleged infringement by Cardiogenesis of two patents held by CardioFocus that have now expired.

On June 14, 2012 Cardiogenesis entered into a settlement agreement with respect to its litigation with CardioFocus.  The settlement provides that each party release the other from all claims and liabilities related to the patents in question and that all claims and counterclaims in the litigation be withdrawn with prejudice.  Pursuant to the terms of the settlement agreement, Cardiogenesis paid $4.5 million in cash to CardioFocus.  Cardiogenesis and CardioFocus agreed and acknowledged that each party would bear its own costs and expenses, including attorneys’ fees, incurred in or as a result of the litigation.

On June 14, 2012 the parties filed a stipulation of dismissal with prejudice in the Massachusetts Court.

Accounting for the Settlement

As a result of the settlement described above, the Company recorded an additional loss of $3.6 million in general, administrative, and marketing expenses on its Summary Consolidated Statement of Operations and Comprehensive Incomein the second quarter of 2012.  The Company recorded $4.1 million in legal settlement expenses for the nine months ended September 30, 2012.  The Company paid the $4.5 million settlement payment to CardioFocus in July 2012 using cash on hand.