MedCap Urges Vote Against Proposed VaxGen Merger With Raven biotechnologies
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Stock Price Decline of 40% in the Past 45 Days Shows No "Momentum" for Proposed Raven Transaction; Current Balance Sheet Working Capital is $2.01 Per Share SAN FRANCISCO--(Business Wire)-- MedCap Management & Research LLC and its affiliates ("MedCap"), a substantial VaxGen Inc. (VXGN) shareholder, urge all VaxGen shareholders to vote AGAINST the proposed merger with Raven biotechnologies, inc. ("Raven"), on or before the upcoming scheduled shareholder meeting on March 28, 2008, and to vote AGAINST the Adoption of VaxGen's 2008 Equity Incentive Plan. MedCap intends to vote all of its VaxGen shares against the proposed transaction and against the proposed equity incentive plan. MedCap continues to hold approximately 4.8% of the company's stock. Raven's Extremely Early Stage Profile Raven is an extremely early-stage biotechnology company that we believe would not otherwise be able to complete an initial public offering on its own. Raven's CEO has publicly stated recently that he would not pursue Raven's lead product candidate on the company's own since it would consume far too much cash and he would therefore only partner it, if at all possible. Aside from this product candidate, that would leave Raven with lead product candidates that are all in a pre-clinical non-human early stage of testing. VaxGen's Current Team Has Not Performed Adequately VaxGen's management and board of directors have not performed adequately. The current management under the supervision of the current board of directors spent $56.1 million during 2007, the year the company was up for sale and had supposedly largely closed down its operations. Excluding impairments and restructuring, the company still spent $40.1 million, or $1.21 per share in 2007. Many members of the current management and board of directors would continue to be significantly involved if the company merged with Raven, including VaxGen's Chairman, its CEO and other VaxGen board members. Lack of "Momentum" to Approve the Proposed Transaction We take issue with the "momentum" publicly expressed by the company for a deal to close with Raven. We respectfully see no such momentum, rather to the contrary. The Company sites the lack of another deal surfacing as reason for the proposed merger to have merit, yet no other deal surfacing prior to a vote on the proposed merger to date has more to do with VaxGen's actions than with other potential interest in the value of the assets. Despite the apparent efforts by VaxGen, the only deal it says is available is a merger or purchase of Raven, but by perverse incentive this transaction also keeps many of the same people in place. The complete and accurate portrayal of the current situation is not being told, as the company continues to put forth the worst-case scenario regarding value if the Raven proposal is not consummated. For instance, the company has recently purchased a portion of the convertible notes at a 50% discount, but it has chosen to disregard this fact in its analysis of value for the rest of the company's outstanding convertible securities. This analysis paints a worse picture of liquidation value, which by the company's own analysis as of November 12, 2007, equated to a value that is more than twice the current stock value. The only research analyst that currently covers the company stated in a March 18, 2008 research note that $1.35 in value exists in a liquidation, before expenses. While low and only an estimate, this value equates to a 221% premium to the current stock price as of the close of market March 18, 2008. MedCap Strongly Urges a Vote Against the Proposed Raven Transaction We believe that, contrary to public comments made by the company, there are many more diverse shareholders that oppose the proposed merger and that a vote against the proposed merger is likely. This does not appear to be a "small group of dissident shareholders" as characterized by the company's statements. MedCap is strongly urging all VaxGen shareholders to cast their vote AGAINST the proposed transaction with Raven. MedCap believes that a vote AGAINST the Raven proposed merger could yield greater returns for VaxGen shareholders than VaxGen's proposed merger with Raven, which has resulted in a substantial stock price decline that remains depressed at just $0.42 per share or an equity market capitalization value of $13.9 million, as of the close of market March 18, 2008. Conversely, the company's just reported balance sheet shows the company has $74.5 million of current assets and restricted cash (or $2.25 per share) and just $8.0 million of current liabilities (or $0.24 per share). Thus, working capital is currently $66.5 million (or $2.01 per share). The convertible senior subordinated notes are valued on the company's balance sheet at $30.7 million (or $0.93 per share), but the company separately reported the recent purchase of a portion of outstanding convertible senior subordinated notes at a 50% discount (when applied to the convertible securities on the balance sheet equates to an additional $15.4 million or $0.46 per share in value). Nevertheless, the company continues to publicly present liquidation value of the company using the higher balance sheet amount for the convertibles. VaxGen Shareholders Continue to Vote With Their Feet; Stock Now Down 82% VaxGen's shares have declined 82% since VaxGen announced on January 9, 2007 that it had hired an investment banking firm to pursue a sale of the company. The company also continued to have substantial expenses during this period of a possible sale process, including excess employee headcount and excess compensation. Furthermore, VaxGen shares have now declined 62% since the closing market price on November 12, 2007, when the company then announced the proposed merger with Raven; and the shares have declined 40% since January 31, 2008, hardly momentum in support of the proposed transaction. MedCap believes that these share declines clearly indicate that VaxGen shareholders do not support VaxGen's recent efforts or the proposed merger with Raven. This has been reinforced by comments from a large number of investors in the company. Once the proposed merger with Raven has been voted down on March 28, 2008, MedCap believes that VaxGen should immediately reconsider the composition of its board of directors and its governance practices to ensure that the company's board is properly constituted to maximize shareholder value. C. Fred Toney, Managing Partner of MedCap stated, "VaxGen's value is not reflected in the proposed Raven merger and shareholder value has been substantially impaired during the sale process throughout 2007 and now in 2008 as evidenced by the company's stock price declines and the company's substantial use of its most valuable resource - its cash and cash equivalents. There remains little acknowledgement by the company of a likelihood of a vote opposing the proposed Raven merger or any substantial opposition to the proposed merger, which we believe remains widespread. Additionally, governance issues must be immediately addressed after the proposed Raven merger is terminated, in favor of finally focusing on preserving the assets and maximizing its shareholders' value in the company." About MedCap MedCap Management & Research LLC, headquartered in San Francisco, California, is the General Partner of MedCap Partners L.P., a private investment fund focused primarily on public companies in the life sciences, medical technology and healthcare sectors. C. Fred Toney is the Managing Member of MedCap Management & Research LLC. MedCap Management & Research LLC C. Fred Toney, 415-495-1010 Copyright Business Wire 2008
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