CryoLife paid $130 million for On-X in January 2016, including the escrow account, which was meant to cover “On-X’s indemnification obligations relating to its representations and warranties in the merger agreement,” according to a lawsuit filed in the Delaware Chancery Court by Fortis Advisors, the firm representing the On-X shareholders.
The escrowed cash was slated to be turned over to On-X a year after the deal closed, but on Jan. 18 CryoLife sent a claim notice saying it would hold on to the money to cover $17 million in losses it said it incurred “as a result of On-X committing multiple acts of financial fraud, violating European labeling regulations, failing to properly terminate and transition supply contracts, failing to maintain proper quality controls, and failing to disclose millions of dollars in other liabilities from litigation over employment and personal injury matters,” according to the complaint.
“CryoLife did not provide a single document in support of the vague allegations in its claim notice, and, to make matters worse, CryoLife thwarted any attempt by Fortis to investigate those allegations. Indeed, after serving the claim notice, CryoLife threatened the On-X shareholders with legal action if they provided Fortis, or its counsel, with any information regarding the allegations in the claim notice,” the lawsuit alleged. “Instead, in an email to Fortis, CryoLife demanded that any requests for information be directed solely to CryoLife. Yet, when Fortis directed its information requests to CryoLife, as it had been instructed to do, CryoLife refused to produce a single document supporting the allegations in the claim notice.”
The June 1 suit asked the Chancery Court to order the release of the $10 million held in escrow, judgments and awards for breach of contract, pre- and post-judgment interest and legal costs.