SCHEDULE 14A
SCHEDULE 14A INFORMATION
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Hemagen Diagnostics, Inc.
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(Name of Registrant as Specified In Its Charter)
Jerry L. Ruyan, William P. Hales, Thomas A. Donelan, Christopher P. Hendy
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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The Redwood Group
9468 Montgomery Road
Cincinnati, OH 45242
800-205-0407
August 25, 1999
Dear Fellow Hemagen Shareholder:
We would like to thank the many stockholders who have called to express their
support for our efforts to bring about change at Hemagen, and who have sent in
the WHITE CARD in support of our nominees. We believe that our candidates will
best represent the interests of all stockholders and pledge that we will pursue
our strategic business objectives relentlessly to increase both profitability
and shareholder value.
In the material being circulated by the management of Hemagen they said that
"creating value for our shareholders has always been our objective," and their
goal when they took the company public in 1993 was "to build a profitable
multi-product diagnostic enterprise." Six years after Hemagen's IPO there is an
accumulated deficit of $3.3 million dollars! Management has failed by its own
admission!
Fellow shareholders, make no mistake -- we are here today for good reason! We
own 557,627 shares and have invested over $750,000 dollars to purchase shares of
Hemagen. Like many of you, we have become increasingly alarmed with Hemagen's
performance. We urge you to read the recently filed 10Q. It is time to stop
mixing words and making excuses. It is time for experienced business
professionals committed to increasing shareholder value to take the reigns. That
can ONLY happen if you VOTE your WHITE CARD TODAY and GIVE US THE OPPORTUNITY TO
FIX HEMAGEN AND YOUR INVESTMENT!
WHEN THE FRANZBLAU'S SPEAK READ BETWEEN THE LINES
In Hemagen's August 24, 1999 letter to shareholders they used partial quotes out
of context from an Institutional Shareholder Services ("ISS") report. Don't
believe anything Hemagen tells you until you read the entire ISS report. Here
are some factual statements made in the ISS report:
- "It is difficult to put much faith in current management's predictions
of future returns."
- "The current board structure and its recent entrenching actions are
not indicative of good governance or the kind of strong, independent
action necessary to protect shareholder interests."
- "It is difficult to imagine that all the skills and expertise to fill
essentially all the key executive posts of the company are resident
within one family."
- "There has been little evidence that value has been created
organically, which is certainly a major contributor to the stock's
poor performance."
- "In sum, sales have decreased in all facets of the company's
operations except for those attributable to the ANALYST."
- "The common stock currently can be purchased on the open market at a
discount to its book value."
- "The company is not highly leveraged, although it has increased its
long-term debt as a percentage of its total capital significantly in
the last 12 months."
- "Hemagen's total shareholder returns over the prior five years have
not exactly been stellar."
- "In the final analysis, there is reason to be concerned about the
current composition of management, board performance, and the historic
performance of the company's stock price."
THERE ARE ABOUT TWO WEEKS LEFT TO VOTE. THE CRITICAL QUESTION IS WHO WILL
GENERATE THE GREATEST FUTURE SHAREHOLDER VALUE?
<PAGE>
FOR SIX YEARS MANAGEMENT HAS BEEN UNABLE TO CREATE VALUE FOR ITS
STOCKHOLDERS! WHY SHOULD THAT CHANGE NOW? HERE IS THEIR RECORD:
THE FINANCIAL PERFORMANCE HAS BEEN DISMAL
- $100 invested in Hemagen at the IPO (2/4/93) is worth $17.50 today!
- In the June 30, 1999 10Q, Hemagen announced that they failed to meet
the debt service coverage covenants of their loan agreement with
BankBoston, N.A., and that the bank has agreed to a "temporary
forbearance" ... "the exact terms of which are being negotiated."
- Hemagen has raised more than $15 million dollars publicly and borrowed
$5 million. Today the market capitalization is less than $7 million.
- For the nine months ended June 30, 1999, gross margins have continued
to erode from 43.4% to 39.3%.
- In the June 30, 1999 10Q, they said the nine month operating results
"are not necessarily indicative of the results that may be expected
for the year ending September 30, 1999."
HEMAGEN'S RECORD OF BUYING AND OPERATING COMPANIES IS DISTURBING
- In the June 30, 1999 10Q, Hemagen reported that revenues decreased in
all divisions.
- Hemagen had $2.4 million in revenues before making four acquisitions
and signing an OEM agreement which they expected would produce $2
million in revenues. The revenues of the four businesses Hemagen
bought totaled $19 million. Hemagen should be producing over $23
million in revenues with no growth! The current run rate is $14.8
million. Hemagen has lost over $8 million, or 35% of these sales!
- Hemagen recently sold its Cellular Products ("CPI") division, and
stated in a press release, "the CPI transaction is a cash sale for
substantially more than Hemagen paid." That is blatantly not true! The
purchase price for CPI was $780,000, it was sold for $800,000 and
after expenses the net gain on the sale was $14,940. To call this a
substantial premium is at best irresponsible. More importantly, before
being purchased CPI's revenues and income were $1,705,233 and $77,734
respectively. For the six months ended 3/31/99 CPI's revenues were
$450,000 with a loss of $148,000! In two years this business had been
"substantially" destroyed!
- In the quarter ended June 30, 1999, the revenues were $3,698,853
compared to the year-ago quarter revenues of $3,453,112. The company
proudly announced revenues were up 7%. Last years revenues did not
include any revenues from the ANALYST, which was purchased in
September 1998. The ANALYST produced $9 million in revenues the year
before Hemagen acquired it. Revenues should have increased quarter to
quarter by over $2 million (or 58%) just from the new ANALYST
business. Revenues only increased by $245,741. Hemagen's core revenues
are fast eroding!
THE BOARD OF DIRECTORS AND MANAGEMENT HAVE TAKEN THE FOLLOWING
THREE STEPS TO FURTHER ENTRENCH THEMSELVES
- First, after learning of our consent solicitation on June 25, 1999 the
board purported to amend the Bylaws on July 2, 1999 to increase the
vote required to remove directors from a majority (50%) to two-thirds
(66 2/3%) of all outstanding shares, seriously diminishing shareholder
rights!
- Second, in January 1999 the company's Board of Directors adopted a
poison pill. This could prevent the shareholders from receiving an
offer that is substantially above the current market price.
- Third, on August 16, 1999 the company announced employment contract's
with "golden parachutes" for Carl Franzblau, and his son William
Franzblau, which could cost the stockholders over $550,000.
WE BELIEVE WE CAN AND WILL CREATE STOCKHOLDER VALUE! MEMBERS OF OUR
GROUP HAVE CREATED SUBSTANTIAL SHAREHOLDER VALUE IN THE PAST
<PAGE>
We believe that we have assembled an outstanding team of multi-talented business
professionals who are capable and experienced. We filed our consent solicitation
with the full intention of fixing Hemagen and building stockholder value. Our
goal is to have Hemagen earning at least $1 million dollars from operations
within the first twelve months. Highlights of our plans are as follows:
- Insert Jerry L. Ruyan as CEO. Mr. Ruyan has 19 years experience
managing a diagnostics company in all phases from raw start-up to a
fully integrated diagnostics company. As CEO, he guided Meridian
Diagnostics to a market capitalization of over $130 million and 19
consecutive years of profits. He is skilled in leading and motivating
managers. He has a proven track record in developing, acquiring and
assimilating new products into an existing product line, communicating
the company's vision to shareholders and other potential investors;
and most importantly, creating shareholder value.
- Insert William P. Hales as President. Mr. Hales is an investment
banker and CPA who spent six years with Coopers & Lybrand and Ernst &
Young. His accounting and investment banking background, coupled with
his experience in the equity and capital markets, makes him well able
to make decisions to improve profitability and create value.
- Capitalize on the experience of Christopher P. Hendy and Thomas A.
Donelan who have extensive knowledge in turning around troubled
companies in various industries. They also have significant experience
in corporate governance, management recruiting, strategic planning and
plan execution.
- We have identified several highly capable sales and marketing industry
veterans from whom we will select individuals to lead and staff the
company's sales and marketing department. These individuals possess a
track record of increasing sales volume and expanding market share
through innovative and creative strategies, and in new product
introduction. They will provide critical input to shape new product
development in R&D.
- We have analyzed the margins and volumes of existing products
manufactured and will modify Hemagen's product offerings to
concentrate on higher margin products and take appropriate action to
eliminate any products which do not represent profitable
opportunities.
- We will aggressively reduce expenses. The company currently
manufactures in three facilities. We will streamline the coordination
between divisions, reduce duplicative functions, and measure the
cost/benefit of consolidating functions/facilities to benefit
Hemagen's cost structure. Thorough cross training combined with strict
adherence to FDA regulations will be key deciding factors.
- The Research and Development department will be re-structured to
insure that each project represents a profitable opportunity, or an
improvement to an existing product with significant upside potential.
- We will bring under control the sales reporting, cost accounting, and
accounting procedures and systems to ensure that all financial aspects
of the business are reporting efficiently.
- We will revisit significant business opportunities which have recently
been lost by Hemagen. We will acquire additional products that
compliment the company's distribution and manufacturing model and
include a review of current and potential licensing and private label
manufacturing opportunities.
- We will improve the company's exposure to the investment community and
increase public relations. We intend to grow the company and move it
to the NASDAQ National Market System.
- If a sale of the company offers the best return to the shareholders,
we will evaluate that option. If higher stock valuations are not
achieved within a reasonable period of time we will authorize a stock
buy back.
- We intend to form a culture within Hemagen whereby each employee is a
true advocate of the company; doing their best to help increase sales,
improve efficiency and eliminate costs that provide little or no
benefit to the company. The "new" Hemagen culture will reward effort
and ability while focusing on profitability.
NOW IS THE TIME TO ELECT CHANGE
<PAGE>
Regrettably, Hemagen's management and Board of Directors have not achieved their
goal of profitable operations overall as the Company has an accumulated earnings
deficit of $3.3 million. Hemagen is a public corporation and the composition of
its Board of Directors is subject to election and change by its shareholders.
The Franzblau family has had its chance to build shareholder value. We firmly
believe that if you, the shareholders, change the Board of Directors as we have
proposed, our candidates will be able to improve Hemagen's financial performance
and stock price significantly.
WE CANNOT DO THIS BY OURSELVES - WE MUST HAVE YOUR
AFFIRMATIVE VOTE. REMEMBER IF YOU DON'T VOTE, YOUR NON-VOTE WILL
HAVE THE SAME EFFECT AS VOTING AGAINST OUR PROPOSALS!
VOTE THE WHITE CARD TODAY!
Sincerely,
Jerry L. Ruyan William P. Hales Thomas A. Donelan Christopher P. Hendy
YOUR VOTE IS EXTREMELY IMPORTANT
1. Please SIGN, MARK, DATE and MAIL your WHITE consent card in the enclosed
postage-paid envelope. If you wish to vote for our Nominees and Proposals,
you must submit the enclosed WHITE proxy card and must NOT submit Hemagen's
blue card.
2. If you have already voted Hemagen's blue card, you have every legal right
to change your mind and vote FOR our Nominees and Proposals on the WHITE
consent card. Only your latest dated consent card will count.
3. If your shares are held for you by a bank or brokerage firm, only your bank
or brokerage firm can vote your shares only after receiving your
instructions. Please sign, date and return the enclosed WHITE consent card
in the envelope provided which will go back to your bank or brokerage for
them to vote as you instruct them, or call your bank or broker and instruct
your representative to vote FOR our Nominees and Proposals on the WHITE
consent card.
4. Time is short. Please Vote Today!
If you have any questions or need assistance in voting your shares or in
changing your vote, please contact Beacon Hill Partners, Inc., at:
BEACON HILL PARTNERS, INC.
90 Broad Street
New York, NY 10004
(212) 843-8500 (call collect)
or Call toll-free (800) 755-5001
