A Medical Device Daily

The break-up of Tyco International (Pembroke, Bermuda) could be delayed because the industrial conglomerate failed to fulfill certain obligations, a group of the company's bondholders said Thursday.

Tyco said on June 7 it was in the final stages of splitting itself into three separate companies, with the spin-off of its electronics and healthcare units scheduled for June 29. The company said each shareholder would receive one share of the company's healthcare business Covidien (Mannsfield, Massachusetts) and one share of Tyco Electronics for every four common shares of Tyco International held on June 18.

In a letter addressed to Tyco's board members, the committee of bondholders claimed recent actions by Tyco increased the probability the transaction would be delayed. The group said they are considering court action if the company does not fulfill its obligations.

The group claims the original terms of the bonds' purchase were violated, and that the breakup will lessen the bonds' value.

The letter cited an agreement which allows bondholders to sell their bonds back to the company at a preset price if the company could no longer abide by certain terms.

"Tyco's strategy has produced widespread outrage in the public finance markets, resurrecting images of Tyco as a bad actor whose detrimental conduct to security holders was hoped to be a thing of the past," the letter said.

The letter went on to praise the company's recent efforts to right the wrongs caused by the gross mismanagement during the watch of former CEO Dennis Kozlowski.

In 2005, Kozlowski, CFO Mark Swartz and Mark Belnick, then the company's chief legal officer, were convicted of securities fraud for taking out more than $170 million in loans from the company without notifying shareholders or gaining approval from the firm's compensation committee. Kozlowski and Swartz also did not disclose the sale of 7.5 million shares of Tyco stock for $430 million.

"Tyco's management and board have made substantial progress over the past several years in helping the company recover from the darkest chapter in its history," the letter said. "We now hope that you will recognize that instructing the company to honor its obligations to the pension funds, insurance companies and other financial institutions that have lent it money is in the best interest of Tyco and all of its stakeholders. Nothing less than the financial community's long-term trust and confidence in the company is at stake."

A spokesman for Tyco said the company had honored its obligations to its bondholders.

"We made a fair offer to the bondholders during the tender process, and we are proceeding to complete the separation of Tyco into three separate companies at the end of this month," he said. "Both the Tyco board of directors and the Securities and Exchange Commission signed off on the transaction last week, and shares in the three companies began trading this morning on a when-issued basis. There are no impediments to completing separation."

The Tyco spokesman declined to comment on the bondholders' consideration of a court ruling against the company.

The letter pointed out that "despite its coercive nature," the tender and consent was a failure. Only one-third of the notes were tendered and Tyco did not receive the requisite consents to amend the indentures so as to authorize the proposed break-up.

The letter said that despite Tyco's "attempt to ignore the required consents and proceed with the break-up anyway," the indenture trustee for the Notes — The Bank of New York — has commenced a court proceeding seeking a ruling as to whether the break-up violates the indentures. This Court action could very well delay the proposed timing of the break-up.

In other dealmaking news:

• KineticConcepts (KCI; San Antonio), a company developing advanced wound care and therapeutic surface technology, has entered into an exclusive worldwide license with NovaBay Pharmaceuticals (Emeryville, California). for its NeutroPhase topical solution technology in the field of wound healing.

NeutroPhase is a stable, rapid-acting solution containing hypochlorous acid, which is known to kill a broad range of bacteria in seconds. KCI intends to develop and commercialize NeutroPhase for the cleansing of wounds, and for use in combination with KCI's V.A.C. instillation therapies.

"We are pleased to acquire rights to the NeutroPhase technology, which further broadens KCI's product offerings in advanced wound care," said Catherine Burzik, president/CEO of KCI. "Our plans to commercialize NeutroPhase as both a disinfection agent, and in combination with V.A.C. Instill Wound Therapy, will provide caregivers with new options for the treatment and active management of wound infections."

NeutroPhase is a stable, diluted solution of hypochlorous acid in saline with broad-spectrum antimicrobial properties, which was developed to emulate molecules naturally produced by the body when white blood cells defend against bacteria. The solution has been shown not to harm cells and is rapidly effective against common wound pathogens at concentrations 200 times lower than that toxic to human cells. The characteristics and mechanisms of action of NeutroPhase make it highly unlikely that resistant strains of bacteria could develop over time, KCI said.

• NNN Healthcare/Office REIT (Santa Ana, California) has acquired the real property associated with Triumph Hospital Northwest (Houston) and Triumph Hospital Southwest (Sugar Land, Texas). Triumph Healthcare will continue as the operator of these facilities. The acquisitions closed on June 8.

Triumph Hospital Northwest is a single-story 114 bed long-term acute care center on a 12 acre site. Triumph Hospital Northwest is located within three blocks of the 498-bed acute care Houston Northwest Medical Center , and serves a population of more than one million people in the Greater Houston area.

Triumph Hospital Southwest is a two-story 85 bed long-term acute care center that occupies an eight acre site in Sugar Land, Texas, just 20 miles southwest of downtown Houston.

NNN Healthcare/Office REIT purchased Triumph Hospital Northwest from Hollow Tree, LLP and Triumph Hospital Southwest from First Colony Investments.

NNN Realty Advisors, the sponsor of NNN Healthcare/Office REIT, is a commercial real estate asset management and services firm.