FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13165
CRYOLIFE, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2417093
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1655 Roberts Boulevard N.W., Kennesaw, GA 30144
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (770) 419-3355
Securities registered pursuant to Section
12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------------------- ------------------------
Common Stock, $.01 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was approximately $398,777,000 at March 27, 2001 (16,060,309 shares).
The number of common shares outstanding at March 27, 2001 was 18,750,704
(exclusive of treasury shares).
Documents Incorporated By Reference
Part III: Portions of Registrant's Proxy Statement relating to the Annual
Meeting of Shareholders to be filed not later than April 30, 2001.
PART I
Item 1. Business.
Overview
CryoLife, Inc. ("CryoLife" or the "Company") is the leader in the
cryopreservation of viable human tissues for cardiovascular, vascular and
orthopaedic transplant applications, and develops and commercializes additional
implantable products, including surgical bioadhesives. The Company estimates
that it provided in excess of 70% of the cryopreserved human heart valve tissue
implanted in the U.S. in 2000. The Company uses its expertise in biochemistry
and cell biology, and its understanding of the needs of the cardiovascular,
vascular and orthopaedic surgery medical specialties, to continue expansion of
its core cryopreservation business and to develop or acquire complementary
implantable products and technologies for these fields. The Company develops and
markets proprietary implantable biomaterials, including BioGlue(R) surgical
adhesive, which it began commercializing within the European Community ("EC") in
April 1998 and within the U.S. in December 1999. Additionally the Company
develops bioprosthetic cardiovascular devices including two novel design
stentless porcine heart valves currently marketed in the EC. In November 2000
the Company received a Conformite Europeene ("CE") Mark (product certification)
for commercial distribution of its SynerGraft(R) heart valve in the EC.
Domestically the Company began applying its proprietary SynerGraft technology in
February 2000 to enhance the preservation of human heart valves.
CryoLife processes and distributes for transplantation cryopreserved human heart
valves and conduits, human vascular tissue and human connective tissue for the
knee. Management believes that cryopreserved human heart valves and conduits
offer certain advantages over mechanical, synthetic and animal-derived
alternatives. Depending on the alternative, these advantages include a more
natural functionality, the elimination of a long-term need for anti-coagulation
drug therapy, a reduced incidence of reoperation and a reduced risk of
catastrophic failure, thromboembolism (stroke) or calcification. The Company
estimates that the potential U.S. market for implantable products targeting
indications addressed by the cryopreserved tissues processed by the Company was
in excess of $1 billion in 2000. The Company seeks to expand the availability of
human tissue through its established relationships with over 100 tissue banks
and organ procurement agencies nationwide.
CryoLife is developing implantable biomaterials for use as surgical adhesives
and sealants. The Company's patent protected BioGlue surgical adhesive, designed
for cardiovascular, vascular and pulmonary applications, is a polymer based on a
derivative of an animal blood protein and a cross-linking agent. BioGlue offers
advantages over sutures and staples, including more effective sealing and easier
application. The Company estimates that the annual worldwide market for surgical
sutures and staples in 2000 was in excess of $2 billion. The Company received CE
Mark certification in 1998 for use of its BioGlue surgical adhesive in vascular
applications and began marketing this product in April 1998 in the EC. In March
1999 the Company was awarded a second CE Mark allowing the use of BioGlue in
pulmonary indications, including the repair of air leaks in lungs. In December
1999 the Company received U.S. Food and Drug Administration ("FDA") approval to
distribute BioGlue surgical adhesive under a Humanitarian Device Exemption
("HDE") for use as an adjunct in the repair of acute thoracic aortic dissections
and immediately began marketing this product in the U.S. pursuant to the HDE.
The Company completed its clinical trial for the use of BioGlue in all vascular
repair in the fall of 2000, and filed a premarket approval ("PMA") with the FDA
on February 1, 2001 that, if approved, would allow for the broad commercial
distribution of BioGlue in the U.S.
CryoLife has developed and markets outside of the U.S. bioprosthetic
cardiovascular devices for implantation, currently consisting of glutaraldehyde
fixed stentless porcine heart valves. Glutaraldehyde fixed porcine heart valves
are often preferred by surgeons for procedures involving elderly patients
because they eliminate the risk of patient non-compliance with long-term
anti-coagulation drug therapy associated with mechanical valves, are less
expensive than human heart valves or mechanical valves and their shorter
longevity is more appropriately matched with these patients' life expectancies.
Glutaraldehyde fixed porcine and bovine heart valves address a worldwide target
market estimated to have been $325 million in 2000. Unlike most other available
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porcine heart valves, the Company's stentless porcine heart valves do not
contain synthetic materials which increase the risk of endocarditis, a
debilitating and potentially fatal infection. The Company's CryoLife-O'Brien(R)
aortic heart valve, currently marketed in the EC and certain other territories
outside the U.S., is a stentless porcine heart valve which contains a matched
composite leaflet design that approximates human heart valve blood flow
characteristics and requires only a single suture line which simplifies surgical
implantation. The Company's CryoLife-Ross(R) pulmonary heart valve, another of
the Company's fixed stentless porcine valves, is also marketed in the EC and
certain countries outside the U.S. The Company has applied its proprietary
SynerGraft technology to the processing of human heart valves and conduits and
to some of the Company's stentless porcine heart valves. SynerGraft involves the
depopulation of cells from the structure of human heart tissue and non-viable
animal heart tissue leaving a collagen matrix that has the potential to be
repopulated with the implant recipient's cells. This process is designed to
reduce calcification of heart valves, thereby increasing longevity, and to
improve the biocompatibility and functionality of such tissue. In November 2000
the Company received CE Mark approval for its SynerGraft porcine pulmonary heart
valves, which allowed the Company to begin commercial distribution into the EC.
The Company believes that its porcine heart valves, treated with the SynerGraft
technology, will expand its opportunity to address the broader international and
U.S. heart valve markets, estimated to have been $390 million and $400 million,
respectively, in 2000.
Beginning in 1998, the Company began seeking to complete a potential private
placement of equity or equity-oriented securities representing a majority
investment in its wholly-owned subsidiary company, AuraZyme Pharmaceuticals,
Inc. ("AuraZyme"), for the commercial development of its Activation Control
Technology ("ACT") technology. The ACT technology is a reversible linker
technology that has potential uses in the areas of cancer therapy, blood clot
dissolving, heart attack therapies and other drug delivery applications. This
strategy is designed to allow the Company to continue development of this
technology without incurring additional research and development expenditures,
other than through AuraZyme, and allow the Company to focus its resources on the
commercial development of its BioGlue surgical adhesive, SynerGraft technology
and other products under development.
In the U.S., the Company markets its cryopreservation services for human heart
valves and conduits, human vascular tissue and its BioGlue surgical adhesive
through its direct technical service representatives, and relies on independent
orthopaedic sales representatives to market its cryopreservation services for
human connective tissue for the knee. Internationally, cryopreserved human
tissues, bioprosthetic cardiovascular devices, including SynerGraft, and BioGlue
surgical adhesive are distributed through independent representatives located in
several countries in Europe, Canada, South America and Asia.
Growth Strategy
The Company's primary objective is to continue its consistent revenue growth and
profitability. The Company's strategy to generate continued growth is based on
increasing the use of cryopreserved tissues as an alternative to mechanical and
synthetic implantable products, developing new markets for existing products and
technologies and developing new products and technologies for new and existing
markets. The Company also selectively considers strategic acquisitions of
complementary technologies and businesses to supplement its internal growth. The
key elements of the Company's business and growth strategy are to:
o Continue Leadership in Cryopreservation of Human Heart Valves and
Conduits. The Company intends to increase the market penetration of
its cryopreserved human heart valves and conduits by (i) expanding
awareness of clinical advantages of cryopreserved human tissues
through continuing educational efforts directed to physicians,
prospective heart valve and conduit recipients and tissue procurement
agencies, (ii) expanding its relationships with the more than 100
tissue banks and procurement agencies across the U.S. which send
tissue to the Company for cryopreservation, (iii) expanding its
physician training activities and (iv) expanding its product offerings
by applying its SynerGraft technology to human heart valves and
conduits for antigen reduction properties and the potential for
recipient cell repopulation.
3
o Expand Distribution of Cryopreserved Human Vascular Tissue and
Connective Tissue for the Knee. Using the same strategy it has
successfully employed to expand its cryopreservation services for
human heart valves and conduits, the Company intends to increase its
cryopreservation revenues from human vascular tissue and connective
tissue for the knee through continuing educational efforts directed to
vascular and orthopaedic surgeons about the clinical advantages of
cryopreserved vascular and orthopaedic tissue, expanding its
relationships with tissue banks and procurement agencies and expanding
its programs for training physicians in the use of tissue
cryopreserved by the Company.
o Broaden Application of Cryopreservation Services. The Company will
continue to collect, monitor and evaluate implant data to (i) develop
expanded uses for the human tissues currently cryopreserved by the
Company and (ii) identify new human tissues as candidates for
cryopreservation. In 1997, the Company began providing cryopreserved
human vascular tissue to be used as dialysis access replacement grafts
for patients undergoing chronic dialysis, and separately, as venous
valve replacements for patients suffering from diseases of the venous
system. In 1998 in addition to patellar and achilles tendons, the
Company began providing cryopreserved posterior and anterior tibialis
and semi-t/gracilis tendons for use in knee repairs, and in 1999 began
providing preserved human osteoarticular grafts to repair articular
defects and aortoiliac grafts to repair infected abdominal aortic
grafts. The Company is also investigating the use of cryopreserved
human endothelial cells, peripheral nerves and other connective
tissues in various surgical applications.
o Develop and Commercialize Biomaterials for Surgical Adhesive and
Sealant Applications. In the second quarter of 1998 the Company began
commercial marketing of its patent protected BioGlue surgical adhesive
in the EC through its independent representatives. In December 1999
the Company received FDA approval to distribute BioGlue surgical
adhesive under a HDE for use as an adjunct in the repair of acute
thoracic aortic dissections. The Company completed its clinical trial
for the use of BioGlue in all vascular repair in the fall of 2000, and
filed a PMA with the FDA on February 1, 2001, that, if approved, would
allow for the broad commercial distribution of BioGlue in the U.S. In
addition to the adhesive and sealant applications of these
biomaterials, the Company intends to pursue, either directly or
through strategic alliances, certain drug delivery applications of
BioGlue surgical adhesive and its ACT technology, such as
administering antibiotics, attaching chemotherapy drugs to tumors,
delivering bone material for orthopaedic bone repair, and as a
replacement for spinal discs.
o Develop and Commercialize Bioprosthetic Cardiovascular Devices. The
Company intends to leverage its expertise with stentless human heart
valves to expand commercialization of its stentless porcine heart
valves and to use its stentless porcine heart valves as a platform for
the development and commercialization of the Company's SynerGraft
technology, which is being developed to expand the target market for
the stentless porcine heart valves by minimizing calcification often
associated with porcine tissues and thereby increasing their
longevity. In October 2000 the Company received a CE Mark allowing for
commercial distribution of the new tissue-engineered SynerGraft heart
valve throughout the European Community. The Company has expanded its
production capacity for its bioprosthetic cardiovascular devices to
address the increased demand it is currently experiencing.
o Leverage Existing Capability across Product Lines. The Company intends
to apply its expertise with stentless human heart valves to expand
commercialization of its stentless porcine heart valves and to use its
human heart valve and conduit cryopreservation expertise and its
stentless porcine heart valves as a platform for the development and
commercialization of the Company's SynerGraft technology.
Services and Products
Cryopreservation of Human Tissue for Transplant
The Company's proprietary and patent protected cryopreservation process involves
the procurement of tissue from deceased human donors, the timely and controlled
delivery of such tissue to the Company, the screening, disinfection, dissection
4
and cryopreservation of the tissue by the Company, the storage and shipment of
the cryopreserved tissue and the controlled thawing of the tissue. Thereafter,
the tissue is surgically implanted into a human recipient.
The transplant of human tissue that has not been preserved must be accomplished
within extremely short time limits (not to exceed eight hours for transplants of
the human heart). Prior to the advent of human tissue cryopreservation, these
time constraints resulted in the inability to use much of the tissue donated for
transplantation. The application of the Company's cryopreservation technologies
to donated tissue expands the amount of human tissue available to physicians for
transplantation. Cryopreservation also expands the treatment options available
to physicians and their patients by offering alternatives to implantable
mechanical, synthetic and animal-derived devices. The tissues presently
cryopreserved by the Company include human heart valves and conduits, vascular
tissue and connective tissue for the knee.
CryoLife maintains and collects extensive clinical data on the use and
effectiveness of implanted human tissues that it has cryopreserved, and shares
this data with implanting physicians and its procurement partners. The Company
also uses this data to help direct its continuing efforts to improve its
cryopreservation services through ongoing research and development. Its research
staff and technical representatives assist physicians by providing educational
materials, seminars and clinics on methods for handling and implanting the
tissue cryopreserved by the Company and the clinical advantages, indications and
applications for those tissues. The Company has ongoing efforts to train and
educate physicians on the indications for and uses of the human tissues
cryopreserved by the Company, as well as its programs whereby surgeons train
other surgeons in best demonstrated techniques. The Company also assists organ
procurement agencies and tissue banks through training and development of
protocols and provides necessary materials to improve their tissue processing
techniques and to increase efficiency and the yield of usable tissue.
Human Heart Valves and Conduits. The human heart valves and conduits
cryopreserved by the Company are used in reconstructive heart valve replacement
surgery. CryoLife shipped approximately 46,500 cryopreserved human heart valves
and conduits from 1984 through 2000. Based on CryoLife's records of documented
implants, management believes that the Company's success in the allograft heart
valve market is due in part to physicians' recognition of the longevity and
natural functionality of the Company's cryopreserved human tissues as compared
to mechanical and porcine heart valve alternatives in certain applications. The
Company currently applies its cryopreservation services to human aortic,
pulmonary and mitral heart valves for implantation by cardiac surgeons. In
addition, the Company provides cryopreserved conduit tissue to surgeons who wish
to perform certain specialized cardiac repair procedures. Each of these human
heart valves and conduits maintains a viable tissue structure which more closely
resembles and performs like the patient's own tissue than non-human tissue
alternatives. In February 2000 the Company began processing and distributing in
the U.S. decellularized human heart valves and conduits utilizing the first of
its SynerGraft technology applications, which involves developing depopulated
heart valves with antigen reduction properties and the potential for recipient
cell repopulation.
In February of 2000 CryoLife began processing some human allograft heart valves
using its SynerGraft technology. The SynerGraft technology effectively removes
cells from the heart valve leaving the collagen matrix intact. The CryoValve(R)
SG valve is especially designed to benefit patients, both children and adults,
who have had a minor immune response to transplanted tissues. Early clinical
data indicates that the new SynerGraft processing method mitigates the increase
of PRA (panel reactive antibodies) experienced by some of the patients who
receive allograft heart valves. The absence of an immunologic response to the
decellularized allograft has the potential of improved long-term function of the
allograft heart valves. Advanced animal studies of both allograft and porcine
heart valves that have been treated with the SynerGraft process show that these
valves have the potential to repopulate themselves in vivo with the patient's
own cells.
The Company estimates that the total heart valve and conduit replacement market
in the U.S. in 2000 was approximately $400 million. Management believes that
approximately 88,000 heart valve and conduit surgeries were conducted in the
U.S. in 2000. Of the total number of heart valve and conduit surgeries,
approximately 43,000, or 49%, involved mechanical heart valves, and
approximately 45,000, or 51%, involved tissue heart valves or conduits,
5
including porcine and cryopreserved human tissues. Approximately 5,400 human
heart valves and conduits cryopreserved by the Company were shipped for
implantation in 2000.
Management believes cryopreserved human heart valves and conduits have
characteristics that make them the preferred replacement for most patients.
Specifically, human heart valves, such as those cryopreserved by the Company,
allow for more normal blood flow and provide higher cardiac output than porcine
and mechanical heart valves. Human heart valves are not as susceptible to
progressive calcification, or hardening, as are porcine heart valves, and do not
require anti-coagulation drug therapy, as do mechanical valves. The synthetic
sewing rings contained in mechanical and stented porcine valves may harbor
bacteria leading to endocarditis. Furthermore, endocarditis is difficult to
treat with antibiotics, and this usually necessitates the surgical removal of
these valves at considerable cost, morbidity and risk of mortality.
Consequently, for many physicians, human heart valves are the preferred
alternative to mechanical and stented porcine valves for patients who have, or
are at risk to contract, endocarditis.
The following table sets forth the characteristics of alternative heart valve
implants that management believes make cryopreserved human heart valves the
preferred replacement for most patients:
Porcine
-----------------------------------
Cryopreserved Bovine
Human Stented Stentless(1) Mechanical Pericardium
----------------- ------------------ ------------------- --------------- ----------------
Materials: human glutaraldehyde glutaraldehyde pyrolitic carbon glutaraldehyde
tissue fixed pig tissue fixed pig tissue bi-leaflet and fixed cow tissue
and synthetic and synthetic and synthetic
sewing ring sewing ring sewing ring
Blood Flow Dynamics normal moderate nearly normal high elevation high elevation
(Required Pressure): (2) (0-5) elevation (5-15) (10-25) (10-30)
Mode of Failure: gradual gradual expected to be catastrophic gradual
gradual
Longevity: 15-20 10-15 years expected to 15-20 years 10-15 years
years exceed stented
porcine valves
Increased Risk of Bleeding no occasional occasional yes occasional
or Thromboembolic Events
(strokes or other
clotting):
Anti-Coagulation Drug none short-term short-term chronic short-term
Therapy Required:
Responsiveness to high low low low low
Antibiotic
Treatment of
Endocarditis:
Average Valve Cost in $6,900 $4,500 $5,500 $4,100(3) $4,500
U.S.:
(1) Limited long-term clinical data is available since stentless porcine heart
valves only recently became commercially available.
(2) Pressure measured in mm/Hg.
(3) Mechanical valves also require chronic anti-coagulation drug therapy at a
cost of approximately $450 per year.
While the clinical benefits of cryopreserved human heart valves discussed above
are relevant to all patients, they are particularly important for (i) pediatric
patients (newborn to 17 years) who are prone to calcification of porcine tissue,
(ii) young or otherwise active patients who face an increased risk of severe
blood loss or even death due to side effects associated with the
anti-coagulation drug therapy required with mechanical valves and (iii) women in
their childbearing years for whom anti-coagulation drug therapy is
contraindicated.
Human Vascular Tissues. The Company cryopreserves human saphenous and
superficial femoral veins and arteries for use in vascular surgeries that
require small diameter conduits (3mm to 6mm), such as coronary bypass surgery
and peripheral vascular reconstructions. Failure to bypass or revascularize an
obstruction in such cases may result in death or the loss of a limb. The Company
6
believes it offers the only available small diameter conduit product for
below-the-knee vascular reconstruction. The Company also cryopreserves
aortoiliac arteries for the reconstruction of infected abdominal synthetic
grafts. The Company shipped approximately 22,800 human vascular tissues from
1986 through 2000, which includes 5,200 shipments in 2000.
A surgeon's first choice for replacing diseased or damaged vascular tissue is
generally the patient's tissue. However, in cases of advanced vascular disease,
the patient's tissue is often unusable and the surgeon may consider using
synthetic grafts or transplanted human vascular tissue. Small diameter synthetic
vascular grafts are generally not suitable for below-the-knee surgeries because
they have a tendency to occlude because the synthetic materials in these
products attract cellular material from the blood stream which in turn closes
off the vessel to normal blood flow. Cryopreserved vascular tissues tend to
remain open longer and as such are used in indications where synthetics fail.
The Company's cryopreserved human vascular tissues are used for coronary artery
bypass surgeries, peripheral vascular reconstruction, dialysis access graft
replacement, venous valve transplantation and infected abdominal graft
replacement.
In 1986, the Company began a program to cryopreserve saphenous veins for use in
coronary artery bypass surgeries. Although the Company's cryopreserved human
tissue was used in only a small percentage of the nearly 500,000 coronary artery
bypass procedures estimated to have been performed in 2000, the Company believes
it is the only commercially available alternative to the patient's tissue. The
Company estimates that, in 1998, approximately 20,000 coronary artery bypass
surgeries using the patient's vascular tissue were performed in which human
vascular tissues cryopreserved by the Company could have been used.
In 1989, the Company began a program to cryopreserve long segment saphenous
veins for use in peripheral vascular reconstruction. In cases of peripheral
arteriosclerosis, a cryopreserved saphenous vein can be implanted as a bypass
graft for the diseased artery in order to improve blood flow and maintain a
functional limb. Analysis of the Company's data on file of approximately 425
implants has shown that approximately 80% of patients receiving CryoLife's
preserved vascular tissues in this type of surgical procedure still have the use
of the affected leg four years after surgery. The only alternative for many of
these patients was amputation. The Company estimates that, in 2000,
approximately 130,000 peripheral vascular reconstruction surgeries were
performed in which its cryopreserved human vascular tissues could have been
used.
In 1996, the Company began a program for the cryopreservation of human
superficial femoral veins for use in dialysis access graft replacement as an
alternative for synthetic grafts which have a higher risk of infection than
human tissue. The Company estimates that, in 2000, approximately 30,000 dialysis
access graft replacements were performed in which its cryopreserved human
vascular tissues could have been used.
Human Connective Tissue for the Knee. The Company provides cryopreservation
services for surgical replacements for the meniscus and the anterior and
posterior cruciate ligaments, which are critical to the proper operation of the
human knee, as well as osteochondral grafts used for the repair of cartilage
defects in the knee. CryoLife has shipped approximately 16,600 human connective
tissues for the knee through 2000, which includes 5,300 shipments in 2000.
Human menisci cryopreserved by the Company provide orthopaedic surgeons with an
alternative treatment in cases where a patient's meniscus has been completely
removed. When a patient has a damaged meniscus, the current surgical
alternatives are to repair, partially remove or completely remove the patient's
meniscus, with partial removal being the most common procedure. Meniscal removal
increases the risk of premature knee degeneration and arthritis and typically
results in the need for knee replacement surgery at some point during the
patient's life. Management believes that the Company is the only provider of
cryopreserved meniscal tissue and that there are no synthetic menisci on the
market. The Company estimates that in 2000 in the U.S. approximately 700,000
patients underwent partial or total meniscectomies. The Company believes up to
30% of these patients could become candidates for meniscal replacement within
five years.
Tendons cryopreserved by the Company are used for the reconstruction of anterior
cruciate ligaments in cases where the patient's ligaments are irreparably
damaged. Surgeons have traditionally removed a portion of the patient's patellar
tendon from the patient's undamaged knee for use in repairing a damaged anterior
cruciate ligament. Tendons cryopreserved by the Company provide an alternative
7
to this procedure. Because surgeries using cryopreserved tissue do not involve
the removal of any of the patient's own patellar tendon, the patient recovery
period is typically shorter. The Company estimates that in 2000 approximately
175,000 cruciate ligament reconstruction surgeries were performed.
Other Allograft Tissue Research and Development. The Company is engaged in
research and development on other projects for the use of cryopreserved human
endothelial cells, peripheral nerves and other connective tissues, in various
surgical applications.
Implantable Biomaterials for Use as Surgical Adhesives and Sealants
The effective closure of internal wounds following surgical procedures is
critical to the restoration of the function of tissue and to the ultimate
success of the surgical procedure. Failure to effectively seal surgical wounds
can result in leakage of air in lung surgeries, cerebral spinal fluids in
neurosurgeries, blood in cardiovascular surgeries and gastrointestinal contents
in abdominal surgeries. Air and fluid leaks resulting from surgical procedures
can lead to significant post-operative morbidity resulting in prolonged
hospitalization, higher levels of post-operative pain and a higher mortality
rate.
Sutures and staples facilitate healing by joining wound edges and allowing the
body to heal naturally. However, because sutures and staples do not have
inherent sealing capabilities, they cannot consistently eliminate air and fluid
leakage at the wound site. This is particularly the case when sutures and
staples are used to close tissues containing air or fluids under pressure, such
as the lobes of the lung, the dural membrane surrounding the brain and spinal
cord, blood vessels and the gastrointestinal tract. In addition, in minimally
invasive surgical procedures, where the physician must operate through small
access devices, it can be difficult and time consuming for the physician to
apply sutures and staples. The Company believes that the use of surgical
adhesives and sealants with or without sutures and staples could enhance the
efficacy of these procedures through more effective and rapid wound closure.
In order to address the inherent limitations of sutures and staples, the Company
has developed and begun commercializing its BioGlue surgical adhesive. The
BioGlue surgical adhesive is a polymeric surgical bioadhesive based on a
derivative of an animal blood protein and a cross-linking agent. BioGlue
surgical adhesive has a tensile strength that is four to five times that of
fibrin sealants. Clinical applications for BioGlue surgical adhesive include
cardiovascular, vascular and pulmonary repair. Other potential applications for
BioGlue surgical adhesive include neurosurgery, orthopaedic indications, general
surgery and as a replacement for spinal discs. A derivative of the BioGlue
technology is BioLastic(TM), an implantable biomaterial under development which
is capable of exchanging oxygen and carbon dioxide. BioLastic is being developed
for use in reinforcing or patching vascular tissue, repairing air leaks in
lungs, and replacing or sealing holes in dura mater.
The Company estimates that the worldwide market for surgical sutures and staples
in 2000 was in excess of $2 billion. The Company began shipping BioGlue surgical
adhesive for distribution in the EC in the second quarter of 1998 for use in
vascular applications and in the first quarter of 1999 for use in pulmonary
applications. In December 1999 the Company began shipping BioGlue surgical
adhesive in the U.S. pursuant to an HDE for use as an adjunct in repair of acute
thoracic aortic dissections.
Bioprosthetic Cardiovascular Devices
The Company is developing bioprosthetic cardiovascular devices based on its
experience with cryopreserved human tissue implants. Like human heart valves,
the Company's porcine heart valves are stentless with the valve opening, or
annulus, retaining a more natural flexibility. Stented porcine and mechanical
heart valves are typically fitted with synthetic sewing rings which are rigid
and can impede normal blood flow. Unlike most other available porcine heart
valves, the Company's stentless porcine heart valves do not contain synthetic
materials which increase the risk of endocarditis, a debilitating and
potentially deadly infection.
Glutaraldehyde fixed porcine heart valves are often preferred by surgeons for
procedures involving elderly patients because they eliminate the risk of patient
non-compliance with anti-coagulation drug therapy associated with mechanical
valves, they are less expensive than allograft valves and their shorter
8
longevity is more appropriately matched with these patients' life expectancies.
Glutaraldehyde fixed porcine and bovine heart valves address a worldwide target
market estimated to have been $325 million in 2000.
The Company's SynerGraft technology involves the removal of cells from the
structure of non-viable animal tissue, leaving a collagen matrix that has the
potential to repopulate in vivo with the recipient's own cells. This process is
designed to reduce calcification of porcine heart valves, thereby increasing
their longevity, and more generally to improve the biocompatibility and
functionality of such tissue. The Company believes that its porcine heart
valves, when treated with SynerGraft technology, will expand its opportunity to
address the broader international and U.S. heart valve markets, estimated to
have been $390 million and $400 million, respectively, in 2000. Potential future
SynerGraft technology applications involve developing stentless porcine heart
valves repopulated in vitro with viable human cells prior to implantation.
The following table sets forth the bioprosthetic cardiovascular devices
currently marketed by the Company, along with the product features and market
status for each.
Fixed Stentless Porcine Valves Features Regulatory/Market Status
------------------------------ ------------------------------------------ --------------------------------------
SynerGraft depopulated aortic pulmonary valve
currently marketed in Europe with of
composite leaflet design; no regulatory
approval under CE Mark synthetic material;
normal hemodynamics
CryoLife-O'Brien aortic valve of matched composite currently marketed in Europe with
leaflet design; single suture line regulatory approval under CE Mark;
implantation technique; no currently marketed in Canada with
synthetic material; normal regulatory approval under Therapeutic
hemodynamics Products Programme
CryoLife-Ross pulmonary valve with attached currently marketed in Europe with
conduit; no synthetic material; regulatory approval under CE Mark
normal hemodynamics
The SynerGraft heart valve is a depopulated stentless porcine heart valve with
antigen reduction properties. CryoLife obtained a CE Mark for the SynerGraft
heart valve in November 2000. This technology removes cells from animal tissues,
thereby reducing the transplant recipient's immune response to the implanted
tissue. Typically calcium is deposited through an immune response, which reduces
the useful life of the implant. By removing animal cells from the tissue while
maintaining the underlying structural strength of the porcine heart valve, this
SynerGraft application is designed to provide a platform for a patient's own
cells to potentially repopulate the implant.
The CryoLife-O'Brien aortic valve is a stentless porcine valve with design
features which management believes provide significant advantages over other
stentless porcine heart valves. CryoLife began exclusive worldwide distribution
of this valve in 1992 and acquired all rights to the underlying technology in
1995. The Company's CryoLife-O'Brien aortic heart valve, currently marketed in
the EC and certain other territories outside the U.S., contains a matched
composite leaflet design that approximates human heart valve blood flow
characteristics and requires only a single suture line thereby simplifying
surgical implantation. Most other stentless porcine valves require a more
complicated implant procedure.
The CryoLife-Ross pulmonary valve, the patent for which the Company acquired in
October 1996, is an advanced design stentless porcine heart valve within an
attached conduit of porcine tissue, which mimics the structure of a human heart
valve. The Company began manufacturing and distributing the CryoLife-Ross
pulmonary heart valve, in the EC in September 1998.
9
Single-Use Medical Devices
On October 9, 2000 the Company sold substantially all of the remaining assets of
Ideas for Medicine, Inc. ("IFM") to Horizon Medical Products, Inc. See Item 7:
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a more detailed discussion.
Sales, Distribution and Marketing
Cryopreservation Services
CryoLife markets its cryopreservation services to tissue procurement agencies,
implanting physicians and prospective tissue recipients. The Company works with
tissue banks and organ procurement agencies to ensure consistent and continued
availability of donated human tissue for transplant and educates physicians and
prospective tissue recipients with respect to the benefits of cryopreserved
human tissues.
Procurement of Tissue. Donated human tissue is procured from deceased human
donors by organ procurement agencies and tissue banks. After procurement, the
tissue is packed and shipped, together with certain information about the tissue
and its donor, to the Company in accordance with the Company's protocols. The
tissue is transported to the Company's laboratory facilities via commercial
airlines pursuant to arrangements with qualified courier services. Timely
receipt of procured tissue is important, as tissue that is not received promptly
cannot be cryopreserved successfully. The procurement agency is reimbursed by
the Company, for the costs associated with these procurement services. The
procurement fee and related shipping costs, together with the charges for the
cryopreservation services of the Company, are ultimately paid to the Company by
the hospital with which the implanting physician is associated. The Company has
developed relationships with over 100 tissue banks and organ procurement
agencies throughout the U.S. Management believes the establishment of these
relationships is critical for a growing business in the cryopreservation
services industry and that the breadth of these existing relationships provides
the Company a significant advantage over potential new entrants to this market.
The Company employs approximately 14 individuals to work with organ procurement
agencies and tissue banks, six of whom are employed as procurement relations
managers and are stationed throughout the country. The Company's central office
for procurement relations is staffed 24 hours per day, 365 days per year.
Preservation of Tissue. Upon receiving tissue, a Company technician completes
the documentation control for the tissue prepared by the procurement agency and
gives it a control number. The documentation identifies, among other things,
donor age and cause of death. A trained technician then removes the portion or
portions of the delivered tissue that will be cryopreserved. These procedures
are conducted under aseptic conditions in clean rooms. At the same time,
additional samples are taken from the donated tissue and subjected to the
Company's comprehensive quality assurance program. This program may identify
characteristics which would disqualify the tissue for cryopreservation.
Human heart valves and conduits, vascular tissue and connective tissue for the
knee are cryopreserved in a proprietary freezing process conducted according to
strict Company protocols. After the cryopreservation process, the specimens are
transferred to liquid nitrogen freezers for long-term storage at temperatures
below -135(Degree)C. The entire cryopreservation process is rigidly controlled
by guidelines established by the Company.
Distribution of Tissue to Implanting Physicians. After cryopreservation, tissue
is stored by the Company or is delivered directly to hospitals at the implanting
physician's request. Cryopreserved tissue must be transported under stringent
handling conditions and maintained within specific temperature tolerances at all
times. Cryopreserved tissue is packaged for shipment using the Company's
proprietary processes. At the hospital, the tissue is held in a liquid nitrogen
freezer according to Company protocols pending implantation. The Company
provides a detailed protocol for thawing the cryopreserved tissue. The Company
also makes its technical personnel available by phone or in person to answer
questions. After the Company transports the tissue to the hospital, the Company
invoices the institution for its services, the procurement fee and
transportation costs.
10
The Company provides Company-owned liquid nitrogen freezers to client hospitals
without charge. The Company has currently installed more than 300 of these
freezers. Participating hospitals pay the cost of liquid nitrogen and regular
maintenance. The availability of on-site freezers makes it easier for a
hospital's physicians to utilize the Company's cryopreservation services by
making the cryopreserved tissue more readily available. Because fees for the
Company's cryopreservation services become due upon the delivery of tissue to
the hospital, the use of such on-site freezers also reduces the Company's
working capital needs.
Marketing, Educational and Technical Support. The Company maintains active
relationships with approximately 2,000 cardiovascular, vascular and orthopaedic
surgeons who have active practices implanting cryopreserved human tissues and
markets to a broader group of physicians within these medical specialties.
Because the Company markets its cryopreservation services directly to
physicians, an important aspect of increasing the distribution of the Company's
cryopreservation services is educating physicians on the use of cryopreserved
human tissue and on proper implantation techniques. Trained field support
personnel provide support to implanting institutions and surgeons. The Company
currently has over 150 independent technical service representatives and
sub-representatives (who deal primarily with orthopaedic surgeons and who are
paid on a commission basis) as well as 45 persons employed as technical service
representatives (who deal primarily with cardiovascular and vascular surgeons
and receive a base salary with a performance bonus) all of whom provide field
support.
The Company sponsors physician training seminars where leading physicians teach
other physicians the proper technique for handling and implanting cryopreserved
human tissue. Physicians pay their own expenses to attend these seminars in
addition to paying the Company a fee for attendance. The Company also produces
educational videotapes for physicians. The Company coordinates live surgery
demonstrations at various medical schools. The Company also coordinates
laboratory sessions that utilize animal tissue to demonstrate the surgical
techniques. Members of the Company's Medical Advisory Board often lead the
surgery demonstrations and laboratory sessions. Management believes that these
activities improve the medical community's acceptance of the cryopreserved human
tissue processed by the Company.
To assist procurement agencies and tissue banks, the Company provides
educational materials and training on procurement, dissection, packaging and
shipping techniques. The Company also produces educational videotapes and
coordinates laboratory sessions on procurement techniques for procurement agency
personnel. To supplement its educational activities, the Company employs
in-house technical specialists that provide technical information and assistance
and maintains a staff 24 hours per day, 365 days per year for customer support.
European Distribution
In September 1999 the Company established its European subsidiary, CryoLife
Europa Ltd ("Europa"), to provide distribution and technical services to the
Company's network of European representatives, institutional customers and
surgeons. In February 2000 Europa officially opened its headquarters located
near London, England.
BioGlue Surgical Adhesive
The Company markets and distributes its BioGlue surgical adhesive in the U.S.
through its existing direct technical representatives. The Company markets and
distributes its BioGlue surgical adhesive in international markets, excluding
Japan, through Europa and other existing independent representatives. The
Company's European, Middle East and African sales, marketing and distribution
activities directed through Europa are channeled through 26 independent
distributors located in the United Kingdom, Germany, France, Norway, Sweden,
Denmark, Finland, Latvia, Benelux, Switzerland, Austria, Poland, Czech Republic,
Hungary, Solvenia, Spain, Portugal, Italy, Greece, Turkey, Lebanon, Israel,
Jordan, Syria, Kuwait, UAE and South Africa. Marketing efforts are directed
almost exclusively toward cardiovascular, vascular and thoracic surgeons, and
the Company conducts training sessions for doctors with respect to the
application and administration of BioGlue surgical adhesive.
During 1998, the Company signed a five-year exclusive agreement with Century
Medical, Inc. for the introduction and distribution of BioGlue in Japan. Under
the terms of the agreement, Century Medical will be responsible for applications
and clearances with the Japanese Ministry of Health and Welfare.
11
Bioprosthetic Cardiovascular Devices
The Company markets the CryoLife-O'Brien and CryoLife-Ross stentless porcine
heart valves in Europe, the Middle East and Africa. The CryoLife-O'Brien valve
is marketed in Canada. The Company commenced marketing the SynerGraft heart
valve in Europe during the fourth quarter of 2000. Marketing efforts are
primarily directed toward cardiac, cardio-thoracic and vascular surgeons and the
Company conducts educational seminars and conferences to train these surgeons
and educate them with respect to the uses and benefits of its porcine stentless
heart valves.
Research and Development
The Company uses its expertise in immunology, biochemistry and cell biology, and
its understanding of the needs of the cardiovascular, vascular and orthopaedic
surgery medical specialties, to continue to expand its core cryopreservation
business in the U.S. and to develop or acquire implantable products and
technologies for these fields. The Company seeks to identify market areas that
can benefit from preserved living tissues and other related technologies, to
develop innovative techniques and products within these areas, to secure their
commercial protection, to establish their efficacy and then to market these
techniques and products. The Company employs approximately 22 people in its
research and development department, including seven PhDs with specialties in
the fields of immunology, molecular biology, protein chemistry, organic
chemistry and vascular biology.
In order to expand the Company's service and product offerings, the Company is
currently in the process of developing or investigating several technologies and
products, including additional applications of the SynerGraft technology and
additional applications of BioGlue surgical adhesive, as well as its ACT
technology. The Company is currently investigating certain drug delivery
applications for BioGlue surgical adhesive and its ACT technology, such as
administering antibiotics, attaching chemotherapy drugs to tumors, delivering
growth agents or delivering bone material for orthopaedic bone repair. To the
extent the Company identifies additional applications for these products, the
Company may attempt to license these products to corporate partners for further
development of such applications or seek funding from outside sources to
continue the commercial development of such technologies. The Company's research
and development strategy is to allocate available resources among the Company's
core market areas of cryopreservation services, bioprosthetic cardiovascular
devices and implantable biomaterials, based on the size of the potential market
for any specific product candidate and the estimated development time and cost
required to bring the product to market.
Research on these and other projects is conducted in the Company's research and
development laboratory or at universities or clinics where the Company sponsors
research projects. In 1998, 1999 and 2000, the Company spent approximately $4.7
million, $4.4 million and $5.2 million, respectively, on research and
development activities on new and existing products. These amounts represented
approximately 8%, 7% and 7% of the Company's revenues for those respective
years. The Company's research and development program is overseen by its medical
and scientific advisory boards. The Company's pre-clinical studies are conducted
at universities and other locations outside the Company's facilities by third
parties under contract with the Company. In addition to these efforts, the
Company may, as situations develop, pursue other research and development
activities.
Manufacturing and Operations
The Company's facilities are located in suburban Atlanta, Georgia, and consist
of three separate locations totaling approximately 130,000 square feet of leased
office, laboratory and warehouse space. Approximately 17,500 square feet are
dedicated to laboratory work areas. The primary facility, which does not include
the biomedical products laboratory and the bioprosthetic manufacturing
operation, has four main laboratory facilities: human tissue processing, BioGlue
manufacturing, research and development and microbiology. Each of these areas
consists of a general technician work area and adjoining "clean rooms" for work
with human tissue or BioGlue manufacturing, and for aseptic processing. The
clean rooms are supplied with highly filtered air which provides a near-sterile
environment. In February 2000 the Company began construction of a 100,000 square
foot expansion of its corporate headquarters and manufacturing facilities, which
is expected to be fully completed and occupied in the fourth quarter of 2001.
12
Human Tissue Processing
The human tissue processing laboratory is responsible for the processing and
cryopreservation of human tissue for transplant, including the processing of
SynerGraft treated human heart valves and conduits and certain vascular tissues.
This includes all processing of heart valves and conduits, vascular tissue and
connective tissue for the knee supplied by CryoLife. This laboratory contains
approximately 7,700 square feet with a suite of seven clean rooms. Currently
there are 58 technicians employed in this area, and the laboratory is staffed
for two shifts, 365 days per year. In 2000 the laboratory processed
approximately 17,200 human tissues for distribution and transplant. The current
staffing level is estimated to be at about half of total capacity. Increasing
this capacity could be accomplished by increasing employees and expanding to
three shifts.
Implantable Biomaterials for Use as Surgical Adhesives and Sealants
BioGlue surgical adhesive is presently manufactured at the Company's
headquarters facility, which has an annual capacity of approximately 300,000
units. This laboratory contains approximately 14,500 square feet, including a
suite of four cleanrooms. Currently, there are six technicians employed in this
area. The Company conducts research on its ACT technology in the biomedical
products laboratory, which is located in Marietta, Georgia, and employs two
technicians. This laboratory contains approximately 11,000 square feet,
including 4,000 square feet of laboratory space and a suite of eight clean
rooms.
Bioprosthetic Cardiovascular Devices
The bioprosthesis laboratory is responsible for the manufacturing of the
CryoLife-O'Brien and CryoLife-Ross stentless porcine heart valves, as well as
for the manufacturing of SynerGraft porcine valves. This laboratory is located
in Marietta, Georgia and contains approximately 20,500 square feet, with about
2,100 square feet of laboratory space and a suite of six clean rooms for tissue
processing. Currently, this laboratory employs 36 technicians and is scheduled
to manufacture approximately 1,600 CryoLife-O'Brien, CryoLife-Ross and
SynerGraft valves in 2001.
Quality Assurance
The Company's operations encompass the provision of cryopreservation services
and the manufacturing of bioprosthetics and bioadhesives. In all of its
facilities, the Company is subject to regulatory standards for good
manufacturing practices, including current Quality System Regulations, which are
FDA regulatory requirements for medical device manufacturers. The FDA
periodically inspects Company facilities to ensure Company compliance with these
regulations. The Company also operates according to ISO 9001 Quality System
Requirements, an internationally recognized voluntary system of quality
management for companies that design, develop, manufacture, distribute and
service products. The Company maintains a Certification of Approval to the ISO
9001, as well as EN46001 and ANSI/ISO/ASQC/Q9001, the European and U.S. versions
of the international standard, respectively. This approval is issued by Lloyd's
Register Quality Assurance Limited ("LRQA"). LRQA is a Notified Body officially
recognized by the EC to perform assessments of compliance with ISO 9001 and its
derivative standards. LRQA performs semi-annual on-site inspections of the
Company's quality systems.
The Company's quality assurance staff is comprised primarily of experienced
professionals from the medical device and pharmaceutical manufacturing
industries. The quality assurance department, in conjunction with the Company's
research and development and select university research staffs, routinely
evaluates the Company's processes and procedures.
13
Cryopreservation Services
The Company employs a comprehensive quality assurance program in all of its
tissue processing activities. The Company is subject to Quality System
Regulations, additional FDA regulations and ISO 9001. The Company's quality
assurance program begins with the development and implementation of training
courses for the employees of procurement agencies. To assure uniformity of
procurement practices among the tissue recovery teams, the Company provides
procurement protocols, transport packages and tissue transport liquids to the
donor sites.
Upon receipt by the Company, each tissue is assigned a unique control number
that provides traceability of tissue from procurement through the processing and
preservation processes, and ultimately to the tissue recipient. Blood samples
from each tissue donor are subjected to a variety of tests to screen for
infectious diseases. Samples of certain tissues are also sent to independent
laboratories for pathology testing. Following dissection of the tissue to be
cryopreserved, a separate disinfection procedure is begun during which the
dissected tissue is treated with proprietary antibiotic solutions. A trained
technician then removes samples from the disinfected tissue upon which serial
cultures are performed to identify bacterial or fungal growth.
The materials and solutions used by the Company in processing tissue are
pre-screened to determine if they are of desired quality as defined by Company
protocols. Only materials and solutions that meet the Company's requirements are
approved by quality assurance personnel for use in processing. Throughout tissue
processing, detailed records are maintained and reviewed by quality assurance
personnel.
The Company's tissue processing facilities are annually licensed by the States
of Georgia, New York, Florida and California as facilities that process, store
and distribute human tissue for implantation. The regulatory bodies of these
states perform appropriate inspections of the facilities to ensure compliance
with state law and regulations. In addition, the Company's human heart valve
processing operations are additionally regulated by the FDA and periodically
inspected for compliance to Quality System Regulations. Other human tissue
processed by the Company is periodically inspected for compliance with the Code
of Federal Regulation ("CFR") Part 1270. CFR 1270 is an FDA regulation which
sets forth the requirements with which the Company must comply in determining
the suitability of human tissue for implantation.
Bioprosthetic and Bioadhesive Manufacturing
The Company employs a comprehensive quality assurance program in all of its
manufacturing activities. The Company is subject to Quality System Regulations,
additional FDA regulations and ISO 9001.
All materials and components utilized in the production of the Company's
products are received and thoroughly inspected by trained quality control
personnel, according to written specifications and standard operating
procedures. Only materials and components found to comply with Company
procedures are accepted by quality control and utilized in production.
All materials, components and resulting sub-assemblies are traced throughout the
manufacturing process to assure that appropriate corrective actions can be
implemented if necessary. Each process is documented along with all inspection
results, including final finished product inspection and acceptance. Records are
maintained as to the consignee of product to facilitate product removals or
corrections, if necessary. All processes in manufacturing are validated by
quality engineers to assure that they are capable of consistently producing
product meeting specifications. The Company maintains a rigorous quality
assurance program of measuring devices used for manufacturing and inspection to
ensure appropriate accuracy and precision.
Each manufacturing facility is subject to periodic inspection by the FDA and
LRQA to independently assure the Company's compliance with its systems and
regulatory requirements.
14
Patents, Licenses and Other Proprietary Rights
The Company relies on a combination of patents, trade secrets, trademarks and
confidentiality agreements to protect its proprietary products, processing
technology and know-how. The Company believes that its patents, trade secrets,
trademarks and technology licensing rights provide it with important competitive
advantages. The Company owns or has licensed rights to 35 U.S. patents and 33
foreign patents, including patents relating to its technology for human heart
valve and conduit, vascular tissue and connective tissue for the knee
preservation; tissue revitalization prior to freezing; tissue transport; BioGlue
surgical adhesive; ACT; organ storage solution; and packaging. The Company has
20 pending U.S. patent applications and in excess of 78 pending foreign
applications that relate to areas including heart valve and tissue processing
technology and delivery of bioadhesives for anastomosis and other uses. In
connection with the sale of the IFM product line to Horizon in 1998, the Company
sold all patents related to such product line. There can be no assurance that
any patents pending will result in issued patents. The Company also has
exclusive licensing rights for technology relating to light-sensitive enzyme
inhibitors. The remaining duration of the Company's issued patents ranges from 3
to 17 years. The Company has licensed from third parties certain technologies
used in the development of its ACT technology and SynerGraft technology. These
licenses call for the payment of both development milestones and royalties based
on product sales, when and if such products are approved for marketing. The loss
of these licenses could adversely affect the Company's ability to successfully
develop its ACT and SynerGraft technologies.
There can be no assurance that the claims allowed in any of the Company's
existing or future patents will provide competitive advantages for the Company's
products, processes and technologies or will not be successfully challenged or
circumvented by competitors. To the extent that any of the Company's products
are not patent protected, the Company's business, financial condition and
results of operations could be materially adversely affected. Under current law,
patent applications in the U.S. are maintained in secrecy until patents are
issued and patent applications in foreign countries are maintained in secrecy
for a period after filing. The right to a patent in the U.S. is attributable to
the first to invent, not the first to file a patent application. The Company
cannot be sure that its products or technologies do not infringe patents that
may be granted in the future pursuant to pending patent applications or that its
products do not infringe any patents or proprietary rights of third parties. The
Company may incur substantial legal fees in defending against a patent
infringement claim or in asserting claims against third parties. In the event
that any relevant claims of third-party patents are upheld as valid and
enforceable, the Company could be prevented from selling certain of its products
or could be required to obtain licenses from the owners of such patents or be
required to redesign its products to avoid infringement. There can be no
assurance that such licenses would be available or, if available, would be on
terms acceptable to the Company or that the Company would be successful in any
attempt to redesign its products or processes to avoid infringement. The
Company's failure to obtain these licenses or to redesign its products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company has entered into confidentiality agreements with all of its
employees and several of its consultants and third-party vendors to maintain the
confidentiality of trade secrets and proprietary information. There can be no
assurance that the obligations of employees of the Company and third parties
with whom the Company has entered into confidentiality agreements will
effectively prevent disclosure of the Company's confidential information or
provide meaningful protection for the Company's confidential information if
there is unauthorized use or disclosure, or that the Company's trade secrets or
proprietary information will not be independently developed by the Company's
competitors. Litigation may be necessary to defend against claims of
infringement, to enforce patents and trademarks of the Company, or to protect
trade secrets and could result in substantial cost to, and diversion of effort
by, the Company. There can be no assurance that the Company would prevail in any
such litigation. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as do the laws of the U.S.
15
Competition
Cryopreserved Human Tissues and Bioprosthetic Cardiovascular Devices
The Company faces competition from at least one for profit company and a small
number of non-profit tissue banks that cryopreserve and distribute human tissue,
as well as from companies that market mechanical, porcine and bovine heart
valves for implantation. Many established companies, some with resources greater
than those of the Company, are engaged in manufacturing, marketing and selling
alternatives to cryopreserved human tissue. Management believes that it competes
favorably with other entities that cryopreserve human tissue on the basis of
technology, customer service and quality assurance.
As compared to mechanical, porcine and bovine heart valves, management believes
that the human heart valves cryopreserved by the Company compete on the factors
set forth above, as well as by providing a tissue that is the preferred
replacement alternative with respect to certain medical conditions, such as
pediatric cardiac reconstruction, valve replacements for women in their
child-bearing years and valve replacements for patients with endocarditis.
Although human tissue cryopreserved by the Company is initially higher priced
than are mechanical alternatives, these alternatives typically require that the
patient take anti-coagulation drug therapy for the lifetime of the implant. As a
result of the costs associated with anti-coagulants, mechanical valves are
generally, over the life of the implant, more expensive than tissue
cryopreserved by the Company. Notwithstanding the foregoing, management believes
that, to date, price has not been a significant competitive factor.
Generally, for each procedure that may utilize other human tissue that the
Company cryopreserves, there are alternative treatments. Often, as in the case
of veins and ligaments, these alternatives include the repair, partial removal
or complete removal of the damaged tissue and may utilize other tissues from the
patients themselves or synthetic products. The selection of treatment choices is
made by the attending physician in consultation with the patient. Any newly
developed treatments will also compete with the use of tissue cryopreserved by
the Company.
Human and Stentless Porcine Heart Valves. Alternatives to human heart valves
cryopreserved by the Company include mechanical valves, porcine valves and
valves constructed from bovine pericardium. St. Jude Medical, Inc. is the
leading supplier of mechanical heart valves, and has a marketing and
distribution arrangement with a non-profit tissue bank for supplies of
cryopreserved human heart valves. Edwards Life Sciences, Inc. is the leading
supplier of bovine heart valves. In addition, management believes that at least
three tissue banks offer cryopreservation services for human heart valves in
competition with the Company. The Company presently distributes its stentless
porcine heart valves only outside the U.S. These stentless porcine heart valves
compete with mechanical valves, human heart valves and processed bovine
pericardium. The Company is aware of at least three other companies that offer
stentless porcine heart valves.
Human Vascular Tissue. Synthetic alternatives to veins cryopreserved by the
Company are available primarily in medium and large diameters. Currently,
management believes that there are no other providers of cryopreserved human
vascular tissue in competition with the Company. Companies offering either
synthetic or allograft products may enter this market in the future.
Human Connective Tissue for the Knee. The Company's competition in the area of
connective tissue for the knee varies according to the tissue involved. When
transplant is indicated, the principal competition for human tissues
cryopreserved by the Company are freeze-dried and fresh frozen human connective
tissues. These alternative allografts are distributed by distributors of
Osteotech, Inc. and various tissue banks, among others. Ligaments and tendons
cryopreserved by the Company constitute the principal treatment options for
injuries which require anterior cruciate ligament repair.
Implantable Biomedical Devices for Use as Surgical Adhesives and Sealants
The Company competes with many domestic and foreign medical device,
pharmaceutical and biopharmaceutical companies. In the surgical adhesive and
surgical sealant area, the Company will compete with existing methodologies,
including traditional wound closure products such as sutures and staples,
marketed by companies such as Johnson & Johnson, United States Surgical
16
Corporation, Sherwood, Davis & Geck and others. Other products currently being
marketed include fibrin glue sold by Immuno AG, a subsidiary of Baxter
Healthcare Company, Chemo-Sero Therapeutic Research Institute, Hoechst AG and
others, and management believes other products are under development by Baxter
Healthcare Corporation, Bristol-Myers Squibb Company, V.I. Technologies, Inc.
and others. Other competitors in the surgical sealant market include Closure
Medical Corporation, B. Braun GmbH, Focal, Inc., Fusion Medical Technologies
Inc. and Cohesion, Inc. Competitive products may also be under development by
other large medical device, pharmaceutical and biopharmaceutical companies. Many
of the Company's current and potential competitors have substantially greater
financial, technological, research and development, regulatory and clinical,
manufacturing, marketing and sales and personnel resources than the Company.
These competitors may also have greater experience in developing products,
conducting clinical trials, obtaining regulatory approvals, and manufacturing
and marketing such products. Certain of these competitors may obtain patent
protection, approval or clearance by the FDA or foreign countries or product
commercialization earlier than the Company, any of which could materially
adversely affect the Company. Furthermore, if the Company commences significant
commercial sales of its products, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it currently
has limited experience.
Other recently developed technologies or procedures are, or may in the future
be, the basis of competitive products. There can be no assurance that the
Company's current competitors or other parties will not succeed in developing
alternative technologies and products that are more effective, easier to use or
more economical than those which have been or are being developed by the Company
or that would render the Company's technology and products obsolete and
non-competitive in these fields. In such event, the Company's business,
financial condition and results of operations could be materially adversely
affected. See "Risk Factors--Rapid Technological Change."
Government Regulation
U.S. Federal Regulation
Because human heart valves and BioGlue surgical bioadhesives are, and other
Company products may be, regulated in the future as, medical devices, the
Company and these products are subject to the provisions of the Federal Food,
Drug and Cosmetic Act ("FDCA") and implementing regulations. Pursuant to the
FDCA, the FDA regulates the manufacture, distribution, labeling and promotion of
medical devices in the U.S. In addition, various foreign countries in which the
Company's products are or may be distributed impose additional regulatory
requirements.
The FDCA provides that, unless exempted by regulation, medical devices may not
be distributed in the U.S. unless they have been approved or cleared for
marketing by the FDA. There are two review procedures by which medical devices
can receive such approval or clearance. Some products may qualify for clearance
to be marketed under a Section 510(k) ("510(k)") procedure, in which the
manufacturer provides a premarket notification that it intends to begin
marketing the product, and shows that the product is substantially equivalent to
another legally marketed product (i.e., that it has the same intended use and
that it is as safe and effective as a legally marketed device and does not raise
different questions of safety and effectiveness than does a legally marketed
device). In some cases, the submission must include data from clinical studies.
Marketing may commence when the FDA issues a clearance letter finding such
substantial equivalence.
If the product does not qualify for the 510(k) procedure (either because it is
not substantially equivalent to a legally marketed device or because it is a
Class III device required by the FDCA and implementing regulations to have an
approved application for PMA, the FDA must approve a PMA application before
marketing can begin. PMA applications must demonstrate, among other matters,
that the medical device is safe and effective. A PMA application is typically a
17
complex submission, usually including the results of human clinical studies, and
preparing an application is a detailed and time-consuming process. Once a PMA
application has been submitted, the FDA's review may be lengthy and may include
requests for additional data. By statute and regulation, the FDA may take 180
days to review a PMA application although such time may be extended.
Furthermore, there can be no assurance that a PMA application will be reviewed
within 180 days or that a PMA application will be approved by the FDA.
The FDCA also provides for an investigational device exemption ("IDE") which
authorizes distribution for clinical evaluation of devices that lack a PMA or
510(k). Devices subject to an IDE are subject to various restrictions imposed by
the FDA. The number of patients that may be treated with the device is limited,
as are the number of institutions at which the device may be used. Patients must
give informed consent to be treated with an investigational device. The device
must be labeled that it is for investigational use and may not be advertised, or
otherwise promoted, and the price charged for the device may be limited.
Unexpected adverse experiences must be reported to the FDA.
Under certain circumstances, the FDA may grant a Humanitarian Device Exemption.
HDE's are granted by the FDA in an attempt to encourage the development of
medical devices for use in the treatment of rare conditions that affect small
patient populations. An approval by the FDA exempts such devices from full
compliance with clinical study requirements for premarket approval.
The FDCA requires all medical device manufacturers and distributors to register
with the FDA annually and to provide the FDA with a list of those medical
devices which they distribute commercially. The FDCA also requires manufacturers
of medical devices to comply with labeling requirements and to manufacture
devices in accordance with Quality System Regulations, which require that
companies manufacture their products and maintain their documents in a
prescribed manner with respect to good manufacturing practices, design, document
production, process, labeling and packaging controls, process validation and
other quality control activities. The FDA's medical device reporting regulation
requires that a device manufacturer provide information to the FDA on death or
serious injuries alleged to have been associated with the use of its products,
as well as product malfunctions that would likely cause or contribute to death
or serious injury if the malfunction were to recur. The FDA's medical device
tracking regulation requires the adoption of a method of device tracking by
manufacturers of life-sustaining or implantable products, the failure of which
would be reasonably likely to have serious adverse health consequences. The
manufacturer must adopt methods to ensure that such devices can be traced from
the manufacturing facility to the ultimate user, the patient. The FDA further
requires that certain medical devices not cleared for marketing in the U.S.
follow certain procedures before they are exported.
The FDA inspects medical device manufacturers and distributors and has authority
to seize noncomplying medical devices, to enjoin and/or to impose civil
penalties on manufacturers and distributors marketing non-complying medical
devices, to criminally prosecute violators and to order recalls in certain
instances.
Human Heart Valves. The Company's human heart valves became subject to
regulation by the FDA in June 1991, when the FDA published a notice stating that
human heart valves were Class III medical devices under the FDCA. The June 1991
notice provided that distribution of human heart valves for transplantation
would violate the FDCA unless they were the subject of an approved PMA or IDE on
or before August 26, 1991.
On October 14, 1994, the FDA announced in the Federal Register that neither an
approved application for PMA nor an IDE is required for processors and
distributors who had marketed heart valve allografts before June 26, 1991. This
action by the FDA has resulted in the allograft heart valves being classified as
Class II Medical Devices and has removed them from clinical trial status. It
also allows the Company to distribute such valves to cardiovascular surgeons
throughout the U.S.
Other Tissue. Other than human and porcine heart valves, BioGlue and SynerGraft
devices, none of the Company's other tissue services or tissue-based products
are currently subject to regulation as medical devices under the FDCA or FDA
regulation. Heart valves are one of a small number of processed human tissues
over which the FDA has asserted medical device jurisdiction. In July 1997, the
FDA published a final rule, which became effective in January 1998, regulating
"human tissue." The rule clarifies and modifies an earlier interim rule and
defines human tissue as any tissue derived from a human body which is (i)
intended for administration to another human for the diagnosis, cure,
mitigation, treatment or prevention of any condition or disease and (ii)
recovered, processed, stored or distributed by methods not intended to change
tissue function or characteristics. The FDA definition excludes, among other
18
things, tissue that currently is regulated as a human drug, biological product
or medical device and excludes kidney, liver, heart, lung, pancreas or any other
vascularized human organ. In January 2001 the FDA published a final rule to
require establishments that process or produce human tissue and cellular-based
products to register with the agency and list the tissue and cellular products
they process or manufacture. Human tissue is regulated by the FDA in a manner
the agency has deemed necessary to protect the public health from the
transmission of HIV infection and hepatitis infection through transplantation of
tissue from donors with or at risk for these diseases. Unlike certain drugs,
biologicals and medical devices, human tissue is not subject to premarket
notification or approval by the FDA. It is likely, moreover, that the FDA will
expand its regulation of processed human tissue in the future. For example, in
November 2000 the FDA published a proposed rule for good tissue manufacturing
practices. Moreover, the FDA may determine that the veins and connective tissue
that are currently processed by the Company are medical devices, or the FDA may
determine to regulate human heart valves as "human tissue" rather than medical
devices, but the FDA has not done so at this time. Complying with FDA regulatory
requirements or obtaining required FDA approvals or clearances may entail
significant time delays and expenses or may not be possible, any of which may
have a material adverse effect on the Company. In addition, the U.S. Congress is
expected to consider legislation that would regulate human tissue for transplant
or the FDA could impose a separate regulatory scheme for human tissue. Such
legislation or regulation could have a material adverse effect on the Company.
Porcine Heart Valves. Porcine heart valves are Class III medical devices, and
FDA approval of a PMA is required prior to commercial distribution of such
valves in the U.S. The porcine heart valves currently marketed by the Company
have not been approved by the FDA for commercial distribution in the U.S. but
may be manufactured in the U.S. and exported to foreign countries if the valves
meet the specifications of the foreign purchaser, do not conflict with the laws
of and are approved by the country to which they will be exported and the FDA
determines that their exportation is not contrary to the public health and
safety.
BioGlue Surgical Adhesive. BioGlue surgical adhesive is regulated as a Class III
medical device by the FDA. The Company received a HDE in December 1999 for
BioGlue surgical adhesive for use as an adjunct in repair of acute thoracic
aortic dissections. The Company commercially distributes BioGlue in the U.S. for
this indication, subject to the limitations imposed by the FDA under an HDE. The
Company commenced and completed enrollment of a clinical trial under a
supplemental IDE for BioGlue surgical adhesive for use in vascular and cardiac
surgery, and on February 1, 2001, the Company submitted a PMA to the FDA. If
successful, the Company would be able to commercially distribute BioGlue in the
U.S. for these indications. However, there can be no assurance that the Company
will be successful in gaining approval for the PMA.
Possible Other FDA Regulation. Other products and processes under development by
the Company are likely to be subject to regulation by the FDA. Some may be
classified as medical devices; others may be classified as drugs or biological
products or subject to a regulatory scheme for human tissue that the FDA may
adopt in the future. Regulation of drugs and biological products is
substantially similar to regulation of medical devices. Obtaining FDA approval
to market these products is likely to be a time consuming and expensive process,
and there can be no assurance that any of these products will ever receive FDA
approval, if required, to be marketed.
NOTA Regulation. The Company's activities in processing and transporting human
hearts and certain other organs are also subject to federal regulation under the
National Organ Transplant Act ("NOTA"), which makes it unlawful for any person
to knowingly acquire, receive or otherwise transfer any human organ for valuable
consideration for use in human transplantation if the transfer affects
interstate commerce. NOTA excludes from the definition of "valuable
consideration" reasonable payments associated with the removal, transportation,
implantation, processing, preservation, quality control and storage of a human
organ. The purpose of this statutory provision is to allow for compensation for
legitimate services. The Company believes that to the extent its activities are
subject to NOTA, it meets this statutory provision relating to the
reasonableness of its charges. There can be no assurance, however, that
restrictive interpretations of NOTA will not be adopted in the future that would
call into question one or more aspects of the Company's methods of charging for
its preservation services.
19
State Licensing Requirements
Some states have enacted statutes and regulations governing the processing,
transportation and storage of human organs and tissue. The activities engaged in
by the Company require it to be licensed as a clinical laboratory and tissue
bank under Georgia, New York, California and Florida law. The Company has such
licenses, and the Company believes it is in compliance with applicable state
laws and regulations relating to clinical laboratories and tissue banks which
store, process and distribute human tissue designed to be used for medical
purposes in human beings. There can be no assurance, however, that more
restrictive state laws or regulations will not be adopted in the future that
could adversely affect the Company's operations. Certain employees of the
Company have obtained other required licenses.
Foreign Approval Requirements
Sales of medical devices and biological products outside the U.S. are subject to
foreign regulatory requirements that vary widely from country to country.
Approval of a product by comparable regulatory authorities of foreign countries
must be obtained prior to commercial distribution of the product in those
countries. The time required to obtain foreign approvals may be longer or
shorter than that required for FDA approval. The EC recognizes a single
approval, called a CE Mark, which allows for distribution of an approved product
throughout the EC (15 countries) without additional general applications to each
country. However, individual EC members reserve the right to require additional
data to address particular patient safety issues prior to allowing importation.
France and an increasing number of EC members require such additional data for
products containing material of animal origin. The CE Mark is awarded by third
parties called Notified Bodies. These Notified Bodies are approved and subject
to review by the Competent Authorities of their respective countries. A number
of countries outside of the EC accept the CE Mark in lieu of clinical data
submission as an addendum to that country's application process. The Company has
been issued CE Marks for its CryoLife-O'Brien and CryoLife-Ross porcine heart
valves, BioGlue surgical adhesive, and its SynerGraft pulmonary heart valve. The
Company's porcine heart valves may be exported to specified developed nations,
including countries in the EC, Australia, Canada, Israel, Japan, New Zealand,
South Africa and Switzerland if they comply with the laws of that country and
have valid marketing authorization by the appropriate authority in that country.
Beginning in July 1998, CE Mark Certification is required to market porcine
heart valves and other bioprosthetics in the EC.
Environmental Matters
The Company's tissue processing activities generate some biomedical wastes
consisting primarily of human pathological and biological wastes, including
human tissue and body fluids removed during laboratory procedures. The
biomedical wastes generated by the Company are placed in appropriately
constructed and labeled containers and are segregated from other wastes
generated by the Company. The Company contracts with third parties for
transport, treatment and disposal of biomedical waste. Although the Company
believes it is in compliance with applicable laws and regulations promulgated by
the U.S. Environmental Protection Agency and the Georgia Department of Natural
Resources, Environmental Protection Division, the failure by the Company to
comply fully with any such regulations could result in an imposition of
penalties, fines or sanctions, which could have a material adverse effect on the
Company's business.
Employees
At March 20, 2001 the Company had approximately 340 employees. These employees
included 11 persons with PhD degrees. None of the Company's employees is
represented by a labor organization or covered by a collective bargaining
agreement, and the Company has never experienced a work stoppage or interruption
due to labor disputes. Management believes its relations with its employees are
good.
20
RISK FACTORS
Dependence on Cryopreservation of Human Tissue
A significant portion of the Company's current revenues is derived from the
cryopreservation of human tissues. The success of this business depends upon,
among other factors, the availability of sufficient quantities of tissue from
human donors. Any material reduction in the supply of donated human tissue could
restrict the Company's growth. The Company relies primarily upon the efforts of
third party procurement agencies and tissue banks (all of which are
not-for-profit) and others to educate the public and foster a willingness to
donate tissue. Based on the Company's experience with human heart valves and
vascular and orthopaedic tissues, management believes that once the use by
physicians of a particular transplantable tissue gains acceptance, demand for
that tissue will exceed the amount of tissue available from human donors.
Failure of the Company to maintain its supply of tissue for cryopreservation
could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, a reduction in the demand for
the Company's cryopreserved human tissue could also have a material adverse
effect on the Company's business, financial condition and results of operations.
Such reduction could occur if competitors' products were perceived as either
functionally superior or more cost effective, if the number of procedures in
which cryopreserved tissues are used declines or if hospitals acquire sufficient
inventories of cryopreserved tissue to allow a reduction in new orders. See
"--Intense Competition" and "--Uncertainties Regarding Future Health Care
Reimbursement."
Intense Competition
The Company faces competition from other companies that cryopreserve human
tissue, as well as companies that market mechanical valves and synthetic and
animal tissue for implantation and companies that market wound closure products.
Management believes that at least three tissue banks offer cryopreservation
services for human heart valves and many companies offer processed porcine heart
valves and mechanical heart valves. A few companies dominate portions of the
mechanical and porcine heart valve markets, including St. Jude Medical, Inc.,
Medtronic, Inc. and Edwards Life Sciences. The Company is aware that several
companies have surgical adhesive products under development. Competitive
products may also be under development by other large medical device,
pharmaceutical and biopharmaceutical companies. Many of the Company's
competitors have greater financial, technical, manufacturing and marketing
resources than the Company and are well established in their markets. There can
be no assurance that the Company's products and services will be able to compete
successfully with the products of these or other companies. Any products
developed by the Company that gain regulatory clearance or approval will have to
compete for market acceptance and market share. Failure of the Company to
compete effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.
See "Business--Competition."
Rapid Technological Change
The technologies underlying the Company's products and services are subject to
rapid and profound technological change. The Company expects competition to
intensify as technical advances in each field are made and become more widely
known. There can be no assurance that others will not develop products or
processes with significant advantages over the products and processes that the
Company offers or is seeking to develop. Any such occurrence could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Uncertainties Regarding Products in Development
The Company's growth and profitability will depend, in part, upon its ability to
complete development of and successfully introduce new products, including
additional applications of its BioGlue and SynerGraft technologies and its ACT
technology. The Company may be required to undertake time consuming and costly
21
development activities and seek regulatory clearance or approval for new
products. See "--Extensive Government Regulation." Although the Company has
conducted pre-clinical studies on many of its products under development which
indicate that such products may be effective in a particular application, there
can be no assurance that the results obtained from expanded clinical studies
will be consistent with earlier trial results or be sufficient for the Company
to obtain any required regulatory approvals or clearances. There can be no
assurance that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of new products,
that regulatory clearance or approval of these or any new products will be
granted on a timely basis, if ever, or that the new products will adequately
meet the requirements of the applicable market or achieve market acceptance. The
completion of the development of any of the Company's products remains subject
to all of the risks associated with the commercialization of new products based
on innovative technologies, including unanticipated technical or other problems,
manufacturing difficulties and the possible insufficiency of the funds allocated
for the completion of such development. Consequently, there can be no assurance
that any of the Company's products under development will be successfully
developed or manufactured or, if developed and manufactured, that such products
will meet price or performance objectives, be developed on a timely basis or
prove to be as effective as competing products. The inability to complete
successfully the development of a product or application, or a determination by
the Company, for financial, technical or other reasons, not to complete
development of any product or application, particularly in instances in which
the Company has made significant capital expenditures, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's BioGlue surgical adhesive is currently offered for sale in the
U.S. pursuant to an HDE approval, which provides for limited distribution. On
February 1, 2001 the Company submitted a PMA to the FDA for the use of BioGlue
in vascular and cardiac surgery. There can be no assurance that the Company will
obtain this or other necessary approvals to allow for general distribution of
its BioGlue surgical adhesive in the U.S.
The Company's porcine heart valve products, including its SynerGraft treated
porcine valves, are currently only offered for sale outside of the U.S . The
Company's porcine heart valves are subject to the risk that the Company may be
unable to obtain regulatory approval necessary to permit commercial distribution
of these products in the U.S.
The Company's research and development efforts are time consuming and expensive
and there can be no assurance that these efforts will lead to commercially
successful products or services. Even the successful commercialization of a new
service or product in the medical industry can be characterized by slow growth
and high costs associated with marketing, under-utilized production capacity and
continuing research, and development and education costs. Generally, the
introduction of new human tissue products requires significant physician
training and years of clinical evidence derived from follow-up studies on human
implant recipients in order to gain acceptance in the medical community.
Uncertainties Regarding the Funding of the ACT Technology
The ACT technology is a reversible linker technology that has potential uses in
the areas of cancer therapy, blood clot dissolving, heart attack therapies and
other drug delivery applications. The Company has formed AuraZyme, a
wholly-owned subsidiary, in order to seek funding for the development of the ACT
technology. This strategy is designed to allow the Company to continue
development of this technology without incurring additional research and
development expenditures, other than through AuraZyme. There can be no guarantee
that such funding can be obtained on acceptable terms, if at all. If such
funding is not obtained, the Company may be unable to effectively test and
22
develop the ACT technology, and may therefore be unable to determine its
effectiveness. Even if such financing is obtained, there is no guarantee that
the ACT technology will in fact prove to be effective in the above applications.
Failure to obtain the desired financing, or failure of the ACT technology to
perform as anticipated in future tests, could have a material adverse effect on
our future expansion plans and could limit future growth.
Uncertainties Regarding the SynerGraft Technology
The Company currently processes both porcine and human tissues with the
SynerGraft process. In animal studies, explanted porcine heart valves have been
shown to repopulate with the hosts' cells. However, should SynerGraft-treated
tissues implanted in humans not repopulate with the human host cells, the
SynerGraft-treated tissues may not have the longevity that the Company currently
expects. This could have a material adverse effect on future expansion plans and
could limit future growth.
Extensive Government Regulation
Government regulation in the U.S., the EC and other jurisdictions represents a
potentially determinative factor in the success of the Company's efforts to
market and develop its products. See "Business--Government Regulation." The
human heart valves to which the Company applies its cryopreservation services
are currently regulated as Class II medical devices by the FDA and are subject
to significant regulatory requirements, including Quality System Regulations and
recordkeeping requirements. There can be no assurance that changes in regulatory
treatment or the adoption of new statutory or regulatory requirements will not
occur, which could adversely impact the marketing or development of these
products or could adversely affect market demand for these products.
Other allograft tissues processed and distributed by the Company are currently
regulated as "human tissue" under rules promulgated by the FDA pursuant to the
Public Health Services Act. These rules establish requirements for donor testing
and screening of human tissue and recordkeeping relating to these activities and
impose certain registration and product listing requirements on establishments
that process or distribute human tissue or cellular-based products. Although the
Company's other human tissue allografts are not currently regulated as medical
devices, such tissue may in the future become subject to more extensive FDA
regulation, which could include PMA or product licensing requirements.
BioGlue surgical adhesive is regulated as a Class III medical device and the
Company believes that its ACT technology may be regulated as a biologic or drug
by the FDA. BioGlue surgical adhesive has been approved for distribution in the
U.S. under a Humanitarian Device Exemption while the ACT technology has not been
approved for commercial distribution in the U.S. or elsewhere. Fixed porcine
heart valve products are classified as Class III medical devices. There can be
no assurance that the Company will be able to obtain the FDA approval required
to distribute its surgical sealants or porcine heart valve products in the U.S.,
or the approval for unlimited distribution of its BioGlue surgical adhesive in
the U.S. Distribution of these products within the EC is dependent upon the
Company maintaining its CE Mark and ISO 9001 certifications, of which there can
be no assurance.
Most of the Company's products in development, if successfully developed, will
require regulatory approvals from the FDA and perhaps other regulatory
authorities before they may be commercially distributed. The process of
obtaining required regulatory approvals from the FDA normally involves clinical
trials and the preparation of an extensive PMA application and often takes many
years. The process is expensive and can vary significantly based on the type,
complexity and novelty of the product. There can be no assurance that any
products developed by the Company, independently or in collaboration with
others, will receive the required approvals for manufacturing and marketing.
Delays in obtaining U.S. or foreign approvals could result in substantial
additional cost to the Company and adversely affect the Company's competitive
position. The FDA may also place conditions on product approvals that could
restrict commercial applications of such products. Product marketing approvals
or clearances may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing. Delays imposed by
23
the governmental clearance process may materially reduce the period during which
the Company has the exclusive right to commercialize patented products. Also,
delays or rejections may be encountered during any stage of the regulatory
approval process based upon the failure of the clinical or other data to
demonstrate compliance with, or upon the failure of the product to meet, the
regulatory agency's requirements for safety, efficacy and quality, and those
requirements may become more stringent due to changes in applicable law,
regulatory agency policy or the adoption of new regulations. Clinical trials may
also be delayed due to unanticipated side effects, inability to locate, recruit
and qualify sufficient numbers of patients, lack of funding, the inability to
locate or recruit clinical investigators, the redesign of clinical trial
programs, the inability to manufacture or acquire sufficient quantities of the
particular product candidate or any other components required for clinical
trials, changes in the Company's or its collaborative partners' development
focus and disclosure of trial results by competitors. Even if regulatory
approval is obtained for any of the Company's products or services, the scope of
the approval may significantly limit the indicated usage for which such products
or services may be marketed.
Products marketed by the Company pursuant to FDA or foreign oversight or
approval are subject to pervasive and continuing regulation. In the U.S.,
devices and biologics must be manufactured in registered establishments (and, in
the case of biologics, licensed establishments) and must be produced in
accordance with Quality System Regulations. Manufacturing facilities and
processes are subject to periodic FDA inspection. Labeling and promotional
activities are also subject to scrutiny by the FDA and, in certain instances, by
the Federal Trade Commission. The export of devices and biologics is also
subject to regulation and may require FDA approval. From time to time, the FDA
may modify such regulations, imposing additional or different requirements.
Failure to comply with any applicable FDA requirements, which may be ambiguous,
could result in civil and criminal enforcement actions, product recalls or
detentions and other penalties and could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
NOTA prohibits the acquisition or transfer of human organs for "valuable
consideration" for use in human transplantation. NOTA permits the payment of
reasonable expenses associated with the removal, transportation, processing,
preservation, quality control and storage of human organs. There can be no
assurance that restrictive interpretations of NOTA will not be adopted in the
future that will challenge one or more aspects of the Company's methods of
charging for its cryopreservation services. The Company's laboratory operations
are subject to the U.S. Department of Labor, Occupational Safety and Health
Administration and Environmental Protection Agency requirements for prevention
of occupational exposure to infectious agents and hazardous chemicals and
protection of the environment. Some states have enacted statutes and regulations
governing the processing, transportation and storage of human organs and tissue.
While management believes that the Company is presently in compliance in all
material respects with all such applicable statutes and regulations, there can
be no assurance that more restrictive state laws or regulations will not be
adopted in the future that could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Government Regulation."
Uncertainties Related to Patents and Protection of Proprietary Technology
The Company owns several patents, patent applications and licenses relating to
its technologies, which it believes provide important competitive advantages.
There can be no assurance that the Company's pending patent applications will
issue as patents or that challenges will not be instituted concerning the
validity or enforceability of any patent owned by the Company, or, if
instituted, that such challenges will not be successful. The cost of litigation
to uphold the validity and prevent infringement of a patent could be
substantial. Furthermore, there can be no assurance that competitors will not
independently develop similar technologies or duplicate the Company's
technologies or design around the patented aspects of the Company's
technologies. There can be no assurance that the Company's proposed technologies
will not infringe patents or other rights owned by others. In addition, under
certain of the Company's license agreements, if the Company fails to meet
certain contractual obligations, including the payment of minimum royalty
amounts, such licenses may become nonexclusive or terminable by the licensor,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Additionally, the Company protects its
proprietary technologies and processes in part by confidentiality agreements
with its collaborative partners, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known or independently discovered by competitors, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Uncertainties Regarding Future Health Care Reimbursement
Even though the Company does not receive payments directly from third-party
health care payors, their reimbursement methods and policies impact demand for
the Company's cryopreserved tissue and other services and products. The
Company's cryopreservation services may be particularly susceptible to
third-party cost containment measures. In particular, the initial cost of a
24
cryopreserved human heart valve generally exceeds the cost of a mechanical,
synthetic or animal-derived valve. The Company is unable to predict what changes
will be made in the reimbursement methods and policies utilized by third-party
health care payors or their effect on the Company. Changes in the reimbursement
methods and policies utilized by third-party health care payors, including
Medicare, with respect to cryopreserved tissues provided for implant by the
Company and other Company services and products, could have a material adverse
effect on the Company. Significant uncertainty exists as to the reimbursement
status of newly approved health care products and services and there can be no
assurance that adequate third-party coverage will be available for the Company
to maintain price levels sufficient for realization of an appropriate return on
its investment in developing new products. Government and other third-party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new products approved for marketing
by the FDA and by refusing in some cases to provide any coverage for uses of
approved products for indications for which the FDA has not granted marketing
approval. If adequate coverage and reimbursement levels are not provided by
government and other third-party payors for uses of the Company's new products
and services, market acceptance of these products would be adversely affected,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Key Personnel
The Company's business and future operating results depend in significant part
upon the continued contributions of its key technical personnel and senior
management, many of whom would be difficult to replace. The Company's business
and future operating results also depend in significant part upon its ability to
attract and retain qualified management, processing, technical, marketing, sales
and support personnel for its operation. Competition for such personnel is
intense and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. The loss of key employees, the failure
of any key employee to perform adequately or the Company's inability to attract
and retain skilled employees as needed could have a material adverse effect on
the Company's business, financial condition and results of operations.
Product Liability and Insurance
The use of the Company's products and human tissue processed by the Company
involves the possibility of adverse effects that could expose the Company to
product liability claims. A recent U.S. Supreme Court decision held that product
liability may exist despite FDA approval, and future court decisions may also
increase the Company's risk of product liability. From time to time, the Company
is involved in legal proceedings based on product liability claims of a nature
considered normal to its business. The Company's products are used by health
care providers in connection with the treatment of patients, who will, on
occasion, sustain injury or die as a result of their condition or medical
treatment. If a lawsuit is filed because of such an occurrence, the Company,
along with physicians and nurses, hospitals and other medical suppliers, may be
named as a defendant, and whether or not the Company is ultimately determined to
be liable, the Company may incur significant legal expenses. In addition, such
litigation could damage the Company's reputation and therefore impair its
ability to market its products or obtain product liability insurance and could
cause the premiums for such insurance to increase. Although the Company has
incurred minimal losses due to product liability claims to date, there can be no
assurance that it will not incur significant losses in the future. The Company
currently maintains product liability insurance in the aggregate amount of $14
million per year. There can be no assurance that such coverage will continue to
be available on terms acceptable to the Company or will be adequate to cover any
losses due to product claims if actually incurred. Furthermore, if any such
claim is successful, it could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Legal
Proceedings."
Use and Disposal of Hazardous Material
The Company's research, development and processing activities involve the
controlled use of small quantities of radioactive compounds, chemical solvents
and other hazardous materials. The Company's activities also include the
preservation and growth of human cells and the processing of human tissue.
25
Although the Company believes that its safety procedures for handling,
processing and disposing of hazardous materials and human tissue comply with the
standards prescribed by federal, state and local regulations, the risk of
accidental contamination, injury or disease transmission from these materials
cannot be completely eliminated. In the event of such an accident or
transmission, the Company could be held liable for resulting damages and any
liability could have a material adverse effect on the Company's business,
financial condition and results of operations. Also, any failure to comply with
applicable regulations could result in the imposition of penalties, fines and
sanctions, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Volatility of Securities Prices
The trading price of the Company's Common Stock has been subject to wide
fluctuations from time to time and may continue to be subject to such volatility
in the future. Trading price fluctuations can be caused by a variety of factors,
including quarter to quarter variations in operating results, announcement of
technological innovations or new products by the Company or its competitors,
governmental regulatory acts, developments with respect to patents or
proprietary rights, general conditions in the medical device or service
industries, actions taken by government regulators, changes in earnings
estimates by securities analysts or other events or factors, many of which are
beyond the Company's control. If the Company's revenues or operating results in
future quarters fall below the expectations of securities analysts and
investors, the price of the Company's Common Stock would likely decline, perhaps
substantially. Changes in the trading price of the Company's Common Stock may
bear no relation to the Company's actual operational or financial results.
Anti-Takeover Provisions
The Company's Articles of Incorporation and Bylaws contain provisions that may
discourage or make more difficult any attempt by a person or group to obtain
control of the Company, including provisions authorizing the issuance of
preferred stock without shareholder approval, restricting the persons who may
call a special meeting of the shareholders and prohibiting shareholders from
taking action by written consent. In addition, the Company is subject to certain
provisions of Florida law that may discourage or make more difficult takeover
attempts or acquisitions of substantial amounts of the Company's Common Stock.
Further, pursuant to the terms of a shareholder rights plan adopted in 1995,
each outstanding share of Common Stock has one attached right. The rights will
cause substantial dilution of the ownership of a person or group that attempts
to acquire the Company on terms not approved by the Board and may have the
effect of deterring hostile takeover attempts.
Absence of Dividends
The Company has not paid, and does not presently intend to pay, cash dividends.
The Company's major credit agreement contains, and future credit agreements may
contain, financial covenants, including covenants to maintain certain levels of
net worth and certain leverage ratios, which could have the effect of
restricting the amount of dividends that the Company may pay. It is not likely
that any cash dividends will be paid in the foreseeable future.
Forward-Looking Statements
This Form 10-K includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the Private Securities Litigation Reform Act of 1995. All statements,
other than statements of historical facts, included or incorporated by reference
in this Form 10-K which address activities, events or developments which the
26
Company expects or anticipates will or may occur in the future, including
statements regarding the Company's competitive position, the successful
development of its SynerGraft porcine valves, the funding to continue
development of the ACT technology, other estimated dates relating to the
Company's proposed regulatory submissions, the timing of the completion of the
expansion of the Company's corporate headquarters and manufacturing facilities,
the Company's expectations regarding the adequacy of current financing
arrangements, product demand and market growth, the potential of the ACT
technologies for use in cancer therapies, blood clot dissolving, heart attack
therapies and other drug delivery applications and other statements regarding
future plans and strategies, anticipated events or trends and similar
expressions concerning matters that are not historical facts are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results and developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties which could cause
actual results to differ materially from the Company's expectations, including
the risk factors discussed in this Form 10-K and other factors, many of which
are beyond the control of the Company. Consequently, all of the forward-looking
statements made in this Form 10-K are qualified by these cautionary statements
and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on the Company or
its business or operations. The Company assumes no obligation to update publicly
any such forward-looking statements, whether as a result of new information,
future events or otherwise.
Item 2. Properties.
The Company's facilities are located in suburban Atlanta, Georgia, and in
Fareham, United Kingdom. The Atlanta facility consists of three separate
locations totaling approximately 130,000 square feet of leased office,
laboratory and warehouse space. Approximately 17,500 square feet are dedicated
to laboratory work areas. The primary facility, which does not include the
biomedical products laboratory and the bioprosthetic manufacturing operation,
has four main laboratory facilities: human tissue processing, BioGlue
manufacturing, research and development, and microbiology. Each of these areas
consists of a general technician work area and adjoining "clean rooms" for work
with human tissue and for aseptic processing. The clean rooms are supplied with
highly filtered air which provides a near-sterile environment. The human tissue
processing laboratory contains approximately 7,700 square feet with a suite of
seven clean rooms. The BioGlue manufacturing laboratory contains approximately
4,500 square feet with a suite of four clean rooms. The research and development
laboratory is approximately 5,500 square feet with a suite of five clean rooms.
The microbiology laboratory is approximately 3,200 square feet with a suite of
three clean rooms. The biomedical products laboratory facility contains
approximately 11,000 square feet, including approximately 4,000 square feet of
laboratory space with a suite of eight clean rooms. The Company's porcine heart
valves are manufactured in the Company's bioprosthesis laboratory, which
contains approximately 20,500 square feet, with about 2,100 square feet of
laboratory space and a suite of six clean rooms for tissue processing.
Subsequent to the sale of the remaining IFM assets, the Company continues to
lease the 30,000 square foot IFM facility in St. Petersburg, Florida from the
former principal shareholder of IFM. A wholly-owned subsidiary of Vascutech,
Inc. currently subleases the IFM facility from the Company. The Company's lease
and sublease on its IFM facility expires in 2007. The Europa facility located in
Fareham, United Kingdom contains approximately 5,600 square feet of office,
warehousing and training laboratory space.
In February 2000 the Company began construction of a major new addition to its
corporate headquarters and manufacturing facilities located in suburban Atlanta,
Georgia. The new addition consists of a two-story 100,000 square foot
manufacturing facility for BioGlue surgical adhesive and SynerGraft products, as
well as physician training laboratories and additional corporate office space.
The Company anticipates completion of the project in mid to late 2001.
Item 3. Legal Proceedings.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. Management
believes that no currently ongoing litigation, if determined adversely to the
Company, will have a material adverse effect on the Company's business,
financial condition or results of operations.
27
Item 4. Submission of Matters to Vote of Security Holders.
Inapplicable.
Item 4A. Executive Officers of the Registrant.
Each of the executive officers of the Registrant was elected by the Board of
Directors to serve until the Board of Directors' meeting immediately following
the next annual meeting of shareholders or until his earlier removal by the
Board of Directors or his resignation. The following table lists the executive
officers of the Registrant and their ages, positions with the Registrant, and
the dates from which they have continually served in their present positions
with the Registrant.
Date First Elected to
Name Age Position Present Office
- ---- --- -------- --------------
Steven G. Anderson 62 President, Chief Executive Officer and Chairman February, 1984
Sidney B. Ashmore 42 Vice President, Marketing March, 2001
Kirby S. Black, PhD 46 Senior Vice President, Research and Development July, 1995
David M. Fronk 37 Vice President, Clinical Research December, 1998
Albert E. Heacox, PhD 50 Senior Vice President, Laboratory Operations June, 1995
D. Ashley Lee, CPA 36 Vice President and Chief Financial Officer April, 2000
James C. Vander Wyk, PhD 56 Vice President, Regulatory Affairs and Quality February, 1996
Assurance
Ronald D. McCall, Esq. 64 Director, Secretary and Treasurer January, 1984
Steven G. Anderson, a founder of the Company, has served as the Company's
President, Chief Executive Officer and Chairman since its inception. Mr.
Anderson has more than 30 years of experience in the implantable medical device
industry. Prior to joining the Company, Mr. Anderson was Senior Executive Vice
President and Vice President, Marketing, from 1976 until 1983 of Intermedics,
Inc. (now Guidant, Inc.), a manufacturer and distributor of pacemakers and other
medical devices. Mr. Anderson received his BA from the University of Minnesota.
Sydney B. Ashmore has served as Vice President of Marketing since March 2001 and
has been with the Company since September 1996 as Director of Marketing. Mr.
Ashmore is responsible for developing and implementing the Company's sales and
marketing plans and supervising all tissue procurement activities. Prior to
joining the Company, Mr. Ashmore held senior marketing positions with Baxter
Healthcare from 1991 to 1996, and general management positions with Amorient
Aquafarms from 1985 - 1989. Mr. Ashmore received his BA from Vanderbilt
University in 1981, his MS from the University of Hawaii in 1985 and his MBA
from Northwestern University in 1991.
Kirby S. Black, PhD, has served as Vice President of Research and Development
since July 1995. Dr. Black was promoted to Senior Vice President in December of
2000. Dr. Black is responsible for the continued development of the Company's
current products as well as the evaluation of new technologies. Dr. Black is
listed on six patents and has authored over 130 publications. Prior to joining
the Company, Dr. Black was Director, Medical Information and Project Leader from
July 1993 until July 1994 at Advanced Tissue Sciences, LaJolla, California. Dr.
Black has also held a number of positions at the University of California at
Irvine, including Director, Transplantation and Immunology Laboratories,
Department of Surgery. Dr. Black received his BSME degree from the University of
California, Los Angeles, and his PhD degree in immunology from the University of
California at Irvine.
David M. Fronk was appointed to the position of Vice President of Clinical
Research in December 1998 and has been with the Company since 1992. Mr. Fronk is
responsible for managing the pre-clinical and clinical investigations for all
products, as well as monitoring product performance. Prior to joining the
Company, Mr. Fronk held engineering positions with Zimmer Inc. from 1986 until
28
1988 and Baxter Healthcare Corporation from 1988 until 1991. Mr. Fronk served as
a market manager with Baxter Healthcare Corporation from 1991 until 1992. Mr.
Fronk received his BS in Mechanical Engineering at The Ohio State University in
1985 and his MS in Biomedical Engineering at The Ohio State University in 1986.
Albert E. Heacox, PhD, has served as Vice President, Laboratory Operations since
June 1988 and has been with the Company since June of 1985. Dr. Heacox was
promoted to Senior Vice President in December of 2000. Dr. Heacox has been
responsible for developing protocols and procedures for both cardiovascular and
connective tissues, implementing upgrades in procedures in conjunction with the
Company's quality assurance programs, and overseeing all production activities
of the Company's laboratories. Prior to joining the Company, Dr. Heacox worked
as a researcher with the U.S. Department of Agriculture and North Dakota State
University, developing methods for the cryopreservation of cells and animal germ
plasm storage. Dr. Heacox received a BA and an MS in Biology from Adelphi
University, received his PhD in Biology from Washington State University and
completed his post-doctorate training in cell biology at the University of
Cologne, West Germany.
D. Ashley Lee, CPA, has served as Vice President and Chief Financial Officer of
the Company since April 2000 and had previously served as controller of the
Company since December 1994. Mr. Lee is responsible for the financial affairs of
the Company, as well as information technology, human resources, and purchasing.
From 1993 to 1994, Mr. Lee served as the Assistant Director of Finance for
Compass Retail Inc, a wholly-owned subsidiary of Equitable Real Estate. From
1987 to 1993, Mr. Lee was employed as a certified public accountant with Ernst &
Young, LLP. Mr. Lee received his BS in Accounting from the University of
Mississippi.
James C. Vander Wyk, PhD, has served as Vice President, Regulatory Affairs and
Quality Assurance of the Company since February 1996. Prior to joining the
Company, Dr. Vander Wyk held senior management positions at Schneider (USA),
Inc. from 1993 until 1996, Pharmacia Deltec, Inc. from 1985 until 1993, Delmed,
Inc. from 1980 until 1985 and Pharmaco, Inc. from 1975 to 1979, gaining 20 years
of experience in Regulatory Affairs and Quality Assurance. Dr. Vander Wyk
received his BS in Pharmacy from the Massachusetts College of Pharmacy and his
PhD in Microbiology from the University of Massachusetts. Dr. Vander Wyk
performed his NIH Postdoctoral Fellowship at the University of Illinois.
Ronald D. McCall has served as a director of the Company and as the Secretary
and Treasurer of the Company since January 1984. From 1985 to the present, Mr.
McCall has been the proprietor of the law firm of Ronald D. McCall, Attorney At
Law, Tampa, Florida. Mr. McCall was admitted to the practice of law in Florida
in 1961. Mr. McCall received his BA and JD degrees from the University of
Florida.
29
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The response to Item 5 is incorporated herein by reference to the information
set forth under the caption "Market Price of Common Stock" on page 35 of the
annual shareholders report for the year ended December 31, 2000.
Item 6. Selected Financial Data.
The response to Item 6 is incorporated herein by reference to the information
set forth under the caption "Selected Financial Information" on page 36 of the
annual shareholders report for the year ended December 31, 2000.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
CryoLife, Inc. was organized in 1984 to address market opportunities in the area
of biological implantable products and materials, and today is the leader in the
preservation of viable human tissue for cardiovascular, vascular, and
orthopaedic applications. The Company pays a fee to an organ procurement agency
or tissue bank at the time such organization consigns human tissue to the
Company. The Company generates revenues from preservation services by charging
hospitals a fee, which covers the Company's services, the associated procurement
fee, and applicable shipping expenses. The Company records revenue upon shipping
tissue. Costs associated with the procurement, processing, and storage of tissue
are accounted for as deferred preservation costs on the Company's consolidated
balance sheet and are expensed when the tissue is shipped.
Through a series of acquisitions of intellectual property and businesses, the
Company has expanded its portfolio of products and services. As a result, the
Company also develops implantable biomaterials, including BioGlue surgical
adhesive, which is approved for distribution in 42 countries; SynerGraft, a
tissue engineering technology which incorporates the use of decellularized
animal tissues with the potential to remodel in vivo; and other stentless
porcine heart valves that are approved for distribution internationally. In
1996, the Company also acquired the assets of UCFI, a tissue processor, for
$750,000 in cash and a $1.3 million note. In 1997, the Company acquired Ideas
for Medicine, Inc. ("IFM") and its line of single-use medical devices for $4.5
million in cash, and a $5.0 million convertible debenture.
On September 30, 1998 the Company completed the sale of substantially all of the
IFM product line and certain related assets to Horizon Medical Products, Inc.
("HMP") for $15 million in cash pursuant to an asset purchase agreement.
Concurrently, IFM and HMP signed a Manufacturing Agreement (the "Agreement")
which provided for the manufacture by IFM of specified minimum dollar amounts of
IFM products to be purchased exclusively by HMP over each of the four years
following the sale. Thereafter, responsibility for such manufacturing was to be
assumed by HMP. The Company recorded a deferred gain at the transaction date
totaling $2.9 million, representing the selling price less the net book value of
the assets sold, which included $7.7 million of goodwill, net of accumulated
30
amortization, and the costs related to the sale. The gain was deferred because
the sale and the manufacturing agreements represent, in the aggregate, a single
transaction for which the related income should be recognized over the term of
the Agreement. Accordingly, the deferred gain was reflected in cost of goods
sold during 1999 and 1998 to maintain margins that would have been approximately
equal over the four-year period of the Agreement on the products manufactured
and sold by IFM to HMP. During 1999 and 1998 amortization of deferred revenue
totaled $1.2 million and $387,000, respectively. As more fully discussed under
nonrecurring charges in the Results of Operations section, HMP defaulted on the
Agreement in June of 1999.
On October 9, 2000 the Company sold substantially all of the remaining assets of
Ideas for Medicine, Inc. ("IFM") to Horizon Medical Products, Inc. ("HMP"). The
assets consisted primarily of inventory, equipment and leasehold improvements
which had a net book value of $2.4 million at the date of sale. The transaction
provided for HMP to pay the Company the sum of approximately $5.9 million,
payable in equal monthly installments of principal and interest of $140,000. The
note consists of a portion, approximately $3.8 million, which bears interest at
9% per year, and a non-interest-bearing portion of approximately $2.1 million.
The note also requires an additional $1 million principal payment at any time
prior to April 3, 2001. If the $1 million payment is made when due, and no other
defaults exist under the note, then $1 million of the non-interest-bearing
portion of the note will be forgiven. In addition, at such time as the principal
balance has been paid down to $1.1 million and there have been no defaults under
the promissory note, the remainder of the note will be forgiven and the note
will be canceled. The Company has recorded reserves against these notes such
that the gain from the sale is deferred until the full amount of the note is
deemed collectible. On March 30, 2001, HMP transferred the IFM assets to a
wholly-owned subsidiary of Vascutech, Inc. and the HMP note was assumed by the
Vascutech subsidiary. The assumed note is guaranteed by Vascutech, Inc.
The composition of the Company's revenues is expected to change in future years,
reflecting, among other things, the anticipated growth in shipments of human
vascular tissue and human connective tissue for the knee, and the introduction
of BioGlue surgical adhesive into domestic and international markets, as well as
other expected new products.
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues increased 16% to $77.1 million in 2000 from $66.7 million in 1999. The
increase in revenues was primarily due to increased acceptance in the medical
community of preserved tissues which has resulted in increased demand for the
Company's preservation services, the Company's ability to procure greater
amounts of tissue, revenues attributable to the Company's introduction of
BioGlue surgical adhesive in domestic markets in January of 2000, and other
reasons discussed below. These increases in revenues have been offset by certain
decreases in revenues as discussed below.
Revenues from human heart valve and conduit cryopreservation services increased
2% to $29.7 million in 2000 from $29.0 million in 1999, representing 39% and
44%, respectively, of total revenues during such periods. This increase in
revenues resulted from a 5% increase in the number of heart allograft shipments
due to increased demand.
Revenues from human vascular tissue cryopreservation services increased 10% to
$21.3 million in 2000 from $19.3 million in 1999, representing 28% and 29%,
respectively, of total revenues during such periods. This increase in revenues
was primarily due to an 11% increase in the number of vascular allograft
shipments due to an increased demand for saphenous vein, the Company's ability
to procure greater amounts of tissue, and the growth in demand for the Company's
cryopreserved femoral vein for dialysis access.
Revenues from human connective tissue of the knee cryopreservation services
increased 44% to $16.1 million in 2000 from $11.2 million in 1999, representing
21% and 17%, respectively, of total revenues during such periods. This increase
in revenues was primarily due to a 45% increase in the number of allograft
shipments due to increased acceptance of osteoarticular grafts and non-bone
tendons by the orthopaedic surgeon community and the Company's ability to
procure greater amounts of tissue.
31
Revenues from the sale of BioGlue surgical adhesive increased 287% to $6.4
million for 2000 from $1.7 million in 1999, representing 8% and 2%,
respectively, of total revenues during such periods. The increase in revenues is
due to a 177% increase in the number of milliliter shipment s of BioGlue. The
increase in shipments was primarily due to the introduction of BioGlue in
domestic markets in January of 2000 pursuant to a Humanitarian Use Device
Exemption for the use of BioGlue as an adjunct in the repair of acute thoracic
aortic dissections, as well as greater product awareness since the introduction
of BioGlue in international markets in April of 1998, increased surgeon
training, and the receipt of the CE approval for pulmonary indications in Europe
in March 1999.
Revenues from bioprosthetic cardiovascular devices decreased 19% to $771,000 in
2000 from $955,000 in 1999, representing 1% of total revenues during such
periods. This decrease in revenues is primarily due to the Company's focus on
the start-up of the SynerGraft heart valve manufacturing process, which
adversely impacted its ability to manufacture other bioprosthetic cardiovascular
devices.
Revenues from IFM decreased 41% to $2.2 million in 2000 from $3.7 million in
1999, representing 3% and 6%, respectively, of total revenues during such
periods. The decrease in revenues is due to HMP's default under its
manufacturing agreement and to the sale of the remaining assets of IFM to HMP.
Grant revenues decreased to $616,000 in 2000 from $877,000 in 1999. Grant
revenues are primarily attributable to the SynerGraft research and development
programs.
Cost of cryopreservation services and products aggregated $33.3 million in 2000
compared to $30.2 million in 1999, representing 44% and 46%, respectively, of
total cryopreservation and product revenues. The decrease in the 2000 cost of
cryopreservation services and products as a percentage of revenues results from
an increase in revenues from BioGlue surgical adhesive, which carry higher gross
margins than cryopreservation services, and from a greater portion of 2000
orthopaedic cryopreservation revenues being derived from services that have
higher gross margins than other orthopaedic cryopreservation services, partially
offset by a lesser portion of 2000 revenues being derived from human heart valve
and conduit cryopreservation services, which carry higher gross margins than
other cryopreservation services.
General, administrative, and marketing expenses increased 16% to $28.7 million
in 2000, compared to $24.7 million in 1999, representing 38% of total
cryopreservation and product revenues for each period. The increase in
expenditures in 2000 resulted from expenses incurred to support the increase in
revenues and expenses associated with the establishment of the Company's
European headquarters.
Research and development expenses increased 18% to $5.2 million in 2000,
compared to $4.4 million in 1999, representing 7% of total cryopreservation and
product revenues for each period. Research and development spending relates
principally to the Company's ongoing human clinical trials for its BioGlue
surgical adhesive and to its focus on its SynerGraft and BioGlue technologies.
As more fully discussed in the following comparison of years ended December 31,
1999 and December 31, 1998, the Company recorded a nonrecurring charge of $2.4
million in 1999 primarily as a result of HMP's default on its manufacturing
contract with IFM.
Net interest income was $1.7 million and $1.2 in 2000 and 1999, respectively.
This increase in interest income was due primarily to the increase in cash
generated from operations during the year ended December 31, 2000.
The effective income tax rate was 33% and 32% for the years ended December 31,
2000 and 1999, respectively.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues increased 10% to $66.7 million in 1999 from $60.7 million in 1998. The
increase in revenues was primarily due to increased acceptance in the medical
community of cryopreserved tissues, the Company's ability to procure greater
amounts of tissue, price increases for certain cryopreservation services
instituted during the third quarter of 1998 which continued during 1999, a full
32
year of BioGlue international revenue in 1999 as compared to nine months in
1998, and revenues attributable to the Company's introduction of osteoarticular
grafts in January 1999. These increases in revenues have been offset by certain
decreases in revenues as discussed below.
Revenues from human heart valve and conduit cryopreservation services decreased
6% to $29.0 million in 1999 from $30.8 million in 1998, representing 44% and
51%, respectively, of total revenues during such periods. This decrease in
revenues resulted from an 8% decrease in the number of heart allograft
shipments, which decrease consisted primarily of a 9% decrease in the number of
pulmonary heart valve shipments due to a decrease in the number of Ross
procedures being performed and competitive price pressures on pulmonary valves.
In a Ross procedure, the patient's pulmonary valve is transplanted into the
aortic position and a human pulmonary allograft is transplanted into the
patient's pulmonary position. The Company has attempted to promote the positive
clinical results of the Ross procedure by hosting science forums around the
country with its cardiovascular surgeon customers.
Revenues from human vascular tissue cryopreservation services increased 35% to
$19.3 million in 1999 from $14.3 million in 1998, representing 29% and 24%,
respectively, of total revenues during such periods. This increase in revenues
was primarily due to a 32% increase in the number of vascular allograft
shipments attributable to an increased demand for preserved vascular tissue, the
Company's ability to procure greater amounts of tissue, and the introduction of
the femoral vein program for use as A-V shunts in dialysis patients. The
increase in revenues was also due to the Company's focus on procuring and
distributing long segment veins, which have a higher per unit revenue than the
short segment veins.
Revenues from human connective tissue of the knee cryopreservation services
increased 45% to $11.2 million in 1999 from $7.7 million in 1998, representing
17% and 13%, respectively, of total revenues during such periods. This increase
in revenues was primarily due to a 31% increase in the number of allograft
shipments due to increased demand, the Company's ability to procure greater
amounts of tissue, and the introduction of preserved osteoarticular grafts in
January of 1999. Additional revenue increases resulted from price increases for
the cryopreservation of menisci and tendons during the third quarter of 1998.
Revenues from IFM decreased 34% to $3.7 million in 1999 from $5.7 million in
1998, representing 6% and 9%, respectively, of total revenues during such
periods. The decrease in revenues is due to HMP's failure to meet the minimum
purchase requirements set forth in the Agreement as more fully discussed below.
Revenues from BioGlue surgical adhesive increased 88% to $1.7 million for 1999
from $883,000 in 1998, representing 2% and 1%, respectively, of total revenues
during such periods. The increase in revenues is due to a 95% increase in the
volume of milliliter shipments of BioGlue due to increased product awareness as
a result of the introduction of BioGlue in international markets in April of
1998, increased surgeon training, and the receipt of the CE mark approval for
the use of BioGlue for pulmonary indications in Europe in March 1999.
Revenues from bioprosthetic cardiovascular devices increased 20% to $955,000 in
1999 from $798,000 in 1998, representing 1% of total revenues during such
periods. This increase in revenues was due to a 7% increase in the number of
bioprosthetic cardiovascular device shipments due to an increase in demand, a
full year of international revenues from the CryoLife-Ross Pulmonary Valve in
1999 as compared to three months of revenues in 1998, and price increases in
November of 1998 that continued throughout 1999.
Grant revenues increased to $877,000 in 1999 from $512,000 in 1998. This
increase in grant revenues is primarily attributable to the SynerGraft research
and development programs.
Other income decreased to $224,000 in 1999 from $1.1 million in 1998. Other
income in 1998 relates primarily to proceeds from the sale of the Company's port
product line.
Cost of cryopreservation services and products aggregated $30.2 million in 1999
compared to $25.3 million in 1998, representing 46% and 42%, respectively, of
total cryopreservation and product revenues. The increase of the cost of
cryopreservation services and products as a percentage of revenues in 1999
33
results from a smaller percentage of 1999 revenues being derived from human
heart valve and conduit cryopreservation services, which carry a significantly
higher gross margin than other cryopreservation services. An additional reason
for the increase in costs in 1999 results from the switch in October of 1998 to
OEM manufacturing of single-use medical devices, which generates lower gross
margins than cryopreservation services and lower gross margins than the IFM
products generated prior to the sale of the IFM product line.
General, administrative, and marketing expenses increased 3% to $24.7 million in
1999, compared to $23.9 million in 1998, representing 38% and 40%, respectively,
of total cryopreservation and product revenues in such periods. The increase in
expenditures in 1999 resulted from expenses incurred to support the increase in
revenues, partially offset by increased absorption of overhead expenses
associated with increased production of new products.
Research and development expenses decreased 7% to $4.4 million in 1999, compared
to $4.7 million in 1998, representing 7% and 8%, respectively, of total
cryopreservation and product revenues for each period. Research and development
spending relates principally to the Company's focus on its bioadhesives and
SynerGraft technologies.
The Company recorded a nonrecurring pretax charge of $2.4 million in 1999
primarily as a result of HMP's default on its manufacturing contract with IFM.
On June 22, 1999 IFM notified HMP that it was in default of certain provisions
of the Agreement. Specifically, HMP was in violation of the payment provisions
contained within the Agreement, which calls for inventory purchases to be paid
for within 45 days of delivery. Additionally, HMP was in violation due to
nonpayment of interest related to such past due accounts receivable.
After notification of the default, HMP indicated to the Company that it would
not be able to meet and did not met the minimum purchase requirements outlined
in the Agreement. Due to the significant uncertainties related to the Company's
ability to realize its investment in IFM, the Company determined that it had
incurred an impairment loss on its IFM assets. In calculating the amount of the
impairment loss, management used its best estimate to determine the realizable
value of its increase in working capital due to the HMP default, and the
recoverability of IFM's long-lived assets, consisting primarily of leasehold
improvements and equipment. As a result, management recorded a $2.1 million
impairment loss on working capital and a $2.6 million impairment loss on
leasehold improvements. Additionally, the Company offset the above charges with
$2.5 million of deferred gain recorded in connection with the sale of the IFM
product line to HMP. The net pretax effect of the above nonrecurring charges is
$2.2 million, and has been included under the caption "Nonrecurring charges" in
the accompanying Consolidated Income Statements.
As previously discussed in the Overview section, on October 9, 2000 the Company
sold substantially all of the remaining assets of IFM to HMP.
Net interest income was $1.2 million and $820,000 in 1999 and 1998,
respectively. This increase in interest income is due to recording a full year
of interest income on the invested proceeds from the follow-on equity offering
(the "Offering") completed in April 1998, lower interest expense resulting from
the repayment of certain indebtedness with the proceeds from the Offering, and
the conversion of certain convertible debentures into common stock of the
Company.
The increase in the effective income tax rate to 32% in 1999 from 25% in 1998,
is the result of the nonrecurrence of income tax benefits realized in 1998 from
the implementation of certain income tax planning strategies in the fourth
quarter, which had a significant one-time impact on 1998 taxes. Despite the
increase in the tax rate between 1999 and 1998, the 1999 effective tax rate is
reflective of the ongoing impact of these tax planning strategies.
Seasonality
The demand for the Company's human heart valve and conduit cryopreservation
services is seasonal, with peak demand generally occurring in the second and
third quarters. Management believes this trend for human heart valve and conduit
cryopreservation services is primarily due to the high number of surgeries
34
scheduled during the summer months. However, the demand for the Company's human
connective tissue of the knee cryopreservation services, human vascular tissue
cryopreservation services, bioprosthetic cardiovascular devices, and BioGlue
surgical adhesive does not appear to experience seasonal trends.
Liquidity and Capital Resources
At December 31, 2000 net working capital was $68.5 million, compared to $59.6
million at December 31, 1999, with a current ratio of 7 to 1. The Company's
primary capital requirements arise out of general working capital needs, capital
expenditures for facilities and equipment, funding of research and development
projects, and a common stock repurchase plan approved by the board of directors
in October of 1998. The Company historically has funded these requirements
through bank credit facilities, cash generated by operations, and equity
offerings.
Net cash provided by operating activities was $10.3 million in 2000, as compared
to net cash provided by operating activities of $1.3 million in 1999. This
increase primarily resulted from 1) an increase in net income, 2) a decrease in
accounts receivable despite increased revenues, 3) a reduction in the growth of
deferred preservation costs and inventories, and 4) an increase in the amount of
accounts payable due to the timing of payments of outstanding invoices,
partially offset by a decrease in accrued expenses.
Net cash used in investing activities was $6.6 million in 2000, as compared to
$3.6 million in 1999. This increase in cash used was primarily attributable to a
increase in capital expenditures due to the expansion of the Company's corporate
headquarters and manufacturing facilities, partially offset by an increase in
sales of marketable equity securities during 2000.
Net cash provided by financing activities was $7.8 million in 2000, as compared
to net cash used in financing activities of $4.5 million in 1999. This increase
was primarily attributable to the proceeds received on the bank line of credit
to finance the expansion of the Company's headquarters and manufacturing
facilities, a reduction in the Company's repurchase of treasury stock during
2000 and an increase in the proceeds from stock option exercises.
Management is currently seeking to complete a potential private placement of
equity or equity-oriented securities to form a subsidiary company for the
commercial development of its serine proteinase light activation technologies
through its wholly-owned subsidiary AuraZyme Pharmaceutical, Inc. This strategy,
if successful, will allow an affiliated entity to fund the light activation
technology and should expedite the commercial development of its blood clot
dissolving and surgical sealant product applications without additional research
and development expenditures by the Company (other than through the affiliated
company). This strategy, if successful, will favorably impact the Company's
liquidity going forward. The Company has ceased further material development of
light activation technology pending the identification of a corporate partner to
fund future development.
The Company anticipates that current cash and marketable securities, cash
generated from operations and its $10 million of bank facilities (of which $8.0
million was drawn as of March 31, 2001) will be sufficient to meet its operating
and development needs for at least the next 12 months, including the expansion
of the Company's corporate headquarters and manufacturing facilities. However,
the Company's future liquidity and capital requirements beyond that period will
depend upon numerous factors, including the timing of the Company's receipt of
FDA approvals to begin clinical trials for its products currently in
development, the resources required to further develop its marketing and sales
capabilities if and when those products gain approval, the resources required
for any additional expansion of its corporate headquarters and manufacturing
facility, and the extent to which the Company's products generate market
acceptance and demand. There can be no assurance the Company will not require
additional financing or will not seek to raise additional funds through bank
facilities, debt or equity offerings, or other sources of capital to meet future
requirements. These additional funds may not be available when needed or on
terms acceptable to the Company, which could have a material adverse effect on
the Company's business, financial condition, and results of operations.
35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company's interest income and expense are most sensitive to changes in the
general level of U.S. interest rates. In this regard, changes in U.S. interest
rates affect the interest earned on the Company's cash equivalents of $8.3
million and short-term investments of $17.8 million in municipal obligations as
of December 31, 2000, as well as interest paid on its debt. At March 31, 2001,
approximately $8 million of the Company's debt charged interest at a variable
rate. To mitigate the impact of fluctuations in U.S. interest rates, the Company
generally maintains approximately 50% (approximately $4.6 million at March 31,
2001) of its debt as fixed rate in nature. As a result, the Company is subject
to a risk that interest rates will decrease and the Company may be unable to
refinance its debt.
Item 8. Financial Statements and Supplementary Data.
The report of independent auditors and consolidated financial statements
included on pages 22 through 35 of the annual shareholders report for the year
ended December 31, 2000 are incorporated herein by reference. Quarterly Results
of Operations on page 36 of the annual shareholders report for the year ended
December 31, 2000 is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None required to be reported in the Form 10-K.
36
PART III
Item 10. Directors and Executive Officers of the Registrant.
The response to Item 10, applicable to the Directors of the Company, is
incorporated herein by reference to the information set forth under the caption
"Election of Directors" in the Proxy Statement for the Annual Meeting of
Shareholders to be filed with the Commission not later than April 30, 2001.
Information concerning executive officers is included in Part I, Item 4A of this
Form 10-K.
The response to Item 10, applicable to Section 16(a) of the Securities Exchange
Act of 1934, as amended, is incorporated herein by reference to the information
set forth under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement for the Annual Meeting of Shareholders to be
filed with the Commission not later than April 30, 2001.
Item 11. Executive Compensation.
The response to Item 11 is incorporated herein by reference to the information
set forth under the caption "Executive Compensation" in the Proxy Statement for
the Annual Meeting of Shareholders to be filed with the Commission not later
than April 30, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The response to Item 12 is incorporated herein by reference to the information
set forth under the captions "Ownership of Principal Shareholders and Certain
Executive Officers" and "Election of Directors" in the Proxy Statement for the
Annual Meeting of Shareholders to be filed with the Commission not later than
April 30, 2001.
Item 13. Certain Relationships and Related Transactions.
The response to Item 13 is incorporated herein by reference to the information
set forth under the caption "Executive Compensation" in the Proxy Statement for
the Annual Meeting of Stockholders to be filed with the Commission not later
than April 30, 2001.
37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The following are filed as part of this report:
(a) 1. Financial Statements
The report of independent public accountants and consolidated financial
statements included on pages 22 through 35 of the annual shareholders
report for the year ended December 31, 2000 are incorporated herein by
reference and the report of independent auditors for each of the two years
in the period ended December 31, 1998 is set forth below.
Report of Independent Auditors
The Board of Directors and Shareholders
CryoLife, Inc.
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of CryoLife, Inc. for the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated statements of income, shareholders' equity and
cash flows of CryoLife, Inc. referred to above present fairly, in all material
respects, the consolidated results of its operations and its cash flows for the
year ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Atlanta, GA
February 2, 1999
2. Financial Statement Schedule
Report of Independent Public Accountants on Schedule II
Schedule II--Valuation and Qualifying Accounts
All other financial statement schedules not listed above are omitted, as the
required information is not applicable or the information is presented in the
consolidated financial statements or related notes.
3. A. Exhibits
The following exhibits are filed herewith or incorporated herein by reference:
Exhibit
Number Description
- -------- -----------
2.1 Asset Purchase Agreement among the Company and United
Cryopreservation Foundation, Inc., United Transplant Foundation,
Inc. and QV, Inc. dated September 11, 1996. (Incorporated by
reference to Exhibit 2.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.)
2.2 Agreement and Plan of Merger dated as of March 5, 1997 among Ideas
for Medicine, Inc., J. CraytonPruitt, Sr., M.D., Thomas Benham,
Thomas Alexandris, Tom Judge, Natalie Judge, Helen Wallace,J.
Crayton Pruitt, Jr., M.D., and Johanna Pruitt, and CryoLife, Inc.
and CryoLife Acquisition Corporation. (Incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-Kfiled on
March 19, 1997.)
38
Exhibit
Number Description
- -------- -----------
2.3 Asset Purchase Agreement by and between Horizon Medical Products,
Inc. and Ideas for Medicine, Inc. dated September 30, 1998.
(Incorporated by reference to Exhibit 2 to Horizon Medical Products,
Inc.'s Current Report on Form 8-K filed with the Securities and
Exchange Commission on October 14, 1998.)
2.4*+ Asset Purchase Agreement, dated October 9, 2000, by and between
Horizon and IFM.
3.1 Restated Certificate of Incorporation of the Company. (Incorporated
by reference to Exhibit 3.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.)
3.2 ByLaws of the Company, as amended. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
3.3* Articles of Amendment to the Articles of Incorporation of the
Company.
4.1 Form of Certificate for the Company's Common Stock. (Incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).
4.2 Form of Certificate for the Company's Common Stock. (Incorporated by
reference to Exhibit 4.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.)
10.1 Lease, by and between New Market Partners III, Laing Properties,
Inc., General Partner, as Landlord, and the Company, as Tenant,
dated February 13, 1986, as amended by that Amendment to Lease, by
and between the parties, dated April 7, 1986, as amended by that
Amendment to Lease, by and between the parties, dated May 15, 1987,
as amended by that Second Amendment to Lease, by and between the
parties, dated June 22, 1988, as amended by that Third Amendment to
Lease, by and between the parties, dated April 4, 1989, as amended
by that Fourth Amendment to Lease, by and between the parties, dated
April 4, 1989 as amended by that Fifth Amendment to Lease, by and
between the parties, dated October 15, 1990. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.1(a) Seventh Amendment to Lease dated February 13, 1986, by and between
New Market Partners III, Laing Properties, Inc., General Partner, as
Landlord, and the Company as tenant, dated May 15, 1996.
(Incorporated by reference to Exhibit 10.1(a) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
10.2 Lease by and between Newmarket Partners I, Laing Properties, Inc.
and Laing Management Company, General Partner, as Landlord, and the
Company as Tenant, dated July 23, 1993. (Incorporated by reference
to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.)
10.3 1993 Employee Stock Incentive Plan adopted on July 6, 1993.
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993.)
10.4 1989 Incentive Stock Option Plan for the Company, adopted on March
23, 1989. (Incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
10.5 Incentive Stock Option Plan, dated as of April 5, 1984.
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1 (No. 33-56388).)
39
Exhibit
Number Description
- -------- -----------
10.6 Form of Stock Option Agreement and Grant under the Incentive Stock
Option and Employee Stock Incentive Plans. (Incorporated by
reference to Exhibit 10.4 to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.7 CryoLife, Inc. Profit Sharing 401(k) Plan, as adopted on December
17, 1991. (Incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
10.8 Form of Supplemental Retirement Plan, by and between the Company and
its Officers -- Parties to Supplemental Retirement Plans: Steven G.
Anderson, David M. Fronk, Sidney B. Ashmore, James C. Vander Wyk,
Albert E. Heacox, Kirby S. Black, and David Ashley Lee.
(Incorporated by reference to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1 (No. 33-56388).)
10.9(a) Employment Agreement, by and between the Company and Steven G.
Anderson. (Incorporated by reference to Exhibit 10.9(a) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
10.9(b) Employment Agreement, by and between the Company and Albert E.
Heacox. (Incorporated by reference to Exhibit 10.7(c) to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
10.9(c)* Employment Agreement, by and between the Company and D. Ashley Lee,
dated December 12, 1994.
10.9(d) Employment Agreement, by and between the Company and James C. Vander
Wyk, Ph.D. (Incorporated by reference to Exhibit 10.9(f) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
10.9(e) Employment Agreement, by and between the Company and Kirby S. Black,
Ph.D. (Incorporated by reference to Exhibit 10.9(g) to the
Registrant's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996.)
10.9(f) Employment Agreement, by and between the Company and David M. Fronk.
(Incorporated by reference to Exhibit 10.9(g) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.)
10.10 Form of Secrecy and Noncompete Agreement, by and between the Company
and its Officers. (Incorporated by reference to Exhibit 10.9 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
10.11 Terms of Agreement Between Bruce J. Van Dyne, M.D. and CryoLife,
Inc. dated November 1, 1999. (Incorporated by reference to Exhibit
10.11 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999.)
10.12 Technology Acquisition Agreement between the Company and Nicholas
Kowanko, Ph.D., dated March 14, 1996. (Incorporated by reference to
Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
40
Exhibit
Number Description
- -------- -----------
10.13 Option Agreement, by and between the Company and Duke University,
dated July 9, 1990, as amended by that Option Agreement Extension,
by and between the parties, dated July 9, 1991. (Incorporated by
reference to Exhibit 10.20 to the Registrant's Registration
Statement on Form S-1 (No. 33-56388).)
10.14 Research and License Agreement by and between Medical University of
South Carolina and CryoLife dated November 15, 1985, as amended by
Amendment to the Research and License Agreement dated February 25,
1986 by and between the parties and an Addendum to Research and
License Agreement by and between the parties, dated March 4, 1986.
(Incorporated by reference to Exhibit 10.23 to the Registrant's
Registration Statement on Form S-1 (No. 33-56388).)
10.15 CryoLife, Inc. Non-Employee Directors Stock Option Plan, as amended.
(Incorporated by reference to Appendix 2 to the Registrant's
Definitive Proxy Statement filed with the Securities and Exchange
Commission on April 17, 1998.)
10.16 Lease Agreement between the Company and Amli Land Development--I
Limited Partnership, dated April 18, 1995. (Incorporated by
reference to Exhibit 10.26 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)
10.16(a) First Amendment to Lease Agreement, dated April 18, 1995, between
the Company and Amli Land Development--I Limited Partnership dated
August 6, 1999. (Incorporated by reference to Exhibit 10.16(a) to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.)
10.16(b)* Restatement and Amendment to Funding Agreement between the Company
and Amli Land Development- I Limited Partnership, dated August 6,
1999.
10.18 CryoLife, Inc. Employee Stock Purchase Plan (Incorporated by
reference to Exhibit "A" of the Registrant's Definitive Proxy
Statement filed with the Securities and Exchange Commission on April
10, 1996.)
10.19 Noncompetition Agreement between the Company and United
Cryopreservation Foundation, Inc. dated September 11,1996.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.)
10.20 Noncompetition Agreement between the Company and QV, Inc. dated
September 11, 1996. (Incorporated by reference to Exhibit 10.3 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.)
10.21 Revolving Term Loan Facility between the Company and NationsBank
N.A., dated August 30, 1996. (Incorporated by reference to Exhibit
10.4 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.22 Technology License Agreement between the Company and Colorado State
University Research Foundation dated March 28, 1996. (Incorporated
by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.)
10.23 Noncompetition Agreement between the Company and United Transplant
Foundation, Inc. dated September 11, 1996. (Incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.)
10.24(a) First Amendment of Third Amended and Restated Loan Agreement between
CryoLife, Inc., as Borrower and NationsBank, N.A. (South), as
Lender, dated April 14, 1997. (Incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.)
10.24(b) Second Modification of Third Amended and Restated Loan Agreement
dated December 16, 1997 by and between the Registrant and
NationsBank, N.A. . (Incorporated by reference to Exhibit 4.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.)
41
Exhibit
Number Description
- -------- -----------
10.24 Fourth Modification of Third Amended and Restated Loan Agreement
dated December 16, 1997 by and between the Company and Bank of
America, N.A. and First Modification of Revolving Note dated
December 31, 1999. (Incorporated by reference to Exhibit 10.24 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999)
10.25 Reserved.
10.26 CryoLife, Inc. 1998 Long-Term Incentive Plan. (Incorporated by
reference to Appendix 2 to the Registrant's Definitive Proxy
Statement filed with the Securities and Exchange Commission on April
17, 1998.)
10.27 Consulting Agreement dated March 5, 1997 between CryoLife
Acquisition Corporation and J. Crayton Pruitt, Sr., M.D.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.)
10.28 Subordinated Convertible Debenture dated March 5, 1997 between the
Company and J. Crayton Pruitt, Sr., M.D. (Incorporated by reference
to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.)
10.29 Lease Agreement dated March 5, 1997 between the Company and J.
Crayton Pruitt, Sr., M.D. (Incorporated by reference to Exhibit 10.4
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.)
10.30 Lease Guaranty dated March 5, 1997 between J. Crayton Pruitt Family
Trust U/T/A and CryoLife, Inc., as Guarantor for CryoLife
Acquisition Corporation. (Incorporated by reference to Exhibit 10.5
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.)
10.31 Form of Non-Competition Agreement dated March 5, 1997 between the
Company and J. Crayton Pruitt, Sr., M.D., Thomas Benham, Thomas
Alexandris, Tom Judge, Natalie Judge, Helen Wallace, J. Crayton
Pruitt, Jr., M.D., and Johanna Pruitt. (Incorporated by reference to
Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.)
10.32 Standard Form of Agreements Between Owner and Design/Builder by and
between the Company and Choate Design and Build Company dated
January 19, 2000. (Incorporated by reference to Exhibit 10.32 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999)
10.33 Construction Loan and Permanent Financing Agreement with Bank of
America dated April 25, 2000. (Incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.)
10.34* Sublease Agreement between Horizon and IFM, dated October 9, 2000.
10.35* Terms of Agreement between Ronald C. Elkins, MD and CryoLife, Inc.,
dated November 7, 2000.
10.36* Rights Agreement between the Company and Chemical Mellon Shareholder
Services, L.L.C., as Rights Agent, dated as of November 27, 1995.
10.37* International Distribution Agreement, dated September 17, 1998,
between the Company and Century Medical, Inc.
13.1* Portions of the Registrant's Annual Report to Shareholders for the
year ended December 31, 2000 which are incorporated by reference
herein.
21.1* Subsidiaries of CryoLife, Inc.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Ernst & Young LLP.
- ---------------------
* Filed herewith.
+ In accordance with Item 601(b)(2) of Regulation S-K, the schedules and certain
exhibits have been omitted and a list of the schedules and exhibits is at the
end of the Exhibit. The Registrant will furnish supplementally a copy of any
omitted schedule or exhibit to the Commission upon request.
42
3. B. Executive Compensation Plans and Arrangements.
1. 1993 Employee Stock Incentive Plan adopted on July 6, 1993. (Exhibit
10.2 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.)
2. 1989 Incentive Stock Option Plan for the Company, adopted on March 23,
1989 (Exhibit 10.2 to the Registrant's Registration Statement on Form
S-1 (No. 33-56388).)
3. Incentive Stock Option Plan, dated as of April 5, 1984 (Exhibit 10.3
to the Registrant's Registration Statement on Form S-1 (No.
33-56388).)
4. Form of Stock Option Agreement and Grant under the Incentive Stock
Option and Employee Stock Incentive Plans (Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
5. CryoLife, Inc. Profit Sharing 401(k) Plan, as adopted on December 17,
1991 (Exhibit 10.5 to the Registrant's Registration Statement on Form
S-1 (No. 33-56388).)
6. Form of Supplemental Retirement Plan, by and between the Company and
its Officers-- Parties to Supplemental Retirement Plans: Steven G.
Anderson, Robert T. McNally, Gerald B. Seery, James C. Vander Wyk,
Albert E. Heacox, Kirby S. Black and Edwin B. Cordell, Jr. (Exhibit
10.6 to the Registrant's Registration Statement on Form S-1 (No.
33-56388).)
7. Employment Agreement, by and between the Company and Steven G.
Anderson. (Incorporated by reference to Exhibit 10.9(a) to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1998.)
8. Employment Agreement, by and between the Company and David M. Fronk.
(Incorporated by reference to Exhibit 10.9(g) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.)
9. Employment Agreement, by and between the Company and Albert E. Heacox.
(Exhibit 10.7(c) to the Registrant's Registration Statement on Form
S-1 (No. 33-56388).)
10. Employment Agreement, by and between the Company and Gerald B. Seery.
(Incorporated by reference to Exhibit 10.9(e) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.)
11. Employment Agreement, by and between the Company and James C. Vander
Wyk, Ph.D. (Incorporated by reference to Exhibit 10.9(f) to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1995.)
12. Employment Agreement, by and between the Company and D. Ashley Lee.
13. CryoLife, Inc. Non-Employee Directors Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.15 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.)
14. CryoLife, Inc. Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit "A" of the Registrant's Definitive Proxy
Statement filed with the Securities and Exchange Commission on April
10, 1996.)
15. Employment Agreement by and between the Company and Kirby S. Black
(Incorporated by reference to Exhibit 10.9(g) to the Registrant's
Annual Report on Form 10-K/A for the fiscal year ended December 31,
1996.)
16. CryoLife, Inc. 1998 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.34 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.)
17. Terms of Agreement Between Bruce J. Van Dyne, M.D. and CryoLife, Inc.,
dated November 1, 1999.
18. Terms of Agreement between Ronald C. Elkins, MD and CryoLife, Inc.,
dated November 7, 2000.
(b) Reports on Form 8-K
1. NONE.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CRYOLIFE, INC.
April 2, 2001
By /S/ STEVEN G. ANDERSON
--------------------------------------
Steven G. Anderson,
President, Chief Executive
Officer and Chairman of
the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ STEVEN G. ANDERSON President, Chief Executive Officer April 2, 2001
- ------------------------------- and Chairman of the Board of
Steven G. Anderson Directors (Principal Executive
Officer)
/s/ D. ASHLEY LEE Vice President and Chief Financial April 2, 2001
- ------------------------------- Officer (Principal Financial and
D. Ashley Lee Accounting Officer)
/s/ RONALD D. MCCALL Director April 2, 2001
- -------------------------------
Ronald D. McCall
/s/ VIRGINIA C. LACY Director April 2, 2001
- -------------------------------
Virginia C. Lacy
/s/ RONALD CHARLES ELKINS, M.D. Director April 2, 2001
- -------------------------------
Ronald Charles Elkins, M.D.
/s/ JOHN M. COOK Director April 2, 2001
- -------------------------------
John M. Cook
44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CryoLife, Inc.
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in CryoLife,
Inc.'s 2000 annual report to stockholders and this Form 10-K and have issued our
report thereon dated February 7, 2001. Our audit was made for the purpose of
forming an opinion on those financial statements taken as a whole. The schedule
listed in Item 14 of this Form 10-K is the responsibility of the Company's
management, is presented for purposes of complying with the Securities and
Exchange Commission's rules, and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 7, 2001
S-1
SCHEDULE II
CRYOLIFE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2000, 1999, and 1998
Balance beginning Balance end of
Description of period Additions Deductions Period
----------- ----------------- --------- ---------- ---------------
Year ended December 31, 2000
Allowance for doubtful accounts........... $ 528,000 $21,000 $464,000 $85,000
Deferred preservation costs............... 151,000 230,000 152,000 229,000
Year ended December 31, 1999
Allowance for doubtful accounts........... $ 256,000 $521,000 $249,000 $528,000
Deferred preservation costs............... 53,000 235,000 137,000 151,000
Year ended December 31, 1998
Allowance for doubtful accounts........... $ 103,000 $ 171,000 $ 18,000 $ 256,000
Deferred preservation costs............... 152,000 -- 99,000 53,000
S-2
1345392
Exhibit 2.4
================================================================================
ASSET PURCHASE AGREEMENT
by and between
HORIZON MEDICAL PRODUCTS, INC.
and
IDEAS FOR MEDICINE, INC.
October 9, 2000
================================================================================
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of October 9,
2000 by and between HORIZON MEDICAL PRODUCTS, INC., a Georgia corporation
("Horizon"), and IDEAS FOR MEDICINE, INC., a Florida corporation ("IFM").
W I T N E S S E T H:
WHEREAS, IFM is a wholly-owned subsidiary of CryoLife, Inc., a Florida
corporation ("CryoLife"), and is in the medical device manufacturing business
(the "Business");
WHEREAS, Horizon and IFM previously entered into that certain purchase
agreement, dated as of May 19, 1998 (the "First Purchase Agreement"), pursuant
to which Horizon purchased certain assets of IFM;
WHEREAS, Horizon and IFM previously entered into that certain purchase
agreement, dated as of September 30, 1998 (the "Second Purchase Agreement"),
pursuant to which Horizon purchased certain additional assets of IFM; and
WHEREAS, Horizon wishes to acquire substantially all of the remaining
assets of IFM, and IFM wishes to sell such assets, all on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, Horizon and IFM agree
as follows:
1. Purchase and Sale of Assets; Assumed Liabilities.
1.1 Purchase and Sale of Assets. On the Closing Date (as hereinafter
defined), upon and subject to the terms and conditions of this Agreement, IFM
shall sell, transfer, assign, convey, and deliver to Horizon, and Horizon shall
purchase and acquire from IFM all right, title and interest of IFM in and to all
of the assets, properties and rights of IFM, of every kind and description,
personal and mixed, tangible and intangible, wherever situated, except for the
Excluded Assets (as defined in Section 1.4) (collectively, the "Purchased
Assets"), free and clear of all mortgages, liens, pledges, security interests,
charges, claims, restrictions and encumbrances of any nature whatsoever, except
for the Assumed Liabilities (as defined in Section 1.7). The Purchased Assets
shall not include any assets previously purchased by Horizon pursuant to the
First Purchase Agreement or the Second Purchase Agreement.
1.2 Purchased Assets. Except as otherwise expressly set forth in
Section 1.4 hereof, the Purchased Assets shall include, without limitation, the
following assets, properties and rights of IFM:
(a) All of IFM's right, title and interest in and to its fixed assets,
as further described in Schedule 1.2(a) hereto, including, without
limitation, all production equipment, office equipment, dies, drawings and
other equipment used in the production, manufacture, sale, marketing or
distribution of products (the "Fixed Assets");
(b) All of IFM's right, title and interest in and to (1) all finished
goods inventory as of the close of business on the Closing Date, including,
without limitation, the items set forth on Schedule 1.2(b)(1) hereto, and
all containers and other packaging materials associated with such finished
goods inventory (the "Finished Goods Inventory"); and (2) all other
inventory, as further described in Schedule 1.2(b)(2) hereto, including,
without limitation, raw materials and work in process, whether located at
IFM's or CryoLife's facilities, in route to the sterilizer or other outside
vendors, or elsewhere (the "Other Inventory," and together with the
Finished Goods Inventory, collectively, the "Inventory").
(c) All leasehold improvements, as further described in Schedule
1.2(c) hereto, including, without limitation, clean rooms and air handling
equipment;
(d) All of IFM's right, title and interest in and to all United States
and foreign patents, patent application, tradenames, trademarks,
copyrights, trade dress, logos, business and product names, slogans,
inventions, trade secrets, industrial models, formulas, processes, designs,
confidential and technical information, manufacturing, engineering and
technical drawings, product specifications, know-how and all other material
intangible property and intellectual property rights to or similar to and
registrations and applications for registration relating to any of the
foregoing or licenses owned by IFM (collectively, "Intellectual Property")
including, without limitation, the items set forth on Schedule 1.2(d)
hereto;
(e) All of IFM's and/or CryoLife's rights and benefits pursuant to
those certain third-party contracts and agreements set forth on Schedule
1.2(e) hereto and incorporated herein by reference (the "Assigned
Contracts");
(f) All of IFM's right, title and interest in and to the "Ideas for
Medicine" and "IFM" names and any trademarks and tradenames, designs and
logos associated therewith; and
(g) All records and documents related to the Business or the Purchased
Assets, whether in paper, electronic or other media, including, without
limitation, all FDA 510(k) filings and other FDA filings, all drawings and
designs, all test protocols and results, all biocompatibility data, all
customer lists, sales brochures, medical records, all production records
and all other business records. IFM shall be entitled to keep a copy of all
such records and documents. IFM shall protect such records and documents
under the confidentiality provisions of Section 11.1 through the sixth
(6th) anniversary of the Closing Date and shall then promptly destroy all
of such records and documents with written notice to Horizon confirming
such destruction. After the destruction of such records and documents, IFM
will have access to such records and documents in Horizon's possession in
accordance with Section 6.8(b). Such records and documents will be used by
IFM solely for the preparation of the prosecution or the defense of any
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suit, action, litigation or administrative, arbitration or other proceeding
or investigation by or against IFM or CryoLife or for any third party claim
for which indemnification is claimed pursuant to the terms of Section 9
below, or for the preparation for the filing of any document required by
any federal, state or local governmental department, regulatory agency,
authority, commission, board or court.
1.3 Technical Files. At the Closing, IFM shall deliver to Horizon
copies of the technical file or dossier on the CE mark for each Product, which
copies shall include, without limitation, all paper and electronic files related
to IFM's products. IFM may redact from such copies any information pertaining to
the Excluded Products.
1.4 Excluded Assets. IFM shall retain and shall not sell or deliver to
Horizon, and Horizon shall not purchase from IFM, the following assets, all of
which shall be excluded from the Purchased Assets (collectively, the "Excluded
Assets"):
(a) All cash;
(b) All accounts receivable relating to or arising out of sales on or
before the Effective Date;
(c) Any rights including without limitation, all trade secrets, know
how and other intellectual property to the following products and their
related inventory and packaging (collectively, the "Excluded Products"):
(i) BioGlue applicator tip connector;
(ii) heart value holder;
(iii) BioGlue Aortic dissection catheters;
(iv) CryoValve tags; and
(v) Cardiac Manipulator for Minimally Invasive Surgical
Procedures;
(d) Any raw materials supplied by third parties, including, without
limitation, work in progress and finished goods inventory resulting from
such raw materials, to which title shall remain with such third party
supplier pursuant to an Assigned Contract;
(e) Accounts receivable resulting from work performed under the
Assigned Contracts prior to the Effective Date, as set forth in Schedule
1.4(e) hereto;
(f) Any packaging or other items bearing the "CryoLife" name;
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(g) Any materials, equipment, fixtures, dies and tooling listed on
Schedule 1.4(g) which are utilized in connection with the packaging and
manufacture of the Excluded Products;
(h) All packaging for and work in process and inventory of the
Excluded Products, including, without limitation, all BioGlue dispensers,
mixing tips and twist rings and connectors, all CryoPacks, and all CryoLife
Intermediates (also known as allograft packaging); and
(i) All equipment owned by third parties and listed on Schedule 1.4(i)
hereto, which shall continue to be owned by such third parties.
1.5 Liabilities Not Assumed. Except as expressly set forth in Section
1.7, Horizon shall not and will not accept or assume any liability or obligation
of any nature whatsoever (whether express or implied, fixed or contingent,
liquidated or unliquidated, known or unknown, accrued or to become due) of IFM
or CryoLife. Without limiting the generality of the foregoing, Horizon shall not
and will not accept nor assume any liability or obligation of IFM:
(a) arising from or related to any federal, state, or local income,
sales, use, excise, or other tax of IFM (including without limitation any
such taxes incurred by IFM as a result of the transactions contemplated
hereby), except as set forth in Section 1.7(c);
(b) relating to any employees or former employees of IFM arising by
reason of any such other person's employment or termination of employment
by IFM, except as expressly set forth in Section 6.5;
(c) resulting from the conduct of the Business on or prior to the
Closing Date, provided the foregoing shall not be deemed to limit IFM's
right to seek indemnification from Horizon under the Manufacturing
Agreement (as defined in Section 2.7);
(d) resulting from any product manufactured by IFM for Horizon
pursuant to the Manufacturing Agreement (the "HMP/IFM Products") which is
returned to Horizon or IFM prior to, on, or after the Closing Date if such
product (i) is defective as a result of a defect in the manufacture or
assembly thereof (and not as a result of any defect in the design or
specifications), and (ii) was sold by IFM, or is a part of the Finished
Goods Inventory (a "Defective HMP/IFM Product"), provided such defect is
not caused by the action or inaction of Horizon;
(e) resulting from IFM's production, manufacture and assembly of any
of IFM's products other than the HMP/IFM Products (the "Non-HMP Products")
on or prior to the Closing Date, including, without limitation, any
personal injury or product damage whether occurring prior to, on, or after
the Closing Date, caused by or through or arising as a result of the
marketing, sale, delivery, production, manufacture or assembly by IFM of
the Non-HMP Products;
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(f) resulting from any defective or damaged Non-HMP Product returned
to Horizon or IFM prior to, on, or after the Closing Date if such product
(i) was sold by IFM, or (ii) is a part of the Finished Goods Inventory (a
"Defective Non-HMP Product," and together with the Defective HMP/IFM
Products, collectively, the "Defective Products"), provided such defect or
damage is not caused by the action or inaction of Horizon; or
(g) resulting from IFM's lack of compliance with any applicable
federal, state, or local laws, rules, regulations, ordinances, or orders.
1.6 Valuation For Tax Reporting Purposes. IFM and Horizon agree that
Schedule 1.6, in which the parties have allocated the Purchase Price (as defined
below) among the Purchased Assets, has been jointly prepared by the parties
hereto. The parties agree to use Schedule 1.6 in preparing and filing their
respective Forms 8594 with the Internal Revenue Service and for all other
relevant federal and state income tax purposes. Each party will provide a copy
of the Form 8594 to the other party prior to filing. In the event the parties
are unable to agree on Schedule 1.6 as of the Closing, the parties shall agree
on such Schedule 1.6 within ninety (90) days of the Closing Date.
1.7 Assumption of Liabilities. On the Closing Date, Horizon shall
assume from IFM the following liabilities and obligations of IFM (the "Assumed
Liabilities"):
(a) the trade payables of IFM with respect to Inventory received after
the Effective Date and the trade payables of IFM arising in respect of the
provision of goods (excluding Inventory) or services on or after the
Effective Date;
(b) all ad valorem taxes on the Purchased Assets accruing on or after
the Effective Date; and
(c) the monetary obligations of IFM accruing on or after the Effective
Date under the Assigned Contracts and all other obligations or liabilities
under the Assigned Contracts accruing after the Closing Date.
2. Purchase Price; Refund of Purchase Price.
2.1 Purchase Price. In consideration for IFM's sale, transfer and
delivery of the Purchased Assets (as defined above) to Horizon, Horizon shall
deliver to IFM at Closing a promissory note in the form of Exhibit A hereto (the
"Note") in favor of IFM with a principal amount equal to Five Million Nine
Hundred Forty-Five Thousand Two Hundred Sixteen Dollars ($5,945,216) (the
"Purchase Price'). The terms of the Note shall be as follows:
(a) Three Million Eight Hundred Thousand Dollars ($3,800,000) of the
Note shall bear interest at the rate of nine percent (9%) per annum and
shall be payable in monthly installments of principal and interest of One
Hundred Forty Thousand Dollars ($140,000) per month until all principal and
interest due under the Note is paid in full.
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(b) Two Million One Hundred Forty-Five Thousand Two Hundred Sixteen
Dollars ($2,145,216) of the Note shall bear no interest so long as Horizon
makes all payments under the Note on a timely basis.
(c) If Horizon fails to make any payment under the Note on time, the
remaining principal balance of the Note shall bear interest at eighteen
percent (18%). If Horizon makes all payments on a timely basis without any
late or deficient payments until such time as the principal balance on the
Note is reduced (by payment, set-off, adjustment or otherwise) to Two
Million One Hundred Forty-Five Thousand Two Hundred Sixteen Dollars
($2,145,216), IFM shall forgive the remaining Two Million One Hundred
Forty-Five Thousand Two Hundred Sixteen Dollar ($2,145,216) principal
balance of the Note (the "Discount").
2.2. Scheduled Payment of Note. Horizon agrees to pay under the Note
the sum of One Million Dollars ($1,000,000) in cash (the "Scheduled Payment")
upon the earlier of (i) the closing of one or more equity financings which
result in consideration to Horizon of at least Fifteen Million Dollars
($15,000,000) in exchange for Horizon common and/or preferred stock (the "Equity
Financing") or (ii) April 3, 2001. In the event Horizon's pays the Scheduled
Payment prior to April 3, 2001, IFM shall forgive One Million Dollars
($1,000,000) of the principal amount of the Note in accordance with the terms of
the Note.
2.3. Physical Inventory.
(a) Horizon and IFM have taken a physical inventory of the Inventory
and Fixed Assets (the "Physical Inventory") prior to Closing. Based on the
Physical Inventory, the Purchase Price shall be adjusted as follows to
reflect the difference, if any, between (1) the estimated value of the
Inventory and the Fixed Assets totaling Three Million Three Hundred
Eighteen Thousand Three Hundred Twenty ($3,318,320) (the "Estimated Asset
Value"), and (2) the value of the Inventory and Fixed Assets reflected in
the Physical Inventory (the "Actual Asset Value").
(i) In the event that the Estimated Asset Value is greater than
the Actual Asset Value, the principal amount of the Note shall be
reduced to reflect the difference between the Estimated Asset Value
and the Actual Asset Value.
(ii) In the event that the Actual Asset Value is greater than the
Estimated Asset Value, the principal amount of the Note shall be
increased to reflect the difference between the Actual Asset Value and
the Estimated Asset Value.
(b) For purposes of determining the Actual Asset Value pursuant to
this Section 2.3, (i) the value of all raw materials, work in process and
finished goods inventory shall reflect IFM's fully absorbed cost which
shall be equal to the original cost of such Inventory, excluding any
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write-off or discount subsequently taken by IFM with respect thereto, and
(ii) the value of the Fixed Assets shall be the book value for such Fixed
Assets, calculated in accordance with generally accepted accounting
principles.
(c) In connection with the Purchase Price adjustment pursuant to this
Section 2.3, the Parties shall take into account the appropriate prorations
for the following items: utilities, phone service, deposits, rent, prepaid
items and employee compensation. IFM shall be responsible for all such
expenses incurred or accruing prior to October 1, 2000, and Horizon shall
be responsible for all such expenses incurred or accruing on or after
October 1, 2000.
(d) In the event that the parties are unable to agree on the amount of
the Purchase Price adjustment required pursuant to this Section 2.3, if
any, within twenty (20) days after the Closing Date, Horizon and IFM shall
engage an independent accounting firm ("IA") at such time, to determine the
amount of the Purchase Price adjustment. The cost of the IA shall be paid
equally by both parties. The decision of the IA shall be made within thirty
(30) days after being engaged and shall be final and binding on the
parties. In the event that Horizon and IFM are unable to agree on the IA by
the twentieth (20th) day after the Closing Date, any dispute under this
Section 2.3 shall be settled in accordance with the provisions of Section
2.4(b).
(e) Any adjustment to the Purchase Price required pursuant to this
Section 2.3 will be made against the principal balance of the Note. In the
event of such adjustment, IFM shall surrender the Note, and Horizon shall
execute and deliver to IFM an amended and restated Note that reflects such
adjustment. In such case, the original Note shall be canceled regardless of
any failure of IFM to deliver said Note, which failure shall not affect the
amendment and restatement of the Note. Any failure of Horizon to deliver an
amended and restated Note if required hereunder shall not affect the
obligation to make payments as required hereunder.
2.4 Refund for Damaged Finished Goods Inventory.
(a) IFM and CryoLife agree to reduce the principal amount of the Note
by the price paid by Horizon for any Defective Product in accordance with
this Section 2.4. On or before the ninetieth (90th) day after delivery of
the Inventory pursuant to Section 2.5, Horizon shall return all products
which are alleged to be Defective Products to IFM or CryoLife for
inspection with a description of the alleged defect or damage. If IFM
determines in good faith that a product is a Defective Product, IFM or
CryoLife shall agree to reduce the principal amount of the Note by the
price paid by Horizon for each such Defective Product. In the event of such
a reduction, IFM shall surrender the Note, and Horizon shall execute and
deliver to IFM or CryoLife an amended and restated note that reflects such
adjustment.
(b) Any dispute between the parties under this Section 2.4 shall be
settled by arbitration conducted in Atlanta, Georgia before and in
accordance with the then existing Rules for Commercial Arbitration of the
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American Arbitration Association, provided that only one arbitrator as
selected by the American Arbitration Association shall conduct any
arbitration proceeding. Any arbitration shall be final and binding. Any
judgment upon any interim or final award or order rendered by the
arbitrator may be entered by any federal or state court having jurisdiction
thereof. Each party in the arbitration proceeding shall bear its own costs
and expenses of investigating, preparing, and pursuing such arbitration
claim. The cost of the arbitration shall be borne by the non-prevailing
party which the arbitration will determine in such arbitration proceeding.
In the event that the arbitrator is unable to determine a prevailing and
non-prevailing party, the cost of arbitration will be shared equally.
2.5 Shipment of Finished Goods Inventory to Horizon. On or before the
sixtieth (60th) business day after the Closing Date, IFM will deliver the
Finished Goods Inventory which is located at any location (a "Storage Location")
other than the Premises (as defined in Section 4.7) to Horizon or its carrier
F.O.B. such Storage Location. IFM shall deliver such finished Goods Inventory at
such times and in such number of shipments as instructed by Horizon; provided,
however, that the number of shipments requested by Horizon shall not exceed four
(4) shipments.
2.6 Manufacturing Agreement. Horizon and IFM hereby agree to terminate
that certain Manufacturing Agreement dated as of September 30, 1998, by and
between Horizon and IFM (the "Manufacturing Agreement"), as of the Closing Date
and agree that the Manufacturing Agreement shall have no further force or effect
after the Closing Date; provided, however, that the provisions of Sections 6, 8,
9, 12, 14, 17, 18 and 19 of the Manufacturing Agreement shall survive such
termination. The parties acknowledge and agree that upon termination of the
Manufacturing Agreement as provided herein, (i) Horizon shall not owe any
further payment to IFM under the Manufacturing Agreement, (ii) Horizon shall not
be subject to any claims, liabilities, obligations, losses, costs, expenses,
penalties, fines or other judgments (at equity or at law) or damages
(collectively, "Damages"), whenever arising or incurred, arising out of or
relating to Horizon's default under the Manufacturing Agreement prior to the
date hereof, excluding Damages for which the other party is entitled to
indemnification pursuant to Section 6 thereof, and (iii) IFM shall not be
subject to any Damages, whenever arising or incurred, arising out of or relating
to default by IFM, if any, under the Manufacturing Agreement prior to the date
hereof, excluding Damages for which the other party is entitled to
indemnification pursuant to Section 6 thereof.
3. Closing.
3.1 Date and Place of Closing. The purchase and sale of the Purchased
Assets contemplated by this Agreement (the "Closing") shall occur at the offices
of King & Spalding at 191 Peachtree Street, Atlanta, Georgia on October 9, 2000
(the "Closing Date"). The term "Effective Date" as used in this Agreement shall
mean the opening of business on October 1, 2000.
3.2 Deliveries by IFM. At the Closing, IFM shall deliver or cause to
be delivered to Horizon the following:
8
(a) An executed copy of the Guaranty of CryoLife in the form of
Exhibit B hereto (the "CryoLife Guaranty");
(b) An executed copy of the Bill of Sale and General Assignment from
IFM in the form of Exhibit C hereto (the "Bill of Sale") conveying good and
marketable title to the Purchased Assets free and clear of all liens,
mortgages, pledges, security interests, restrictions, prior assignments,
charges, encumbrances, equities, and other claims of any kind or nature
whatsoever (collectively, "Encumbrances");
(c) An executed copy of the Assignment and Assumption Agreement in the
form of Exhibit D hereto (the "Assignment and Assumption Agreement")
assigning the Assigned Contracts to Horizon;
(d) A legal opinion of Arnall, Golden & Gregory, counsel to IFM, in
the form of Exhibit E hereto;
(e) An executed copy of the Sublease Agreement in the form of Exhibit
F hereto (the "Sublease Agreement");
(f) An executed copy of the Manufacturing, Assembly and Packaging
Agreement in the form of Exhibit G hereto (the "Manufacturing, Assembly and
Packaging Agreement"), pursuant to which Horizon shall provide certain
manufacturing, assembly and packaging services to CryoLife;
(g) An executed copy of the Transition Services Agreement in the form
of Exhibit H hereto (the "Transition Services Agreement"), whereby IFM and
CryoLife agree to continue to provide information technology, accounting
and laboratory services during the transition period;
(h) A certificate of IFM as required by Section 7.3 hereof;
(i) A certified copy of the corporate charter and bylaws of IFM, and
the resolutions of the Board of Directors of IFM and the shareholder(s) of
IFM authorizing the transactions contemplated by this Agreement;
(j) Certificates from the appropriate public officials evidencing
IFM's good standing in its state of incorporation and any other
jurisdiction in which IFM is qualified to conduct business;
(k) The written consent of each party to the Assigned Contracts
consenting to the assignment of such Assigned Contract if such consent is
required under such Assigned Contract;
(l) Actual possession and operating control of the Purchased Assets;
9
(m) A list of open purchase orders for materials purchased by IFM but
not yet received by IFM, together with any supporting materials relating to
such open purchase orders as Horizon shall reasonably request; and
(n) Such other instruments, assignments, terminations, releases, and
other instruments of transfer, assignment, and release of IFM as shall be
reasonably deemed necessary by Horizon to vest in Horizon good and
marketable title to the Purchased Assets, free and clear of any and all
Encumbrances.
3.3 Deliveries by Horizon. At the Closing, Horizon shall deliver or
cause to be delivered to IFM the following:
(a) The Purchase Price in the manner provided by Section 2 hereof,
(b) An executed copy of a Security Agreement in the form of Exhibit I
hereto evidencing a security interest in all of the Purchased Assets
purchased by Horizon to secure payment of the Note which will be junior in
priority to the security interests granted to secure (i) Horizon's
Obligations (as defined in that certain Amended and Restated Credit
Agreement dated as of May 26, 1998, among Horizon, Bank of America, N.A.
f/k/a NationsCredit Commercial Corporation ("Lendee"), and Stepic
Corporation, Horizon Acquisition Corp., and Strato/Infusaid Inc., as
Guarantors, as amended prior to or following the date hereof (collectively,
the "Credit Agreement")) under or in connection with the Credit Agreement,
as the Credit Agreement and/or such Obligations may be increased, renewed,
modified, extended or otherwise changed in the absolute discretion of
Lender, and (ii) any future bank indebtedness incurred by Horizon;
provided, however, that in no event shall the aggregate of subsections (i)
and (ii) above exceed Sixty-Five Million Dollars ($65,000,000) of principal
indebtedness, exclusive of interest, fees and other charges (collectively,
the "Bank Indebtedness").
(c) An executed copy of the Manufacturing, Assembly and Packaging
Agreement;
(d) An executed copy of the Transition Services Agreement;
(e) A legal opinion of King & Spalding, counsel to Horizon in the form
of Exhibit J hereto;
(f) A certificate of Horizon as required by Section 8.2 hereof;
(g) A certified copy of the corporate charter and bylaws of Horizon,
and the resolutions of the Board of Directors of Horizon authorizing the
transactions contemplated by this Agreement;
(h) A Certificate from the Secretary of State of Georgia evidencing
Horizon's good standing in the State of Georgia, and Certificates from any
states where Horizon is qualified to do business as a foreign corporation;
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(i) An executed copy of the Assignment and Assumption Agreement; and
(j) An executed copy of the Sublease Agreement.
4. Representations and Warranties of IFM. In order to induce Horizon to
enter into this Agreement and to consummate the transactions contemplated
hereunder, IFM represents and warrants to and covenants with Horizon that:
4.1 Organization and Good Standing. IFM is a corporation duly
organized, validly existing, and in good standing under the laws of Florida, and
has the requisite corporate power and authority to execute and deliver this
Agreement and all other documents, agreements, and certificates (collectively,
the "IFM Transfer Documents") which are required to be executed and delivered by
IFM pursuant to this Agreement and to perform in all respects its obligations
hereunder and thereunder. IFM is duly qualified or licensed to do business and
in good standing in each jurisdiction in which the nature of its business or the
character of the assets owned or leased by IFM makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not materially impair or adversely affect the transactions contemplated
hereunder. IFM has all of the necessary local, state, and federal licenses and
permits to carry on and operate the Business.
4.2 Due Authorization; Enforceability; No Conflict. The execution,
delivery, and performance of this Agreement and the IFM Transfer Documents have
been duly authorized by all requisite corporate action on the part of IFM. This
Agreement has been duly executed and delivered by IFM and constitutes, and each
of the IFM Transfer Documents when executed and delivered will constitute, valid
and binding obligations of IFM, enforceable in accordance with and subject to
their respective terms, except as limited by bankruptcy, insolvency,
reorganization, and similar laws affecting the enforcement of creditors' rights
or contractual obligations generally. Except as expressly described in Schedule
4.2, the execution, delivery, and performance by IFM of this Agreement and IFM
Transfer Documents, the assignment of IFM's rights under the Assigned Contracts,
and the consummation of the transactions contemplated hereby and thereby will
not:
(a) violate any provision of the Articles of Incorporation or bylaws
of IFM;
(b) result in the creation of any liens, security interests, or
encumbrances upon any of the Purchased Assets, assuming the consents set
forth on Schedule 4.2 are obtained;
(c) violate any provision of any judicial or administrative order,
award, judgment, or decree applicable to IFM;
(d) conflict with, result in a material breach of or constitute a
default under any agreement or instrument to which IFM is a party or by
which it is bound, assuming the consents set forth on Schedule 4.2 are
obtained;
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(e) violate, in any material respect, any applicable law, rule,
ordinance, or regulation applicable to IFM; or
(f) require IFM to obtain the consent, approval, or authorization of,
or require IFM to file with, any federal, state, or local governmental
authority or agency, any lender or lien holder, or other person or entity.
4.3 Litigation. There are no judicial or administrative actions,
suits, or proceedings or, to the knowledge of IFM, any investigations pending
against IFM or CryoLife which would, if adversely determined, prevent, hinder,
delay, or otherwise adversely affect the consummation of the transactions
contemplated hereby. IFM is not a party to or subject to the provisions of any
order, decree, or judgment of any court or of any governmental authority or
agency which may prevent, hinder, or otherwise adversely affect the consummation
of the transactions contemplated hereby. Except as expressly described in
Schedule 4.3, to the knowledge of IFM, there are no outstanding or pending
product liability, intellectual property infringement or other claims that have
been asserted against IFM, nor are there any outstanding or pending claims that
have been asserted against CryoLife arising out of or related to the Business or
the Purchased Assets.
4.4 Ownership of Assets.
(a) On the Closing Date, IFM will have, and upon completion of the
Closing will have conveyed to Horizon, good and marketable title to the
Purchased Assets, free and clear of any and all Encumbrances.
(b) All equipment and other items of tangible property and assets
which are included in the Purchased Assets are in good operating condition
and repair subject to normal wear and maintenance, and are usable in the
regular and ordinary course of business.
(c) There are no existing agreements, options, commitments or rights
with, of or to any person to acquire any of the assets, properties or
rights included in the Purchased Assets or any interest therein.
4.5 Tax Returns; Taxes. IFM has duly filed all federal, state, local
and foreign tax returns required to be filed by them, all such returns are
accurate in all material respects, and IFM has duly paid or made adequate
provisions for the payment of all taxes (including any interest, penalties and
additions to tax) which are due or payable pursuant to such returns or which
otherwise are due and payable in any jurisdiction, whether or not in connection
with such returns. There are no pending claims asserted for taxes of IFM or
outstanding agreements or waivers extending the statutory period of limitation
applicable to any tax return of IFM or outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax return of IFM
for any period that would affect the Business or the transaction contemplated by
this Agreement or any of IFM Transfer Documents. IFM has made all estimated
income tax deposits and all other required tax payments or deposits and have
complied for all prior periods in all material respects with the tax withholding
provisions of all applicable federal, state, local and other laws.
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4.6 Inventory. The Inventory is of good and usable quality and is
merchantable and saleable in the ordinary course of business.
4.7 Insurance. Schedule 4.7 hereto sets forth a true and correct
description of all insurance policies of any nature whatsoever maintained by
CryoLife or IFM on the date of this Agreement relating to the Business or any
property owned, leased or used by IFM (the "Premises"). Neither CryoLife nor IFM
has received notice of a cancellation with respect to such policies or of any
default thereunder. Each of IFM or CryoLife has complied in all material
respects with the terms and provisions of such policies. Within the past two
years, neither CryoLife nor IFM has been refused any basic insurance coverage
applied for with respect to the Business.
4.8. Intellectual Property. Except as expressly described on Schedule
4.8:
(a) No interference or infringement actions or other judicial or
adversary proceedings concerning any of such items of intangible personal
property are pending, and to the best of IFM's knowledge, no such action or
proceeding is threatened;
(b) To the best of IFM's knowledge, IFM has the right and authority to
use the Intellectual Property in connection with the conduct of the
Business in the manner presently conducted, and to the best of IFM's
knowledge, such use does not conflict with, infringe upon, or violate any
rights of any other person, firm, or corporation;
(c) There are no outstanding or, to the best of IFM's knowledge,
threatened disputes or other disagreements with respect to any of the
Intellectual Property;
(d) To the best of IFM's knowledge, there is no proprietary intangible
personal property used in any material respect in the operations of the
Business as presently conducted that is not owned by or licensed to IFM;
and
(e) To the best of IFM's knowledge, none of the Intellectual Property
is subject to any outstanding order, ruling, decree, judgment or
stipulation by or with any court, arbitrator, or administrative agency, nor
has any of the Intellectual Property been the subject of any litigation
involving IFM or CryoLife within the last four years, whether or not
resolved in favor of IFM.
4.9 Contracts. Schedule 4.9 hereto sets forth a true and correct list
of each contract pertaining to the Business (other than the Assigned Contracts
and the Manufacturing Agreement) to which IFM or CryoLife is a party
(collectively and together with the Assigned Contracts, but excluding the
Manufacturing Agreement, the "Contracts"). True, complete, and correct copies of
each of the Contracts, or where they are oral, true and complete written
summaries thereof, have been delivered to Horizon by IFM. Except as expressly
described on Schedule 4.9:
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(a) IFM has fulfilled all material obligations required pursuant to
each Contract to have been performed by IFM;
(b) There has not occurred any default under any of the Contracts on
the part of IFM or, to the best knowledge of IFM, on the part of any other
party thereto, nor has any event occurred which, with the giving of notice
or the lapse of time, or both, would constitute a default on the part of
IFM under any of the Contracts, nor, to the best of IFM's knowledge, has
any event occurred which, with the giving of notice or the lapse of time,
or both, would constitute a default on the part of any other party to any
of the Contracts;
(c) Except for the consents described on Schedule 4.2, no consent of
any party to any of the Contracts is required for the execution, delivery,
or performance of this Agreement or the consummation of the transactions
contemplated hereby; and
(d) All such Contracts are in full force and effect and enforceable
against IFM and each other party thereto.
4.10 Compliance with Law; FDA Matters.
(a) Except as set forth on Schedule 4.10(a), IFM has all material
authorizations, approvals, licenses and orders of and from all governmental
and regulatory offices, agencies, officers and bodies necessary to carry on
the Business as it is currently being conducted, to own or hold under lease
the properties and assets it owns or holds under lease and to perform all
of its obligations under all agreements to which it is a party
(collectively, the "Material Licenses"), and IFM has been and is in
compliance with all applicable laws, regulations and administrative orders
of any country, state or municipality or of any subdivision thereof to
which its business and its employment of labor or its use or occupancy of
properties or any part thereof are subject, the failure to obtain or the
violation of which would have a Material Adverse Effect (as defined in
Section 4.12(b)). Schedule 4.10(a) sets forth a true and complete list of
all Material Licenses.
(b) With respect to the Business and the Purchased Assets:
(i) IFM has been and is in compliance with all current and
otherwise applicable statutes, rules, regulations, standards, guides
or orders pertaining to the Purchased Assets (each a "Law" and
collectively the "Laws") administered or issued by the federal Food
and Drug Administration ("FDA") and all other federal, state, local or
foreign governmental departments, regulatory agencies, authorities,
commissions, boards or courts or other law, rule or regulation-making
entities having regulatory authority over CryoLife, IFM or the
Business (the "Authorities"), except for any such failure to comply
that would not have a Material Adverse Effect; and
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(ii) Except as set forth on Schedule 4.10(b)(ii), IFM has not
received any notice of adverse findings, warning letters, Section 305
notices, subpoenas or other similar communications by any Authorities
since September 30, 1998 related to the Purchased Assets.
(c) There have been no recalls, field notifications, alerts or
seizures requested or threatened relating to the Purchased Assets that
Horizon has not itself directed.
(d) IFM has made available to Horizon a copy of all its European Union
notified body's certifications and all FDA inspection reports ("Form
483's") or comparable reports of foreign authorities relating to the
Business, IFM's responses to such Form 483's or comparable foreign reports.
In addition, IFM will make available to Horizon information relating to
design dossiers for the Excluded Products during the term of the
Manufacturing, Assembly and Packaging Agreement.
(e) The representations and warranties set forth in this Section 4.10
shall not apply to any environmental matters with respect to which Section
4.17 shall solely apply.
4.11 Transactions with Affiliates. Except for the Contracts identified
on Schedule 4.11, no officer or director of IFM or CryoLife has any interest in:
(i) any contract, arrangement or understanding with, or relating to, the
Business or the Purchased Assets; (ii) any loan, arrangement, understanding,
agreement or contract for or relating to the Business or the Purchased Assets;
or (iii) any property (real, personal or mixed), tangible or intangible, used or
currently intended to be used in the Business.
4.12 Financial Statements, Absence of Changes, and Related Matters.
(a) IFM has delivered to Horizon (i) the unaudited balance sheets of
IFM as of December 31, 1999 and the related statements of revenues and
expenses for the fiscal years then ending; and (ii) the unaudited balance
sheet of IFM as of August 31, 2000 (the "Interim Balance Sheet") and the
related unaudited statements of revenues and expenses for the quarterly
period then ended (the "Interim Balance Sheet Date"). All of the foregoing
financial statements are hereinafter collectively referred to as the
"Financial Statements." The Financial Statements have been prepared from
and are in accordance with the books and records of IFM and present fairly
the financial position and results of operations of IFM, in accordance with
GAAP, as of the dates for the periods indicated.
(b) Since the Interim Balance Sheet Date, there has not been (i) any
material adverse effect upon the assets, liabilities, results of
operations, financial condition, business or prospects of the Business (a
"Material Adverse Effect"), (ii) any damage, destruction, loss or casualty
to property or assets of the Business, not covered by insurance which
property or assets are material to the Business, (iii) any liability or
obligation (absolute, accrued or contingent) incurred or any bad debt,
contingency or other reserve increased suffering, except, in each such case
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in the ordinary course of business and consistent with past practice, (iv)
any cancellation of any debts or waiver of any claims or rights of
substantial value, or sale, transfer or other disposition of any properties
or assets real, personal or mixed, tangible or intangible) of substantial
value relating to the Business, except in each such case in transactions in
the ordinary course of business and consistent with past practice, (v) any
transactions entered into other than in the ordinary course of business, or
(vi) any agreements to do any of the foregoing (other than this Agreement).
4.13 Hart-Scott-Rodino. No shareholder of CryoLife directly or
indirectly beneficially owns or has the right to vote 50% or more of the
outstanding voting securities of CryoLife, or, directly or indirectly, has the
right (whether by contract or otherwise) to elect 50% or more of the members of
the board of directors of CryoLife. The total assets (within the meaning of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) of CryoLife
are less than $100,000,000 in the aggregate.
4.14 Officers, Directors and Employees. Schedule 4.14 contains (a) a
true and complete list of all of the officers and directors of IFM, specifying
(i) their office, and (ii) their salary, bonuses, commissions and other
compensation programs paid by IFM, and (b) a true and complete list of all of
the employees of IFM as of the date hereof together with an appropriate notation
next to the name of any employee on such list with whom IFM has a written
employment agreement or to whom IFM has made verbal commitments which are
binding on IFM.
4.15 Employee Benefit Plans.
(a) Definition of Benefit Plans. For purposes of this Section 4.15,
the term "IFM Benefit Plan" means any plan, program, arrangement, fund,
policy, practice or contract which, through which or under which IFM or any
IFM ERISA Affiliate (as hereinafter defined) provides benefits or
compensation to or on behalf of employees or former employees of IFM or any
IFM ERISA Affiliate, whether formal or informal, whether or not written,
including but not limited to the following:
(i) Arrangements. Any bonus, incentive compensation, stock
option, deferred compensation, commission, severance pay, golden
parachute or other compensation plan or rabbi trust;
(ii) ERISA Plans. Any "employee benefit plan" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), including, but not limited to, any
multiemployer plan (as defined in Section 3(37) and Section 4001(a)
(3) of ERISA), defined benefit plan, profit sharing plan, money
purchase pension plan, 401(k) plan, savings or thrift plan, stock
bonus plan, employee stock ownership plan, or any plan, fund, program,
arrangement or practice providing for medical (including
post-retirement medical), hospitalization, accident, sickness,
disability, or life insurance benefits; and
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(iii) Other Employee Fringe Benefits. Any stock purchase,
vacation, scholarship, day care, prepaid legal services, dependent
care or other fringe benefit plans, programs, arrangements, contracts
or practices.
(b) IFM ERISA Affiliate. For purposes of this Section 4.15, the term
"IFM ERISA Affiliate" means each trade or business (whether or not
incorporated) which together with IFM is treated as a single employer under
Section 414(b), (c), (m) or (o) of the Internal Revenue Code (the "Code").
(c) Identification of Benefit Plans. Except for (i) those IFM Benefit
Plans identified in Schedule 4.15, and (ii) IFM Benefit Plans which have
been terminated and with respect to which neither IFM nor any IFM ERISA
Affiliate has any material financial, administrative or other liability,
obligation or responsibility, IFM neither maintains, nor have they at any
time established or maintained, nor have they at any time been obligated to
make, or otherwise made, contributions to or under or otherwise
participated in any IFM Benefit Plan.
(d) MEPPA Liability/Post-Retirement Medical Benefits/Defined Benefit
Plans/Supplemental Retirement Plans. Neither IFM, nor any IFM ERISA
Affiliate maintains, or has at any time established or maintained, or has
at any time been obligated to make, or made, contributions to or under any
multiemployer plan (as defined in Section 3(37) and Section 4001(a)(3) of
ERISA). IFM does not maintain, nor has at any time established or
maintained, nor has at any time been obligated to make, or made,
contributions to or under (i) any plan which provides post-retirement
medical or health benefits with respect to employees of IFM, (ii) any
organization described in Sections 501(c)(9) or 501(c)(20) of the Code,
(iii) any defined benefit pension plan subject to Title IV of ERISA.
(e) Compliance with Laws. Each IFM Benefit Plan is in material
compliance with the provisions of all applicable laws including, but not
limited to, ERISA and the Code with respect to the administration and
documentation of said plan. In addition, all medical benefit plans are in
material compliance with the provisions of the Consolidated Omnibus Budget
Reconciliation Act relating to the continuance of insurance coverage or
benefit coverage and with the requirements of the Health Insurance
Portability and Accountability Act.
(f) Qualified Status. Each IFM Benefit Plan that is an employee
benefit plan (within the meaning of Section 3(2) of ERISA) that is funded
through a trust or insurance contract or is a welfare benefit plan (within
the meaning of Section 3(l) of ERISA) funded through a trust has at all
times satisfied in all material respects, by its terms and in its
operation, all applicable requirements for an exemption from federal income
taxation under Section 501(a) of the Code. Neither IFM nor any IFM ERISA
Affiliate maintains or has previously maintained a IFM Benefit Plan which
meets or was intended to meet the requirements of Section 401(a) of the
Code except as disclosed on Schedule 4.15.
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(g) Legal Actions. There are no actions, audits, suits or claims which
are pending or, to the knowledge of IFM, threatened against any IFM Benefit
Plan, any fiduciary of any of IFM Benefit Plans with respect to IFM Benefit
Plans or against the assets of any of IFM Benefit Plans, except claims for
benefits made in the ordinary course of the operation of such plans.
(h) Funding. Each of IFM and each IFM ERISA Affiliate has made full
and timely payment of all amounts required to be contributed under the
terms of each IFM Benefit Plan and applicable law or required to be paid as
expenses under such IFM Benefit Plan, and no excise taxes are assessable as
a result of any nondeductible or other contributions made or not made to a
IFM Benefit Plan. The assets of all IFM Benefit Plans which are required
under applicable laws to be held in trust are in fact held in trust, and
the assets of each such IFM Benefit Plan equal or exceed the liabilities of
each such plan. The liabilities of each other plan are properly and
accurately reported on the financial statements and records of IFM. The
assets of each IFM Benefit Plan are reported at their fair market value on
the books and records of each plan.
(i) Liabilities. Neither IFM nor any IFM ERISA Affiliate is subject to
any material liability, tax or penalty to any person as a result of IFM's
or any ERISA Affiliate's engaging in a prohibited transaction under ERISA
or the Code, and IFM has no knowledge of any circumstances which reasonably
might result in any such material liability, tax or penalty as a result of
a breach of fiduciary duty under ERISA. No IFM Benefit Plan has suffered
any accumulated funding deficiency within the meaning of Section 302 of
ERISA and Section 412 of the Code. There is no lien upon any property of
IFM or any IFM ERISA Affiliate outstanding pursuant to Section 412(n) of
the Code in favor of any IFM Plan. No assets of IFM or any IFM ERISA
Affiliate have been provided as security to any IFM Plan pursuant to
Section 401 (a) (29) of the Code.
(j) CIGNA Plan. The only IFM Benefit Plan which provides healthcare
benefits to IFM employees is a fully insured, group health plan issued in
the State of Florida which IFM purchased from CIGNA HealthCare (the "CIGNA
Plan"). Except as set forth on Schedule 4.15(j), IFM pays 100% of the
premiums for each employee's coverage under the CIGNA Plan for each
calendar month (either in whole or in part from IFM's general assets or in
whole or in part from payroll deductions duly authorized by each affected
employee), and all such monthly premium for such coverage for each calendar
month are paid at the beginning of each such calendar month. CIGNA
HealthCare has no right to receive any payments from IFM or any IFM
employee for such coverage in addition to such monthly premium payments,
and IFM has no right to any refunds or rebates from CIGNA HealthCare with
respect to any such coverage.
4.16 Labor Relations. IFM is in material compliance with all federal
and state laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, and IFM is not engaged in any unfair
labor or unlawful employment practice. There is no unlawful employment practice
or discrimination charge pending before the Equal Employment Opportunity
Commission ("EEOC"), EEOC recognized state "referral agency" or any other
governmental agency. There is no unfair labor practice charge or complaint
against IFM pending before the National Labor Relations Board ("NLRB"). There is
no labor strike, dispute, slowdown or stoppage actually pending or, to the best
18
knowledge of IFM, threatened against or involving or affecting IFM and no NLRB
representation question exists respecting the employees of IFM. No grievance or
arbitration proceeding relating to the employees of IFM is pending, and, to the
knowledge of IFM, no written claim therefor exists with respect to any such
employees. There is no collective bargaining agreement that is binding on IFM.
4.17 Environmental Matters. To the best of IFM's knowledge, except as
disclosed on Schedule 4.17 and in the environmental report (the "Horizon
Environmental Report") done by Horizon on the Premises (as defined in Section
4.7 above) and except for such failure to comply that would not have a Material
Adverse Effect, IFM is in compliance with all statutes, regulations and
ordinances and common law requirements relating to hazardous substances and/or
the protection of human health and the environment including, without
limitation, the Clean Water Act, 33 U.S.C. ss. 1251 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., the Clean Air Act, 42
U.S.C. ss. 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et
seq., the Emergency Planning Community Right-to-Know Act, 42 U.S.C. ss. 11,001
et seq., the regulations developed pursuant to these statutes and the
corresponding state and local statutes, ordinances and regulations. To the best
of IFM's knowledge, except as disclosed on Schedule 4.17 and the Horizon
Environmental Report, IFM possesses all permits, authorizations, and other
governmental approvals and registrations required under any statute, law,
ordinance, regulation, or other legally binding requirement relating to
hazardous substances and/or the protection of human health and the environment
as are necessary for the continued operation of the Business, is in compliance
with all such permits, authorizations, and approvals, and no proceedings are
pending to revoke or modify such permits, authorizations, or approvals, except
for a failure, non-compliance, or proceeding that would not have a Material
Adverse Effect. To the best of IFM's knowledge, except as disclosed on Schedule
4.17 and the Horizon Environmental Report, there has been no release of a
"hazardous substance" as that term is defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601(14) into
the environment at the Premises, including, without limitation, any such release
in the soil or groundwater underlying or adjacent to the Premises, except for
such releases that would not have a Material Adverse Effect. To the best of
IFM's knowledge, except as disclosed on Schedule 4.17 and the Horizon
Environmental Report, there is no asbestos, polychlorinated biphenyls or
underground storage tank located on the Premises, and there have been no
releases at, on or under the Premises of asbestos, polychlorinated biphenyls or
materials stored in underground storage tanks, including, without limitation,
petroleum or petroleum-based materials, except for such releases that would not
have a Material Adverse Effect. IFM has not received written notice of and no
IFM officer has received any oral or written notice of any violation of any
environmental statute or regulation or other legal requirement pertaining to
environmental matters, nor has IFM been advised of any material claim or
liability pursuant to any environmental statute or regulation or other legal
requirement pertaining to environmental matters brought by any governmental
agency or private party.
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4.18 Property.
(a) To the best of IFM's knowledge, the structures owned or leased by
IFM are structurally sound, are in good and safe operating condition and
repair and are adequate for the uses to which they are being put, except
for maintenance performed in the ordinary course of business.
(b) Schedule 4.18(b) hereto sets forth a true and correct description
of each of the services provided to IFM by CryoLife.
4.19 Brokers. Neither IFM nor CryoLife has not retained, employed, or
dealt with any third-party broker, finder, or investment banker in connection
with this Agreement or the transactions contemplated hereby and no broker or
other third-party is entitled to any commission or finder's fee as a result of
any agreement or action taken by IFM or its affiliates in connection with such
transactions.
5. Horizon's Representations and Warranties. Horizon hereby represents and
warrants to IFM as follows:
5.1 Organization and Good Standing. Horizon is a corporation duly
organized, validly existing, and in good standing under the laws of Georgia, and
has the requisite corporate power and authority to execute and deliver this
Agreement and the documents, agreements, and certificates (collectively, the
"Horizon Transfer Documents") which are required to be executed and delivered by
Horizon pursuant to this Agreement and to perform in all respects its
obligations hereunder and thereunder.
5.2 Due Authorization; Enforceability; No Conflict. The execution,
delivery, and performance of this Agreement and the Horizon Transfer Documents
have been duly authorized by all requisite corporate action on the part of
Horizon. This Agreement has been duly executed and delivered by Horizon and
constitutes, and each of the Horizon Transfer Documents when executed and
delivered will constitute, the valid and binding obligation of Horizon,
enforceable in accordance with and subject to their respective terms, except as
limited by bankruptcy, insolvency, reorganization, and similar laws affecting
the enforceability of creditors' rights or contractual obligations generally.
Except as set forth on Schedule 5.2 attached hereto, the execution, delivery,
and performance by Horizon of this Agreement and the Horizon Transfer Documents
and the consummation of the transactions contemplated hereby and thereby will
not:
(a) Violate any provision of the Articles of Incorporation or bylaws
of Horizon;
(b) Violate any provision of any judicial, arbitral or administrative
order, award, judgment, or decree applicable to Horizon;
(c) Conflict with, result in a material breach of or constitute a
default under any agreement or instrument to which Horizon is a party or by
which it is bound;
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(d) Violate, in any material respect, any applicable law, rule,
ordinance, or regulation applicable to Horizon; or
(e) Require Horizon to obtain the consent, approval, or authorization
of, or require Horizon to file a certificate, notice, application, report
or other document with, any federal, state, or local governmental authority
or agency, lender, lien holder, or other person or entity.
5.3 Litigation. There are no judicial, arbitral, or administrative
actions, suits, or proceedings or, to the knowledge of Horizon, any
investigations pending against Horizon which would, if adversely determined,
prevent, hinder, delay, or otherwise adversely affect the consummation of the
transactions contemplated hereby. Horizon is not a party to or subject to the
provisions of any order, decree, or judgment of any court or of any governmental
agency which may prevent, hinder, or otherwise adversely affect the consummation
of the transactions contemplated hereby.
5.4 Brokers. Horizon has not retained, employed, or dealt with any
third-party broker, finder, or investment banker in connection with this
Agreement or the transactions contemplated hereby and no broker or other
third-party is entitled to any commission or finder's fee as a result of any
agreement or action taken by Horizon or its affiliates in connection with such
transactions.
5.5 Priority of Security Interest. Upon execution and delivery of the
Security Agreement, IFM shall obtain a valid lien against all the Purchased
Assets, prior to all other liens or encumbrances, including those which may
hereafter accrue, except for any security interests granted with respect to the
Bank Indebtedness. The current aggregate amount loaned and available for loan to
Horizon under the Bank Indebtedness is approximately Fifty Million Seven Hundred
Thousand Dollars ($50,700,000).
6. Covenants and Agreements of the Parties.
6.1 Horizon Access. Prior to the Closing, (i) authorized
representatives of Horizon shall have reasonable access to the properties,
books, records, employees and documents of IFM pertaining to the Business and
Purchased Assets, (ii) IFM will furnish to Horizon all information with respect
to the affairs of the Business that Horizon may reasonably request.
6.2 Cooperation in Litigation. Each party will fully cooperate with
the other in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the Business prior to or after the
closing Date (other than litigation arising out of the transactions contemplated
by this Agreement). Except as provided for by Section 9 hereof, the party
requesting such cooperation shall pay the out-of-pocket expenses (including
legal fees and disbursements) of the party providing such cooperation and of its
officers, directors, employees, and agents reasonably incurred in connection
with providing such cooperation, but shall not be responsible to reimburse the
party providing such cooperation for such party's time spent in such cooperation
or the salaries or cost of fringe benefits or other similar expenses paid by the
parties providing such cooperation to its officers, directors, employees, and
agents while assisting in the defense or prosecution of any such litigation or
proceeding.
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6.3 Conduct of Business. From the date of this Agreement and through
and including the Closing Date, (i) IFM shall conduct the Business in accordance
with prior practice and only in the ordinary course of business and (ii) shall
use its commercially reasonable efforts to preserve the Purchased Assets and to
preserve for Horizon, IFM's favorable business relationship with its customers
and others with whom business relationships exist. Without limiting the
generality of the foregoing, unless otherwise consented in writing by Horizon,
IFM shall:
(a) not produce finished goods inventory in excess of the quantity
that is needed to fill Horizon's purchase orders and sustain current
inventory levels;
(b) not purchase production equipment in excess of Twenty-Five
Thousand Dollars ($25,000);
(c) not purchase office equipment in excess of Ten Thousand Dollars
($10,000);
(d) not enter into any material transaction not in the ordinary course
of the Business;
(e) not sell or transfer any of its assets, except for sales in the
ordinary course of the Business;
(f) not pledge or encumber any of the Purchased Assets;
(g) not materially amend, modify, or terminate any material Contract
relating to the Business or the Purchased Assets;
(h) not reduce the amount of the Inventory other than in the ordinary
course of the Business;
(i) not make any material changes in its methods or business
operations relating to the Business or the Purchased Assets; and
(j) comply in all material respects with all Laws applicable to IFM,
the Business or the Purchased Assets.
6.4 CryoLife Projects. After the Closing, Horizon shall continue to
perform the work currently being performed by IFM for CryoLife, including (i)
the manufacturing and packaging of BioGlue dispensers, mixing tips and twist
rings, (ii) the preparation of packaging for allograft tissue, and (iii) the
preparation work for CryoLife's cryopaks, pursuant to the terms of the
Manufacturing, Assembly and Packaging Agreement in the form of Exhibit G hereto.
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6.5 Employees. On the Closing Date, IFM shall terminate the employment
of all employees of IFM, and Horizon shall rehire and engage only such employees
as designated on Schedule 6.5(a) (the "Retained Employees"); provided, however,
that the number of employees of IFM who do not become Retained Employees shall
not exceed forty-nine (49) employees. Horizon agrees to pay the retention bonus
amounts earned by the Retained Employees as set forth in the contracts listed on
Schedule 6.5(b) up to an aggregate amount of $62,123.24, plus any amount
resulting from an increase in any Retained Employee's compensation on or after
October 9, 2000. Horizon shall have no responsibility to pay any Retained
Employee any separation benefit or severance compensation if Horizon should
terminate the Retained Employee prior to December 1, 2000, except to the extent
that such separation benefit or severance compensation results from any increase
in any Retained Employee's compensation after October 9, 2000. Horizon shall
continue the CIGNA Plan (as defined in Section 4.15(j)) under Horizon's name
through the end of the current policy year for all Retained Employees. After the
current policy year, Horizon shall continue the CIGNA Plan on a month-to-month
basis until the Retained Employees are added to the Horizon group health plan.
IFM shall take such steps as reasonably requested by Horizon to assign to
Horizon IFM's rights and interests as the employer under the CIGNA Plan as of
the Closing Date. All other liabilities and obligations arising from employment
or termination of IFM employees who are not engaged by Horizon shall be the
responsibility of IFM or CryoLife. All liabilities and obligations accruing
after Closing relating to the Retained Employees shall be the responsibility of
Horizon, and all liabilities and obligations relating to the Retained Employees
accruing prior to Closing shall be the responsibility of IFM or CryoLife, except
with respect to the payment of employee compensation that is prorated pursuant
to Section 2.3(c) and as otherwise set forth herein. Notwithstanding the
foregoing, Bill Wright shall become an employee of CryoLife, and Horizon shall
not be responsible for any obligations or liabilities arising from the
termination of Mr. Wright as an IFM employee. Mr. Wright's services shall be
made available without cost to Horizon by CryoLife for a period of six (6)
months following the Closing Date to assist with the transition of the Purchased
Assets from IFM to Horizon. Mr. Wright shall make available to Horizon such
information concerning the Business or the Purchased Assets as Horizon shall
request.
6.6 Transition Services. IFM and CryoLife agree to provide information
technology services, accounting assistance and laboratory services to Horizon at
cost for a period of transition as provided in the Transition Services Agreement
in the form of Exhibit H hereto.
6.7 Current Information. IFM will advise Horizon and Horizon will
advise IFM in writing immediately, but in any event prior to the Closing, of:
(a) the occurrence of any event which renders any of the
representations or warranties set forth herein materially inaccurate or the
awareness of either Horizon or IFM that any representation or warranty set
forth herein was not materially accurate when made;
(b) any fact that, if existing or known on the date hereof, would have
been required to be set forth or disclosed in or pursuant to this
Agreement; and
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(c) the failure of any party hereto to comply with or accomplish any
of the covenants or agreements set forth herein.
6.8 Access.
(a) IFM and CryoLife shall reasonably cooperate with Horizon after the
Closing Date so that Horizon has access to any information relating to the
Business or the Purchased Assets as is reasonably necessary (but only to
the extent necessary) for (i) the preparation for or the prosecution or
defense of any suit, action, litigation, or administrative, arbitration, or
other proceeding or investigation by or against Horizon or for any third
party claim for which indemnification is claimed pursuant to the terms of
Section 9 below, (ii) the preparation and filing of any tax return or
election relating to the Business or the Purchased Assets and any audit by
any taxing authority relating thereto, (iii) the preparation and auditing
of Horizon's financial statements, or (iv) the preparation and filing of
any other document required by any federal, state, or local governmental
department, regulatory agency, authority, commission, board, or court. The
access contemplated by this provision shall be during normal business hours
and upon not less than two (2) business days prior written request.
(b) Horizon shall reasonably cooperate with IFM and CryoLife after the
Closing Date so that IFM has access to information and documentation
concerning the Purchased Assets as is necessary (but only to the extent
necessary) for (i) the preparation for or the prosecution or the defense of
any suit, action, litigation, or administrative, arbitration, or other
proceeding or investigation by or against IFM or CryoLife or for any third
party claim for which indemnification is claimed pursuant to the terms of
Section 9 below, (ii) the preparation and filing of any tax return or
election relating to the Business and any audit by any taxing authority
relating thereto, or (iii) the preparation and filing of any other document
required by any federal, state, or local governmental department,
regulatory agency, authority, commission, board, or court. The access
contemplated by this provision shall be during normal business hours and
upon not less than two (2) business days' prior written request.
6.9 Product Liability Insurance. The parties acknowledge and agree
that IFM's obligation to maintain product liability insurance pursuant to
Section 6.6 of the Second Purchase Agreement and Horizon's obligation to
maintain product liability insurance pursuant to Section 18 of the Manufacturing
Agreement shall remain in effect following the execution of this Agreement, in
accordance with the terms of the Second Purchase Agreement and the Manufacturing
Agreement, respectively. In addition, the insurance that IFM maintains pursuant
to Section 6.6 of the Second Purchase Agreement shall cover all products
manufactured by IFM prior to the Closing Date, including, without limitation,
the Excluded Products, in addition to the Products and the Products Business (as
defined in the Second Purchase Agreement).
6.10 Public Announcements. The timing and content of all announcements
regarding any aspect of this Agreement or the transactions contemplated hereby
to the financial community, government agencies, employees or the general public
shall be agreed upon among the parties hereto in advance (unless Horizon or IFM
is advised by counsel that any such announcement or other disclosure not
mutually agreed upon in advance is required to be made by law or applicable rule
of the American Stock Exchange and/or the New York Stock Exchange and then only
after making a reasonable attempt to comply with the provisions of this
Section).
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6.11 Labeling. All Products (as defined in the Second Purchase
Agreement) shall be labeled as follows:
(a) all Products labeled on or prior to the Closing Date (including
all Finished Goods Inventory and labeled work in process) shall bear labels
including the IFM and CryoLife names, and CryoLife grants Horizon a license
to use its name and trademarks in the sale and distribution of such
Products;
(b) all Products labeled after the Closing Date and on or prior to the
sixtieth (60th) day following the Closing Date shall bear labels including
the IFM and CryoLife names; provided, however, that Horizon shall mark out
the CryoLife name on such labels; and
(c) all Products labeled after the sixtieth (60th) day following the
Closing Date shall bear labels which do not include the CryoLife name.
7. Conditions Precedent to Horizon's Obligations. Unless otherwise waived
by Horizon, the obligations of Horizon under this Agreement are subject to the
fulfillment on or before the Closing Date of each of the following conditions:
7.1 Approvals. Horizon's obligations to purchase the Purchased Assets
are subject to:
(i) approval by the Board of Directors of Horizon,
(ii) approval by the Board of Directors of CryoLife,
(iii) approval by Horizon's lender, Bank of America, N.A., and
(iv) consent by Secret Promise, Ltd. to the Sublease Agreement.
7.2 Encumbrances. IFM shall have delivered to Horizon evidence, in
form and substance reasonably satisfactory to Horizon, that IFM has not created
any Encumbrances and that no Encumbrances then exist on the Purchased Assets.
7.3 Representations, Warranties, and Covenants. The representations
and warranties of IFM contained in this Agreement shall be true and correct in
all material respects at and as of the date hereof and at and as of the Closing
Date with the same force and effect as though made at and as of the Closing
Date, except for changes therein as may be specifically contemplated by this
Agreement. IFM shall have duly performed and complied in all material respects
with all agreements and conditions required by this Agreement to be performed or
complied with by it prior to or on the Closing Date. IFM shall have delivered to
Horizon a certificate dated as of the Closing Date to the foregoing effect.
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7.4 Litigation Affecting Closing. There shall not be pending or
threatened any action or proceeding for any injunction, writ, or preliminary
restraining order, or for any order of any court, governmental agency, or
arbitrator, domestic or foreign, federal, state, or local, of competent
jurisdiction, or any investigation or examination which might result in such an
action or proceeding, directing that the sale of the Purchased Assets to Horizon
or any of the other transactions contemplated by this Agreement not be
consummated or otherwise challenging the legality thereof, and there shall not
be in effect on the Closing Date any such injunction, writ, or preliminary
restraining order or such other order.
7.5 Closing Deliveries. At the Closing, IFM shall have delivered to
Horizon such instruments, documents, and certificates as are required pursuant
to Section 3.2 hereof.
7.6 No Damage, etc. Between the date of this Agreement and the Closing
Date, there shall not have occurred any damage or destruction of, or loss to,
any of the Purchased Assets, whether or not covered by insurance, which has had
or may reasonably be expected to have a Material Adverse Effect, nor shall there
have occurred any other event or condition which has had or which reasonably may
be expected to have a Material Adverse Effect.
7.7 Consents. IFM shall have obtained all necessary consents and
approvals as set forth on Schedule 4.2, if any.
7.8 Corporate Action. All corporate action necessary by IFM to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have duly and validly
taken.
8. Conditions Precedent to IFM's Obligations. Unless otherwise waived by
IFM, the obligations of IFM under this Agreement are subject to the fulfillment
on or before the Closing Date of each of the following conditions:
8.1 Approvals. IFM's obligation to sell the Purchased Assets is
subject to:
(i) approval by the Board of Directors of CryoLife,
(ii) approval by the Board of Directors of Horizon,
(iii) approval by CryoLife's lender, and
(iv) consent by Secret Promise, Ltd. to the Sublease Agreement.
8.2 Representations, Warranties, and Covenants. The representations
and warranties of Horizon contained in this Agreement shall be true and correct
in all material respects at and as of the Closing Date with the same force and
effect as though made at and as of the Closing Date, except for such changes
therein as may be specifically contemplated by this Agreement. Horizon shall
have duly performed and complied in all material respects with all agreements
and conditions required by this Agreement to be performed or complied with by it
prior to or on the Closing Date. Horizon shall have delivered to IFM a
certificate dated the Closing Date to the foregoing effect.
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8.3 Litigation Affecting Closing. There shall not be pending or
threatened any action or proceeding for any injunction, writ, or preliminary
restraining order, or for any order of any court, governmental agency, or
arbitrator, domestic or foreign, federal, state, or local, of competent
jurisdiction, or any investigation or examination which might result in such an
action or proceeding, directing that the sale of the Purchased Assets to Horizon
or any of the other transactions contemplated by this Agreement not be
consummated or otherwise challenging the legality thereof, and there shall not
be in effect on the Closing Date any such injunction, writ, or preliminary
restraining order or such other order.
8.4 Closing Deliveries. At the Closing, Horizon shall have delivered
to IFM such instruments, documents, certificates, and payments as are required
pursuant to Section 3.3 hereof.
8.5 Consents. Horizon shall have obtained all necessary consents and
approvals as set forth on Schedule 5.2, if any.
8.6 Corporate Action. All corporate action necessary by Horizon to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby shall have duly and validly
taken.
9. Indemnification.
9.1. Indemnification Obligations of IFM. From and after the Closing,
IFM shall indemnify and hold harmless Horizon, its officers and directors, and
each of the successors and assigns of any of the foregoing (collectively, the
"Horizon Indemnified Parties") from, against and in respect of any and all
claims, liabilities, obligations, losses, costs, expenses, penalties, fines and
other judgments (at equity or at law) and damages whenever arising or incurred
(including, without limitation, amounts paid in settlement, costs of
investigation and reasonable attorneys' fees and expenses) (collectively
"Damages") arising out of or relating to: (a) any and all liabilities and
obligations of IFM of any nature whatsoever, except the Assumed Liabilities; (b)
any and all actions, suits, claims, or legal, administrative, arbitration,
governmental or other proceedings or investigations against any Horizon
Indemnified Party that relate to IFM, the Business or the Purchased Assets to
the extent the principal event giving rise thereto (i) occurred on or prior to
the Closing Date or (ii) resulted from or arose out of any action or inaction of
IFM after the Closing Date; (c) any breach of any representation, warranty,
covenant, agreement or undertaking made by IFM in this Agreement or in any of
the IFM Transfer Documents; or (d) any fraud, willful misconduct, bad faith or
any intentional breach of any representation, warranty, covenant, agreement or
undertaking made by IFM in this Agreement or the IFM Transfer Documents.
9.2 Indemnification Obligations of Horizon. From and after the
Closing, Horizon shall indemnify and hold harmless IFM and CryoLife and their
officers and directors, and each of the successors and assigns of any of the
foregoing (collectively, the "IFM Indemnified Parties") from, against and in
respect of any and all Damages arising out of or relating to: (a) any failure of
Horizon to perform or discharge any Assumed Liabilities; (b) any and all
actions, suits, claims, or legal, administrative, arbitration, governmental or
other proceedings or investigations against any IFM Indemnified Party that
relate to Horizon or the conduct by Horizon of the Business to the extent the
principal event giving rise thereto resulted from or arose out of any action or
27
inaction of Horizon after the Closing Date; (c) any breach of any
representation, warranty, covenant, agreement or undertaking made by Horizon in
this Agreement or in any of the Horizon Transfer Documents; or (d) any fraud,
willful misconduct, bad faith or any intentional breach of any representation,
warranty, covenant, agreement or undertaking made by Horizon in this Agreement
or any of the Horizon Transfer Documents.
9.3 Indemnification Procedure.
(a) Promptly after receipt by a Horizon Indemnified Party or an IFM
Indemnified Party (hereinafter collectively referred to as an "Indemnified
Party") of notice by a third party of any complaint or the commencement of
any action or proceeding with respect to which indemnification is being
sought hereunder, such Indemnified Party shall notify Horizon or IFM,
whoever is the appropriate indemnifying party hereunder (the "Indemnifying
Party"), of such complaint or of the commencement of such action or
proceeding; provided, however, that the failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party from liability
for such claim arising otherwise than under this Agreement and such failure
to so notify the Indemnifying Party shall relieve the Indemnifying Party
from liability which the Indemnifying Party may have hereunder with respect
to such claim only to the extent that, such failure to notify the
Indemnifying Party results in the forfeiture by the Indemnifying Party of
rights and defenses otherwise available to the Indemnifying Party with
respect to such claim. The Indemnifying Party shall have the right, upon
written notice to the Indemnified Party, to assume the defense of such
action or proceeding, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of the fees and
disbursements of such counsel. In the event, however, that the Indemnifying
Party declines or fails to assume the defense of the action or proceeding
or to employ counsel reasonably satisfactory to the Indemnified Party, in
either case in a timely manner, then such Indemnified Party may employ
counsel to represent or defend it in any such action or proceeding and the
Indemnifying Party shall pay the reasonable fees and disbursements of such
counsel as incurred; provided, however, that the Indemnifying Party shall
not be required to pay the fees and disbursements of more than one counsel
for all Indemnified Parties in any jurisdiction in any single action or
proceeding. In any action or proceeding with respect to which
indemnification is being sought hereunder, the Indemnified Party or the
Indemnifying Party, whichever is not assuming the defense of such action,
shall have the right to participate in such litigation and to retain its
own counsel at such party's own expense. The Indemnifying Party or the
Indemnified Party, as the case may be, shall at all times use reasonable
efforts to keep the Indemnifying Party or the Indemnified Party, as the
case may be, reasonably apprised of the status of the defense of any action
the defense of which they are maintaining and to cooperate in good faith
with each other with respect to the defense of any such action.
(b) No Indemnified Party may settle or compromise any claim or consent
to the entry of any judgment with respect to which indemnification is being
sought hereunder without the prior written consent of the Indemnifying
Party, unless such settlement, compromise or consent includes an
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unconditional release of the Indemnifying Party from all liability arising
out of such claim. An Indemnifying Party may not, without the prior written
consent of the Indemnified Party, settle or compromise any claim or consent
to the entry of any judgment with respect to which indemnification is being
sought hereunder unless such settlement, compromise or consent includes an
unconditional release of the Indemnified Party from all liability arising
out of such claim and does not contain any equitable order, judgment or
term which in any manner affects, restrains or interferes with the business
of the Indemnified Party or any of the Indemnified Party's respective
affiliates.
(c) In the event an Indemnified Party shall claim a right to payment
pursuant to this Agreement, such Indemnified Party shall send written
notice of such claim to the appropriate Indemnifying Party. Such notice
shall specify the basis for such claim. As promptly as possible after the
Indemnified Party has given such notice, such Indemnified Party and the
appropriate Indemnifying Party shall establish the merits and amount of
such claim (by mutual agreement, litigation, arbitration or otherwise).
Within five (5) business days of the final determination of the merits and
amount of such claim, the Indemnifying Party shall deliver to the
Indemnified Party in immediately available funds an amount equal to such
claim as determined hereunder; provided, however, that to the extent any
such claim arising out of Section 9.1 of this Agreement does not involve a
payment by Horizon to any third party (including attorneys' fees incurred
by Horizon), an amount equal to such claim shall instead (i) be set off
against the monthly obligations of Horizon to pay principal and interest
under the Note as such monthly payments become due, and (ii) be delivered
to the Horizon Indemnified Party in immediately available funds to the
extent that such claim exceeds the remaining principal and interest due
under the Note.
9.4 Claims Period. Except as provided in this Section 9.4, no claim
for indemnification under this Agreement, including, but not limited to claims
for indemnification or breach of warranty or covenants, may be asserted by an
Indemnified Party after the expiration of the appropriate claims period (the
"Claims Period") which shall commence on the Closing Date and shall terminate
eighteen (18) months after the Closing Date; provided, however, that (a) the
Claims Period with respect to Damages arising under Sections 4.1, 4.2., 4.4,
4.5, 4.15, 5.1, 5.2, 5.5, 9.1(a), (b), and (d), and 9.2(a), (b) and (d) of this
Agreement shall commence on the Closing Date and shall survive and remain in
effect without limitation until the expiration of the applicable statute of
limitations period, (b) the Claims Period with respect to Damages arising under
Section 4.17 of this Agreement shall commence on the Closing Date and shall
survive and remain in effect without limitation until the fifth (5th)
anniversary of the Closing Date, (c) the obligation of Horizon to pay, perform
and discharge the Assumed Liabilities shall survive until such liabilities have
been paid, performed and discharged, and (d) if prior to the close of business
on the last day of the Claims Period, an Indemnifying Party shall have been
properly notified of a claim for Indemnity hereunder and such claim shall not
have been finally resolved or disposed of at such date, the basis of such claim
shall continue to survive with respect to such claim and shall remain a basis
for indemnity hereunder with respect to such claim until such claim is finally
resolved or disposed of in accordance with the terms hereof.
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9.5 Liability Limits. Notwithstanding anything to the contrary set
forth herein:
(a) IFM shall be liable to Horizon Indemnified Parties and Horizon
shall be liable to IFM Indemnified Parties for Damages only to the extent
that any such Damages exceed, in the aggregate, Fifteen Thousand Dollars
($15,000) (the "Basket Amount"); provided, however, that Damages arising
under or pursuant to Sections 4.1, 4.2, 4.4, 4.5, 4.15, 5.1, 5.2, 5.5,
9.1(a), (b) and (d) and 9.2(a), (b) and (d) shall not be subject to Basket
Amount, nor shall the amount of any such Damages or indemnification be
included in determining whether such Basket Amount has been reached.
(b) Cap Amount.
(i) The indemnification obligations of IFM or Horizon hereunder
shall not exceed Three Million Eight Hundred Thousand Dollars
($3,800,000) (the "Cap Amount"). Notwithstanding the first sentence of
this Section 9.5(b)(i), the Cap Amount shall be increased to Five
Million Nine Hundred Forty-Five Thousand Two Hundred Sixteen Dollars
($5,945,216) in the event that Horizon becomes ineligible for any
reason to receive the Discount (as defined in Section 2.1(c)). Except
to the extent that any claim arising out of Section 9.1 of this
Agreement involves a payment by Horizon to any third party (including
attorneys' fees incurred by Horizon), in no event shall the aggregate
amount of funds that may be paid by CryoLife and IFM pursuant to their
indemnification obligations hereunder exceed (a) the aggregate amount
of principal and interest payments received by IFM from Horizon under
the Note, plus (b) any amount offset by Horizon against the Note
pursuant to Section 9.3(c) as a result of any claim covered by Section
9.5(b)(ii).
(ii) Notwithstanding the provisions of Section 9.5(b)(i), any
Damages arising under or pursuant to Sections 4.1, 4.2, 4.4, 4.5,
4.15, 5.1, 5.2, 5.5, 9.1(a), (b) and (d), and 9.2(a), (b), and (d)
shall not be subject to the Cap Amount, and there shall be no
limitation on the indemnification obligations of IFM or Horizon with
respect to Damages or indemnification arising under or pursuant to
such Sections.
(c) Neither Horizon nor IFM shall be liable under this Agreement for
any Damages arising out of or relating to the Port Business (as that term
is defined in the First Purchase Agreement) and the provisions of this
Section 9 shall neither extend nor limit the indemnification provided by
the First Purchase Agreement.
(d) Neither Horizon nor IFM shall be liable under this Agreement for
any Damages arising out of or relating to the Products Business (as that
term is defined in the Second Purchase Agreement) and the provisions of
this Section 9 shall neither extend nor limit the indemnification provided
by the Second Purchase Agreement.
(e) Neither Horizon nor IFM shall be liable under this Agreement for
any Damages arising out of or resulting from any defects in or damage or
injury to any person caused by any products manufactured or delivered by
IFM to Horizon pursuant to the Manufacturing Agreement, such
indemnification for such Damages to be as set forth in the Manufacturing
Agreement.
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(f) The rights and remedies set forth in Sections 9.1 through 9.5
shall be the exclusive remedies available to the parties pertaining to any
alleged environmental liability, and the parties explicitly waive any
rights to cost recovery or contribution that they have or may have under
any state or federal environmental statute or under the common law.
9.6 Jurisdiction and Forum.
(a) By the execution and delivery of this Agreement, each Indemnifying
Party irrevocably designates and appoints each of the parties set forth
under its name below as its authorized agent upon which process may be
served in any suit or proceeding arising out of or relating to this
Agreement that may be instituted in any state or federal court in the State
of Georgia.
IFM:
Clinton D. Richardson, Esq.
Arnall Golden & Gregory, LLP
1201 West Peachtree Street
2800 One Atlantic Center
Atlanta, Georgia 30309
Horizon:
Jon R. Harris, Jr., Esq.
King & Spalding
191 Peachtree Street, N.E.
Suite 4600
Atlanta, Georgia 30303-1763
In addition, each party agrees that service of process upon the
above-designated parties shall be deemed in every respect effective
service of process upon such Indemnifying Party in any such suit or
proceeding. Each such Indemnifying Party further agrees to take any
and all action reasonably requested by an Indemnified Party, including
the execution and filing of any and all such documents and
instruments, as may be necessary to continue such designation and
appointment of the above-designated parties in full force and effect
so long as this Agreement shall be in effect. The foregoing shall not
limit the rights of any party to serve process in any other manner
permitted by law.
(b) To the extent that any Indemnifying Party has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal
process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution or otherwise) with respect to itself or its
property, each Indemnifying Party hereby irrevocably waives such immunity
in respect of its obligations with respect to this Agreement.
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(c) The parties hereto consent and agree that the appropriate forum
and venue for any disputes between any of the parties hereto arising out of
this Agreement shall be in any of the following courts and hereby waive any
defense or objection they may have of improper venue in any such lawsuits
filed in these courts: (i) the state or superior court of the county where
each of CryoLife and Horizon has its principal place of business
(presently, Cobb County, Georgia and Meriwether County, Georgia); and (ii)
the United States District Court for the Northern District of Georgia,
Atlanta Division, and each of the parties hereto hereby submits to the
personal jurisdiction of any such court. The foregoing shall not limit the
rights of any party to obtain execution of judgment in any other
jurisdiction. The parties further agree, to the extent permitted by law,
that a final and unappealable judgment against any of them in any action or
proceeding contemplated above shall be conclusive and may be enforced in
any other jurisdiction within or outside the United States by suit on the
judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and amount of such judgment.
9.7 Bulk Sales Indemnity. Horizon hereby waives compliance with the
provisions of any applicable bulk sales or transfer laws in connection with the
sale of the Purchased Assets contemplated by this Agreement. IFM agrees to
indemnify and hold Horizon harmless from and against any and all Damages,
including without limitation any claims made by creditors and any Damages
arising out of or relating to any Encumbrance on Purchased Assets arising out of
or relating to IFM's non-compliance with any applicable bulk sales or transfer
laws in connection with the sale of the Purchased Assets contemplated by this
Agreement, except to the extent that any such Damages results from or arises out
of any failure by Horizon to pay or perform, when due, any obligations to be
paid or performed by Horizon as provided in this Agreement.
9.8 Exclusive Remedies. After the Closing, the rights of
indemnification contained in this Section 9 shall be deemed to be the exclusive
remedy of the parties hereto with respect to a default or breach by any other
party or other claim under or with respect to this Agreement.
10. Termination.
10.1 Termination and Abandonment. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual agreement of Horizon and IFM;
(b) by either party at any time after November 1, 2000 if Closing has
not occurred and the Closing Date has not been extended by the parties
hereto;
32
(c) by IFM, if the conditions set forth in Section 8 hereof shall not
have been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by Horizon on or before the Closing Date;
and
(d) by Horizon, if the conditions set forth in Section 7 hereof shall
not have been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by IFM on or before Closing Date.
10.2 Effect of Termination. In the event of termination of this
Agreement pursuant to this Section 10, this Agreement shall forthwith be void
and there shall be no liability on the part of any party or its respective
officers, directors, partners or shareholders, except for obligations under
Sections 10, 11 and 12.3, all of which shall survive the termination.
Notwithstanding the foregoing, nothing contained herein shall relieve any party
from liability for any breach of any covenant or agreement in this Agreement
prior to termination.
11. Confidentiality.
11.1 Confidentiality. All proprietary information related to the
Business or the Purchased Assets (the "Confidential Information") shall be
treated by IFM and CryoLife as confidential and shall not be disclosed to any
third parties unless (i) such Confidential Information is or becomes part of the
public knowledge or literature through no fault of IFM or CryoLife, or (ii) IFM
and CryoLife are advised by written opinion of counsel that it is legally
required to disclose such Confidential Information, in which case such
Confidential Information may be disclosed only to the extent legally required;
provided, however, that IFM and CryoLife agree to promptly notify Horizon of
such legal disclosure requirement so that Horizon has a reasonable opportunity
to seek a protective order. IFM and CryoLife shall use all reasonable efforts to
prevent the use of all or any part of such Confidential Information in any other
connection or the transmission thereof to third parties unless and until it has
first obtained the written consent of Horizon specifically authorizing such use
or transmission.
11.2 Remedies. IFM and Horizon hereby agree that any remedy at law for
any breach of the provisions contained in Section 11.1 hereof shall be
inadequate and that Horizon or IFM, as the case may be, shall be entitled to
injunctive relief in addition to any other remedy Horizon might have under this
Agreement.
11.3 Continuing Right to Use. IFM and CryoLife shall retain the right
to use portions of the trade secrets, Confidential Information and know-how
conveyed to Horizon which have applications outside the Business (the "Shared
Information") and are retained in the minds of CryoLife employees and Bill
Wright, but only in connection with the manufacture of medical products not in
competition with the Business or Horizon, provided that IFM and/or CryoLife
shall be responsible for paying any royalty, license or fee obligations arising
out of IFM's and/or CryoLife's use of the Shared Information. Notwithstanding
anything to the contrary contained in this Section 11.3, neither IFM nor
CryoLife shall have the right to use any portion of the Shared Information
relating to the development, manufacture or sale of any synthetic latex product.
33
12. Miscellaneous.
12.1 Further Assurances. Subject to the other provisions of this
Agreement, IFM agrees that after the Closing Date it shall, from time to time,
upon the reasonable request of Horizon, execute and deliver such other
instruments of conveyance and other similar documents and take such other
actions as Horizon may reasonably require, consistent with the terms of this
Agreement, as are reasonably necessary or desirable to transfer to Horizon title
to the Purchased Assets and to otherwise perform the provisions of this
Agreement to be performed by IFM. From and after the Closing Date, upon the
reasonable request of IFM, Horizon shall execute, deliver, and acknowledge all
such further instruments of conveyance and other similar documents and take such
other actions as IFM may reasonably require, consistent with the terms of this
Agreement, as are reasonably necessary or desirable to perform the provisions of
this Agreement to be performed by Horizon.
12.2 Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of IFM and Horizon and their respective successors and
assigns and shall not confer any rights upon any third persons.
12.3 Expenses. Except as otherwise provided herein, each party hereto
agrees to pay its expenses incurred in connection with the transactions
contemplated by this Agreement, including, without limitation, the fees and
expenses of its accountants and counsel.
12.4 Entire Agreement; Amendments. This Agreement and the agreements
referenced herein (including, without limitation, the Horizon Transfer
Documents, the IFM Transfer Documents, the surviving provisions of the
Manufacturing Agreement as specified herein, the First Purchase Agreement and
the Second Purchase Agreement) constitute the entire agreement between the
parties pertaining to the subject matter contained herein, and supersedes all
prior agreements, arrangements, and understandings of the parties. No
supplement, modification, or amendment of or to this Agreement shall be binding,
unless executed in writing by the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party granting the waiver.
12.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
12.6 Section and Paragraph Headings. The index and section and
paragraph headings of this Agreement are included for purposes of convenience
only and shall not affect in any way the construction or interpretation of any
of the provisions of this Agreement.
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12.7 Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been given
on the date when delivered personally or sent by facsimile, the next business
day after delivery to a nationally recognized overnight delivery service, or on
the seventh (7th) day after mailing if mailed by first class mail, registered or
certified, postage prepaid, and properly addressed as follows or to such other
address as either party may designate by notice to the other party:
(a) To Horizon:
Horizon Medical Products, Inc.
Attn: Robert M. Dodge, Chief Financial Officer
Seven North Parkway Square
4200 Northside Parkway, N.W.
Atlanta, Georgia 30327
FAX: 404/264-9919
With copies to:
Nat G. Slaughter, III
Slaughter & Virgin, P.C.
400 Colony Square; Suite 1110
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
FAX: 404/872-7879
and
Jon R. Harris, Jr., Esq.
King & Spalding
191 Peachtree Street, N.E.
Suite 4600
Atlanta, Georgia 30303-1763
FAX: 404/572-5146
(b) To IFM:
Ideas for Medicine, Inc.
c/o CryoLife, Inc.
Attn: Vice President of Finance
1655 Roberts Blvd., N.W.
Kennesaw, Georgia 30144
FAX: 770/590-3754
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With a copy to:
Arnall Golden & Gregory, LLP
Attn: Clinton D. Richardson
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3450
FAX: 404/873-8665
(c) To CryoLife:
CryoLife, Inc.
Attn: Chief Financial Officer
1655 Roberts Blvd., N.W.
Kennesaw, Georgia 30144
FAX: 770/590-3754
With a copy to:
Arnall Golden & Gregory, LLP
Attn: Clinton D. Richardson
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3450
FAX: 404/873-8665
12.8 Governing Law. This Agreement shall be governed by and construed
exclusively in accordance with the internal laws of the State of Georgia,
without reference to its conflicts of law principles.
12.9 Interpretation. The parties acknowledge and agree that: (i) each
party and its counsel reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision; (ii) the rule of construction to
the effect that any ambiguities are resolved against the drafting party shall
not be employed in the interpretation of this Agreement; and (iii) the terms and
provisions of this Agreement shall be construed fairly as to all parties hereto,
regardless of which party was generally responsible for the preparation of this
Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and delivered by its duly authorized officer as of the day and year
first above written.
HORIZON MEDICAL PRODUCTS, INC.
By: /s/ William E. Peterson, Jr.
--------------------------------------------
Name: William E. Peterson, Jr.
Title: President
IDEAS FOR MEDICINE, INC.
By: /s/ D. A. Lee
--------------------------------------------
Name: D.A. Lee
Title: VP Finance and CFO
List of Exhibits
Exhibit A Form of Note
Exhibit B Form of CryoLife Guaranty
Exhibit C Form of Bill of Sale
Exhibit D Form of Assignment and Assumption Agreement
Exhibit E Form of Opinion of Counsel to IFM and CryoLife
Exhibit F Form of Sublease Agreement
Exhibit G Form of Manufacturing, Assembly and Packaging Agreement
Exhibit H Form of Transition Services Agreement
Exhibit I Form of Security Agreement
Exhibit J Form of Opinion of Counsel to Horizon
List of Schedules
Schedule 1.2(a) Fixed Assets
Schedule 1.2(b)(1) Finished Goods Inventory
Schedule 1.2(b)(2) Other Inventory
Schedule 1.2(c) Leasehold Improvements
Schedule 1.2(d) Intellectual Property
Schedule 1.2(e) Assigned Contracts
Schedule 1.4(e) Accounts Receivable
Schedule 1.4(g) Excluded Product Materials
Schedule 1.4(i) Third Party Equipment
Schedule 1.6 Allocation of Purchase Price
Schedule 1.7(a) Trade Payables
Schedule 4.2 IFM Consents and Approvals
Schedule 4.3 Litigation
Schedule 4.7 Insurance
Schedule 4.8 Intangible Personal Property
Schedule 4.9 Contracts
Schedule 4.10(a) Material Licenses
Schedule 4.10(b)(ii) Notice of Adverse Filings, etc.
Schedule 4.11 Transactions with Affiliates
Schedule 4.14 Officers, Directors and Employees
Schedule 4.15 Employee Benefit Plans
Schedule 4.15(j) CIGNA Plan Premiums
Schedule 4.17 Environmental Matters
Schedule 4.18(b) Assets Necessary to Conduct Business
Schedule 5.2 Horizon Consents and Approvals
Schedule 6.5(a) Retained Employees
Schedule 6.5(b) Bonuses
Exhibit A
FORM OF SUBORDINATED PROMISSORY NOTE
October 9, 2000 $5,945,216
Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, HORIZON MEDICAL PRODUCTS, INC., a
Georgia corporation ("Maker"), promises to pay to the order of IDEAS FOR
MEDICINE, INC., a Florida corporation ("Payee" and, together with any subsequent
holder(s) hereof, "Holder"), the principal sum of FIVE MILLION NINE HUNDRED
FORTY-FIVE THOUSAND TWO HUNDRED SIXTEEN DOLLARS ($5,945,216) (the "Principal
Amount"). The Principal Amount is comprised of the following three amounts: (i)
an amount equal to Three Million Eight Hundred Thousand Dollars ($3,800,000)
(the "Interest Bearing Amount"), (ii) an amount equal to One Million Dollars
($1,000,000) (the "Scheduled Payment Discount Amount"), and (iii) an amount
equal to One Million One Hundred Forty-Five Thousand Two Hundred Sixteen Dollars
($1,145,216) (the "Timely Payment Discount Amount," and together with the
Scheduled Payment Discount Amount, collectively, the "Discount Amounts").
1. Interest.
(a) The unpaid principal balance of the Interest Bearing Amount shall
bear simple interest at the rate of nine percent (9%) per annum (computed
on the basis of a 360-day year of twelve 30-day months).
(b) The Discount Amounts shall bear no interest so long as Maker makes
all payments under this Note on a timely basis. All payments shall be
considered to have been made on a "timely basis" unless Maker defaults in
any payment of principal or interest when the same becomes due and payable
and such default continues for a period of ten (10) days after Maker
receives written notice of such default from Holder.
(c) If Maker fails to make any payment under this Note on a timely
basis, the remaining unpaid principal balance of the Principal Amount shall
bear interest at eighteen percent (18%) per annum.
2. Payment of Principal.
(a) This Note shall be payable in monthly installments of principal
and interest of One Hundred Forty Thousand Dollars ($140,000) per month
until all principal and interest due under the Interest Bearing Amount is
paid in full. The first payment under this Note shall be due on October 15,
2000, and thereafter the monthly payments shall be due on the fifteenth
(15th) day of each month.
(b) If Maker makes the Scheduled Payment pursuant to Section 3 of this
Note prior to April 3, 2001, Holder shall forgive the Scheduled Payment
Discount Amount, and the Principal Amount shall be reduced by an amount
equal to the Scheduled Payment Discount Amount as of the date Horizon makes
the Scheduled Payment.
(c) If Maker makes all payments on a timely basis until such time as
the principal balance of the Interest Bearing Amount is paid in full (by
payment, set-off, adjustment or otherwise), Holder shall forgive the Timely
Payment Discount Amount and the entire Principal Amount shall be deemed
paid in full.
(d) In the event that Maker fails to qualify for forgiveness of a
Discount Amount, Maker shall continue to make monthly payments of principal
and interest of One Hundred Forty Thousand Dollars ($140,000) per month,
until all principal and interest due under such Discount Amount is paid in
full.
(e) Payments of principal and interest hereunder shall be made at such
place as Holder may designate and shall be in immediately available funds
in lawful money of the United States. All payments, prepayments,
adjustments and set-offs (excluding forgiveness of the Discounts pursuant
to Section 2(b) or 2(c) above) in respect of this Note shall be applied
first to accrued interest, then to the outstanding principal balance of the
Interest Bearing Amount, and then, if not forgiven pursuant to Section 2(b)
and/or (c) above, to the outstanding principal balance of the Discount
Amount(s).
3. Scheduled Payment. Maker agrees to pay under this Note the sum of One
Million Dollars ($1,000,000) (the "Scheduled Payment") upon the earlier of (i)
the closing of one or more equity financings which result in consideration to
Maker of at least Fifteen Million Dollars ($15,000,000) in exchange for Maker
common and/or preferred stock or (ii) April 3, 2001. Upon payment by Maker of
the Scheduled Payment prior to April 3, 2001, Holder shall forgive the Scheduled
Payment Discount Amount in accordance with Section 2(b) above.
4. Prepayment. Any prepayment of this Note in part or in whole is hereby
permitted without premium or penalty. Interest shall cease to accrue on all
amounts which are prepaid.
5. Adjustment or Set-off of Note. This Note is being issued pursuant to
that certain Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as
of October 9, 2000, by and among Maker and Payee. This Note shall be subject to
adjustment and set-off as provided in the Asset Purchase Agreement, and the
Principal Amount of this Note shall be reduced if required pursuant to the Asset
Purchase Agreement. In the event of any such reduction, this Note shall be
amended and restated to reflect such reduction and this original Note shall have
no force and effect. Contemporaneously with the return of this original Note to
Maker, Maker shall deliver the amended and restated Note to Holder. Any such
reduction in the principal amount of this Note shall be deemed to have occurred
on the date of this Note if the reduction is based on (i) an adjustment made
2
pursuant to Section 2.3 of the Asset Purchase Agreement, (ii) an adjustment made
pursuant to Section 2.4 of the Asset Purchase Agreement, or (iii) an
indemnification claim by Maker against Payee which is set off under Section 9.3
of the Asset Purchase Agreement relating to a breach of the representations and
warranties set forth in Section 4.4(a) or (c) of the Asset Purchase Agreement
with respect to the Fixed Assets or Inventory (as such terms are defined in the
Asset Purchase Agreement), and, in which case, Maker shall receive credit for
and shall offset under this Section 4 any interest payments to be made following
such reduction by an amount equal to any interest overpayment resulting from
such reduction.
6. Event of Default. Each of the following shall constitute an "Event of
Default" hereunder: (a) the failure of Maker to pay any amounts when due under
this Note, (b) the voluntary or involuntary bankruptcy or receivership of Maker
or the assignment for the benefit of creditors of the assets of Maker and (c)
the default of Maker under Section 11.1(a) of that certain Sublease Agreement
dated as of October 9, 2000, by and between Maker and Payee. Upon the existence
or occurrence of any Event of Default, all indebtedness evidenced by this Note,
including without limitation the principal and all accrued interest and all
costs of collection (including without limitation reasonable attorneys' fees)
actually incurred may be declared due and payable without notice or demand of
any kind.
7. Subordination. This Note shall be subordinated to the Bank Indebtedness
of Maker (as defined in Section 3.3(b) of the Asset Purchase Agreement),
pursuant to that certain Subordination Agreement, dated as of October 9, 2000,
by and between Payee and Bank of America, N.A. and any future subordination
agreements as contemplated in Section 3.3(b) of the Asset Purchase Agreement.
8. Security. The obligations of Maker under this Promissory Note are
secured pursuant to that certain Security Agreement, dated as of the date
hereof, by and between Maker and Payee.
9. Miscellaneous.
(a) It is the intent of Maker and Holder not to violate any federal or
state law, rule or regulation pertaining either to usury or to the
contracting for or charging or collecting of interest, and Maker and Holder
agree that, should any provision of this Note or any act performed
hereunder violate any such law, rule or regulation, then the excess of
interest contracted for or charged or collected over the maximum lawful
rate of interest shall be applied to the outstanding principal indebtedness
due to Holder by Maker under this Note.
(b) This Promissory Note has not been registered under the Securities
Act of 1933, as amended, or under any applicable state law. This Promissory
Note may not be offered for sale, sold, transferred or pledged except in
compliance with the Securities Act of 1933, as amended, and any applicable
state laws.
(c) Maker waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and all other notices
in connection with the delivery, acceptance, performance, default or
enforcement of this Note.
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(d) No modification or waiver of any provision of this Note, nor any
departure by Maker therefrom, shall in any event be effective unless the
same shall be in writing and then such modification or waiver shall be
effective only in the specific instance for the specific purpose given.
(e) Should any part or provision of this Note require judicial
interpretation, Maker and Holder agree that the court interpreting such
part or provision shall not apply a presumption that the terms hereof shall
be more strictly construed against one party by reason of the rule of
construction that a document is to be more strictly construed against the
party that itself or through its agent prepared the same, it being agreed
that Maker and Holder have both participated in the preparation of this
Note.
(f) If any part or provision contained in this Note shall be invalid
or unenforceable under applicable law, then such part or provision shall be
ineffective only to the extent of such invalidity (without in any way
affecting the remaining parts of such part or provision or the other parts
or provisions of this Note).
(g) The rights, powers and remedies provided to Holder herein are
cumulative and not exclusive of any right, power or remedy provided at law
or in equity. Failure or forbearance of Holder to exercise any right
hereunder or otherwise granted at law or equity shall not affect or release
Maker from its liability hereunder and shall not constitute a waiver of
such right unless so stated by Holder in writing and then only in the
specific instance and for the specific purpose given.
(h) This Note will be governed by and construed in accordance with the
domestic laws of the State of Georgia.
(i) Time is of the essence under this Note.
IN WITNESS WHEREOF, this Note has been executed on the date first above
written.
HORIZON MEDICAL PRODUCTS, INC.
By:
----------------------------------------
Name:
Title:
Address for Notices to Payee:
Ideas for Medicine, Inc.
c/o CryoLife, Inc.
1655 Roberts Blvd., N.W.
Kennesaw, Georgia 30144
Attention: Vice President of Finance
4
Exhibit B
Form of CryoLife Guaranty
See attached.
CRYOLIFE, INC. GUARANTY
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, CryoLife, Inc., a Florida corporation ("CryoLife"), hereby
guarantees to Horizon Medical Products, Inc., a Georgia corporation ("Horizon"),
the complete performance and payment by Ideas for Medicine, Inc., a Florida
corporation ("IFM"), of IFM's obligations and liabilities under (i) the Asset
Purchase Agreement, dated as of October , 2000, by and between IFM and Horizon
(the "Purchase Agreement"), including without limitation any obligation of IFM
pursuant to Section 9 of the Purchase Agreement, (ii) the Sublease Agreement,
dated as of October , 2000, by and between IFM and Horizon (the "Sublease
Agreement"), and (iii) the Consent to Sublease, dated as of October , 2000, by
and among Horizon, IFM and Secret Promise, Ltd. (the "Sublease Consent," and
together with the Purchase Agreement and the Sublease, collectively, the
"Agreements").
CryoLife hereby waives notice of, and proof of reliance by Horizon upon and
acceptance of, CryoLife's guaranty herein, and of non-performance by IFM of any
of its obligations under the Agreements and of any other notices or demands of
any kind whatsoever. Horizon and IFM may enter into any amendment, assignment,
waiver, or modification of the Agreements, whether or not such amendment,
assignment, waiver, or modification would in any way increase or decrease the
extent of CryoLife's obligations hereinafter, without notice to or consent of
CryoLife and without thereby releasing CryoLife hereunder. CryoLife hereby
guarantees the performance and payment of any of IFM's obligations set forth in
any such amendment as if the provisions of such amendment were set forth in full
in the Agreements. The obligations of CryoLife under this paragraph shall not be
released or affected by voluntary or involuntary proceedings by or against IFM
in bankruptcy or for reorganization or other relief under any bankruptcy or
insolvency law. CryoLife's guaranty shall continue to be effective or shall be
reinstated automatically, as the case may be, if at any time any payment, or any
part thereof, by IFM is rescinded or must otherwise be returned by Horizon upon
the insolvency, bankruptcy, dissolution, liquidation, or reorganization of IFM
as though any such payment had not been made.
CryoLife covenants and agrees that it shall be fully bound by the
provisions of Section 11 of the Purchase Agreement.
CryoLife hereby waives any right of CryoLife under Georgia law to require
that an action be brought against IFM first before any action may be brought
against CryoLife.
CryoLife represents and warrants to Horizon that:
(a) CryoLife is a corporation duly organized, validly existing, and in
good standing under the laws of Florida, and has the requisite corporate
power and authority to execute and deliver this Guaranty and the documents,
agreements, and certificates (collectively, the "CryoLife Documents") which
are required to be executed and delivered by CryoLife pursuant to this
Guaranty and to perform in all respects its obligations hereunder and
thereunder. CryoLife is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the nature of its business or
5
the character of the assets owned or leased by CryoLife makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not impair or otherwise adversely affect the
transactions contemplated hereunder.
(b) The execution, delivery, and performance of this Guaranty and the
CryoLife Documents have been duly authorized by all requisite corporate
action on the part of CryoLife. This Guaranty has been duly executed and
delivered by CryoLife and constitutes, and each of the CryoLife Documents
when executed and delivered will constitute, the valid and binding
obligation of CryoLife, enforceable in accordance with and subject to their
respective terms, except as limited by bankruptcy, insolvency,
reorganization, and similar laws affecting the enforcement of creditors'
rights or contractual obligations generally. The execution, delivery, and
performance by CryoLife of this Guaranty and the CryoLife Documents and the
consummation of the transactions contemplated hereby and thereby will not:
(i) violate any provision of the Certificate of Incorporation or Bylaws of
CryoLife; (ii) violate any provision of any judicial, arbitral, or
administrative order, award, judgment, or decree applicable to CryoLife;
(iii) conflict with or constitute a default under any agreement or
instrument to which CryoLife is a party or by which it is bound; (iv)
violate, in any material respect, any applicable law, rule, ordinance, or
regulation applicable to CryoLife; or (v) require CryoLife to obtain the
consent, approval, or authorization of, or require CryoLife to file any
certificate, notice, application, report, or other document with, any
federal, state, or local governmental authority or agency or other person
or entity.
(c) There are no judicial, arbitral, or administrative actions, suits,
or proceedings or, to the knowledge of CryoLife, any investigations pending
against CryoLife which would, if adversely determined, prevent, hinder,
delay, or otherwise adversely affect the consummation of the transactions
contemplated hereby. CryoLife is not a party to or subject to the
provisions of any order, decree, or judgment of any court or of any
governmental agency which may prevent, hinder, or otherwise adversely
affect the consummation of the transactions contemplated by the Agreements.
This Guaranty shall be governed by and construed in accordance with the
laws of the State of Georgia without reference to its principles of conflicts of
law.
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IN WITNESS WHEREOF, the undersigned has caused the Guaranty to be executed
and delivered as of the date of the foregoing Agreements.
CRYOLIFE, INC.
By:
---------------------------------------
Name:
Title:
Exhibit G
FORM OF MANUFACTURING, ASSEMBLY AND PACKAGING AGREEMENT
THIS MANUFACTURING, ASSEMBLY AND PACKAGING AGREEMENT (the "Agreement") is
made this _____ day of October, 2000 by and between CryoLife, Inc., having
offices at 1655 Roberts Blvd., Kennesaw, Georgia 30144 ("CryoLife"), and Horizon
Medical Products, Inc., a Georgia corporation, having offices at One Horizon
Way, Manchester, Georgia 31816 ("Horizon").
W I T N E S S E T H:
WHEREAS, CryoLife has conceived and developed unique and proprietary
medical products, including components and packaging related thereto which are
described on Exhibit A (hereinafter the "CryoLife Products");
WHEREAS, Horizon has the capabilities to manufacture, assemble, package,
and ship the CryoLife Products (hereinafter the "Services");
WHEREAS, CryoLife desires to engage Horizon to perform the Services;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
1. COMPENSATION
A. In consideration hereof, CryoLife hereby agrees to pay Horizon an amount
equal to the actual direct labor costs incurred by Horizon in connection with
the provision of the Services, plus overhead at a rate of $32.50 per direct
labor hour.
B. The rates set forth herein are exclusive of any federal, state, or local
taxes and CryoLife shall be responsible for the payment of all such taxes
(excluding taxes based on Horizon's income).
2. CRYOLIFE DUTIES
A. Within five business days following execution of this Agreement,
CryoLife shall provide to Horizon a purchase order (the "Purchase Order") for
the BioGlue components and allograft packaging to be manufactured, assembled,
packaged, and shipped during the term of this Agreement. For assembly of
CryoPaks, CryoLife will notify Horizon from time to time of required CryoPak
shipments via an electronic system. In the event Horizon anticipates any problem
in performing the services in accordance with the Purchase Order, Horizon shall
notify CryoLife within ten days following receipt of such Purchase Order, and
the parties shall negotiate in good faith to resolve any such problems and reach
a Purchase Order acceptable to both parties.
B. CryoLife shall provide Horizon with the raw materials required for the
performance of the Services, including, without limitation, the materials
described on Exhibit B; provided, however, Horizon shall manufacture the
connector for the BioGlue extender tips. Such materials shall be delivered to
Horizon in accordance with the Raw Materials Schedule (as defined in Section 3B
below) provided by Horizon. To the extent CryoLife fails to provide raw
materials in accordance with such Schedule, the delivery date for the items for
which the related raw materials were delayed shall be extended by an amount of
time equal to the delay in delivery of the raw materials.
C. CryoLife's Purchasing Manager shall be CryoLife's' primary
representative with respect to issues arising under this Agreement. CryoLife may
change their representative upon written notice to Horizon.
D. During the term of this Agreement and for a period of three years
following termination hereof, CryoLife shall maintain product liability
insurance of not less than $5,000,000 per occurrence and $5,000,000 in the
aggregate to cover the CryoLife Products and the distribution and sale thereof.
Such insurance policy shall name CryoLife as the named insured and Horizon as an
additional insured. CryoLife shall provide to Horizon within 15 days of the
execution of this Agreement a Certificate of Insurance evidencing such
insurance.
E. CryoLife shall be responsible for freight costs associated with
transporting the BioGlue components and allograft packaging to the company
designated by CryoLife for sterilization services (the "Sterilizing Company")
and/or CryoLife. Shipments of CryoPaks as designated by CryoLife shall be
charged to CryoLife's account with United Parcel Service. Horizon shall provide
to CryoLife reasonable documentation evidencing the freight costs to be born by
CryoLife pursuant to this Section.
F. CryoLife shall be responsible for handling, and Horizon shall direct to
CryoLife, all customer complaints in respect of the CryoLife Products. In
addition, CryoLife shall be responsible for any medical device or vigilance
reports required to be filed with the United States Food & Drug Administration
or any notified body in respect of the CryoLife Products.
3. HORIZON'S DUTIES
A. During the term of this Agreement, Horizon shall assemble and maintain
in inventory CryoPaks in the amounts described herein for distribution to the
organ and tissue procurement organizations designated by CryoLife or as
otherwise designated by CryoLife. Horizon shall maintain in inventory a number
of assembled CryoPaks equal to that number which is 15% of CryoLife's average
monthly requirements for CryoPaks during the three month period preceding the
date hereof. Horizon shall ship CryoPaks within two business days of
notification from CryoLife. Horizon shall provide CryoLife with confirmation of
such shipments as they occur.
B. Horizon shall fulfill the mutually agreed upon Purchase Order in
accordance with the terms thereof.
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C. Within ten days following agreement with respect to the Purchase Order,
Horizon shall provide to CryoLife a written list (the "Raw Materials Schedule")
of the raw materials required to fulfill the Purchase Order and the dates by
which such raw materials are needed in order to meet the delivery date
therefore. To the extent Horizon anticipates that additional raw materials are
needed to assemble and maintain the Inventory of CryoPaks in accordance with 3A,
Horizon shall provide CryoLife with a Raw Materials Schedule describing the
items needed, the amount of items needed, and the date such items are needed.
D. Horizon shall provide to CryoLife on or before the fifth business day of
each month during the term hereof a written report on the status of the services
being performed and the quantity of raw materials, work in progress, and
finished goods, utilizing the CryoLife assembly, lot, and item numbers. The
monthly report shall describe any raw materials returned to stock during any
production run and any rejects (with explanation) for any production run. In
addition, the report shall indicate the number of quality control samples and/or
rejects associated with any production run.
E. Horizon shall manufacture, assemble, package and ship the CryoLife
Products in accordance with the processes and procedures ("CryoLife Standard
Operating Procedures") utilized by IFM prior to the date hereof and provided by
CryoLife to Horizon in writing or electronically. Any changes proposed by
Horizon to the manufacturing, assembly and packaging processes or the materials
or supplies used in connection therewith must be communicated to CryoLife and
approved by CryoLife in writing prior to the implementation of the change. To
the extent CryoLife implements a change to CryoLife's Standard Operating
Procedures, CryoLife shall be responsible for any validation or engineering
costs incurred by Horizon in connection with such change. As instructed by
CryoLife, Horizon shall ship the CryoLife Products to the Sterilizing Company
designated by CryoLife. Horizon shall prepare a packing list to accompany
shipments to the Sterilizing Company. The packing list shall include quantity,
catalog number, description and lot number of all items included in the
shipment. The packing list shall also include shipment instructions for the
CryoLife Products once sterilized.
F. During the term of this Agreement and for a period of three years
following termination hereof, Horizon shall maintain general liability insurance
(including products/completed operations liability coverage and contractual
liability coverage) of not less than $5,000,000 per occurrence and $5,000,000 in
the aggregate. Such insurance policy shall name Horizon as the named insured and
CryoLife as an additional insured. Further, Horizon shall maintain property
insurance in amounts sufficient to reimburse CryoLife for the full replacement
cost of the raw materials, work in process, and finished goods inventory of
CryoLife Products located on Horizon's premises in the event of destruction
while located on Horizon's premises as a result of fire, theft, etc. Horizon
shall provide to CryoLife within 15 days of the execution of this Agreement a
Certificate of Insurance evidencing the Insurance required hereby.
G. During the term of this Agreement, Horizon shall not manufacture,
assemble or package for any third party any medical products or components which
are substantially similar in function, design or use to the CryoLife Products
without the prior written consent of CryoLife.
3
H. Horizon's Vice President of Operations shall be Horizon's primary
representative with respect to issues arising under this Agreement. Horizon may
change their representative upon written notice to CryoLife.
4. CONFIDENTIALITY
By virtue of the performance of the Services pursuant to this Agreement,
Horizon shall have access to information that is confidential and proprietary to
CryoLife ("Confidential Information"). Confidential Information shall not
include information which (a) is or becomes part of the public domain through no
act or omission of Horizon; (b) was in Horizon's lawful possession prior to the
date of this Agreement as evidenced by its written records and had not been
obtained by Horizon either directly or indirectly from CryoLife; or (c) is
lawfully disclosed to Horizon by a third party without restriction on
disclosure. Horizon agrees, both during the term of this Agreement and
thereafter, to hold the Confidential Information in confidence. Horizon agrees
not to make CryoLife's Confidential Information available in any form to any
third party or to use CryoLife's Confidential Information for any purpose other
than the implementation of this Agreement. Horizon agrees to take all reasonable
steps to ensure that CryoLife's Confidential Information is not disclosed or
distributed by its employees or agents in violation of the provisions of this
Agreement. This Section 4 shall survive for a period of two years following the
termination or expiration of this Agreement; provided, with respect to
Confidential Information that constitutes a trade secret under Georgia law,
Horizon's obligations hereunder shall survive for the longer of (i) two years,
or (ii) so long as such Confidential Information remains a trade secret.
5. EQUIPMENT AND INTELLECTUAL PROPERTY
A. During the term of this Agreement, Horizon may use the equipment
designated on Exhibit C (the "Equipment") at no charge to Horizon but only in
connection with the manufacture, assembly, packaging, and shipping of the
CryoLife Products as provided hereunder. Normal wear and tear and deterioration
are the responsibility of CryoLife. Repair or replacement of the Equipment will
be the responsibility of CryoLife.
B. CryoLife hereby grants to Horizon the license to use CryoLife's
Confidential Information, including its processes, procedures, methodologies,
know-how, trade secrets and other intellectual property rights utilized in the
manufacturing, assembly, and packaging of the CryoLife Products in connection
with the performance of the Services hereunder.
C. CryoLife retains all right, title, and interest in and to the
Confidential Information and CryoLife Products, including, without limitation,
all patent, copyright, trademark, trade dress, and trade secret right related
thereto and including all derivative works and rights to create derivative works
thereof.
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6. REPRESENTATIONS AND WARRANTIES OF HORIZON
A. Horizon warrants that it is authorized to enter into this Agreement and
that its performance thereof will not conflict with any other agreement of
Horizon.
B. Horizon warrants that the Services will be performed (i) in a
professional and competent manner in accordance with industry standards, and
(ii) in accordance with the rules and regulations of the United States Food &
Drug Administration ("FDA"), including, without limitation, the FDA's current
good manufacturing practices and procedures and quality systems regulations, as
well is the standards of the International Organization of Standardization.
C. EXCEPT AS SET FORTH HEREIN, HORIZON MAKES NO REPRESENTATIONS OR
WARRANTIES EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
7. AUDIT FOR INVENTORIES AND QUALITY
CryoLife has the right to inspect and audit the quality of the Services
with reasonable notice to Horizon.
8. TERM OF THE AGREEMENT
This Agreement shall commence effective as of October 1, 2000 and extend
through December 31, 2000 unless sooner terminated as provided herein.
9. INDEMNIFICATION
A. Horizon agrees to indemnify and hold harmless CryoLife and its officers,
employees, agents and assigns from and against any and all liabilities, claims,
demands, suits, actions, causes of action or any other legal proceedings arising
out of, or related in any way to, (i) any grossly negligent or intentional act
or omission by Horizon arising out of or in connection with Horizon's
performance of the Services under this Agreement, (ii) any failure of Horizon to
perform the Services in accordance with CryoLife's Standard Operating Procedures
and the warranty set forth in Section 6B(ii), and (iii) the failure of Horizon
to comply with the laws, rules or regulations ("Laws") of the FDA or any other
governmental authority applicable to Horizon in connection with the manufacture,
assembly, packaging and shipment of the CryoLife Products hereunder. Horizontal
agrees to pay all losses, damages (actual and exemplary), costs, expenses,
invoices and bills (including reasonable attorneys' fees) incurred by CryoLife
and its officers, employees, agents and assigns as a result of any such
negligent or intentional act or omission by Horizon.
B. CryoLife agrees to indemnify and hold harmless Horizon and its officers,
employees, agents and assigns from and against any and all liabilities, claims,
demands, suits, actions, causes of action or any other legal proceedings arising
out of or related in any way to, (i) any grossly or intentional act or omission
by CryoLife arising out of or in connection with CryoLife performance of its
obligations under this Agreement, (ii) except for actions for which CryoLife is
entitled to indemnification under Section 8(a) hereof, the distribution,
marketing or sale of the CryoLife Products or any defect in the design or
specifications for the CryoLife Products or CryoLife's Standard Operating
5
Procedures, and (iii) the failure of CryoLife to comply with the Laws of the FDA
or any other governmental authority applicable to CryoLife in connection with
the sale of the CryoLife Products by CryoLife. CryoLife agrees to pay all
losses, damages (actual and exemplary), costs, expenses, invoices and bills
(including reasonable attorneys' fees) incurred by Horizon and its officers,
employees, agents and assigns as a result of any such negligent or intentional
act or omission by CryoLife.
C. Promptly after receipt by Horizon or CryoLife (hereinafter collectively
referred to as an "Indemnified Party") of notice by a third party of any
complaint or the commencement of any action or proceeding with respect to which
indemnification is being sought hereunder, such Indemnified Party shall notify
Horizon or CryoLife, whoever is the appropriate indemnifying party hereunder
(the "Indemnifying Party"), of such complaint or of the commencement of such
action or proceeding; provided, however, that the failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party from liability for
such claim arising otherwise than under this Agreement and such failure to so
notify the Indemnifying Party shall relieve the Indemnifying Party from
liability which the Indemnifying Party may have hereunder with respect to such
claim only to the extent that, such failure to notify the Indemnifying Party
results in the forfeiture by the Indemnifying Party of rights and defenses
otherwise available to the Indemnifying Party with respect to such claim. The
Indemnifying Party shall have the right, upon written notice to the Indemnified
Party, to assume the defense of such action or proceeding, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of the fees and disbursements of such counsel. In the event, however,
that the Indemnifying Party declines or falls to assume the defense of the
action or proceeding or to employ counsel reasonably satisfactory to the
Indemnified Party, in either case in a timely manner, then such Indemnified
Party may employ counsel to represent or defend it in any such action or
proceeding and the Indemnifying Party shall pay the reasonable fees and
disbursements of such counsel incurred; provided, however, that the Indemnifying
Party shall not be required to pay the fees and disbursements of more than one
counsel for all Indemnified Parties in any Jurisdiction in any single action or
proceeding. In any action or proceeding with respect to which indemnification is
being sought hereunder, the Indemnified Party or the Indemnifying Party,
whichever is not assuming the defense of such action, shall have the right to
participate in such litigation and to retain its own counsel at such party's own
expense. The Indemnifying Party or the Indemnified Party, as the case may be,
shall at all times use reasonable efforts to keep the Indemnifying Party or the
Indemnified Party, as the case may be, reasonably apprised of the status for the
defense of any), action the defense of which they are maintaining and to
cooperate in good faith with each other with respect to the defense of any such
action.
D. No Indemnified Party may settle or compromise any claim or consent to
the entry of any judgment with respect to which indemnification is being sought
hereunder without the prior written consent of the Indemnifying Party, unless
such settlement, compromise or consent includes all unconditional release of the
Indemnifying Party from all liability arising out of such claim. An Indemnifying
Party may not, without the prior written consent of the Indemnified Party,
settle or comprise any claim or consent to the entry of any judgment with
respect to which indemnification is being sought hereunder unless such
settlement, compromise or consent includes an unconditional release of the
Indemnified Party from all liability arising out of such claim and does not
contain any equitable order, judgment or term which in any manner affects,
restrains or interferes with the business of the Indemnified Party or any of the
Indemnified Party's respective affiliates.
6
E. In the event an Indemnified Party shall claim a right to payment
pursuant to this Agreement, such Indemnified Party shall send written notice of
such claim to the appropriate Indemnifying Party. Such notice shall specify the
basis for such claim. As promptly as possible after the Indemnified Party has
given such notice, such Indemnified Party and the appropriate Indemnifying Party
shall establish the merits and amount of such claim (by mutual agreement,
litigation, arbitration or otherwise) and, within five business days of the
final determination of the merits and amount of such claim, the Indemnifying
Party shall deliver to the Indemnified Party in immediately available funds an
amount equal to such claim as determined hereunder.
10. TERMINATION RIGHTS
A. Either party may terminate this Agreement on 10 business days' written
notice to the other party in the event of a breach of any material provision of
this Agreement by such other party, provided that the breaching party fails to
cure such breach during the 10-day period.
B. Upon termination or expiration of this Agreement, Horizon shall return
to CryoLife, at CryoLife's cost, all raw materials, work in progress, and
finished goods inventory of the CryoLife Products in its possession as of the
date of such termination or expiration, along with any Equipment.
11. GENERAL
A. Amendment. This Agreement may be modified only by a written document
signed by duly authorized representatives of the parties.
B. Force Majeure. A party shall not be liable for, a failure or delay in
the performance of any of its obligations under this Agreement where such
failure or delay is the result of fire, flood, or other natural disaster, act of
God, war, embargo, riot, labor dispute, unavailability of raw materials, or the
intervention of any government authority, providing that the party failing in or
delaying its performance promptly notifies the other party of its inability to
perform and states the reason for such inability.
C. Assignment. This Agreement may not be assigned by any party hereto
without the written consent of the other party. Subject to the foregoing, all of
the terms and provisions of this Agreement shall be binding upon, and inure to
the benefit of, and shall be enforceable by, the respective successor and
assigns of the parties hereto.
D. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
7
E. Choice of Law. This Agreement, and the rights and obligations of the
parties, shall be interpreted and governed in accordance with the laws of the
State of Georgia, without giving effect to its conflicts of law provisions.
F. Waiver. Should either of the parties fail to exercise or enforce any
provision of this Agreement, or waive any right to respect thereto, such failure
or waiver shall not be construed as constituting a waiver or a continuing waiver
of its rights to enforce any other provision or right.
G. Severability. If any provision of this Agreement or the application
thereof for any reason shall be declared invalid or unenforceable, the remainder
of this Agreement shall not be affected, and each remaining provision shall be
valid and enforceable to the fullest extent.
H. Limitation of Liability. IN NO EVENT SHALL ANY PARTY BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM ANOTHER
PARTY'S PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, OR THE
FURNISHING, PERFORMANCE, OR USE OF ANY GOODS OR SERVICES SOLD PURSUANT HERETO,
WHETHER DUE TO BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE OR OTHERWISE,
REGARDLESS OF WHETHER THE NONPERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES OR NOT. IN NO EVENT SHALL HORIZON'S LIABILITY HEREUNDER EXCEED
$5,000,000 (THE "CAP AMOUNT"); PROVIDED THE PROVISIONS OF SECTION 9A(i) AND
9A(iii) SHALL NOT BE SUBJECT TO THE CAP AMOUNT, AND THERE SHALL BE NO LIMITATION
ON THE INDEMNIFICATION OBLIGATIONS OF HORIZON ARISING UNDER OR PURSUANT TO SUCH
SECTIONS.
I. Effect. The headings and sub-headings contained herein are for
information purposes only and shall have no effect upon the intended purpose or
interpretation of the provisions of this Agreement.
J. Entire Agreement. This Agreement, the Asset Purchase Agreement of even
date herewith between Horizon and IFM, and the Exhibits hereto and thereto,
constitute the entire agreement and understanding between the parties with
respect to the subject matter of this Agreement and integrates all prior
discussions and proposals (whether oral or written) between them related to the
subject matter hereof.
K. No Partnership Or Agent Created. The relationship of Horizon and
CryoLife shall be that of independent contractors only. Nothing in this
Agreement shall be construed as ranking one party an agent or legal
representative of the other or otherwise as having the power or authority to
bind the other in any manner.
L. Binding Effect. This Agreement and the rights and obligations hereunder
shall be binding upon and inure to the benefit of the parties hereto and to
their respective successors and permitted assigns.
8
M. Notices. Any notice to be made in connection with any right or
obligation arising under this Agreement shall be provided by (a) personal
delivery (including delivery by Federal Express or similar reputable express
courier), (b) telecopy, with written confirmation of receipt received and a copy
sent by the method described in (a), or (c) registered by one party to the other
at the following addresses. Said notices shall be deemed to be effective upon
receipt by the receiving party thereof.
Horizon: Horizon Medical Products, Inc.
Seven North Parkway Square
4200 Northside Parkway, N.W.
Atlanta, Georgia 30327
Attention: Robert M. Dodge
Fax: 404/264/9919
with copies to: Nat G. Slaughter, III
Slaughter & Virgin, P.C.
400 Colony Square; Suite 1110
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Fax: 404/872-7879
and King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Jon R. Harris, Jr.
Fax: 404/572-5100
CryoLife: CryoLife, Inc.
1655 Roberts Blvd., N.W.
Kennesaw, Georgia 30144
Attention: Vice President of Finance
Fax: 770/590-3754
with a copy to: Arnall Golden & Gregory, LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3450
Attention: Clinton D. Richardson
Fax: 404/873-8665
Either party may change its address by written notice given to the other party
in the manner set forth above.
N. Attorneys Fees. If any action at law or in equity is necessary to
enforce the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney fees, costs and expenses in addition to any other relief to
which such prevailing party may be entitled.
9
O. Survival. The provisions of Sections 2D, 3F, 4, 5C, 9, 10B, 11E, 11H,
11J, 11N, and 11O shall survive any termination of this Agreement.
P. Key Employee. If, the event of the termination of the employment of Rick
Howard (excluding a termination of Howard by Horizon), CryoLife shall, upon
Horizon's request, make the services of Bill Wright available to Horizon for up
to one day per week for the remaining term of the Agreement to assist Horizon in
meeting its obligations hereunder. Provided, however, that Horizon shall pay any
and all travel costs associated with the provision of such services by Bill
Wright.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have each caused to be affixed hereto its or his/her hand and seal the
day indicated.
CryoLife, Inc. Horizon Medical Products, Inc.
By: By:
-------------------------------- --------------------------------
Title: Title:
-------------------------------- --------------------------------
Date: Date:
-------------------------------- --------------------------------
10
Exhibit H
Form of Transition Services Agreement
See attached.
Exhibit H
FORM OF TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT ("Agreement") is entered into this 9th
day of October, 2000 by and among Horizon Medical Products, Inc., a Georgia
corporation (the "Company"), Ideas for Medicine, Inc., a Florida corporation
(the "Seller") and wholly-owned subsidiary of CryoLife, Inc. ("Provider"). The
Seller, Provider and the Company may each be referred to herein as a "Party"
and/or the "Parties" as the case may require.
RECITALS
WHEREAS, the Company and Seller have entered into that certain Asset
Purchase Agreement, dated as of October 9, 2000 (hereinafter the "Purchase
Agreement");
WHEREAS, pursuant to the terms and conditions of the Purchase Agreement,
the Company intends to purchase the Seller's business as a going concern, and
the Company proposes to assume certain of the liabilities and obligations of the
Seller;
WHEREAS, the Seller is in the medical device manufacturing business (the
"Business");
WHEREAS, after the Closing Date, the Company will operate the Business,
WHEREAS, prior to the date hereof, the Seller, Provider and their
affiliates have provided the Business with certain services, and
WHEREAS, in order to support the continued and uninterrupted operation of
the Business following the Closing, the parties desire to enter into this
Agreement, pursuant to which the Provider will provide, for the time periods and
consideration described below, certain of the services that have been provided
by the Seller, Provider and their affiliates to the Business prior to the
Closing Date.
NOW, THEREFORE, in furtherance of the foregoing premises and in
consideration of the mutual covenants and obligations hereinafter set forth the
parties hereto, intending to be legally bound hereby do agree as follows:
ARTICLE I
DEFINITIONS
1.1 The "Closing Date" shall be the date of closing of the transactions
described in the Purchase Agreement.
1.2 Capitalized terms not otherwise defined herein shall have the meaning
set forth in the Purchase Agreement.
1
ARTICLE 2
SERVICES TO BE PROVIDED BY THE SELLER AND PROVIDER
Following the Closing Date, Provider shall provide to the Company the
services (individually or collectively referred to herein as, the "Service(s)")
set forth on Exhibit A for the term of this Agreement as set forth in Section
7.1 hereof.
ARTICLE 3
TERMS OF SERVICE
3.1 The attached Exhibit A of Services are subject to change with the
Parties' mutual written consent with respect to which the Parties agree to deal
with one another in good faith in considering changes. The Parties have made
good faith efforts as of the date hereof to identify each Service and to
otherwise complete the content of Exhibit A to this Agreement.
3.2 The Company is contracting for provision of the Services on an "as-is"
basis. It will be at Provider's discretion as to whether enhancements or
modifications to these systems will be made available to the Company. Provider
shall not be obligated to make any modifications to Provider's systems at the
Company's request, except as the parties may agree in writing. To the extent
that it is necessary for the Company to provide information and/or materials to
Provider in order for Provider to perform the Services, the Company will provide
such information and/or materials in a timely manner.
3.3 The Services rendered by Provider hereunder are to be provided at no
cost to the Company in consideration for the discount provided by the Company to
Provider as reflected in that certain Manufacturing, Assembly and Packaging
Agreement, dated as of October 9, 2000, by and between the Company and Provider.
Costs to support the ultimate separation of the Company from Provider and the
implementation of the Company's own independent systems and services will be
paid entirely by the Company. Provider agrees to cooperate as reasonably
requested by the Company in order to effectuate such separation.
ARTICLE 4
ADDITIONAL SERVICES
In addition to the specific services and facilities described above, the
Parties acknowledge that there may be additional services and facilities which
have not been identified herein but which have been used by the Business prior
to the Closing Date and which shall continue to be required or desired by the
Company until December 31, 2000, or such later date as the Parties may agree
upon. If any such additional services or facilities are identified and requested
by the Company, the Seller and the Company shall negotiate with one another in
good faith over the terms and provisions of furnishing the services.
2
ARTICLE 5
LIMITATION OF LIABILITY; INDEMNIFICATION
5.1 Limitation of Liability.
(a) Provider shall not have any liability to the Company for any loss,
damage, cost, or expense, including without limitation, any special, indirect,
incidental or consequential damages, of the Company allegedly arising out of
Provider's performance of the services to be provided by Articles 2, 3 and 4
hereof or Provider's acts or omission in connection with its performance of such
services; provided, however, that this provision shall not apply if: (i) such
loss, cost or expense arises out of (A) an act of fraud, embezzlement or
criminal activity by Provider or (B) willful misconduct or gross negligence by
Provider; or (ii) such loss, cost or expense arises from the failure (other than
by reason of an event of force majeure, as provided for in Section 10.2 hereof)
or refusal of Provider to comply in any material respect with, and to perform in
any material respect its obligations under, this Agreement within ten (10)
business days after Provider receives written notice of such failure from the
Company.
(b) The liability of Provider under Section 5.1(a)(ii) shall not exceed
Fifty Thousand Dollars ($50,000). No claim under Section 5.1(a)(ii) may be
asserted by the Company after the ninetieth (90th) day following the date of
termination of this Agreement.
5.2 Indemnification. The Company shall indemnify Provider, and shall hold
Provider harmless against, any loss, damage, cost or expense (including
reasonable fees) which Provider may sustain or incur by reason of any claim,
demand, suit or recovery by any third party allegedly arising out of Provider's
performance of the services to be provided by Articles 2, 3 and 4 hereof or
Provider's acts or omissions in connection with its performance of such services
except in any instance in which Provider would have any liability under Section
5.1 hereof.
ARTICLE 6
NO WARRANTY
The level and quality of the Services shall be provided in good faith and
at a level and quality comparable to that performed by Provider prior to the
date of this Agreement. EXCEPT AS OTHERWISE SET FORTH HEREIN, PROVIDER MAKES NO
REPRESENTATION OR WARRANTY WHATSOEVER WITH RESPECT TO THE SERVICES TO BE
PROVIDED HEREUNDER INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
3
ARTICLE 7
TERM AND TERMINATION
7.1 The term of this Agreement shall begin on the Closing Date. Services
shall be provided by Provider hereunder until December 31, 2000, unless
otherwise specified herein or in Exhibit A attached hereto.
7.2 Subject to the provisions of Exhibit A attached hereto, the Company may
terminate any Service(s) provided pursuant to this Agreement on thirty (30) days
prior written notice to Provider, unless otherwise specified in such Exhibit. If
the Company elects to terminate a service, it will bear the costs of interfacing
any new system to the remaining Provider systems which it continues to use. The
Company shall be liable for any outstanding purchase orders placed with third
parties by Provider at the direction of the Company and on the Company's behalf
prior to Provider's receipt of the aforesaid written notice of termination.
7.3 Prior to termination of this Agreement, the Parties shall cooperate
with one another to maintain an orderly transfer of Services provided hereunder
and shall provide necessary assistance for an orderly transfer thereof.
7.4 Article 5 of this Agreement shall survive the termination hereof.
ARTICLE 8
PAYMENT
8.1 Any out-of-pocket expense paid to a third party, by Provider as a
result of Services provided hereunder by Provider to the Company shall be
invoiced in Provider's customary form and detail and reimbursed by the Company
to Provider; provided, however, that any such expenses which individually exceed
$1,000 must be approved in advance by the Company, except for expenses incurred
in connection with the following services which are hereby approved by the
Company: (i) continuation of AT&T long distance and TI services, (ii)
continuation of the services of GTE / Verizon, and (iii) retention of Internet
and frame relay connectivity.
8.2 Payment terms are net, thirty (30) days from date of invoice, and
payments shall be made in United States Dollars.
ARTICLE 9
CONFIDENTIALITY
The Parties acknowledge that in the course of performance of their
respective obligations pursuant to this Agreement, each may obtain certain
confidential and/or proprietary information of the other or its affiliates or
customers, including the terms and conditions of this Agreement. Each Party
hereby agrees that all information communicated to it by the other, its
affiliates or customers, whether before or after the Closing Date, was received
in strict confidence and shall be kept in strict confidence and shall be used
only in accordance with this Agreement, and shall not be disclosed by the other
4
Party, its agents or employees without the prior written consent of the first
Party. In the event that either Party either determines on the advice of its
counsel that it is required to disclose any information pursuant to applicable
law, or receives any demand under lawful process to disclose or provide
information of the other Party that is subject to the confidentiality provisions
hereof, such Party shall notify the other Party prior to disclosing and
providing such information and shall cooperate at the expense of the requesting
Party in seeking any reasonable protective arrangements requested by such other
Party. Subject to the foregoing, the Party that receives such request may
thereafter disclose or provide information to the extent required by such law
(as so advised by counsel) of by lawful process. Furthermore, the Parties shall
take reasonable steps necessary to ensure that all information and records
relating to the business of Provider and the Company are kept strictly
confidential. Notwithstanding the above, this Agreement imposes no obligation on
either Party with respect to information that is or becomes a matter of public
knowledge through no fault of that Party, is rightfully obtained by either Party
from a third party not in violation of any duty of confidentiality, or is
independently developed by either Party without reference to any proprietary or
confidential information of the other Party.
ARTICLE 10
GENERAL
10.1 Amendment. This Agreement may be modified only by a written document
signed by duly authorized representatives of the Parties.
10.2 Force Majeure. A Party shall not be liable for a failure or delay in
the performance of any of its obligations under this Agreement where such
failure or delay is the result of fire, flood, or other natural disaster, act of
God, war, embargo, riot, labor dispute, unavailability of raw materials, or the
intervention of any government authority, providing that the Party failing in or
delaying its performance promptly notifies the other Party of its inability to
perform and states the reason for such inability.
10.3 Assignment. This Agreement may not be assigned by any Party hereto
without the written consent of the other Party. Subject to the foregoing, all of
the terms and provisions of this Agreement shall be binding upon, and inure to
the benefit of, and shall be enforceable by, the respective successor and
assigns of the Parties hereto.
10.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
10.5 Choice Of Law. This Agreement, and the rights and obligations of the
Parties, shall be interpreted and governed in accordance with the laws of the
State of Georgia, without giving effect to its conflicts of law provisions.
5
10.6 Waiver. Should either of the Parties fail to exercise or enforce any
provision of this Agreement, or waive any right in respect thereto, such failure
or waiver shall not be construed as constituting a waiver or a continuing waiver
of its rights to enforce any other provision or right.
10.7 Severability. If any provision of this Agreement or the application
thereof for any reason shall be declared invalid or unenforceable, the remainder
of this Agreement shall not be affected, and each remaining provision shall be
valid and enforceable to the fullest extent.
10.8 Limitation Of Liability. EXCEPT AS SET FORTH IN SECTION 5.1, IN NO
EVENT SHALL ANY PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM ANOTHER PARTY'S PERFORMANCE OR FAILURE TO
PERFORM UNDER THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE, OR USE OF ANY
GOODS OR SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO BREACH OF CONTRACT,
BREACH OF WARRANTY, NEGLIGENCE OR OTHERWISE, REGARDLESS OF WHETHER THE
NONPERFORMING PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR NOT.
10.9 Effect. The headings and sub-headings contained herein are for
information purposes only and shall have no effect upon the intended purpose or
interpretation of the provisions of this Agreement.
10.10 Entire Agreement. This Agreement, the Purchase Agreement and the
Exhibits and Schedules hereto and thereto, constitute the entire agreement and
understanding between the Parties with respect to the subject matter of this
Agreement and integrates all prior discussions and proposals (whether oral or
written) between them related to the subject matter hereof.
10.11 No Partnership Or Agent Created. The relationship of Provider and the
Company shall be that of independent contractors only. Nothing in this Agreement
shall be construed as ranking one party an agent or legal representative of the
other or otherwise as having the power or authority to bind the other in any
manner.
10.12 Binding Effect. This Agreement and the rights and obligations
hereunder shall be binding upon and inure to the benefit of the Parties and to
their respective successors and permitted assigns.
10.13 Notices. Any notice to be made in connection with any right or
obligation arising under this Agreement. shall be provided by (a) personal
delivery (including delivery by Federal Express or similar reputable express
courier), (b) telecopy, with written confirmation of receipt received and a copy
sent by the method described in (a), or (c) registered mail by one party to the
other at the following addresses. Said notices shall be deemed to be effective
upon receipt by the receiving party thereof.
6
Company: Horizon Medical Products, Inc.
Seven North Parkway Square
4200 Northside Parkway, N.W.
Atlanta, Georgia 30327
Attention: Robert M. Dodge
Fax: 404/264/9919
With copies to: Nat G. Slaughter, III
Slaughter & Virgin, P.C.
400 Colony Square; Suite 1110
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Fax: 404/872-7879
and: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Jon R. Harris, Jr.
Fax: 404/572-5100
Seller: Ideas for Medicine, Inc.
c/o CryoLife, Inc.
1655 Roberts Blvd., N.W.
Kennesaw, Georgia 30144
Attention: Vice President of Finance
Fax: 770/590-3754
With a copy to: Arnall Golden & Gregory, LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3450
Attention: Clinton D. Richardson
Fax: 404/873-8665
Provider: CryoLife, Inc.
1655 Roberts Blvd., N.W.
Kennesaw, Georgia 30144
Attention: Vice President of Finance
Fax: 770/590-3754
Either party may change its address by written notice given to the other
Party in the manner set forth above.
[SIGNATURE PAGE FOLLOWS]
7
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed as of the day and year first above written.
HORIZON MEDICAL PRODUCTS, INC.
By:
--------------------------------
Name:
Title:
IDEAS FOR MEDICINE, INC.
By:
--------------------------------
Name:
Title:
CRYOLIFE, INC.
By:
--------------------------------
Name:
Title:
Exhibit I
Form of Security Agreement
See attached.
Exhibit I
FORM OF SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the day of October,
2000, by HORIZON MEDICAL PRODUCTS, INC., a Georgia corporation ("Horizon") in
favor of IDEAS FOR MEDICINE, INC., a Florida corporation (together with its
successors, assigns and transferees, "IFM").
PRELIMINARY STATEMENT
This Agreement is made to secure all of the following (individually and
collectively the "Indebtedness"):
Payment of the principal balance, together with interest, costs and all
other sums, to be paid according to that certain Promissory Note ("Note"), by
Horizon to IFM, made as of the date of this Agreement by Horizon, together with
any and all extensions, renewals, modifications, substitutions or replacements
thereof; and the performance of the covenants and obligations of Horizon due or
to become due to IFM under this Agreement and/or under any and all other
documents and instruments evidencing and/or securing payment of all amounts due
under the Note (collectively, the "Loan Documents"), and the repayment of all
costs, expenses, advances and other sums incurred and/or expended by IFM in
connection with performance of those covenants and obligations.
In consideration of the above facts and the mutual promises of the parties,
and as security for the purposes stated above and elsewhere in this Agreement,
the parties agree as follows:
1. Grant of Security Interest. Horizon hereby grants IFM a security
interest in the following described property (collectively, the "Collateral"):
(i) presently existing and hereafter arising accounts, contract
rights, and all other forms of obligations owing to Borrower arising out of
the sale or lease of goods or the rendition of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other Security therefor, as well as all merchandise
returned to or reclaimed by Borrower relating to any of the foregoing
(collectively, "Accounts");
(ii) present and future general intangibles and other personal
property (including choses or things in action, goodwill, blueprints,
drawings, purchase orders, customer lists, monies due or recoverable from
pension funds, route lists, monies due under any royalty or licensing
agreements, infringement claims, computer programs, computer discs,
computer tapes, literature, reports, catalogs deposit accounts, insurance
premium rebates, tax refunds, and tax refund claims) other than (A) goods
and Accounts relating to any of the foregoing, or (B) patents, trade names,
trademarks, servicemarks, or copyrights (collectively, "General
Intangibles");
(iii) present and future letters of credit, notes, drafts,
instruments, certificated and uncertificated securities, documents, leases,
and chattel paper relating to any of the foregoing (collectively,
"Negotiable Collateral");
(iv) present and future inventory in which Borrower has any interest,
including goods held for sale or lease or to be furnished under a contract
of service and all of Borrower's present and future raw materials, work in
process, finished goods, and packing and shipping materials, wherever
located, and any documents of title representing any of the above, relating
to any of the foregoing (collectively, "Inventory");
(v) present and hereafter acquired machinery, machine tools, motors,
equipment, furniture, furnishings, fixtures, vehicles (including motor
vehicles and trailers), tools, parts, dies, jigs, goods (other than
consumer goods or farm products), and any interest in any of the foregoing,
and all attachments, accessories, accessions, additions, and improvements
to any of the foregoing, wherever located (collectively, "Equipment");
(vi) substitutions, replacements, additions, accessions, proceeds,
products to or of any of the foregoing (other than substitutions or
replacements of Equipment after the date hereof), including, but not
limited to, proceeds of insurance covering any of the foregoing, or any
portion thereof, and any and all Accounts, General Intangibles, Negotiable
Collateral, Inventory, Equipment, money, deposits, accounts, or other
tangible or intangible property resulting from the sale or other
disposition of the Accounts, General Intangibles, Negotiable Collateral,
Inventory, Equipment, or any portion thereof or interest therein and the
proceeds thereof.
Notwithstanding anything to the contrary contained herein, Horizon's grant of a
security interest is only as to (i) the Accounts, Negotiable Collateral,
Inventory, and Equipment acquired pursuant to that certain Asset Purchase
Agreement between Horizon and IFM dated as of May 19, 1998 (the "First Purchase
Agreement"), that certain Asset Purchase Agreement between Horizon and IFM dated
as of September 30, 1998 (the "Second Purchase Agreement"), (ii) the Accounts,
General Intangibles, Negotiable Collateral, Inventory, and Equipment acquired
pursuant to that certain Asset Purchase Agreement between Horizon and IFM of
even date herewith (the "Third Purchase Agreement"), and (iii) substitutions,
replacements, additions, accessions, proceeds, products to or of any of the
foregoing (other than substitutions or replacements of Equipment after the date
hereof) (the "Pledged Assets"). IFM's security interest shall not attach to any
property of Horizon other than the Pledged Assets.
2. WARRANTIES AND REPRESENTATIONS. Horizon warrants and covenants to IFM as
follows:
(a) Payment of Indebtedness. Horizon will pay the Indebtedness and perform
all obligations related to the Indebtedness when due, whether by maturity,
acceleration or otherwise.
2
(b) Authority. This Agreement is the valid and binding obligation of
Horizon, enforceable in accordance with its terms except as limited by
creditors' rights and equity. Horizon is organized and validly existing and in
good standing under the laws of the State of Georgia and the execution, delivery
and performance of this Agreement has been duly authorized by all necessary
action of Horizon's board of directors, and will not violate Horizon's governing
instruments or other material agreements.
(c) Name; Address; Location of Collateral. Horizon's name and address and
the location of the Collateral are accurately set forth on the signature page of
this Agreement.
(d) Title to Collateral. Horizon has good and marketable title to the
Collateral. Horizon will keep the Collateral free of all other liens,
encumbrances and security interests and will defend title to the Collateral
against all claims and demands of all persons at any time claiming any interest
in the Collateral except for the security interest associated with the Bank
Indebtedness (as defined in the Third Asset Purchase Agreement as set forth in
(a) that certain Subordination Agreement ("Subordination Agreement"), dated of
even date herewith, by and between Bank of America, N.A. and IFM, and (b) any
future subordination agreements entered into in connection therewith
(collectively, the "Security Interest").
(e) Priority of Security Interest. The execution and delivery of this
Agreement creates a valid security interest in the Collateral, and upon the
filing of a UCC-1 financing statement with (i) the Clerk of the Superior Court
of any county in the State of Georgia and (ii) the Secretary of State of the
State of Florida, IFM will have a perfected second security interest in the
Collateral, subject to no other lien, encumbrance or security interest except
for the Security Interest to the extent one can perfect by filing a financing
statement under Article 9 of the UCC and except for rights of Landlord under the
Commercial Lease Agreement or Florida law.
(f) Financing Statements. Horizon will execute financing statement(s) in
form acceptable to IFM and will pay the cost of filing financing statement(s) in
all public offices wherever filing is deemed reasonably necessary by IFM. A
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a financing statement under the UCC and may be filed by IFM in any filing
office.
(g) Payment of Taxes and Insurance Premiums. Horizon shall pay when due and
before any interest, collection fees or penalties accrue, all taxes, expenses,
assessments, liens or other charges (collectively, "Taxes") which may now or
hereafter be levied or assessed against the Collateral unless Horizon is
contesting such Taxes in good faith and has maintained adequate reserves with
respect to the payment thereof. Horizon shall also obtain and pay for insurance
for the Collateral in an amount consistent with industry standards and/or
reasonably acceptable to IFM. Horizon shall furnish proof of payment of taxes or
insurance upon request of IFM.
3
(h) Maintenance of Collateral. Horizon will maintain the Equipment in good
condition and repair, ordinary wear and tear excepted. Horizon will promptly
inform IFM of any material loss or diminution in value of the Collateral.
3. PROHIBITION ON TRANSFER OR MODIFICATION. Horizon shall not transfer,
sell, assign, lease or modify the Collateral or any interest therein, any part
thereof without the prior written consent of IFM, except for the transfer set
forth in the Third Asset Purchase Agreement. Notwithstanding the foregoing,
Horizon may use and/or sell the Collateral if the same is in the ordinary Course
of Horizon's business and on customary terms and at usual prices.
4. PROHIBITION ON CHANGE OF NAME, ORGANIZATION OR LOCATION. Horizon shall
not assume a different name, conduct its business at any location other than as
appears in this Agreement, nor change the location of any of the Collateral
without, in each instance, obtaining the prior written consent of IFM thirty
(30) days prior to any such event. Horizon agrees to execute any amendments to
financing statement(s) required in connection with this Section 4 in form
acceptable to IFM, and will pay the filing fees and costs actually incurred by
IFM in connection with any such amendments.
5. EXAMINATION OF RECORDS AND COLLATERAL. Horizon shall keep full and
accurate records related to the Collateral, and such records shall be open to
inspection and duplication by IFM at all reasonable times upon reasonable prior
notice. Upon reasonable notice to Horizon and at reasonable times, IFM may enter
upon any property owned by or in the possession of Horizon to examine and
inspect the Collateral. Horizon shall provide IFM as soon as practicable with
any information concerning the Collateral as IFM may reasonably request at any
time.
6. REIMBURSEMENT OF EXPENSES. Horizon shall reimburse IFM for all
reasonable costs and expenses, including reasonable attorneys' fees, actually
incurred by IFM in enforcing the rights of IFM under this Agreement except for
inspection of records. All costs, expenses and fees of any nature for which
Horizon is obligated to reimburse or indemnify IFM are part of the Indebtedness
secured by this Agreement and are payable upon demand, unless expressly provided
otherwise, with interest until repaid at the highest rate charged on any of the
Indebtedness (but not to exceed the maximum rate permitted by law).
7. RIGHTS AND OBLIGATIONS OF IFM. In the event that Horizon fails to pay
taxes, maintain insurance or perform any other obligation arising under this
Agreement, IFM may pay or perform such obligation(s) for the account of Horizon
and the same shall be added to the Indebtedness and shall be immediately due and
payable together with interest at the highest rate charged by IFM on any of the
Indebtedness (but not to exceed the maximum rate permitted by law). IFM shall
not be liable for any loss to the Collateral nor shall such loss reduce the
balance due.
8. INDEMNIFICATION. Horizon shall indemnify and save IFM harmless from all
claims, obligations, costs, expenses, including attorneys' fees, and causes of
action or other rights asserted against IFM and relating to breach of this
Agreement by Horizon.
4
9. EVENTS OF DEFAULT AND REMEDIES.
(a) Events of Default. Any of the following events shall, for purposes of
this Agreement, constitute an "Event of Default":
(i) Failure by Horizon to pay any amount owing on or with respect to
the Indebtedness when due, whether by maturity, acceleration or otherwise,
which failure continues for ten (10) days after the due date of such
amount.
(ii) Any failure by Horizon to comply with, or breach by Horizon of,
any of the non-monetary terms, provisions, warranties or covenants of any
Note, this Agreement or the other Loan Documents, which failure continues
for thirty (30) days after the date of written notice to Horizon (or any
Guarantor) from IFM of such failure.
(iii) The insolvency of Horizon or the admission in writing of
Horizon's or any guarantor's inability to pay debts as they mature.
(iv) Any material statement, representation or information made or
furnished by or on behalf of Horizon to IFM in connection with or to induce
IFM to provide any of the Indebtedness shall prove to be false or
materially misleading when made or furnished.
(v) Institution of bankruptcy, reorganization, insolvency or other
similar proceedings by or against Horizon, unless, in the case of a
petition filed against Horizon, the same is dismissed within sixty (60)
days of filing.
(vi) The issuance or filing of any judgment, attachment, levy,
garnishment or the commencement of any related proceeding upon or in
respect to Horizon or the Collateral in which the amount of such judgment,
attachment, levy, garnishment or the amount in controversy in any related
proceeding exceed $50,000.
(vii) Dissolution, merger or consolidation in which Horizon is not the
surviving entity, termination of existence, insolvency, or assignment for
the benefit of creditors of or by Horizon.
(viii) Any failure by Horizon to comply with or breach by Horizon
(after giving of any required notice) and expiration of an applicable cure
period) Sublease Agreement (the "Sublease"), by and between IFM of event
date herewith.
(b) Remedies Upon Event of Default. Upon the occurrence of any Event of
Default, IFM shall have the following rights:
(i) Declare all or part of the Indebtedness immediately due and
payable.
(ii) Horizon agrees, upon request of IFM, to assemble the Collateral
and make it available to IFM at any place which is reasonably convenient
for Horizon and IFM. Horizon grants IFM permission to enter upon any
premises owned or occupied by Horizon for the purpose of taking possession
of the Collateral.
5
(iii) Subject to the rights of Bank of America, N.A. under the
Subordination Agreement, IFM shall have the right to take possession of the
Collateral, with or without demand, and with or without process of law.
Subject to the rights of Bank of America, N.A. under the Subordination
Agreement, IFM shall have the right to sell and dispose of the Collateral
and to distribute the proceeds according to law. In connection with the
right of IFM to take possession of the Collateral, IFM may take possession
of any other items of property in or on the Collateral at the time of
taking possession and hold them for Horizon without liability on the part
of IFM. If there is any statutory requirement for notice, that requirement
shall be met if IFM shall send notice to Horizon at least ten (10) days
prior to the date of sale, disposition or other event giving rise to the
required notice. Horizon shall be liable for any deficiency remaining after
disposition of the Collateral.
(iv) IFM shall also have any one or more of the rights and remedies
under the UCC or at law or equity to enforce the payment of the
Indebtedness.
(c) Remedies Generally.
(i) All remedies provided for in Section 9(b) shall be available to
the extent not prohibited by law. Each remedy shall be cumulative and
additional to any other remedy of IFM at law, in equity or by statute. No
delay or omission to exercise any right or power accruing upon any default
or Event of Default shall impair any such right or power or shall be
construed to be a waiver of, or acquiescence in, any such default or Event
of Default.
(ii) IFM may waive any Event of Default and may rescind any
declaration of maturity of payments on the Indebtedness. In case of such
waiver or rescission Horizon and IFM shall be restored to their respective
former positions and rights under this Agreement. Any waiver by IFM of any
default or Event of Default shall be in writing and shall be limited to the
particular default waived and shall not be deemed to waive any other
default.
(d) Application of Proceeds. Any proceeds received by IFM from the exercise
of remedies pursuant to Section 9(b) of this Agreement shall be applied as
follows:
(i) First, to pay all costs and expenses incidental to the leasing,
foreclosure, sale or other disposition of the Collateral. These costs and
expenses shall include, without limit, any costs and expenses incurred by
IFM (including, without limit, attorneys' fees and disbursements actually
incurred), and any taxes and assessments or other liens and encumbrances
prior to the lien of this Agreement.
6
(ii) Second, to all sums expended or incurred by IFM, directly or
indirectly in carrying out any term, covenant or agreement under this
Agreement or any related document, together with interest as provided in
this Agreement.
(iii) Third, to the payment of the Indebtedness. If the proceeds are
insufficient to fully pay the Indebtedness, then application shall be made
first to late charges and interest accrued and unpaid, then to any
applicable prepayment premium, and then to unpaid fees and other charges,
then to the outstanding principal balance.
(iv) Fourth, any surplus remaining shall be paid to Horizon or to
whomsoever may be lawfully entitled.
(e) Further Actions. Promptly upon the request of IFM, Horizon shall
execute, acknowledge and deliver any and all further documents, security
agreements, financing statements and assurances, and do or cause to be done all
further acts as IFM may acquire to confirm and protect the lien of this
Agreement or otherwise to accomplish the purposes of this Agreement.
(f) Attorneys Fees. Any reference in this Agreement to attorneys' fees
shall refer to reasonable fees, charges, costs and expenses of outside attorneys
and paralegals actually incurred, whether or not a suit or proceeding is
instituted, and whether incurred at the trial court level, on appeal, in a
bankruptcy, administrative or probate proceeding, in consultation with counsel,
or otherwise.
10. TERMINATION OF FINANCING STATEMENTS. IFM shall execute and deliver to
Horizon, within ten (10) business days after the written request of Horizon, UCC
termination statements with respect to the Collateral secured hereunder,
provided that (a) Horizon shall not be in default under any of the terms,
covenants or conditions of any document or instrument evidencing or securing the
Indebtedness; (b) the outstanding principal balance of any Note, together with
interest, premiums, costs and all other sums on that amount, shall be paid in
full; and (c) all termination statements shall be prepared by IFM at Horizon's
expense. Upon the filing of such termination statements in accordance with the
applicable provisions of the UCC, this Agreement shall be terminated.
11. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be construed according to the laws
of the State of Georgia.
(b) Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of Horizon including, without limit, any Horizon in
possession or trustee in bankruptcy for Horizon, and the rights and privileges
of IFM under this Agreement shall inure to the benefit of its successors and
assigns. This shall not be deemed a consent by IFM to a conveyance by Horizon of
all or any part of the Collateral or of any ownership interest in Horizon.
7
(c) Notices. Notice from one party to another relating to this Agreement
shall be made pursuant to the Note.
(d) Entire Agreements; Amendments. This Agreement. the Subordination
Agreement, and the Third Asset Purchase Agreement, and any agreement to which it
refers state all rights and obligations of the parties and supersede all other
agreements (oral or written) with respect to the security interests granted by
this Agreement. Any amendment of this Agreement shall be in writing and shall
require the signature of Horizon and IFM.
(e) Partial Invalidity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions of this Agreement.
(f) Inspections. Any inspection, audit, appraisal or examination by IFM or
its agents of the Collateral or of information or documents pertaining to the
Collateral is for the sole purpose of protecting IFM's interest under this
Agreement and is not for the benefit or protection of Horizon or any third
party.
(g) Automatic Reinstatement. Notwithstanding any prior revocation,
termination, surrender or discharge of this Agreement, the effectiveness of this
Agreement shall automatically continue or be reinstated, as the case may be, in
the event that:
(i) Any payment received or credit given by IFM in respect of the
Indebtedness is determined to be a preference, impermissible setoff,
fraudulent conveyance, diversion of trust funds, or otherwise required to
be returned to Horizon or any third party under any applicable state or
federal law, including, without limit, laws pertaining to bankruptcy or
insolvency, in which case this Agreement shall be enforceable as if any
such payment or credit had not been received or given, whether or not IFM
relied upon this payment or credit or changed its position as a consequence
of it.
(ii) In the event of continuation or reinstatement of this Agreement,
Horizon agrees upon demand by IFM to execute and deliver to IFM those
documents which IFM determines are appropriate to further evidence (in the
public records or otherwise) this continuation or reinstatement, although
the failure of Horizon to do so shall not affect in any way the
reinstatement or continuation. If Horizon does not execute and deliver to
IFM such documents upon demand, IFM and each officer of IFM is irrevocably
appointed (which appointment is coupled with an interest) the true and
lawful attorney of Horizon (with full power of substitution) to execute and
deliver such documents in the name and on behalf of Horizon.
(h) Assignment. This Agreement is freely assignable, in whole or in part,
by IFM without notice to or consent of Horizon. IFM shall be fully discharged
from all responsibility accruing hereunder from and after the effective date of
any such assignment. IFM's assignee shall, to the extent of the assignment, be
vested with all the powers and rights of IFM hereunder (including those granted
under Section 9 hereof or otherwise with respect to the Collateral), and to the
extent of such assignment the assignee may fully enforce such rights and powers,
and all references to IFM shall mean and refer to such assignee. IFM shall
retain all rights and powers hereby given not so assigned, transferred and/or
delivered. Horizon hereby waives all defenses which Horizon may be entitled to
assert against IFM's assignee with respect to liability accruing hereunder prior
to the effective date of any assignment of IFM's interest herein. Horizon may
not, in whole or in part, directly or indirectly, assign this Agreement or its
rights hereunder or delegate its duties hereunder without, in each instance, the
specific prior written consent of IFM, which consent may be withheld or delayed
in IFM's sole discretion.
8
Horizon has executed this Agreement on the day and year first above
written.
Horizon's principal place of business is located in the County of
Meriwether, State of Georgia.
Collateral is located at: 3101 37th Avenue North, St. Petersburg, Florida.
HORIZON:
HORIZON MEDICAL PRODUCTS, INC.
By:
------------------------------------------
Its:
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1343496v1
Exhibit 3.3
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
CRYOLIFE, INC.
TO: Department of State
Tallahassee, Florida 32304
Pursuant to the provisions of Section 607.10025 of the Florida Statutes,
the undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
1. The name of the corporation is CRYOLIFE, INC.
2. The following amendments of the Articles of Incorporation were adopted
by the directors of the corporation on the 20th day of November, 2000, in the
manner prescribed by the Florida General Corporation Act, Section 607.10025.
Paragraph a(1) of Article V of the Articles of Incorporation is hereby
deleted in its entirety and the following is substituted therefor:
ARTICLE V
Capital Stock
(A) (1) The number of shares of capital stock authorized to be issued by
this corporation shall be Seventy-Five Million (75,000,000) shares of common
stock, each with a par value of One Cent ($.01) and Five Million (5,000,000)
shares of preferred stock, each with a par value of One Cent ($.01). The shares
of preferred stock may be divided into and issued in series.
3. The amendment of the Articles of Incorporation does not adversely affect
the rights or preferences of the holders of outstanding shares of any class or
series of stock and does not result in the percentage of authorized shares that
remain unissued after the division exceeding the percentage of authorized shares
that were unissued before the division. There is no reduction in the par value
of the Common Stock by reason of the Stock Distribution.
4. The total number of shares of Common Stock of the corporation that have
been issued or are outstanding are 13,381,053. On December 20, 2000, the Board
of Directors adopted a Resolution approving a three for two stock split by way
of a stock dividend of CryoLife, Inc.'s Common Stock $.01 par value ("Common
Stock") including shares of Common Stock held in Treasury to be accomplished by
the issuance on December 27, 2000 of one additional share of authorized but
unissued Common Stock for every two shares of Common Stock issued and
outstanding on December 8, 2000. After the stock dividend, there will be
20,071,579 shares of Common Stock issued and outstanding.
5. The effective date of the division is December 27, 2000.
6. This amendment of the Articles of Incorporation is made in connection
with the division of Common Stock and is permitted by Section 607.10025 without
shareholder approval.
IN WITNESS WHEREOF, the foregoing Articles of Amendment are executed by the
President, STEVEN G. ANDERSON and attested by RONALD D. MCCALL, as Secretary of
CryoLife, on the 7th day of December, 2000.
WITNESSES:
/s/ Felicia E. Trott /s/ Steven G. Anderson
- --------------------------------- ---------------------------------------
Steven G. Anderson
President and CEO
/s/ Janie Brewer CryoLife, Inc.
- ---------------------------------
/s/ Felicia E. Trott /s/ Ronald D. McCall
- --------------------------------- ---------------------------------------
Ronald D. McCall, Esq.
Secretary
/s/ Janie Brewer CryoLife, Inc.
- ---------------------------------
2
COUNTY OF COBB
STATE OF GEORGIA
I HEREBY CERTIFY that before me, the undersigned authority, personally
appeared STEVEN G. ANDERSON, as President of CRYOLIFE, INC., to me well known
and who acknowledged that he executed the foregoing instrument this 7th day of
December, 2000, for the uses and purposes stated.
/s/ Suzanne K. Gabbert
-----------------------------------
Notary Public
My commission expires:
COUNTY OF COBB
STATE OF GEORGIA
I HEREBY CERTIFY that before me, the undersigned authority, personally
appeared RONALD D. MCCALL, as Secretary of CRYOLIFE, INC., to me well known and
who acknowledged that he executed the foregoing instrument this 7th day of
December, 2000, for the uses and purposes stated.
/s/ Suzanne K. Gabbert
-----------------------------------
Notary Public
My commission expires:
1343964v1
Exhibit 10.9(c)
EMPLOYMENT AGREEMENT
In consideration of the promises hereinafter contained, CryoLife, Inc., a
Florida corporation ("we," "our" and "us") and David Ashley Lee ("you") hereby
agree as of this 12th day of December 1994 to the following:
1. Employment. We hereby employ you and you hereby accept employment on the
terms and conditions set forth below. Your duties and compensation are set forth
on the Exhibit attached hereto.
2. Extent of Services. During your employment, you agree to devote your
full and exclusive time and attention to your employment duties and not to
engage in any other business activity which conflicts or competes with our
business or which reduces your effectiveness in performing your duties under
this Agreement unless you have first obtained our prior written consent.
3. Benefits and Absences. You are entitled to all benefits offered by us
for which you meet the eligibility requirements. You are subject to the
obligations concerning absences due to disability, sick leave, and other
absences, described in the current benefit summary schedule, and as revised
hereafter.
4. Term and Termination. Your employment shall commence on the date of this
Agreement. Both you and we shall have the right upon giving 30 days' written
notice to the other to terminate with or without cause the employment under this
Agreement. However, if one party to this Agreement terminates the employment,
the other party may at his option effect the separation immediately. This
Agreement shall automatically terminate in the event of your death. Such
automatic termination shall discharge both parties hereto from any and all
further liability or responsibility to the other under this Agreement.
5. Right to Change Duties. We reserve the right to change the nature and
scope of your duties. In the event of any transfer to another corporate
facility, we shall defray the reasonable cost of transporting you and your
family with household furnishings to your new location.
6. Secrecy and Noncompetition. Your employment and continued employment
with us is conditioned upon your signing our standard Secrecy and Noncompete
Agreement whose terms and agreements you agree to be bound by. You agree that
under no condition will any breach or infraction of this Agreement be assertable
as a defense to any action or responsibility incurred by you under the Secrecy
and Noncompete Agreement.
7. Your Warranties. You present and warrant that you will not utilize or
disclose any trade secrets or proprietary information of others to us and that
the only secrecy and/or noncompetition agreements you have with others are
identified on the attached exhibit.
8. Miscellaneous. This Agreement may not be changed or terminated orally,
and no change, termination or attempted waiver of the provisions hereof shall be
binding unless in writing and signed by the parties against whom the same is
sought to be enforced; provided, however, that the compensation paid to you
hereunder may be increased at any time by us without in any way affecting any
other term or condition of this Agreement which in all other respects shall
remain in force and effect. This Agreement shall be governed by the laws of the
State of Georgia.
IN WITNESS WHEREOF, this Agreement has been duly executed on the day and
year first above written.
CRYOLIFE, INC.
By: /s/ Steven G. Anderson
------------------------------------------
Its: President
------------------------------------------
EMPLOYEE
/s/ D.A. Lee
-----------------------------------------------
Exhibit to Employment Agreement
Duties: Controller
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Compensation: $5,208.33 Monthly/Plus Company
-------------------------------
Fringe Benefits
-------------------------------
Secrecy and
Noncompetition
Agreements
With Others*:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
-------------------------------
(*Copies of these must be
promptly provided to CryoLife)
1344210v1
Exhibit 10.16(b)
RESTATEMENT AND AMENDMENT TO FUNDING AGREEMENT
THIS RESTATEMENT AND FIRST AMENDMENT TO FUNDING AGREEMENT (this "First
Amendment") is entered into this 6th day of August, 1999, by and between AMLI
LAND DEVELOPMENT - I LIMITED PARTNERSHIP, an Illinois limited partnership, whose
address is in care of AMLI REALTY CO., 1945 Vaughn Road, Kennesaw, Georgia 30144
(together with its successors and assigns "Amli") and CRYOLIFE, INC., a Florida
corporation, whose address is 1655 Roberts Boulevard, Kennesaw, Georgia 30144
(together with its permitted successors and assigns "Tenant").
W I T N E S S E T H:
WHEREAS, Amli and Tenant entered into that certain Funding Agreement
("Agreement"), dated as of April 14, 1995, dealing with and surrounding the
construction of a certain building and other improvements and appurtenances
thereto as described in the Agreement ("Cryolife Phase I");
WHEREAS, Amli and Cryolife have agreed to the construction of an additional
two-story office/R&D/warehouse/light manufacturing building and improvements and
appurtenances thereto, including an interconnection between Cryolife Phase I and
Cryolife Phase II (as that term is hereinafter defined) thereby adjoining
Cryolife Phase I and Cryolife Phase II ("Cryolife Phase II") and desire to
restate and amend the Agreement as it relates to Cryolife Phase II;
WHEREAS, Amili and Cryolife desire to enter into this First Amendment to
restate and amend the Agreement.
NOW, THEREFORE, for and in consideration of TEN AND NO/100 ($10.00)
DOLLARS, the premises, and other good and valuable consideration, and the mutual
benefits that will be derived by the parties hereto, Amli and Tenant hereby
agree as follows:
1. The recitals hereinabove set forth are incorporated herein by
reference as if totally set forth herein.
2. The Agreement is hereby incorporated herein by reference and is hereby
restated in total, except as herein amended.
3. The Cryolife Phase II shall be and is hereby covered and governed by
the Agreement.
4. The Agreement as restated is hereby amended as follows:
a. In the Paragraph styled Land on Page 4, delete the following "The
term "Land" means an approximately 11 acre parcel of real estate
located in the Park, and legally described on Exhibit A attached
to the Lease" and substitute in lieu therefor the following "The
term "Land" means an approximately 9.5 acre parcel of real estate
located in the Park, and legally described in Exhibit A-1,
attached to the Lease."
b. In the Paragraph styled Lease on Page 4, strike the following
"The term "Lease" shall mean that certain Lease of even date
herewith between the Landlord and the Tenant" and substitute in
lieu therefor the following "The Term "Lease" shall mean that
certain Restated and First Amendment to Lease of even date
herewith between the Landlord and the Tenant."
c. In Article II, Paragraph 2.2(a), on Page 6, in the last line of
the Paragraph strike "April 1, 1997" and substitute in lieu
therefor "March 1, 2001."
2
d. In Article III, Paragraph 3.3 (a), on Page 9, in the 4th line up
from the bottom of the Paragraph strike "June 1, 1996" and
substitute in lieu therefor "October 31, 2000."
e. In Article III, Paragraph 3.5, on Page 10 the following is added
as a new paragraph (iii): "(iii) Provided that Tenant is not in
default hereunder, under the Lease or under the Pre-Occupancy
Agreement, any savings by Tenant of the $25.00 per square foot
allowance for Tenant Improvements in any phase of the
construction of the Tenant Improvements may be used in subsequent
phases of Tenant Improvements."
f. In Article V, 5.1(e) on Page 15, in the 5th and 6th lines from
the top of the Paragraph strike "2100 River Edge Parkway, Suite
420, Atlanta, Georgia 30328" and substitute in lieu therefor
"1945 Vaughn Road, Kennesaw, Georgia 30144," and the 7th line
from the top of the Paragraph strike "2211 New Market Parkway,
Suite 142, Marietta, Georgia 30067, and substitute in lieu
therefor" 1655 Roberts Boulevard, Kennesaw, Georgia 30144."
g. In Article VI, 6.1(i)(3) on Page 17, in the 2nd line from the top
of the Paragraph strike "April 1, 1997" and substitute in lieu
therefor "March 1, 2001," and in subparagraph (j) first line of
the Paragraph strike "April 1, 1997" and substitute in lieu
therefor "March 1, 2001."
3
h. In Exhibit A in the 1st Paragraph in the last line of the
Paragraph strike "1995" and substitute in lieu therefor "1999."
i. In Exhibit B in the 1st Paragraph, 2nd line of this Paragraph
strike "1995" and substitute in lieu therefor "1999."
j. In Exhibit C in the 1st Paragraph, last line of the Paragraph
strike "1995" and substitute in lieu therefor "1999."
k. In Exhibit F in the 1st Paragraph, 2nd line of the Paragraph
strike "1995" and substitute in lieu therefor "1999."
The parties hereto hereby ratify, affirm and confirm the Agreement as
restated and as amended hereby and that the Agreement is in full force and
effect and that the parties are hereby bound by the terms and conditions of this
Agreement, as amended.
IN WITNESS WHEREOF, Amli and Tenant have caused this First Amendment to be
duly executed under seal as of the date here first above written.
TENANT:
CRYOLIFE, INC.,
a Florida corporation
By: /s/ Steven G. Anderson
----------------------------------------
Steven G. Anderson
Its Chairman, President & CEO
[CORPORATE SEAL]
Date of Signature: 8-3-99
4
AMLI LAND DEVELOPMENT -
I LIMITED PARTNERSHIP,
an Illinois limited partnership
By: AMLI REALTY CO.
a Delaware corporation,
its sole general partner
By: /s/ Phillip N. Tague
---------------------------------
Philip N. Tague
Executive Vice President
[CORPORATE SEAL]
Date of Signature: 8-6-99
5
1343488v1
Exhibit 10.34
SUBLEASE AGREEMENT
This SUBLEASE (the "Sublease") is entered into as of the 9th day of October,
2000, between IDEAS FOR MEDICINE, INC., formerly known as CryoLife Acquisition
Corporation, a Florida corporation (herein called "IFM") and HORIZON MEDICAL
PRODUCTS, INC., a Georgia corporation (herein called "Horizon"), both hereafter
called the "Parties".
1. DEMISE
IFM hereby sublets to Horizon and Horizon subleases from IFM the Premises
described in Paragraph 2 herein, which is the Demised Premises leased by IFM, as
Tenant, from Secret Promise, Ltd., as successor-in-interest to J. Crayton Pruitt
Family Trust u/t/a 9/17/76, ("Landlord") under that certain lease dated March 5,
1997, as amended, which is incorporated herein, by reference, and which is
hereinafter, collectively with any and all amendments, referred to as the
"Lease." Defined terms used herein but not otherwise defined herein shall have
the meaning set forth in the Lease.
2. DESCRIPTION OF SPACE
The premises (the "Premises") subject to this Sublease consists of that certain
tract or parcel of land more particularly described on Exhibit A attached hereto
and made a part hereof, together with all improvements erected thereon and all
appurtenances thereunto belonging.
3. TERM OF SUBLEASE
The term (the "Sublease Term") of this Sublease shall be for a period ending on
the date that the Lease Term expires or is earlier terminated, if earlier.
Notwithstanding anything to the contrary expressed or implied in this Sublease
or in the Lease, Horizon hereby acknowledges and agrees that it shall have no
right to exercise any election, right or opportunity of Tenant under the Lease
to renew or extend the term of the Lease, nor shall Horizon have any right to
holdover or continue in occupancy of the Premises after termination of the
Lease, except as expressly set forth herein to the contrary. At the expiration
of the initial Term of the Lease, Horizon shall be entitled to request IFM to
extend the Term of the Lease in accordance with the terms of Section 5 of the
Lease. Horizon shall provide such request to IFM in writing not more than ninety
(90) nor less than thirty (30) days prior to the last date by which IFM is
permitted to provide to Landlord a notice of election to extend under the Lease.
If IFM refuses to so extend it shall so notify Horizon within fifteen (15) days
after receipt of Horizon's notice, and then, with Landlord's prior consent, and
provided that Landlord agrees in writing that (i) IFM is or shall be released as
of the expiration of the then current Lease Term and shall not be or remain
liable during the succeeding Extension Option Term or Terms, and (ii) CryoLife,
Inc. ("CryoLife"), IFM's sole shareholder, is or shall be released from its
obligations under the Guaranty executed by CryoLife in favor of Landlord in
connection with the Lease as of the expiration of the then current Lease Term
and shall not be liable during the succeeding Extension Option Term or Terms.
IFM shall assign all of its right, title and interest in and to the Lease and
the Premises to Horizon upon the expiration or termination of the then current
Lease Term. Alternatively, if IFM does not elect to extend then Horizon shall be
free to negotiate with Landlord for a new, direct lease of the Premises. Horizon
hereby acknowledges that IFM has no duty or obligation to extend the lease for
the benefit of Horizon, that Landlord has no duty or obligation to negotiate
with Horizon with respect to a new lease, and that Landlord's consent to any
assignment to Horizon may be granted or withheld by Landlord in accordance with
the provisions of Section 23 of the Lease.
4. SUBLEASE RENT
Horizon agrees to pay to IFM as "Rent" for the Premises all amounts due by IFM
to Landlord under the Lease including, but not limited to, monthly "Base Rental"
(as defined and prescribed in the Lease), together with any and all other
"Additional Rental", rents, sums and other charges due and payable under the
Lease as set forth therein. With respect to Base Rental payments and any and all
other payments due on or before the first (1st) day of the month under the
Lease, under this Sublease such payments shall be due and payable monthly in
advance on the twentieth (20th) day of each calendar month immediately preceding
the calendar month of the term of this Sublease for which such Rent is due. The
payment of Rent for the month of October 2000 shall be due and payable as and
when this Sublease is executed by Horizon, and shall be pro rated on a per diem
basis for the partial month. As to any and all other payments due and payable
under the Lease, for purposes of this Sublease such payments shall be due and
payable to Horizon to IFM on the date which is ten (10) days prior to the
applicable due date for such payment under the Lease.
If any payment or installment of Rent is not paid as and when due under this
Sublease, and if such failure is not cured within ten (10) days thereafter, then
such Rent payment shall be due and payable together with an administrative late
charge handling fee equal to One Hundred Dollars ($100.00). Horizon hereby
acknowledges and agrees that (i) IFM shall not be obligated to accept any late
payment, (ii) IFM shall not be deemed to have waived such late charge by
acceptance of any subsequent Rent payment which fails to include such charge,
and (iii) any and all past due Rent shall, in addition, bear interest from the
date which is ten (10) days after the date due until the date paid at a rate
("Default Interest Rate") equal to the lesser of eighteen percent (18%) simple
interest per annum or the highest rate allowed by law.
5. HOLDOVER
There shall be absolutely no holdover permitted by Horizon after the expiration
or termination of this Sublease. Any holdover after the expiration of this
Sublease concurrently with the expiration of the term of the Lease shall be
conclusively deemed to be as a tenant at will or at sufferance of Landlord under
the Lease, and not by, through or under IFM under this Sublease. Any holdover
after the earlier termination of the term hereof prior to the expiration or
termination of the term of the Lease shall be conclusively deemed to be as a
tenant at will or at sufferance of IFM under this Sublease. Any such holdover
tenancy under Landlord may thereafter be terminated by Landlord, and any such
holdover tenancy under IFM may be thereafter terminated by IFM, at any time from
and after the date it commences and/or as provided by the laws of the State of
Florida. Notwithstanding the foregoing, the Rent during the period of any
holdover under IFM shall increase to one hundred twenty-five percent (125%)
times the Rent due payable under the Lease. Further, Horizon hereby acknowledges
and agrees that its indemnity of IFM and of Landlord under Section 6 below shall
2
include, without limitation, any and all claims, demands, causes of action,
damages, costs and expenses (including without limitation reasonable actual
attorneys' fees and costs) arising out of or resulting directly or indirectly
from Horizon's holdover. Notwithstanding the foregoing, Horizon shall not be
liable to IFM for any consequent, special, indirect, or punitive damages
hereunder, except to the extent that damages (if any) owed by IFM to Landlord
may be so characterized.
6. HORIZON TO COMPLY WITH LEASE AGREEMENT TERMS, INDEMNITIES
6.1 Horizon agrees to perform and observe the covenants, conditions, and
terms set forth in the Lease on the part of the tenant to be performed and
observed (including without limitation Sections 9-11 thereof), except the
covenant for the payment of Base Rental (and any rent tax imposed thereon)
reserved in the Lease, and to indemnify, defend (using counsel selected by or
acceptable to IFM for such purpose) and hold the Landlord and IFM each harmless
from and against any and all claims, demands, causes of action, damages, costs
and expenses (including without limitation reasonable actual attorneys' fees and
costs) arising out of or resulting directly or indirectly from IFM's breach of
or default under the Lease or this Sublease, unless caused by or resulting from,
directly or indirectly, any act or omission, breach or default of Horizon.
7. SERVICES AND UTILITIES
Horizon shall pay any and all charges for utilities and services as set forth in
the Lease. In the event that IFM has any utility deposits or other deposits for
services, Horizon shall reimburse IFM for the amounts thereof or shall replace
the same with deposits funded by Horizon within thirty (30) days after written
request from IFM to do so.
8. USE FOR BUSINESS PURPOSES
The premises subleased herein are to be used for the business purposes set out
in the Lease and for no other use or purpose whatsoever.
9. ALTERATIONS
Horizon shall not undertake or commence any alterations, additions or
improvements to the Premises without having first obtained the prior written
consent of IFM hereunder and, to the extent applicable, the consent or approval
of Landlord under the Lease.
10. WAIVER OF ONE BREACH NOT WAIVER OF OTHERS
Waiver of one breach of a term, condition, or covenant of this Sublease by
either party hereto shall be limited to the particular instance and shall not be
deemed to be a waiver of future breaches of the same or other terms, conditions,
or covenants.
3
11. TERMINATION AND REENTRY BY IFM ON HORIZON'S DEFAULT
11.1 Horizon shall be in default under this Sublease upon the occurrence of
any of the following acts, events or conditions:
(a) The Base Rental, Additional Rental or any other sum of money payable
under this Sublease is not paid when due, and such failure is not cured within
ten (10) days after written notice from IFM to Horizon thereof (provided,
however, that IFM shall not be obligated to provide to Horizon a notice of such
failure to the opportunity to cure same after such notice more than three (3)
times in any period of twelve (12) consecutive months;
(b) Horizon shall abandon or vacate all or any portion of the Premises and
ceases paying Rent;
(c) The failure or refusal of Horizon, at any time during the Sublease
Term, to fulfill or perform any other covenant, agreement or obligation of
Horizon hereunder if such failure or refusal shall continue without correction
for a period of twenty (20) days after notice thereof to Horizon (provided,
however, that if such covenant, agreement or obligation shall be of such nature
that it can be fulfilled or performed and if Horizon in good faith commences to
fulfill or perform same within said twenty (20) day period exercising due
diligence, a default by Horizon shall not be deemed to have occurred if Horizon
commences to diligently pursue the fulfillment or performance of the covenant,
agreement or obligation during such 20-day period and shall thereafter
continuously and diligently proceed therewith until completion within sixty (60)
total days);
(d) An attempt to assign, sub-sublease or further transfer Horizon's rights
or interests hereunder shall occur without the prior written approval of IFM,
except as set forth in that certain Assignment of Sublease of even date herewith
among Horizon, Bank of America, N.A., and IFM.
(e) The initiation of any proceeding whereupon the estate or interest of
Horizon in the Premises, or any portion thereof, or in this Sublease is levied
upon or attached if such proceeding is not vacated, discharged or bonded within
thirty (30) days after the date of such levy or attachment;
(f) The entry of any decree or order for relief by a court having
jurisdiction in the Premises in respect of Horizon in an involuntary case under
the federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of Horizon or for any substantial part of the
assets of Horizon, or the entry of any decree or order with respect to
winding-up or liquidation of the affairs of Horizon, if any such decree or order
continues unstayed and in effect for a period of sixty (60) consecutive days;
(g) The commencement by Horizon of a voluntary case under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, or the consent by
4
Horizon to the appointment of or possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of Horizon or for
any substantial part of the assets of Horizon, or any assignment made by Horizon
for the benefit of creditors, and such case or proceeding is not dismissed
within sixty (60) days; or
(h) A default by Horizon under that certain Promissory Note from Horizon in
favor of IFM dated as of even date herewith in the principal amount of
$5,945,216 (as that note may be amended or replaced) and a failure to cure such
default as set forth therein.
11.2 Upon the occurrence of a default by Horizon as described in this
Sublease, IFM shall have the option to pursue any one or more of the following
remedies without notice or demand whatsoever, and in addition to, and not in
limitation of any other remedy or right permitted to it by law of in equity or
by this Sublease:
(a) IFM, with or without terminating this Sublease and without waiving such
default, may perform, correct or repair any condition which shall constitute a
failure on Horizon's part to keep, observe, perform or satisfy such condition,
and IFM may take, on behalf of Horizon, whatever steps IFM deems necessary to
cure such default. IFM may reenter the Premises for such purposes without being
liable for prosecution or any claim for damages therefor, and Horizon shall
fully reimburse and compensate IFM on demand for all costs and expenses incurred
by IFM in such performance, correction or repair, including without limitation,
accrued interest from the date of demand until date of payment at the Default
Interest Rate, and such sums shall be deemed to be Additional Rental hereunder;
(b) IFM may terminate this Sublease, in which event Horizon shall
immediately surrender the Premises to IFM, and if Horizon fails to do so, IFM
may, without prejudice to any other remedy it may have, enter upon and take
possession of the Premises and expel or remove Horizon and any other person who
may be occupying said premises or any part thereof in accordance with all
applicable laws and without breaching the peace;
(c) IFM may recover possession of the Premises, with or without terminating
this Sublease, at IFM's option, in the manner prescribed by any applicable
statute, including without limitation, statutes relating to summary process. Any
demand for the Rent, reentry for conditions broken, and any and all notices to
quit, including without limitation, the notice required by the provisions of
Section 83.20, Florida Statutes, or any similar statutes, or other formalities
of any nature, to which Horizon may be entitled, are hereby specifically waived.
In any possessory action for nonpayment of Rent or other charge due hereunder,
Horizon expressly waives any defense other than payment. Horizon's obligation to
pay Rent is independent of any duty or obligation of IFM under this Sublease;
(d) IFM may relet the Premises upon such terms and conditions and for such
rental as IFM deems advisable, without thereby avoiding or terminating this
Sublease, and Horizon shall remain liable for any and all Rent and other charges
and expenses hereunder. For the purpose of reletting, IFM is authorized to make
such repairs or alterations to the Premises and/or to remove or store Horizon's
or other occupants' possessions as may be necessary in the sole discretion of
IFM for the purpose of such reletting, and if a sufficient sum is not realized
from such reletting (after payment of all costs and expenses of such repairs,
alteration or storage and the expense of such reletting and the collection of
5
rent accruing therefrom) each month to equal the Rent, then Horizon shall pay
such deficiency each month upon demand therefor. Actions to collect such amounts
may be brought from time to time, on one or more occasions, without the
necessity of IFM's waiting until the expiration of the Sublease Term. In the
event of termination of the Sublease or repossession of the Premises for default
as described in this Sublease, IFM shall use commercially reasonable efforts to
relet the Premises, or a portion thereof, and to collect rental after reletting;
and in the event of reletting, IFM may relet the whole or any portion of the
Premises, as agent for Horizon or for IFM's own account, for any period to any
sublease and for any use and purpose;
(e) IFM may declare immediately due and payable the then present value
(calculated with a discount factor or eight percent (8%) per annum) of the
difference between (x) the entire amount of Base Rental. Additional Rental and
other charges and assessments which in IFM's reasonable determination would
become due and payable during the remainder of the Sublease Term (in the absence
of the termination of this Sublease), and (y) the then fair market value of the
Premises for the remainder of the Sublease Term. Upon the acceleration of such
amounts, Horizon agrees to pay the same at once, in addition to all Rent, costs,
charges, assessments, and reimbursements theretofore due: provided, however,
that such payment shall not constitute a penalty or forfeiture, but shall
constitute liquidated damages for Horizon's failure to comply with the terms and
provisions of this Sublease (IFM and Horizon agreeing that IFM's actual damages
in such event are difficult to ascertain and that the amount set forth above is
a reasonable estimate thereof). In computing such liquidated damages, there
shall be added to such deficiency any reasonable expenses as IFM may incur in
connection with reletting, such as court costs, reasonable attorneys' fees and
disbursements, brokerage fees and preparing the Premises for reletting.
Furthermore, such amount shall be construed as liquidated damages and shall
constitute a debt provable in bankruptcy or receivership; and/or
(f) Alter all locks and other security devices at the Premises without
terminating this Sublease.
In the event that IFM shall have taken possession of the Premises pursuant
to the authority herein granted, then IFM shall have the right to keep in place
and use all of the furniture, fixtures and equipment at the Premises, including
without limitation that which is owned by or subleased to Horizon, and at all
times prior to any foreclosure thereon by IFM or repossession thereof by any
lessor thereof or third party having a lien thereon. IFM shall also have the
right to remove from the Premises (without the necessity of obtaining a distress
warrant, writ of sequestration or other legal process) all or any portion of
such furniture, fixtures, equipment and other property located thereon and place
same in storage at any premises within the county in which the Premises is
located; and in such event, Horizon shall be liable to IFM for costs incurred by
IFM in connection with such removal and storage and shall indemnify and hold IFM
harmless from all loss, damage, cost, expense and liability in connection with
such removal and storage. IFM shall also have the right to relinquish possession
of all or any portion of such furniture, fixtures, equipment and other property
to any person ("Claimant") claiming to be entitled to possession thereof who
presents to IFM a copy of any instrument represented to IFM by Claimant to have
6
been executed by Horizon (or any predecessor of Horizon) granting Claimant the
right under various circumstances to take possession of such furniture,
fixtures, equipment or other property, without the necessity on the part of IFM
to inquire into the authenticity of said instrument's copy of Horizon's
signature thereon and without the necessity of IFM's making any investigation or
inquiry as to the validity of the factual or legal basis upon which Claimant
purports to act. Horizon agrees to indemnify and hold IFM harmless from all
costs, expense, loss, damage and liability incident to IFM's relinquishment of
possession of all or any portion of such furniture, fixtures, equipment or other
property to Claimant. The rights of IFM herein stated shall be in addition to
any and all other rights which IFM has or may hereafter have at law or in
equity, and Horizon stipulates and agrees that the rights herein granted IFM are
commercially reasonable. IFM shall in no event be liable to Horizon, including,
without limitation, liability for trespass or conversion, with respect to any
actions taken pursuant to this Section 11.2 so long as same are taken in
accordance with all applicable laws.
11.3 No course of dealing between IFM and Horizon or any failure or
delay on the part of IFM in exercising any rights of IFM under Section 11.2
hereof or under any other provisions of this Sublease shall operate as a waiver
of any rights of IFM hereunder, at law or in equity or under any other
provisions of this Sublease, nor shall any waiver of a default on one occasion
operate as a waiver of any subsequent default or of any other default. No
express waiver shall affect any condition, covenant, rule, or regulation other
than the one specified in such waiver and that one only for the time and in the
manner specifically stated. The exercise by IFM of any one or more of the rights
and remedies provided in this Sublease shall not prevent the subsequent exercise
by IFM of any one or more of the other rights and remedies herein provided. All
remedies provided for in this Sublease are cumulative and may, at the election
of IFM, be exercised alternatively, successively, or in any other manner and are
in addition to any other rights provided for or allowed by law or in equity.
After default, the acceptance of Rent (or any portion thereof) or failure to
re-enter by IFM shall not be held to be a waiver of its rights to terminate this
Sublease or of any other rights under this Sublease or applicable statue, and
IFM may re-enter and take possession of the Premises, or exercise any other
right and remedy, as if no Rent had been accepted after such default.
11.4 Exercise by IFM of any one or more remedies under Section 11 or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises by Horizon whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
IFM and Horizon or otherwise as permitted by law. No alteration of locks or
other security devices and no removal or other exercise of dominion by IFM over
the property of Horizon or others at the Premises shall be deemed unauthorized
or constitute a conversion, Horizon hereby consenting, after any default, to the
aforesaid exercise of dominion over Horizon's property within the Premises so
long as IFM complies with all Florida laws pertaining to distraint,
dispossessory, detainer or other remedial actions of landlords not waived under
this Sublease. All claims for damages by reason of such re-entry and/or
repossession and/or alteration of locks or other security devices and hereby
waived, as are all claims for damages by reason of any distress warrant,
forcible detainer proceedings, sequestration proceedings or other legal process
so long as IFM complies with all Florida laws pertaining to distraint,
dispossessory, detainer or other remedial actions of landlords not waived under
this Sublease. No such reentry or taking possession of the Premises by IFM shall
7
be construed as an election on IFM's part to terminate this Sublease, unless a
written notice of such intention be given by IFM to Horizon or unless the
termination thereof be decreed by a court of competent jurisdiction. Horizon
agrees that any re-entry by IFM which is made pursuant to a judgment obtained in
forcible detainer proceedings or other legal proceedings will not make IFM
liable for trespass.
12. LITIGATION COSTS
If any legal action is filed to enforce this Sublease, or any part thereof, the
prevailing shall be entitled to recover reasonable actual attorneys' fees and
costs of the action.
13. APPLICABLE LAW, VENUE, AND SERVICE
In interpreting this Sublease and in determining the right of the Parties under
it, the laws of the State of Florida shall apply. Venue shall lie in the county
in which the Premises is located.
Personal service either within or without such state shall be sufficient to give
personal jurisdiction to any court in which an action is filed for litigation of
rights under this Sublease.
14. SURRENDER OF PREMISES AND KEYS
Horizon agrees that at the expiration or termination of this Sublease, it will
quit and surrender the Premises in the condition set forth in the Lease upon an
expiration or termination, without notice, and will deliver to IFM all keys
belonging to the Premises.
15. REMOVAL OF PROPERTY BY IFM
If IFM re-enters the Premises or takes possession of them before normal
expiration of this Sublease in accordance with its terms, any and all personal
property of Horizon not removed within ten (10) days of such re-entry or
repossession (and to the extent IFM has changed the locks, it will permit
Horizon access to the Premises for such purposes) shall be conclusively deemed
to have been abandoned by Horizon and IFM shall have the right to cause the same
to be removed and disposed of in any manner it deems necessary or appropriate,
including without limitation throwing the same away, at Horizon's sole cost and
expense.
16. HORIZON'S INSOLVENCY, BANKRUPTCY, RECEIVERSHIP OR ASSIGNMENT FOR CREDITORS
If IFM cannot terminate this Sublease or Horizon's right of possession because
of the application of bankruptcy or similar laws, then Horizon, as a debtor in
possession or on behalf of any trustee for Horizon, shall: (i) within the
statutory time, assume or reject this Sublease and (ii) not seek or request any
extension of adjournment of any application to assume or reject this Sublease by
IFM. In such event, Horizon or any trustee for Horizon may only assume this
Sublease if (A) it cures or provides adequate assurance that it will promptly
cure any default hereunder, (B) it compensates or provides adequate assurance
that it will promptly compensate IFM for any actual pecuniary loss to IFM
8
resulting from Horizon's defaults, including without limitation accrued interest
at the Default Interest Rate and attorneys' fees as a result of such default,
and (C) it provides adequate assurance or performance during the Sublease Term
of all of the terms, covenants and provisions of this Sublease to be performed
by Horizon. In no event after the assumption of this Sublease shall any
then-existing default remain uncured for a period in excess of the earlier of
ten (10) days or the time period set forth herein. Adequate assurance of
performance shall include, without limitation, adequate assurance (1) of the
source of payment of Rent reserved hereunder, and (2) that the assumption of
this Sublease will not breach any provision hereunder, and will not cause a
breach of any other sublease, financing agreement or master agreement relating
to the Building.
17. NOTICES
All notices, demands, requests, elections, consents or other communications
required or permitted to be given pursuant to the terms of this Sublease shall
be in writing, signed by the party making the same, and shall be delivered
personally or by overnight mail service or courier, or by certified mail, return
receipt requested, postage or other delivery costs prepaid, to the other party
hereto, at the addresses set forth below. The date of such notice or other
communication shall be the date of personal delivery, the date of delivery if
deposited with Federal Express or other overnight or same day mail service or
courier, or the date delivery, refusal to accept delivery or inability to
deliver as evidenced on the return receipt, if sent by certified mail. If any
date on which any notice or election is required to be given or made hereunder
falls on a Saturday, Sunday or legal holiday, then, the date on which such
notice or election is required to be given or made hereunder shall, for all
purposes, be deemed to be the next following business day. Any notice to IFM
shall be addressed as follows:
Ideas for Medicine, Inc.
c/o CryoLife, Inc.
1655 Roberts Boulevard
Kennesaw, Georgia 30144
Attn: Vice President of Finance
with a copy to: Arnall Golden & Gregory, LLP
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3450
Attn: Clinton D. Richardson, Esq.
and if given to Horizon, shall be addressed to:
Horizon Medical Products, Inc.
Seven North Parkway Square
4200 Northside Parkway, N.W.
Atlanta, Georgia 30327
Attn: Robert M. Dodge,
Chief Financial Officer
9
with copies to: Slaughter & Virgin, P.C.
400 Colony Square, Suite 1110
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Attn: Nat G. Slaughter, III
and King & Spalding
191 Peachtree Street, N.E.
Suite 4600
Atlanta, Georgia 30303-1763
Attn: Jon R. Harris, Jr., Esq.
or such other address(es) as IFM or Horizon may from time to time designate in
writing on not less than twenty (20) days prior to written notice to the other.
18. SUBLEASE APPLICABLE TO HEIRS, SUCCESSORS AND ASSIGNS
The terms, conditions, and covenants of this Sublease shall inure to and be
binding on the heirs, successors, and administrators, executors, and assigns of
the Parties hereto, except as otherwise herein provided.
19. NO ASSIGNMENT OR FURTHER SUBLEASE WITHOUT CONSENT
Horizon shall not sell or assign this Sublease or any part thereof, or any
interest therein, or further sublease the same (collectively, a "Transfer"),
without written consent of both IFM and Landlord. Any attempt to do so without
such consent shall be conclusively deemed to be void and/or shall be a breach of
this Sublease. IFM agrees that it shall not unreasonably withhold, condition or
delay its consent to a proposed Transfer, provided that the following conditions
have been satisfied: (i) Horizon is not then in breach or default under this
Sublease, nor has any event or condition occurred which, with the giving of
notice or the passage of time, or both, could constitute a default by Horizon
under this Sublease, (ii) Landlord has given its consent in writing (or is
deemed to have given its consent) to the proposed Transfer for all purposes
under the Lease, (iii) provided that Bank of America, N.A. ("Bank"), is still
the holder and assignee of the assignment instrument discussed in the
parenthetical in item (iv) below. Bank has given its consent in writing to the
proposed Transfer, and (iv) that certain Promissory Note referred to in Section
11.1 (h) above has been paid in full by Horizon to IFM (provided, however, if
the proposed Transfer is to Bank pursuant to that certain "Assignment of
Sublease (Sublessee's Interest)" by and between Horizon and Bank which is
attached as Exhibit A to that certain "Lessor Subordination and Consent" being
executed and delivered substantially of even date herewith by IFM in favor of
Bank, then this condition (iv) shall not be applicable). Horizon acknowledges
that IFM is obligated to give to Landlord thirty (30) days' prior written notice
of any proposed Transfer. Horizon agrees to give IFM at least thirty-five (35)
days' prior written notice of any proposed Transfer, and to provide to Landlord
and to Bank a concurrent copy of any notice given by Horizon to IFM hereunder
with respect to a proposed Transfer.
10
20. CONDITION OF THE PREMISES
The Premises are delivered to Horizon in an "as-is" condition, with no work to
be performed by, or at the cost of, IFM, and no representations or warranties of
any kind, express or implied, by IFM to Horizon. Horizon hereby acknowledges and
agrees that it has had such time and opportunity as it has deemed necessary or
appropriate to visit, examine and inspect the Premises, and has received and
reviewed a copy of the Lease, and hereby approves the same in all respects.
11
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and
seals and have caused this Sublease to be executed by their duly authorized
officers as of the day and year first above written.
IFM:
IDEAS FOR MEDICINE, INC.
/s/ D.A. Lee
-------------------------------------
By: D.A. Lee
---------------------------------
Its:VP - Finance and CFO
---------------------------------
Horizon:
HORIZON MEDICAL PRODUCTS, INC.
/s/ William E. Peterson, Jr.
-------------------------------------
By: William E. Peterson, Jr.
---------------------------------
Its:President
---------------------------------
12
LEGAL DESCRIPTION
EXHIBIT "A"
A tract of land located in and being a portion of the Northwest 1/4 of Section
11 Township South, Range 16 East, and also being portions of the following
subdivision recorded in the Public Records of Pinelias County, Florida:
NORTON'S SUBDIVISION NO. 2, Plat Book 9, page 2;
PONCE De LEON PARK, Plat Book 12, page 47;
RIDGE CREST, Plat Book 8, page 23;
Said tract being more particularly described as follows:
Beginning at the Northeast corner of lands described in Official Records Book
4755, page 2019, thence North 89(0)51'39(0) West along the North line thereof,
175.74 feet to a point on the Westerly line of Block 4 of said NORTON'S
SUBDIVISION NO. 2 as extended Southeasterly; thence North 44(0)23'39(0) West
along said line 240.10 feet to a point of intersection with the Southerly line
of Block 6 of said NORTON'S SUBDIVISION NO. 2 as extended Easterly; thence
leaving said Westerly line North 89(0)59'22(0) West along said Southerly line
225.24 feet; thence leaving said line North 00(0)05'38(0) East along a Westerly
line of lands described in Official Records Book 1703, page 158, a distance of
125.20 feet to a point on the Northerly line of Lot 2, Block 6 of said NORTON'S
SUBDIVISION NO. 2; thence North 89(0)59'22(0) West along said line, 1.98 feet to
the Northwest corner of said Lot 2; thence North 45(0)15'52(0) West along a
Westerly line of lands described in Official Records Book 1703, page 158, a
distance of 85.26 feet to a point on the Southerly line of Lot 1, Block 5 of
said NORTON'S SUBDIVISION NO. 2; thence North 89(0)54'30(0) West along said
line, 169.73 feet to the Southwest corner of Lot 2 of said block; thence North
00(0)23'59(0) East along the Westerly line of said lot, 8.18 feet to a point of
intersection with the Southerly line of Block 8 of said RIDGE CREST as extended
Easterly; thence North 89(0)36'33(0) West along said line, 62.76 feet to the
Southeast corner of Lot 14, Block 8 of said RIDGE CREST; thence North
00(0)17'36(0) East along the Easterly line of said lot. 125.02 feet to the
Northeasterly corner thereof; thence North 89(0)57'46(0) West along the
Northerly line of said Block 8, a distance of 103.00 feet, thence leaving said
line North 00(0)57'57(0) East along a Westerly line of lands described in
Official Records Book 1703, page 158, a distance of 20.02 feet to a point on the
Southerly line of Lot 12, Block 7 of said RIDGE CREST, thence South
89(0)59'01(0) East along said line, 102.95 feet to the Southeasterly corner of
Lot 14 of said block; thence North 00(0)21'03(0) East along the Easterly line
thereof, 75.94 feet; thence leaving said line and along an Easterly line of
lands described in Official Records Book 4051, page 1262 the following two
courses: 1) North 44(0)22'59(0) West, 467.97 feet; 2) North 38(0)16'33(0) West,
41.51 feet; thence North 43(0)48'04(0) West along a Westerly line of lands
described in Official Records Book 1703, page 158, a distance of 86.68 feet,
thence leaving said line and along an Easterly line of lands described in
Official Records Book 4051, page 1262 the following two courses: 1) North
44(0)06'45(0) West, 110.12 feet; 2) North 45(0)34'36(0) East, 219.50 feet to a
point 29.85 feet Southwesterly of the centerline of an existing railroad track;
thence South 44(0)23'31(0) East. 1728.97 feet along a line parallel to and 29.85
feet Southwesterly of the centerline of said railroad track said line also
parallel to and 19.20 feet Southwesterly of the Northeasterly edge of an
existing concrete platform; thence leaving said line South 45(0)36'29(0) West,
19.97 feet to the Point of Beginning.
END OF LEGAL DESCRIPTION
1343496
Exhibit 10.35
TERMS OF AGREEMENT
BETWEEN
RONALD C. ELKINS, M.D. AND CRYOLIFE, INC.
EFFECTIVE DATE:
January 2, 2001 - December 31, 2003 with option to renew.
FOCUS OF SERVICES:
Ronald C. Elkins, M.D. agrees to provide twelve consulting days per 12
month Period. Consulting Services will address:
o the clinical use of BioGlue in cardiac and vascular surgery,
either in open surgery or minimally invasive surgery.
o the development of catheter(s) and related products to facilitate
the use of BioGlue in these clinical applications.
o the presentation of clinical information at surgical meetings,
educational symposia and other surgical congresses for the
purpose of surgeon education and training.
o the clinical use of SynerGraft heart valves, O'Brien heart
valves, CryoGraft-SG and CryoValve-SG.
COMPENSATION:
o Annual consulting fee of $100,000.00 paid monthly.
o Royalty of 5% on net sales of products which are invented solely
by you and which receive a patent and which are developed and
marketed as a result of this relationship. If these products are
invented in conjunction with another party, a royalty of 2.5%
will be paid on net sales.
o Royalty of 3% on net sales of products which are invented solely
by you which do not receive a patent, but which are developed and
marketed as a result of this relationship. If these products are
invented in conjunction with another party, a royalty of 1.5%
will be paid on net sales.
Payment of all travel and related expenses incurred under this Agreement
and in compliance with corporate travel and expense guidelines and policies.
The undersigned agree to the terms of this Agreement between Ronald C. Elkins,
M.D. and CryoLife, Inc.
/s/ Steven G. Anderson Date: 11-1-00 /s/ Ronald C. Elkins Date: 11-7-00
Steven G. Anderson Ronald C. Elkins, M.D.
President and CEO-CryoLife, Inc.
1343019
Exhibit 10.36
-----------------------------------
CRYOLIFE, INC.
and
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
Rights Agent
RIGHTS AGREEMENT
Dated as of November 27, 1995
---------------------------------------
TABLE OF CONTENTS
PAGE
Section 1. Certain Definitions................................................1
Section 2. Appointment of Rights Agent........................................4
Section 3. Issue of Right Certificates........................................4
Section 4. Form of Right Certificates.........................................6
Section 5. Countersignature and Registration..................................6
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen
Right Certificates.................................................6
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights......7
Section 8. Cancellation and Destruction of Right Certificates.................9
Section 9. Availability of Preferred Shares...................................9
Section 10. Preferred Shares Record Date..................................... 11
Section 11. Adjustment of Purchase Price, Number of Shares or Number
of Rights....................................................... .11
Section 12. Certificate of Adjusted Purchase Price or Number of Shares........18
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.....................................................18
i
Section 14. Fractional Rights and Fractional Shares..........................19
Section 15. Rights of Action.................................................20
Section 16. Transfer and Ownership of Rights and Rights Certificates.........21
Section 17. Right Certificate Holder Not Deemed a Stoc \w \xkholder..........21
Section 18. Concerning the Rights Agent......................................21
Section 19. Merger or Consolidation or Change of Name of Rights Agent........22
Section 20. Duties of Rights Agent...........................................23
Section 21. Chanmge of Rights Agent..........................................24
Section 22. Issuance of New Right Certificates...............................25
Section 23. Redemption.......................................................26
Section 24. Exchange.........................................................26
Section 25. Notice of Certain Events.........................................28
Section 26. Notices..........................................................28
Section 27. Supplements and Amendments.......................................29
Section 28. Successors.......................................................29
ii
Section 29. Benefits of this Agreement; Actions by the
Board of Directors, etc..........................................29
Section 30. Severability.....................................................30
Section 31. Governing Law....................................................30
Section 32. Counterparts.....................................................30
Section 33. Descriptive Headings.............................................31
iii
Agreement, dated as of November 27, 1995, between CryoLife, Inc., a Florida
corporation (the "Company"), and Chemical Mellon Shareholder Services, L.L.C.
(the "Rights Agent").
WHEREAS, the Board of Directors of the Company has authorized and declared
a dividend of one preferred share purchase right (a "Right") for each Common
Share (as hereinafter defined) of the Company outstanding on December 11, 1995
(the "Record Date");
WHEREAS, each Right represents the right to purchase one one-tenth of a
Preferred Share (as hereinafter defined), upon the terms and subject to the
conditions herein set forth; and
WHEREAS, the Company has further authorized and directed the issuance of
one Right with respect to each Common Share that shall become outstanding
between the Record Date and the earliest of the Distribution Date, the
Redemption Date and the Expiration Date (as such terms are hereinafter defined).
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as
hereinafter defined) of such Person, shall be the Beneficial Owner (as
hereinafter defined) of 15% or more of the Common Shares of the Company then
outstanding, but shall not include the Company, any Subsidiary (as hereinafter
defined) of the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or any entity holding Common Shares for or pursuant
to the terms of any such plan. Notwithstanding the foregoing, no Person shall
become an "Acquiring Person" as the result of an acquisition of Common Shares by
the Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 15% or more
of the Common Shares of the Company then outstanding; provided, however, that if
a Person shall become the Beneficial Owner of 15% or more of the Common Shares
of the Company then outstanding by reason of share purchases by the Company and
shall, after such share purchases by the Company, become the Beneficial Owner of
any additional Common Shares of the Company, then such Person shall be deemed to
be an "Acquiring Person". Notwithstanding the foregoing, if the Board of
1
Directors of the Company determines in good faith that a Person who would
otherwise be an "Acquiring Person", as defined pursuant to the foregoing
provisions of this paragraph (a), has become such inadvertently, and such Person
divests in an orderly fashion but as promptly as practicable a sufficient number
of Common Shares so that such Person would no longer be an "Acquiring Person,"
as defined pursuant the foregoing provisions of this paragraph (a), then such
Person shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement.
(b) "Affiliate", and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect on the date of this Agreement.
(c) Unless otherwise specifically provided, "agreement" refers to both
written and oral agreements.
(d) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates
is deemed to "beneficially own", within the meaning of Rule 13d-3 of the
General Rules and Regulations under the Exchange Act, as in effect on the
date of this Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, rights (other than these Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, securities tendered pursuant
to a tender or exchange offer made by or on behalf of such Person or any of
such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially own, any
security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (except to the extent contemplated by the
proviso to Section 1(d)(ii)(B) above) or disposing of any securities of the
Company.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the number of such
2
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder. Notwithstanding the foregoing, nothing
contained in this definition shall cause a Person ordinarily engaged in business
as an underwriter of securities to be the "Beneficial Owner" of, or to
"beneficially own," any securities acquired in a bona fide firm commitment
underwriting pursuant to an underwriting agreement with the Company.
(e) "Business Day" shall mean any day other than a Saturday, a Sunday, or a
day on which banking institutions in Pennsylvania are authorized or obligated by
law or executive order to close.
(f) "Close of Business" on any given date shall mean 5:00 P.M., Pittsburgh,
Pennsylvania time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Pittsburgh, Pennsylvania time, on the next
succeeding Business Day.
(g) "Common Shares" when used with reference to the Company shall mean the
shares of common stock, par value $.01 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person entitled to vote generally in the election of all directors of such
other Person or the equity securities or other equity interest having power
(whether or not exercised) to control or direct the management of such other
Person or, if such other Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.
(h) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(i) "Expiration Date" shall have the meaning set forth in Section 7 hereof.
(j) "Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
(k) "Preferred Shares" shall mean shares of Series A Junior Participating
Preferred Stock, par value $.01 per share, of the Company having the rights and
preferences set forth in the Form of Articles of Amendment attached to this
Agreement as Exhibit A.
(l) "Redemption Date" shall have the meaning set forth in Section 7 hereof.
(m) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that a Person, together with
all Affiliates and Associates of such Person, has become an Acquiring Person.
(n) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
3
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date be the
holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the
tenth day after the Shares Acquisition Date or (ii) the tenth Business Day (or
such later date as may be determined by action of the Board of Directors prior
to such time as any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the terms of any
such plan) of, or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer the consummation of which would result in
any Person becoming the Beneficial Owner of Common Shares aggregating 15% or
more of the then outstanding Common Shares (including any such date which is
after the date of this Agreement and prior to the issuance of the Rights; the
earlier of such dates being herein referred to as the "Distribution Date"), (x)
the Rights will be evidenced (subject to the provisions of Section 3(b) hereof)
by the certificates for Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be Right Certificates) and
not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer of Common
Shares. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (or the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing
one Right for each Common Share so held. As of the Distribution Date and
thereafter, the Rights will be evidenced solely by such Right Certificates.
4
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the Close of Business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto. Until the
Distribution Date (or the earlier of the Redemption Date or the Expiration
Date), the surrender for transfer of any certificate for Common Shares
outstanding on the Record Date, with or without a copy of the Summary of Rights
attached thereto, shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between CryoLife,
Inc. and Chemical Mellon Shareholder Services, L.L.C., dated as of
November 27, 1995 (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file
at the principal executive offices of CryoLife, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. CryoLife, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain circumstances, as
set forth in the Rights Agreement, Rights issued to any Person who
becomes an Acquiring Person (as defined in the Rights Agreement) may
become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
5
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding. Notwithstanding this paragraph (c), the omission of a
legend shall not effect the enforceability of any part of this Rights Agreement
or the rights of any holder of Rights.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially in the form as Exhibit B hereto
and may have such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Rights may from time to time be listed, or to conform to usage. Subject to
the provisions of Sections 7, 11 and 22 hereof, the Right Certificates, whenever
issued, shall entitle the holders thereof to purchase such number of one
one-tenths of a Preferred Share as shall be set forth therein at the price per
one one-tenth of a Preferred Share set forth therein (the "Purchase Price"), but
the number of one one-tenths of a Preferred Share and the Purchase Price shall
be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. (a) The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed thereto
the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a)
Subject to the provisions of Sections 7(e) and 14 hereof, at any time after the
6
Close of Business on the Distribution Date, and at or prior to the Close of
Business on the earlier of the Redemption Date or the Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 7(e) hereof or that have been
exchanged pursuant to Section 24 hereof) may be transferred, split up, combined
or exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-tenths of a Preferred
Share as the Right Certificate or Right Certificates surrendered then entitled
such holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the Rights Agent. Thereupon the Rights
Agent shall, subject to Sections 7(e) and 14 hereof, countersign and deliver to
the person entitled thereto a Right Certificate or Right Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
(c) Notwithstanding any other provisions hereof, the Company and the Rights
Agent may amend this Agreement to provide for uncertified Rights in addition to
or in place of Rights evidenced by Right Certificates.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) Subject to Section 7(e) and except as otherwise provided in this Agreement,
the registered holder of any Right Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date upon surrender of the Right Certificate, with the
form of election to purchase on the reverse side thereof duly executed, to the
Rights Agent at the principal office of the Rights Agent, together with payment
of the Purchase Price for each one one-tenth of a Preferred Share as to which
the Rights are exercised, at or prior to the earliest of (i) the close of
business on November 27, 2005 (the "Expiration Date"), (ii) the time at which
the Rights are redeemed as provided in Section 23 hereof (the "Redemption
Date"), or (iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.
(b) The Purchase Price for each one one-tenth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $100.00, and
7
shall be subject to adjustment from time to time as provided in Section 11 or 13
hereof and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the shares to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) either (A) requisition from any transfer agent of the
Preferred Shares certificates for the number of Preferred Shares to be purchased
and the Company hereby irrevocably authorizes its transfer agent to comply with
all such requests, or (B) requisition from the depositary agent depositary
receipts representing such number of one one-tenths of a Preferred Share as are
to be purchased (in which case certificates for the Preferred Shares represented
by such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
14 hereof, (iii) after receipt of such certificates or depositary receipts,
cause the same to be delivered to or upon the order of the registered holder of
such Right Certificate, registered in such name or names as may be designated by
such holder and (iv) when appropriate, after receipt, deliver such cash to or
upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Rights Agreement to the contrary, any
rights that are at anytime beneficially owned by an acquiring Person or any
Affiliate or Associate of an acquiring Person shall be null and void and not
transferable, and any holder of any such Right (including any purported
transferee or subsequent holders) shall not have any right to exercise or
transfer any such Right. No Rights Certificate shall be issued pursuant to
Section 3 that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence shall be
cancelled.
(f) Notwithstanding anything in this Rights Agreement to the contrary,
8
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of any Right Certificates upon the
occurrence of any purported exercise as set forth in this Section 7 unless such
registered holder shall have (i) completed and signed the certificate contained
in the form of election to purchase set forth on the reverse side of the Right
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
(g) The Company may temporarily suspend, for a period of time not to exceed
90 calendar days after the Distribution Date, the exercisability of the Rights
in order to prepare and file a registration statement under the Securities Act,
on appropriate form, with respect to the Preferred Shares purchasable upon
exercise of the Rights and permit such registration statement to become
effective; provided, however, that no such suspension shall remain effective
after, and the Rights shall without any further action of the Company or any
other Person become exercisable immediately upon the effectiveness of such
registration statement. Upon any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended and shall issue a further public announcement at such time
as the suspension is no longer in effect. Notwithstanding any provision herein
to the contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification under the Blue Sky or securities laws of such
jurisdiction shall not have been obtained or the exercise of the Rights shall
not be permitted under applicable law.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, and any Right Certificate representing Rights
that shall become null and void and nontransferable pursuant to Section 7(e)
surrendered or presented for any purpose shall, if surrendered to the Company or
to any of its agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by
it, and no Right Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Rights Agreement. The
Company shall deliver to the Rights Agent for cancellation and retirement, and
the Rights Agent shall so cancel and retire, any other Right Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Rights Agent shall deliver all cancelled Right Certificates to the Company,
or shall, at the written request of the Company, destroy such cancelled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
Section 9. Availability of Preferred Shares. (a) The Company covenants and
agrees that it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
9
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares. The Company further covenants
and agrees that it will pay when due and payable any and all federal and state
transfer taxes and charges which may be payable in respect of the issuance or
delivery of the Right Certificates or of any Preferred Shares upon the exercise
of Rights. The Company shall not, however, be required to pay any transfer tax
which may be payable in respect of any transfer or delivery of Right
Certificates to a person other than, or the issuance or delivery of certificates
or depositary receipts for the Preferred Shares in a name other than that of,
the registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or to deliver any certificates or depositary receipts for
Preferred Shares upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by the holder of such Right Certificate at
the time of surrender) or until it has been established to the Company's
reasonable satisfaction that no such tax is due.
(b) In the event that there shall not be sufficient Preferred Shares issued
but not outstanding or authorized but unissued to permit the exercise or
exchange of Rights in accordance with Section 11, the Company covenants and
agrees that it will take all such action as may be necessary to authorize
additional Preferred Shares for issuance upon the exercise or exchange of Rights
pursuant to Section 11; provided, however, that if the Company is unable to
cause the authorization of additional Preferred Shares, then the Company shall,
or in lieu of seeking any such authorization, the Company may, to the extent
necessary and permitted by applicable law and any agreements or instruments in
effect prior to the Distribution Date to which it is a party, (A) upon surrender
of a Right, pay cash equal to the Purchase Price in lieu of issuing Preferred
Shares and requiring payment therefor, (B) upon due exercise of a Right and
payment of the Purchase Price for each Preferred Share as to which such Right is
exercised, issue equity securities having a value equal to the value of the
Preferred Shares which otherwise would have been issuable pursuant to this
Agreement, which value shall be determined by a nationally recognized investment
banking firm selected by the Board of Directors of the Company or (C) upon due
exercise of a Right and payment of the Purchase Price for each Preferred Share
as to which such Right is exercised, distribute a combination of Preferred
Shares, cash and/or other equity and/or debt securities having an aggregate
value equal to the value of the Preferred Shares which otherwise would have been
issuable pursuant to Section 11, which value shall be determined by a nationally
recognized investment banking firm selected by the Board of Directors of the
Company. To the extent that any legal or contractual restrictions (pursuant to
agreements or instruments in effect prior to the Distribution Date to which it
is party) prevent the Company from paying the full amount payable in accordance
with the foregoing sentence, the Company shall pay to holders of the Rights as
to which such payments are being made all amounts which are not then restricted
on a pro rata basis as such payments become permissible under such legal or
contractual restrictions until such payments have been paid in full.
(c) So long as the Preferred Shares issuable upon the exercise or exchange
of Rights are to be listed on any national securities exchange, the Company
covenants and agrees to use its best efforts to cause, from and after such time
10
as the Rights become exercisable or exchangeable, all Preferred Shares reserved
for such issuance to be listed on such securities exchange upon official notice
of issuance upon such exercise or exchange.
(d) The Company further covenants and agrees that it will pay when due and
payable any and all Federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of Right Certificates or of any
Preferred Shares or Common Shares or other securities upon the exercise or
exchange of the Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a Person other than, or in respect of the issuance or
delivery of certificates for the Preferred Shares or Common Shares or other
securities, as the case may be, in a name other than that of, the registered
holder of the Right Certificate evidencing Rights surrendered for exercise or
exchange or to issue or deliver any certificates for Preferred Shares or Common
Shares or other securities, as the case may be, upon the exercise or exchange of
any Rights until any such tax shall have been paid (any such tax being payable
by the holder of such Right Certificate at the time of surrender) or until it
has been established to the Company's satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Shares transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Right Certificate shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend on the Preferred Shares payable in Preferred
Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the
outstanding Preferred Shares into a smaller number of Preferred Shares or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
11
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, each holder of a Right, except as provided in
Section 7(e), shall thereafter have a right to receive, upon exercise thereof at
a price equal to the then current Purchase Price multiplied by the number of one
one-tenths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of the Company as shall equal the result obtained
by (x) multiplying the then current Purchase Price by the number of one
one-tenths of a Preferred Share for which a Right is then exercisable and (y)
dividing that product by 50% of the then Current Per Share Market Price of the
Company's Common Shares (determined pursuant to Section 11(d) hereof) on the
date of the occurrence of such event (such number of shares being hereinafter
referred to as the "Adjustment Shares"). In the event that any Person shall
become an Acquiring Person and the Rights shall then be outstanding, the Company
shall not take any action which would eliminate or diminish the benefits
intended to be afforded by the Rights.
(iii) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit the exercise in full of
the Rights in accordance with the foregoing subparagraph (ii), the Company
shall, to the extent permitted by applicable law and regulation, (a) determine
the excess of (1) the value of the Adjustment shares issuable upon the exercise
of a Right (computed using the Current Per Share Market Price used to determine
the number of Adjustment Shares) (the "Current Value') over (2) the Purchase
Price (such excess is herein referred to as the "Spread"), and (B) with respect
to each Right, make adequate provision to substitute for the Adjustment Shares,
upon the exercise of the Rights and payment of the applicable Purchase Price,
(1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other
equity securities of the Company (including, without limitation, shares, or
units of shares, of preferred stock (including, without limitation, the
Preferred Stock) that the Board of Directors of the Company has determined to
have the same value as shares of Common Stock (such shares of preferred stock
are herein referred to as "Common Stock Equivalents")), (4) debt securities of
the Company, (5) other assets or (6) any combination of the foregoing, having an
aggregate value equal to the Current Value, where such aggregate value has been
determined by the Board of Directors of the Company based upon the advice of a
nationally recognized investment banking firm selected by the Board of Directors
12
of the Company; provided, however, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within 30 days following
the later of (x) the first Distribution Date and (y) the date on which the
Company's right of redemption pursuant to Section 23(a) expires (the later of
(x) and (y) being referred to herein as the "Flip-In Trigger Date"), then the
Company shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, shares of Common
Stock (to the extent available) and then, if necessary, cash, which shares
and/or cash have an aggregate value equal to the Spread. If the Board of
Directors of the Company shall determine in good faith that it is likely that
sufficient additional shares of Common Stock could be authorized for issuance
upon exercise in full of the Rights, the 30-day period set forth above may be
extended to the extent necessary, but not more than 90 days after the Flip-In
Trigger Date, in order that the Company may seek shareholder approval for the
authorization of such additional shares (such period, as it may be extended, the
"Substitution Period"). To the extent that the Company determines that some
action need be taken pursuant to the first and/or second sentences of this
Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e)
hereof, that such action shall apply uniformly to all outstanding Rights,and (y)
may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant to
such first sentence and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11(a)(iii), the value of the Common Stock shall be the Current
Market Price Per Share of the Common Stock on the Flip-In Trigger Date and the
value of any Common Stock Equivalents shall be deemed to have the same value as
the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Shares entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Preferred Shares (or shares having the same rights, privileges and
preferences as the Preferred Shares ("equivalent preferred shares")) or
securities convertible into Preferred Shares or equivalent preferred shares at a
price per Preferred Share or equivalent preferred share (or having a conversion
price per share, if a security convertible into Preferred Shares or equivalent
preferred shares) less than the then Current Per Share Market Price of the
Preferred Shares (as defined in Section 11(d)) on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of Preferred Shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of additional
13
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then Current Per Share Market Price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
Current Per Share Market Price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the "Current Per
Share Market Price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the Current Per Share Market Price of the
Security is determined during a period following the announcement by the issuer
of such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
14
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the Current Per Share Market
Price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by the
Board of Directors of the Company. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Security is listed
or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "Current Per Share
Market Price" of the Preferred Shares shall be determined in accordance with the
method set forth in Section 11(d)(i). If the Preferred Shares are not publicly
traded, the "Current Per Share Market Price" of the Preferred Shares shall be
conclusively deemed to be no more than the Current Per Share Market Price of the
Common Shares as determined pursuant to Section 11(d)(i) (appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof) multiplied by one tenth, with such adjustment to such
price as is determined in good faith by the Board of Directors to take into
account the differences between Common Share and Preferred Shares (including,
without limitation, differences in voting rights). If neither the Common Shares
nor the Preferred Shares are publicly held or so listed or traded, "Current Per
Share Market Price" shall mean the fair value per share as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one ten thousandth of a
Preferred Share or one thousandth of any other share or security as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
15
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-tenths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-tenths of a
Preferred Share (calculated to the nearest one ten thousandth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-tenths of a share
covered by a Right immediately prior to this adjustment by (y) the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-tenths of a Preferred Share purchasable upon
the exercise of a Right. Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of one one-tenths of a
Preferred Share for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one
thousandth) obtained by dividing the Purchase Price in effect immediately prior
to adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
16
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-tenths of a Preferred Share issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue to
express the Purchase Price and the number of one one-tenths of a Preferred Share
which were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-tenth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
17
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-tenth of a Preferred Share purchasable after such event upon
proper exercise of each Right shall be determined by multiplying the number of
one one-tenth of a Preferred Share so purchasable immediately prior to such
event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares or the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. In the event, directly or indirectly, at any time after a Person has
become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly-owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
18
to the then current Purchase Price multiplied by the number of one one-tenths of
a Preferred Share for which a Right is then exercisable, in accordance with the
terms of this Agreement and in lieu of Preferred Shares, such number of Common
Shares of such other Person (including the Company as successor thereto or as
the surviving corporation) as shall equal the result obtained by (A) multiplying
the then current Purchase Price by the number of one one-tenth of a Preferred
Share for which a Right is then exercisable and dividing that product by (B) 50%
of the then Current Per Share Market Price of the Common Shares of such other
Person (determined pursuant to Section 11(d) hereof) on the date of consummation
of such consolidation, merger, sale or transfer; (ii) the issuer of such Common
Shares shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing. The Company
shall not enter into any transaction of the kind referred to in this Section 13
if at the time of such transaction there are any rights, warrants, instruments
or securities outstanding or any agreements or arrangements which, as a result
of the consummation of such transaction, would eliminate or substantially
diminish the benefits intended to be afforded by the Rights. The provisions of
this Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The Company shall
not be required to issue fractions of Rights or to distribute Right Certificates
which evidence fractional Rights. In lieu of such fractional Rights, there shall
be paid to the registered holders of the Right Certificates with regard to which
such fractional Rights would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Right. For the purposes
of this Section 14(a), the current market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issuable. The closing
price for any day shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
19
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.
(b) The Company may, but shall not be required to, issue fractions of
Preferred Shares upon exercise of the Rights (other than fractions which are
integral multiples of one one-tenth of a Preferred Share) or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-tenth of a Preferred Share). Fractions
of Preferred Shares in integral multiples of one one-tenth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; provided, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one one-tenth of a Preferred Share, the
Company may elect to pay to the registered holders of Right Certificates at the
time such Rights are exercised as herein provided an amount in cash equal to the
same fraction of the current market value of one Preferred Share. For the
purposes of this Section 14(b), the current market value of a Preferred Share
shall be the closing price of a Preferred Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, on his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement. Any
20
holder of Rights who prevails in an action to enforce the provisions of this
Rights Agreement shall be entitled to recover the reasonable costs and expenses,
including attorneys' fees, incurred in such action.
Section 16. Transfer and Ownership of Rights and Rights Certificates. (a)
Prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares; and the Rights associated
with the Common Shares shall be automatically transferred upon the transfer of
the Common Shares.
(b) After the Distribution Date, the Right Certificates will be
transferable, subject to Section 7(e), only on the registry books of the Rights
Agent if surrendered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the person in whose
name the Right Certificate (or, prior to the Distribution Date, the associated
Common Shares certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated Common Shares certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed, for any purpose, the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company,
including, without limitation, any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders, or to receive dividends or other
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
21
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
(b) The Company agrees to indemnify and to hold the Rights Agent harmless
against any loss, liability, damage or expense (including reasonable fees and
expenses of legal counsel) which the Rights Agent may incur resulting from its
actions as Rights Agent pursuant to this Rights Agreement; provided, however,
that the Rights Agent shall not be indemnified or held harmless with respect to
any such loss, liability, damage or expense incurred by the rights Agent as a
result of, or arising out of, its own negligence, bad faith or wilful
misconduct. In no case shall the Company be liable with respect to any action,
proceeding, suite or claim against the Rights Agent unless the Rights Agent
shall have notified the Company, by letter or by facsimile confirmed by letter,
of the assertion of any action, proceeding, suit or claim against the Rights
Agent, promptly after the Rights Agent shall have notice of any such assertion
of an action, proceeding, suit or claim or have been served with the summons or
other first legal process giving information as to the nature and basis of the
action, proceeding, suit or claim. The Company shall be entitled to participate
at its own expense in the defense of any such action, proceeding, suit or claim,
and, if the Company so elects, the Company shall assume the defense of any such
action, proceeding, suit or claim. In the event that the Company assumes such
defense, the Company shall not thereafter be liable for the fees and expenses of
any additional counsel retained by the Rights Agent, so long as the Company
shall retain counsel satisfactory to the Rights Agent, in the exercise of its
reasonable judgment, to defend such action, proceeding, suit or claim. The
Rights Agent agrees not to settle any litigation in connection with any action,
proceeding, suit or claim with respect to which it may seek indemnification from
the Company without the prior written consent of the Company. Section 19. Merger
or Consolidation or Change of Name of Rights Agent. (a) Any corporation into
which the Rights Agent or any successor Rights Agent may be merged or with which
it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor Rights Agent shall be a
party, or any corporation succeeding to the stock transfer or corporate trust
powers of the Rights Agent or any successor Rights Agent, shall be the successor
to the Rights Agent under this Agreement without the execution or filing of any
paper or any further act on the part of any of the parties hereto; provided,
that such corporation would be eligible for appointment as a successor Rights
Agent under the provisions of Section 21 hereof. In case at the time such
successor Rights Agent shall succeed to the agency created by this Agreement,
any of the Right Certificates shall have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
Section 19. Merger or Consolidation or Change of Name of Rights Agent. (a)
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided, that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
22
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of an Acquiring Person) be proved
or established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
23
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 7(e) hereof) or any adjustment in the
terms of the Rights (including the manner, method or amount thereof) provided
for in Section 3, 11, 13, 23 or 24, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect to
the exercise of Rights evidenced by Right Certificates after actual notice that
such change or adjustment is required); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Preferred Shares to be issued pursuant to this Agreement or
any Right Certificate or as to whether any Preferred Shares will, when issued,
be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and it shall
not be liable for any action taken or suffered by it in good faith in accordance
with instructions of any such officer or for any delay in acting while waiting
for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. The Company may
24
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (or, prior to
the Distribution Date, of the Common Shares) (who shall, with such notice,
submit his Right Certificate or, prior to the Distribution Date, the certificate
representing his Common Shares, for inspection by the Company), then the
registered holder of any Right Certificate (or, prior to the Distribution Date,
of the Common Shares) may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of the State of New York,
Pennsylvania or Florida (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of New York, Pennsylvania or Florida, in good standing, having an office
in the State of New York, Pennsylvania or Florida, which is authorized under
such laws to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million; provided, that the principal transfer agent for the Common
Shares shall in any event be qualified to be the Rights Agent. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares or
Preferred Shares, and mail a notice thereof in writing to the registered holders
of the Right Certificates (or, prior to the Distribution Date, of the Common
Shares). Failure to give any notice provided for in this Section 21, however, or
any defect therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change
made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of Common Shares following the Distribution
Date and prior to the earlier of the Redemption Date and the Expiration Date,
the Company (A) shall, with respect to Common Shares so issued or sold pursuant
25
to the exercise of stock options or under any employee plan or arrangement, or
upon the exercise, conversion or exchange of securities, notes or debentures
issued by the Company and (B) may, in any other case, if deemed necessary or
appropriate by the Board of Directors of the Company, issue Right Certificates
representing the appropriate number of Rights in connection with such issuance
or sale; provided, however, that (i) no such Right Certificate shall be issued
if, and to the extent that, the Company shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences to
the Company or the Person to whom such Right Certificate would be issued, and
(ii) no such Right Certificate shall be issued if, and to the extent that,
appropriate adjustments shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption. (a) The Board of Directors of the Company may, at
its option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.001 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption Price").
The redemption of the Rights by the Board of Directors may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion may establish. The Company, at its option, may pay the
Redemption Price either in cash or in Common Shares, or other securities of the
Company deemed by the Board of Directors of the Company, in the exercise of its
sole discretion, to be at least equivalent in value to the Redemption Price.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price. Within 10 Business Days after the action of the Board of Directors of the
Company ordering the redemption of the Rights, (i) the Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption and (ii) mail a notice of redemption to all the holders of the then
outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Shares. The notice, if mailed in the
manner herein provided, shall be conclusively presumed to have been duly given,
whether or not the holder of Rights received such notice. In any case, failure
to give such notice by mail, or any defect in the notice, to any particular
holder of Rights shall not effect the sufficiency of the notice to the other
holders of Rights. Each such notice of redemption will state the method by which
the payment of the Redemption Price will be made.
Section 24. Exchange. (a) The Board of Directors of the Company may, at its
option, at any time after any Person becomes an Acquiring Person, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 7(e) hereof)
26
for Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any such Subsidiary, or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24
and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Company
shall promptly give public notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit any exchange of Rights
as contemplated in accordance with this Section 24, the Company shall take all
such action as may be necessary to authorize additional Common Shares for
issuance upon exchange of the Rights. In the event the Company shall, after good
faith effort, be unable to take all such action as may be necessary to authorize
such additional Common Shares, the Company shall substitute, for each Common
Share that would otherwise be issuable upon exchange of a Right, a number of
Preferred Share or fraction thereof such that the Current Per Share Market Price
of one Preferred Share multiplied by such number or fraction is equal to the
Current Per Share Market Price of one Common Share as of the date of issuance of
such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares. In lieu
of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
27
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company shall propose
(i) to pay any dividend payable in stock of any class to the holders of its
Preferred Shares or to make any other distribution to the holders of its
Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer
to the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred Shares, whichever shall be the
earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall occur,
then the Company shall as soon as practicable thereafter give to each holder of
a Right Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares) to or on the Company shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Rights Agent) as
follows:
28
CryoLife, Inc.
Suite 142
2211 New Market Parkway
Marietta, Georgia 30067
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate (or, prior to the Distribution Date, of the Common Shares) to
or on the Rights Agent shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Company) as follows:
Chemical Mellon Shareholder Services, L.L.C.
Four Station Square, 3rd Floor
Pittsburgh, Pennsylvania 15219
Attention: Rights Agent
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to time
supplement or amend this Agreement without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights (other than those held
by the Acquiring Person). Without limiting the foregoing, the Company may at any
time prior to such time as any Person becomes an Acquiring Person amend this
Agreement to lower the thresholds set forth in Sections 1(a) and 3(a) to not
less than the sum of .001% and the largest percentage of the outstanding Common
Shares then known by the Company to be beneficially owned by any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or any Subsidiary of the Company, or any entity holding Common
Shares for or pursuant to the terms of any such plan).
Section 28. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
29
Section 29. Benefits of this Agreement; Actions by the Board of Directors,
etc. (a) Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Rights Agent and the registered holders
of the Right Certificates (and, prior to the Distribution Date, the Common
Shares) any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares).
(b) Except as explicitly otherwise provided in this Rights Agreement, the
Board of Directors of the Company shall have the exclusive power and authority
to, except to the extent rights or power are explicitly allocated to the Rights
Agent hereunder, to administer this Rights Agreement and to exercise all rights
and powers specifically granted to the Board of Directors of the Company or to
the Company, as may be necessary or advisable to administer this Rights
Agreement, including, without limitation, the right and power to make all
determinations deemed necessary or advisable for the administration of this
Rights Agreement. (Including, without limitation, a determination to redeem or
not redeem the Rights or to amend this Rights Agreement, and whether there is an
Acquiring Person).
(c) Nothing contained in this Rights Agreement shall be deemed to be in
derogation of the obligation of the Board of Directors of the Company to
exercise its fiduciary duty. Without limiting the foregoing, nothing contained
herein shall be construed to suggest or imply that the Board of Directors shall
not be entitled to reject any tender offer, or to recommend that holders of
Common Shares reject any tender offer, or to take any other action (including,
without limitation, the commencement, prosecution, defense or settlement of any
litigation and the submission of additional or alternative offers or other
proposals) with respect to any tender offer that the Board of Directors believes
is necessary or appropriate in the exercise of such fiduciary duty.
Section 30. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Florida and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
30
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
CRYOLIFE, INC.
By: /s/ Steven G. Anderson
------------------------------------------
Title: President/CEO
------------------------------------------
CHEMICAL MELLON SHAREHOLDER
SERVICES, L.L.C.
By: /s/ Tracie Vicki
------------------------------------------
Title: Vice President
------------------------------------------
31
Exhibit A
FORM
of
AMENDMENT TO ARTICLES OF INCORPORATION
to create a series of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
CRYOLIFE, INC.
------------------
To the Department of State
State of Florida
Pursuant to the provisions of Sections 607.1006 and 607.0602 of the Florida
Business Corporation Act (the "Act"), the corporation hereinafter named (the
"Corporation") does hereby adopt the following Articles of Amendment.
1. The name of the corporation is CryoLife, Inc.
2. A new paragraph (c) of Article V of the Articles of Incorporation of the
Corporation is hereby added to the Articles of Incorporation which shall read as
follows:
"(c) There shall be a series of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of the Corporation with the following designated number of
shares, relative rights, preferences, and limitations thereof:
(1) Designation and Amount. The shares of such series shall be designated
as "Series A Junior Participating Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting the Series A Preferred Stock shall
be two million (2,000,000) shares of the five million (5,000,000) authorized
preferred shares. The two million (2,000,000) Series A Preferred Stock shares
shall be reserved for issuance in connection with the exercise of certain rights
granted pursuant to a Rights Agreement, dated as of November 27, 1995, by and
between the Corporation and Chemical Mellon Shareholder Services, L.L.C., as
Rights Agent thereunder. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
(2) Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock, par
value $.01 per share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date`), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $.10 or (b) subject to the provision for adjustment hereinafter set
forth, 10 times the aggregate per share amount of all cash dividends, and 10
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $.10 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
2
(3) Voting Rights. The holders of shares of Series A Preferred Stock shall
have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to one vote
on all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other document or filing
creating a series of Preferred Stock or any similar stock, or by law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law, holders of
Series A Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate action.
(4) Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in subparagraph 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except dividends
3
paid ratably on the Series A Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a parity with the
Series A Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
subparagraph 4, purchase or otherwise acquire such shares at such time and in
such manner.
(5) Reacquired Shares. Any shares of Series A Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other document or filing creating a series of Preferred
Stock or any similar stock or as otherwise required by law.
(6) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $10.00 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 10 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
4
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(7) Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter set forth,
equal to 10 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of common stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event. In the event both this subparagraph 7 and subparagraph 2 appear to apply
to a transaction, this subparagraph 7 will control.
(8) No Redemption; No Sinking Fund. The shares of Series A Preferred Stock
shall not be redeemable; provided, however, that the Corporation may purchase or
otherwise acquire outstanding shares of Series A Preferred Stock in the open
market or by offer to any holder or holders of shares of Series A Preferred
Stock. The shares of Series A Preferred Stock shall not be subject to or
entitled to the operation of a retirement or sinking fund.
(9) Rank. The Series A Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of any
other class of the Corporation's Preferred Stock, unless the Board of Directors
shall specifically determine otherwise in fixing the powers, preferences, and
relative, participating, optional and other special rights of the shares of such
series and the qualifications, limitations and restrictions thereof.
5
(10) Fractional Shares. The Series A Preferred Stock shall be issuable upon
exercise of the Rights issued pursuant to the Rights Agreement in whole shares
or in any fraction of a share that is one one-tenth of a share or any integral
multiple of such fraction which shall entitle the holder, in proportion to such
holders fractional shares, to receive dividends, exercise voting rights,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock. In lieu of fractional shares, the
Corporation, prior to the first issuance of a share or a fraction of a share of
Series A Preferred Stock, may elect (1) to make a cash payment as provided in
the Rights Agreement for fractions of a share other than one one-tenth of a
share or any integral multiple thereof or (2) to issue depository receipt
evidencing such authorized fraction of a share of Series A Preferred Stock
pursuant to an appropriate agreement between the Corporation and a depository
selected by the Corporation; provided that such agreement shall provide that the
holders of such depository receipts shall have all the rights, privileges and
preferences to which they are entitled as holders of the Series A Preferred
Stock.
(11) Amendment. These Articles of Incorporation of the Corporation shall
not be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class."
3. The date of adoption of the aforesaid amendment was November 27,
1995.
4. The aforesaid amendments were duly adopted by the board of
directors of the Corporation without any shareholder action. No shareholder
action was required in connection with the adoption of the aforesaid amendments
pursuant to the provisions of Section 607.0602 of the Act.
6
5. The effective time and date of these Articles of Amendment shall be
at 9:00 a.m. on November ____, 1995.
Executed on November 27, 1995.
CRYOLIFE, INC.
_________________________________
Steven G. Anderson, President
and Director
Attest:
CRYOLIFE, INC.
_____________________________
Ronald D. McCall, Secretary
and Director
7
Exhibit B
Form of Right Certificate
Certificate No. R- _____ Rights
NOT EXERCISABLE AFTER NOVEMBER 27, 2005 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.001 PER RIGHT AND TO EXCHANGE
ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
CRYOLIFE, INC.
This certifies that _________________________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of 1995 (the "Rights Agreement"), between, CryoLife, Inc., a
Florida corporation (the "Company"), and Chemical Mellon Shareholder Services,
L.L.C., (the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior to
5:00 P.M., Pittsburgh, Pennsylvania time, on November 27, 2005 at the principal
office of the Rights Agent, or at the office of its successor as Rights Agent,
one one-tenth of a fully paid non-assessable share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company, at a purchase price of $100.00 per one one-tenth of a
Preferred Share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one
one-tenths of a Preferred Share which may be purchased upon exercise hereof) set
forth above, and the Purchase Price set forth above, are the number and Purchase
Price as of ________________, 1995, based on the Preferred Shares as constituted
at such date. As provided in the Rights Agreement, the Purchase Price and the
number of one one-tenths of a Preferred Share which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
This Right certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.001 per Right or (ii) may be exchanged in whole or in part for Preferred
Shares or shares of the Company's Common Stock, par value $.01 per share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-tenth of a Preferred Share, which may, at the election of
the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of _____________, 1995.
ATTEST: CRYOLIFE, INC.
____________________________ By_____________________________
Countersigned:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
By__________________________
Authorized Signature
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ______________________ hereby sells, assigns and
transfers unto _________________________________________________________________
(Please print name and address of transferee)
____________________________________________ this Right Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint _________________________ Attorney, to transfer the
within Right Certificate on the books of the within-named Company, with full
power of substitution.
Dated:_______________________, 1995
________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
______________________________
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
________________________________________
Signature
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right
Certificate.)
To:________________________, INC.
The undersigned hereby irrevocably elects to exercise
_______________________ Rights represented by this Right Certificate to purchase
the Preferred Shares issuable upon the exercise of such Rights and requests that
certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
____________________________________
(Please print name and address)
____________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
____________________________________
(Please print name and address)
____________________________________
Dated: ______________________, 1995
___________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
Form of Reverse Side of Right Certificate -- continued
_____________________________
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
__________________________________
Signature
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On November 27, 1995, the Board of Directors of CryoLife, Inc. (the
"Company") declared a dividend of one preferred share purchase right (a "Right")
for each outstanding share of common stock, par value $.01 per share (the
"Common Shares"), of the Company. The dividend is payable on December 11, 1995
(the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-tenth of a
share of Series A Junior Participating Preferred Stock, par value $.01 per share
(the "Preferred Shares"), of the Company at a price of $100.00 per one one-tenth
of a Preferred Share (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and Chemical Mellon Shareholder
Services, L.L.C. as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 15% or more of the outstanding
Common Shares or (ii) 10 business days (or such later date as may be determined
by action of the Board of Directors prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding Common Shares (the earlier of such dates
being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate with a copy of this Summary of Rights
attached thereto.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Common Shares. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new Common Share certificates issued after the
Record Date upon transfer or new issuance of Common Shares will contain a
notation incorporating the Rights Agreement by reference. Until the Distribution
Date (or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for Common Shares outstanding as of the Record
Date, even without such notation or a copy of this Summary of Rights being
attached thereto, will also constitute the transfer of the Rights associated
with the Common Shares represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Common Shares
as of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on November 27, 2005 (the "Expiration Date"), unless the Expiration Date
is extended or unless the Rights are earlier redeemed or exchanged by the
Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-tenths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $.10 per share but will be entitled to an
aggregate dividend of 10 times the dividend declared per Common Share. In the
event of liquidation, the holders of the Preferred Shares will be entitled to a
minimum preferential liquidation payment of $10.00 per share but will be
entitled to an aggregate payment of 10 times the payment made per Common Share.
Each Preferred Share will have 1 vote, voting together with the Common Shares.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive 10
times the amount received per Common Share. These rights are protected by
customary antidilution provisions.
Because of the nature of the Preferred Shares, dividend, liquidation and
voting rights, the value of the one one-tenth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
Common Share.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
2
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right. In the event that any person
or group of affiliated or associated persons becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one Common Share, or one one-tenth
of a Preferred Share (or of a share of a class or series of the Company's
preferred stock having equivalent rights, preferences and privileges), per Right
(subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.
No fractional Preferred Shares will be issued (other than fractions which
are integral multiples of one one-tenth of a Preferred Share, which may, at the
election of the Company, be evidenced by depository receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Shares, the Board of Directors of the Company may redeem the Rights in
whole, but not in part, at a price of $.001 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time on such basis
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower certain thresholds described above to not less than the sum of .001%
and the largest percentage of the outstanding Common Shares then known to the
Company to be beneficially owned by any person or group of affiliated or
associated persons, except that from and after such time as any person or group
of affiliated or associated persons becomes an Acquiring Person no such
amendment may adversely affect the interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
3
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-K dated
_______________, 1995. A copy of the Rights Agreement is available free of
charge from the Company. This summary description of the Rights does not purport
to be complete and is qualified in its entirety by reference to the Rights
Agreement, which is hereby incorporated herein by reference.
4
262388
Exhibit 10.37
CRYOLIFE INTERNATIONAL, INC.
International Distribution Agreement
This Agreement (the "Agreement") consists of this page and the
Schedules identified below which together constitute your complete agreement
with CryoLife International, Inc. (the "Company") relating to the Products
listed on Schedule A. This Agreement will become effective as of the date
of its signing (the "Effective Date"). This Agreement replaces any prior oral or
written communications regarding the subject matter hereof between you (the
"Distributor") and Company. The schedules included in this Agreement are:
Schedule A Products and Territory
Schedule B Inventory and Minimum Purchase Requirements
Schedule C Non-Company Products Carried and Not Carried by
Distributor
Schedule D Distributor's Duties
Schedule E Terms and Conditions
Schedule F Marks
By signing below and in consideration of the mutual covenants contained in
this Agreement, Company and Distributor agree to the terms of this Agreement.
Agree to:
Distributor: Century Medical, Inc. Company: CryoLife International, Inc.
/s/ Mitsunari Suzuki /s/ Gerald B. Seery
- ---------------------------------- -----------------------------------
Mitsunari Suzuki Gerald B. Seery
President/CEO Senior Vice President, Marketing
Century Medical, Inc. CryoLife International, Inc.
Type of Organization (circle one): ----------------------------------
corporation, partnership, LLC, Steven G. Anderson
proprietor, individual President and CEO
CryoLife, Inc.
Date: September 17, 1998
Address: 1655 Roberts Boulevard, N.W., Kennesaw, GA 30144
Schedule A
PRODUCTS AND TERRITORY
DISTRIBUTOR NAME: Century Medical, Inc.
Products:
BioGlue Surgical Adhesive, including any line extensions, modifications
and improvements thereto.
Territory:
The country of Japan (the "Territory").
2
SCHEDULE B
INVENTORY AND MINIMUM PURCHASE REQUIREMENTS
DISTRIBUTOR NAME: Century Medical, Inc.
Product Stocking Requirements:
Minimum 2 months inventory maintained at all times.
Minimum Purchase Requirements, subject to Product reimbursement existing in the
Territory for the Indications (as defined in Schedule E, subsection 6(c)), by
Contract Year:
PRODUCT LINE YEAR 1 YEAR 2 YEAR 3
------ ------ ------
BioGlue Surgical Adhesive $350,000 $600,000 $750,000
Ninety (90) days prior to the beginning of Contract Year 4 and ninety (90) days
prior to the beginning of each Contract Year thereafter, Distributor and Company
will negotiate Minimum Purchase Requirements for the immediately following
Contract Year taking into consideration such factors as the previous Contract
Year's sales of Products in the Territory, Distributor's inventory level of the
Products, competition and competitive trends and other such factors which
pertain to the market and marketability of the Products. In the event that the
parties are unable to agree upon a Minimum Purchase Requirement for Contract
Year 4 or any Contract Year thereafter, the Minimum Purchase Requirement for
Contract Year 4 or any subsequent Contract Year shall be the greater of the
product of (a) 1.15 times the Minimum Purchase Requirement for the immediately
preceding Contract Year, or (b) 1.15 times Distributor's actual purchase of
Product for the immediately preceding Contract Year.
For purposes of this Agreement, the term "Contract Year" shall mean the twelve
(12) month period commencing on the first day of the first full month following
the date that all medical registrations required for distribution of Products in
the Territory are approved, and all import permits required for the importation
of Products into the Territory are issued by the appropriate government
authorities.
If, at the time of reimbursement of the Product is established, the Product
price, as provided in Section 3(a) of Schedule E is greater than an amount equal
to thirty-five percent (35%) of the reimbursement amount, then the parties shall
meet and in good faith review pricing levels and the Minimum Purchase
Requirements. Nothing in the foregoing sentence, however, shall require Company
to supply any Product to Distributor at a price that would result in Company
achieving an unacceptable profit margin, as determined by Company.
Product Prices:
As provided in Section 3(a) of Schedule E.
3
SCHEDULE C
NON-COMPANY PRODUCTS
CARRIED AND NOT CARRIED BY DISTRIBUTOR
DISTRIBUTOR NAME: Century Medical, Inc.
I. Competitive products Distributor may continue to represent within the
Territory:
In addition to Products, Distributor may represent, sell and distribute the
products listed below which are or may be competitive with Products (describe
fully the manufacturer's name, product name and applications of all products and
services):
- ----------------------------------- ---------------------------------------------------------
Manufacturer Products
- ----------------------------------- ---------------------------------------------------------
Radiology & Imaging Products
Parker Laboratories Ultrasound Gels and Electrode Creams
Graphic Controls ECG & EEG Electrodes
CIVCO Medical Instruments Ultrasound Accessories, Biopsy needle guides
- ----------------------------------- ---------------------------------------------------------
Critical Care Products
Ballad Medical Closed Tracheal Suctioning Tube
Diametrics Medical Point of Care Blood Gas Analysis System
Integra LifeSciences Integra(R)Artificial Skin, Helistat & Helitene
- ----------------------------------- ---------------------------------------------------------
Cardiovascular Products
Millar Instruments Pressure Transducer, Catheter Doppler system
ATS Medical Open Pivot Bi-leaflet Heart Valve
Cordis-Webster Electrophysiology Catheters
EP Medsystems EP Workmate(TM)Recording System & EP-3(TM)
B. Braun Medical Cardiac Stimulator
Vena Cava Filter
- ----------------------------------- ---------------------------------------------------------
Interventional Neurology
Phoenix Biomedical NeuroSurgery and Hunter(TM)Tendon Implants
Integra LifeSciences DuraGen dura Regeneration Template
- ----------------------------------- ---------------------------------------------------------
Orthopedics Products
Wright Medical Technologies Artificial Joint prosthetics, Trauma, Sports Medicine,
Bone Growth Substitutes
Cross Medical Products Synergy(TM)Universal Spinal Fixation Devices
Encore Orthopedics Tru-Flex(TM)Intermedular Nail Products
- ----------------------------------- ---------------------------------------------------------
Surgical Products
Hemostatix Medical Devices Shaw(TM) Scalpel
Aaron Medical Industries Electrodes
Genzyme Aortic Punch Gabbay-Frator Suture Guide
- ----------------------------------- ---------------------------------------------------------
Urology/Women's Healthcare
VIDAMed International TUNA(TM)Transurethral RF Ablation for BPH
- ----------------------------------- ---------------------------------------------------------
4
II. Specific Non Company products Distributor agrees not to distribute within
the Territory:
In addition to the general prohibition against carrying competitive products
within the Territory contained in Section 12(a) of the Terms and Conditions set
forth in Schedule E Distributor agrees not to represent the following specific
products and services:
1. Any product or services by Shelheigh.
2. Any products or services by Tissuemed.
3. Any bioadhesives (excluding synthetic adhesives).
5
SCHEDULE D
DISTRIBUTOR'S DUTIES
DISTRIBUTOR NAME: Century Medical, Inc.
Distributor shall, at its sole expense, use its best efforts to develop and
expand the sale of Products within the Territory. In addition, Distributor shall
be responsible for the following, at its own expense:
1. Payment Terms. As provided in Section 3(e) of Schedule E.
2. Facilities and Personnel. Distributor will appoint a product specialist
in BioGlue Surgical Adhesive within sixty (60) days after the expected date of
import license approvals for the Products. Distributor shall maintain office
space and facilities, and hire and train such other professional and competent
personnel, as may be required to carry out its obligations under this Agreement.
As requested by Company, Distributor will participate in any training courses
which Company may conduct for Distributor's benefit; will attend special
meetings; and will attend local trade shows which Distributor deems appropriate.
3. Visits. When Company desires to conduct field work in the Territory,
Distributor will plan an effective schedule of appointments and otherwise
provide reasonable assistance to Company personnel for the duration of the
visit.
4. Reports and Forecasts. Distributor will make accurate quarterly sales
reports to Company, in a form acceptable to Company, which details Distributor's
sales of Products within the Territory. Distributor will make such reports
within fifteen (15) days following the end of each quarter. As periodically
required by Company, Distributor will provide to Company other reports and
forecasts and such other information as Company may reasonably request. Company
has the right to verify the information in such reports and it, or its agents,
shall be given access to Distributor's books and records for such purpose upon
reasonable notice during normal business hours.
5. Product Stocking Requirements. Distributor must meet or exceed all
Product stocking requirements and Minimum Purchase Requirements identified or
determined in the manner provided in Schedule B.
6. Maintenance of Inventory. Within thirty (30) days following the date of
approval for import licenses for the Products, subject to Company's supply to
Distributor of adequate Promotional Materials (as defined below), and continuing
until the termination of this Agreement, Distributor will maintain
representative and adequate stocks of Products in locations commensurate with
the market and Distributor's sales, in order to ensure adequate and timely and
prompt delivery of "off the shelf" Products to customers at all times.
7. Promotional Materials. Distributor must maintain an adequate inventory
of Company's current sales material and samples ("Promotional Materials") and
must use the Promotional Materials in an efficient and effective manner to
promote the sale of Products in the Territory. Distributor must obtain Company's
written approval for the use of materials other than the Promotional Materials
to promote Products. Distributor will prepare accurate translations of Company's
Promotional Materials into the languages utilized in the Territory and will make
such translations available to Company. Unless otherwise agreed, Distributor
will use the trademarks or tradenames identified on Schedule F (the "Marks") on
all Promotional Materials. This Agreement grants no right to use the Company
name or any of the Marks as part of Distributor's corporate or tradename or for
any purpose other than as authorized by Company for use with Promotional
Materials, accurate translations of promotional Materials, and substitute
Promotional Material which has been approved by Company. Distributor will use no
other trademarks, servicemarks, tradenames or identifying markings to describe
or identify any Products without the prior written consent of Company.
8. Aftermarket Support. Distributor will provide full and complete service
incident to the sale of Products in the Territory in accordance with Company's
6
commercially reasonable instructions. As instructed by Company, Distributor will
assist Company in fulfilling warranty obligations, if any, relating to the
Products for all customers located in the Territory and Company will reimburse
Distributor for any out of pocket expenses incurred in connection therewith.
9. Performance and Changes. Distributor will communicate promptly to
Company ongoing information regarding the performance of Products and any and
all modifications, design changes or improvements of Products suggested by any
customer or employee or agent of Distributor, and Distributor hereby agrees that
Company will be and will remain the exclusive owner of such improvements and
information.
10. Compliance with Company Policies. Distributor, to the extent informed
and instructed by Company, must comply, and must cause its employees and agents
to comply, with all policies established by Company from time to time, as well
as with Company's educational, commercial, and engineering instructions
respecting Products.
11. General. Distributor must maintain an overall credit rating
satisfactory to Company; conduct its business in an ethical manner; make payment
for Products in a timely fashion; accurately represent Products in terms of
function and performance; and promptly report in writing to Company any
suspected Product defects or safety problems, or any customer complaints
concerning Products.
7
SCHEDULE E
TERMS AND CONDITIONS
1. Appointments. (a) Appointments. Distributor shall act as the exclusive
importer and distributor of Company's Products within the Territory. Distributor
will use its best efforts to promote the sale of Products within the Territory.
Company agrees that it will not: (i) grant the same rights to another party
during the term of this Agreement; (ii) directly or indirectly make sales of
Products in the Territory, except through Distributor; or (iii) make sales of
Products outside of the Territory to any party whom Company knows intends to
resell Products into the Territory.
(b) Conditions. Distributor shall maintain an office in the Territory and
shall conduct all of its business in its own name. Distributor may appoint
subdistributors to make sales of Products within the Territory on such terms and
conditions as Distributor determines to be necessary to fulfill its obligations
under this Agreement; provided that no such appointment or delegation shall
relieve Distributor from any obligations hereunder.
(c) Relationship. Nothing contained in this Agreement shall constitute or
create a relationship of employer/employee, principal/agent, joint venture,
partnership, or any other relationship between Company and Distributor other
than that of independent contractor.
2. Activity Outside the Territory. Distributor will restrict its promotion,
marketing and sale of Products to the Territory in order to ensure that
appropriate attention is being devoted to customers in the Territory and to meet
the Minimum Purchase Requirements (defined in Section 5). To ensure the
foregoing, Distributor shall not solicit, accept or fulfill orders for Products
from any person or entity located outside the Territory, or establish or
maintain either a branch or distribution depot for the purpose of distribution
of any Product outside the Territory.
3. Product Purchases. (a) Prices. Distributor's purchase price for all
Products shall be the prices set out in the export price schedule of Company for
Products sold to unaffiliated third parties in effect as of the time of shipment
of Products. Company shall have the right to change the export price schedule
for Products sold to unaffiliated third parties in its sole discretion, but any
accepted orders shall be filled at the prices stated in the export price
schedule effective at the date of the acceptance of such order. Company shall
provide Distributor with sixty (60) days' prior notice of any price change, and
Distributor will have sixty (60) days following the date of such notice to order
at the existing price.
(b) Purchase Orders. Distributor shall issue to Company a purchase order,
in English, which shall specify: (i) the Product, including item numbers and
part numbers if shown for that item in the export price schedule; (ii) the
price; (iii) requested delivery schedule; and (iv) exact "ship to" and "invoice
to" place of business. Company, in its sole discretion, shall confirm such
purchase order in writing by transmitting to Distributor an order confirmation
or by notifying Distributor of its decision to reject such purchase order. If
Distributor does not receive a valid order confirmation, the purchase order
shall be deemed rejected. The terms contained in this Agreement, the purchase
order, and any order confirmation given by Company, together with any written
amendments signed by both parties, shall govern the sale of Products; provided,
however, that the terms of this Agreement shall supersede all inconsistent terms
in the purchase order. No purchase order or order confirmation shall serve to
amend this agreement, regardless of whether or not such document was signed by
an employee of Company. Orders placed by telephone, facsimile, or in person are
to be confirmed through a written purchase order to Company by Distributor
within the shortest practicable time thereafter. Company shall have the sole
right to accept or reject at Company's home office any and all orders of
Products. Notwithstanding the foregoing, in the event that Company rejects any
bona fide purchase order submitted by Distributor in compliance with the
provisions set forth herein, any Minimum Purchase Requirement then in effect
pursuant to Section 5(a) will be adjusted accordingly.
(c) Shipment. Products shall be shipped F.O.B. Kennesaw. Company shall
endeavor to ship Distributor's orders of any Product within a reasonable time,
subject to the limitations of the prevailing laws and regulations of Company's
or Distributor's governments and to forces outside the control of Company.
Company must deliver Products meeting the Company's specifications and quality
8
standards in effect at the time of shipment and with a minimum shelf life of
twenty four (24) months. Distributor acknowledges that Company may appoint any
wholly owned subsidiary or Company's parent corporation to make sales of
Products to Distributor, subject to the terms and conditions of this Agreement;
provided, however, that no such appointment or delegation shall relieve Company
from any of its obligations hereunder.
(d) Returns. Company does not guarantee the sale of any Product in the
Territory and shall not accept any returns of any Product except under the
following conditions:
(i) Distributor has notified Company in writing of any alleged defects
rendering any Product unsalable not later than fourteen (14) days from the date
of arrival of such Product at Distributor's warehouse in the Territory.
(ii) At Company's request, Distributor promptly returns the allegedly
defective Product to Company or provides such other evidence of the deficiency
of the Product to Company, all as Company shall specify. Credit for any
defective Product shall issue only if, and only to the extent, that Company's
examination shall confirm that the Product is defective and that such defect is
not the result of any mishandling of the Product after the Product is delivered
Free Carrier Company's point of shipment.
(iii) Company reserves the right, at its discretion, to replace free of
charge any Product found to be defective with the same quantity of Product in
good, saleable condition, transferring the replacement to Distributor's
facilities at Company's point of shipment which shall be the Company's expense.
Distributor will advise Company of any information in its possession regarding
mishandling, damage, deterioration, alteration, or modification of any Product
or its packaging. Distributor will follow Company's instructions to return
Products or to otherwise dispose of them, and will not ship Products until
receiving such instructions.
(e) Payment. All payments due by Distributor hereunder shall be made by
Distributor net sixty (60) days from the later of date of invoice or date of
delivery of the Products Free Carrier Company's point of shipment which shall be
the Company's plant or warehouse in the United States. All such payments shall
be made in U.S. Dollars by wire transfer to an account or accounts designated by
the Company. This provision shall survive any termination or expiration of this
Agreement.
4. Changes and Recalls. (a) Changes. The Company reserves the right to make
changes or to discontinue manufacture or sale of the Product.
(b) Recalls. Only Company shall be permitted to determine whether or when
to make a recall of a Product. Company will notify Distributor of the "recall"
and Distributor, at Company's sole expense, agrees to cooperate with Company in
all reasonable ways to accomplish the "recall" and to remove such recalled
Products from the market. This cooperation shall include but not be limited to
the obligation to pick up all recalled Products from customers. Company reserves
the right to replace "recalled" Products with equivalent Products.
5. Minimum Purchase Requirement. (a) For any Contract Year (as hereinafter
defined), in which Distributor fails to purchase at least the minimum purchase
requirement for Products set forth in Schedule B hereto for such Contract Year
(each, a "Minimum Purchase Requirement" and, collectively, the "Minimum Purchase
Requirements"), Company shall have the right to terminate this Agreement for
cause upon written notice to Distributor; provided that Company shall have
provided notice of such failure to Distributor within one (1) month after the
end of such Contract Year and Distributor shall not have made sufficient
additional purchases of Product from the Company during the three (3) month
period immediately after the end of such Contract Year (the "Catch Up Period")
to fulfill such Minimum Purchase Requirement had such purchases been made during
the prior Contract Year (the "Catch Up Purchases"). The parties agree that in
order to prevent double counting of purchases, any Catch Up Purchases counted,
pursuant to the preceding sentence, toward meeting a Minimum Purchase
Requirement for the Contract Year prior to the Contract Year in which they were
actually purchased will not be counted toward meeting the Minimum Purchase
Requirement for the Contract Year in which they are actually made. Company
agrees to engage in reasonable discussions with Distributor during the Catch Up
Period regarding whether Company will accept any remedy other than those
9
identified above for Distributor's failure to make the Minimum Purchase
Requirements, and in such discussions Company agrees to consider such factors as
Distributor's previous Contract Year's sales, inventory level, competition,
competitive trends and other factors which impact the marketability of the
Products. Nothing in this paragraph shall require Company or Distributor to
accept an alternative remedy.
(b) For purposes of this Agreement, the term "Contract Year" shall mean the
twelve (12) month period commencing on the first day of the first full month
following the date that all medical registrations required for distribution of
Products in the Territory are approved, and all import permits required for the
importation of Products into the Territory are issued by the appropriate
government authorities.
(c) Company recognizes that a substantial lead time is required to obtain
import license approvals for Product specification changes and Company will
endeavor to its best ability to give Distributor as much advance notification as
is reasonably possible of Product specification changes. In the event Company
discontinues the manufacture or sale of Products or in the event of a Product
specification change or Product recall, Distributor's Minimum Purchase
Requirements under Schedule B hereto shall be amended and adjusted accordingly.
6. Compliance with Laws. (a) Local Law. Distributor will at all times
during the term of this Agreement comply with all laws and regulations
applicable to its business in the Territory. Distributor represents that it
knows of no provision of law or regulations in the Territory applicable to this
Agreement which would render any provision of this Agreement void or
unenforceable or which would entitle Distributor to any right to compensation
which is not specified herein.
(b) Import Licenses and Other Approvals. Distributor shall, at its expense,
obtain any and all import licenses and governmental approvals that may be
necessary to permit the sale by Company and the purchase by Distributor of
Products for resale into the Territory. Distributor will comply with all
registration requirements in the Territory, and will obtain such approvals from
the governmental authorities of the Territory as may be necessary to comply with
any and all governmental laws, regulations, and orders that may be applicable to
Distributor by reason of its execution of or performance under this Agreement,
including any requirement to be registered as Company's independent distributor
or representative with any governmental authority, and including any and all
laws, regulations, or orders that govern or affect the ordering, export,
shipment, import, sale (including government procurement), delivery, or
redelivery of Products in the Territory.
(c) Conduct of Trials, Etc. The parties anticipate that obtaining
governmental approval within the Territory for the importation of the Products
by Company to Distributor for resale in the Territory will require the conduct
of clinical trials (the "Clinical Trials") within the Territory. Distributor and
Company shall jointly establish the guidelines, parameters and procedures for
the Clinical Trials, and such Clinical Trials will be conducted at Distributor's
expense and under Distributor's supervision. Distributor's application to the
Japanese Ministry of Health and Welfare to begin the Clinical Trials shall
include requests for the indications (the "Indications") of vascular repair
(including dissecting Aortic aneurysm, suture of Aortic incision, anastomosis
between Aorta and artificial graft, and anastomosis of Aorta-Coronary bypass
graft), adjunctive air leak elimination during lung volume reduction surgery,
bronchial plural fistula, cancer and adjunctive suture repair for trachea
anastomosis and other thoracic applications, and liver repair, subject to
confirmation of the efficacy for use on the liver. Distributor agrees to provide
Company with periodic English language progress reports on the conduct and
results of the Clinical Trials as well as copies of all test results, reports,
correspondence and filings made in connection with the Clinical Trials
(collectively, the "Reports"). Whenever possible, Distributor will provide
Company with English language copies of the Reports.
(d) Questionable Payments. Distributor certifies that neither it, nor any
of its directors, officers, employees, or agents is an official, agent, or
employee of any government or governmental agency or political party or a
candidate for any political office on the Effective Date of this Agreement.
Distributor shall not, directly or indirectly, in the name of, on behalf of, or
for the benefit of Company offer, promise, or authorize to pay, or pay any
compensation, or give anything of value to, any official, agent, or employee of
any government or governmental agency, or to any political party or officer,
employee, or agent thereof. Distributor shall require each of its directors,
officers, employees, and agents to comply with the provisions of this subsection
6(d). Any breach of the provisions of this subsection 6(d) shall entitle Company
to terminate this Agreement for cause effective immediately on notice to
Distributor. Distributor shall promptly notify Company of the occurrence of any
event that would or may result in an exception to the representations contained
in this subsection 6(d).
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(e) Health, Safety, and Environmental Standards; Labeling. Distributor
agrees to advise Company fully with respect to all health, safety,
environmental, and other standards, specifications, and other requirements
imposed by law, regulation, or order in the Territory and applicable to
Products. Distributor shall also advise Company of all instructions, warnings,
and labels applicable to Products that are necessary or desirable under laws,
regulations, or practices in the Territory. Company shall be entitled to
increase the prices charged to Distributor for Products immediately by the
amount of any increase in Company's cost of manufacturing attributable to
compliance with any such safety standards, specifications, labels, or
requirements.
(f) Documentation and Assurances. Distributor shall furnish Company with
such documentation as Company may request to confirm Distributor's compliance
with this Section 6 and Distributor agrees that it shall not engage in any
course of conduct that, in Company's reasonable belief, would cause Company to
be in violation of the laws of any jurisdiction.
7. Warranty, Insurance and Assistance in Litigation.
(a) Limited Company Warranty. Company warrants that any Product supplied to
Distributor will be manufactured in compliance with the Product specifications
and, in all material respects, manufactured in compliance with all applicable
rules, regulations, statutes and ordinances of the country of manufacture and of
the Territory. In addition, to the best of its ability, Company will supply all
Products to Distributor free from defects in material, design, workmanship,
manufacture, treatment, packaging, instruction manuals, and labels, warning or
otherwise. Company will provide, when requested by Distributor, certification
that, to the best of its knowledge, it is in compliance with U.S. and Japanese
laws, statutes, rules, and regulations and relevant orders relating to the
manufacturing, use, distribution and sale of the Products. All Products sold to
Distributor will be sold free from security interests, liens or other
encumbrances. COMPANY MAKES NO OTHER EXPRESS OR IMPLIED WARRANTIES WHATSOEVER.
(b) Company Insurance. Company shall, at its own expense, maintain the
product liability insurance identified below with respect to the Products sold
hereunder to cover any and all losses, damages (actual, consequential or
indirect), liabilities, penalties, claims, demands, suits or actions, and
related costs and expenses of any kind (including, without limitation, expenses
of investigation, counsel fees, judgments and settlements) for injury to, or
death of, any person or property damage or any other loss suffered or allegedly
suffered by any person or entity and arising out of or otherwise in connection
with the Products sold by Company to Distributor under this Agreement. Company
shall maintain insurance with a Five Million U.S. Dollars ($5,000,000.00)
combined single limit for bodily injury and property damage per occurrence in
the aggregate. Company shall add Distributor as an additional named insured and
furnish Distributor with copies of all applicable insurance policies, which
insurance shall not be canceled, modified or reduced without the prior written
consent of Distributor.
(c) Assistance in Litigation. If any claim is made or any suit or action is
instituted against Distributor arising out of or otherwise in connection with
any defect or alleged defect of the Products sold by Company to Distributor
under this Agreement, Company shall, without limiting the general indemnity
provided by Section 9, at its own expense and upon request by Distributor: (i)
investigate or research the causes of accidents, occurrences, injuries or losses
affecting any person or property as a result of the manner in which the Products
are designed, manufactured, treated, packaged, labeled, delivered, sold or used,
and use its best efforts to correct or eliminate such causes within a reasonable
period; and (ii) provide to Distributor any and all assistance (including,
without limitation, technical and other information, documents, data, materials
and witnesses) which are, in the opinion of Distributor or its counsel,
necessary or useful for Distributor's defense of such claim, suit or action in
relation to Products sold by Company to Distributor hereunder. This Section 7
shall survive any termination or expiration of this Agreement.
8. Limitations of Liability. COMPANY'S LIABILITY IN RESPECT OF PRODUCTS IS
LIMITED TO THAT SET FORTH IN SECTIONS 7 AND 9 AND IN ANY OTHER WRITTEN
WARRANTIES ISSUED IN WRITING BY COMPANY. COMPANY MAKES NO OTHER WARRANTIES,
EXPRESS OR IMPLIED, WITH RESPECT TO PRODUCTS. DISTRIBUTOR AGREES NOT TO MAKE ANY
REPRESENTATIONS AND/OR WARRANTIES IN RESPECT OF PRODUCTS EXCEPT AS EXPRESSLY
STATED IN THE APPLICABLE WRITTEN WARRANTY ISSUED BY COMPANY.
11
NO REPRESENTATION OR WARRANTY IS MADE AS TO FITNESS FOR ANY PURPOSE OR
MERCHANTABILITY.
9. Indemnifications. (a) Indemnity by Company. Company agrees to indemnify
Distributor against any liability resulting from (i) an act, omission, or
negligence of Company in the manufacture, processing, handling, promoting,
marketing, representing, or delivering of Products pursuant to this Agreement or
(ii) any default of Company under this Agreement.
(b) Indemnity by Distributor. Distributor agrees to indemnify Company
against any liability resulting from (i) an act, omission, or negligence of
Distributor in the storage, handling, promoting, marketing, representing, or
delivering of Products pursuant to this Agreement or (ii) any default of
Distributor under this Agreement.
(c) Notice and Defense of Indemnified Claims. In each case, the party
receiving the indemnity (the "Indemnified Party") will notify the party
providing the indemnity (the "Indemnifying Party") promptly of any claim against
Indemnified Party to which any such indemnity may apply and, if Indemnifying
Party chooses an adequate provision to compensate Indemnified Party in the event
of an adverse result, Indemnified Party will allow Indemnifying Party to have
control of the defense of any action relating thereto and negotiations for its
settlement, provided Indemnified Party is allowed to participate at its own
expense. Indemnifying Party will maintain adequate liability insurance for
claims it provides indemnification for hereunder.
(d) Survival. The provisions of this Section 9 shall survive any expiration
or termination of this Agreement.
10. No Lost Profits or Consequential Damages. NOTWITHSTANDING ANY
REPRESENTATION, WARRANTY, UNDERTAKING OR OTHER PROVISION, TERM OR CONDITION OF
THIS AGREEMENT, EXPRESS OR IMPLIED, COMPANY WILL NOT BE LIABLE TO DISTRIBUTOR
FOR ANY LOSS OF PROFITS OR CONSEQUENTIAL OR INDIRECT LOSS OR DAMAGE ARISING OUT
OF OR IN CONNECTION WITH THE INABILITY OF COMPANY TO SUPPLY ITS PRODUCTS OR THE
SUPPLY OF DEFECTIVE PRODUCTS.
11. Protection of Intellectual Property and Confidentiality Agreement. (a)
Protection of Company's Intellectual Property/Information and Ideas. Distributor
acknowledges Company's exclusive right, title and interest in Company's patents,
trademarks, trade names, emblem, designs, models and methods of presentation
relating to Products in the Territory or elsewhere (the "Intellectual
Property"). Distributor acknowledges Company has certain ideas and information
concerning financial matters and trade secrets and corporate proprietary
information, written and unwritten (the "Information and Ideas") which Company
is willing to disclose to Distributor from time to time as it becomes necessary
to promote the purposes of this Agreement. Distributor will not at any time do
or cause to be done any act or thing which directly or indirectly challenges or
impairs the Intellectual Property or the Information and Ideas. Distributor
agrees, during the term and following termination of this Agreement, that it
will not disclose any Intellectual Property or Information and Ideas, nor will
it make or cause to be made any use of the Intellectual Property or Information
and Ideas, except in the proper performance of its duties under this Agreement.
Distributor is not prohibited hereby from disclosing or using any Intellectual
Property or Information and Ideas which subsequently become part of the public
domain through no breach of this Agreement and through no fault of Distributor.
Distributor agrees to take all reasonable steps, including the insertion of
relevant clauses in contracts of employment, to prevent disclosure of the
Intellectual Property and Information and Ideas by sub-representatives, agents
and/or employees of Distributor, and to safeguard and protect all Intellectual
Property and Information and Ideas from damage, theft or loss or from perusal by
unauthorized persons, except as may be required by law. Company warrants to
Distributor that it possesses all necessary rights and title to use the
Intellectual Property in connection with the Products.
(b) No Rights Vest in Distributor. Distributor will not acquire any right,
title or interest in the Intellectual Property or Information and Ideas by
virtue of the execution or performance of this Agreement, nor at any time
describe or represent itself to others as having such right, title or interest.
Should any Territory law or regulation vest Distributor with any rights in or to
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any of the Intellectual Property or Information and Ideas, Distributor hereby
assigns and agrees to assign to Company all such rights contemporaneously with
their vesting. Distributor shall promptly notify Company of any and all
infringements of the Intellectual Property or Information and Ideas of which
Distributor becomes aware within the Territory, and will assist Company in
taking action against any such infringements at Company's expense. Subject to
the limited rights of Distributor under Section 16(d) below, Distributor shall
cease using the Intellectual Property or Information and Ideas upon any
expiration or termination of this Agreement. Distributor shall not remove or
alter any labeling on the Products.
(c) Mutual Duty to Preserve Confidentiality of Other Confidential
Information. Without the prior written consent of the supplying party, no
receiving party, its officers, agents, or employees shall, in any manner
whatsoever for use in any way for its own account or for any third party
disclose or communicate to any third party, any technical, engineering,
manufacturing, business, financial, or other information and know how, but
excluding any Intellectual Property or Information and Ideas already covered
under subsection (a) above (hereinafter referred to as the "Confidential
Information") generated by any party hereto and acquired directly or indirectly
by any other party. Nothing in this subsection (b) shall prevent disclosure or
use of information (i) already known to any receiving party; (ii) which is or
becomes public knowledge without the fault of the receiving party; (iii) which
is properly acquired by the receiving party from a third party having the legal
right to such information; (iv) is required to be disclosed by a proper
governmental or judicial authority; or (iv) as required or as may be desirable
in connection with a financing of Company or Distributor. No receiving party
shall, in any manner whatsoever for use in any way for its own account or for
the account of any third party, disclose or communicate to any third party, any
Confidential Information for any purpose except for the purpose for which such
Confidential Information was supplied, and such receiving party will take every
reasonable precaution to protect the confidentiality of such information.
(d) Other Obligations. Each party acknowledges that any breach of any
obligation under this Section is likely to cause or threaten irreparable harm to
the other party, and accordingly, each party agrees that in such event the
non-breaching party shall be entitled to equitable relief to protect its
interests, including, but not limited to, preliminary and permanent injunctive
relief. Upon expiration or termination of this Agreement, each party shall
return to the other party all Confidential Information, Intellectual Property
and Information and Ideas in the receiving party's possession and control. This
Section 11 shall survive any expiration or termination of this Agreement.
12. Other Obligations and Activities of Distributor. In addition to any and
all obligations and/or permitted activities recited elsewhere in this Agreement:
(a) Representation of Other Products. During the term of this Agreement,
Distributor will not represent or distribute, directly or indirectly, the
products of any other manufacturer or producer which in the opinion of Company
compete with any Products promoted by Distributor hereunder (collectively,
"Competitive Products"), nor shall Distributor manufacture any Competitive
Products, directly or indirectly. Competitive Products, include, without
limitation, those Products identified on Part II of Schedule C. Notwithstanding
the foregoing, Distributor may represent, sell and distribute the competitive
products listed on Part I of Schedule C. It is acknowledged and agreed, however,
that Distributor may represent, promote and sell other lines of health related
services and devices. Distributor shall furnish Company before execution of this
Agreement or at time of execution a list of all products currently handled by
Distributor and shall update the list from time to time as Distributor adds
products to its distribution business.
(b) Duties of the Distributor. Distributor understands and agrees to
perform each and all of the activities listed and described in Schedule D
(Distributor's Duties).
13. Other Obligations and Activities of Company. In addition to any and all
obligations and/or permitted activities recited elsewhere in this Agreement:
(a) Provision of Information. Company may provide without charge to
Distributor, reasonable information concerning the technical aspects of
Products, their use, and the like, in writing and/or oral presentations.
13
(b) Seminar Cooperation. Company will cooperate with Distributor to a
reasonable extent in the sponsorship and planning of technical seminars in the
Territory on Products.
(c) Market Surveys. Company may furnish, without charge to Distributor,
market surveys and related information prepared by Company or by third parties
pertaining to the market for Products in the Territory. Distributor will treat
same as Information and Ideas in accordance with the provisions of Section 11.
(d) Advertisement Assistance. From time to time, Company may advertise
Products in publications circulated in the Territory, and may refer to
Distributor by name in such advertisements. Distributor hereby consents to the
use of its name in such advertisements and for similar purposes. Such
advertising shall in all events use Company's logo and trade name(s) or
trademarks in such manner as to protect same. In no event shall Distributor
modify or change Company's name or trade name(s) and or trademarks.
(e) Access to Company Personnel. Company shall provide Distributor with
reasonable access to and assistance from its technical, sales, and service
personnel, as Company deems appropriate. Such assistance shall be without charge
to Distributor except as may be otherwise mutually agreed.
(f) Regulatory Updates. Company will provide Distributor with prompt
updates on all regulatory issues known to Company which could reasonably be
expected to adversely affect the sale and marketing of Products by Distributor
in the Territory.
(g) Technical Information. Company will provide Distributor with such
information, technical descriptions, drawings, data, specifications, service and
instructions for use manuals, quality control audits, facility inspection
reports issued by government regulators or recognized international quality
control auditors, and so forth, relating to the Products in Company's possession
and control as may be reasonably required by Distributor to obtain and to
maintain import permits or continuing approval from the appropriate governmental
authorities in order to distribute the Products in the Territory.
(h) Related Regulatory Actions. Company will promptly notify Distributor of
any of the following adverse types of actions taken with respect to Company or
the Products by regulators in other jurisdictions which Company believes could
reasonably be expected to adversely affect the sale or marketing of Products by
Distributor in the Territory: (i) any facility inspection resulting in any
notice of infraction, warning or other action, (ii) voluntary or mandatory
recalls or withdrawal of Products, (iii) administrative or court proceedings,
(iv) any changes of factory location, (v) changes in method of sterilization,
packaging, materials, design or other specifications of Products and (vi) any
similar matters.
(i) Trademark Registration. Subject to Section 6 hereof, Company will
register and maintain in the Territory all trademarks used in connection with
the Products.
(j) Referrals. Company will promptly refer to Distributor all orders and
inquiries for the Products in the Territory received by Company.
(k) Non-Competition. During the term of this Agreement and for a period of
twelve (12) months after the termination or expiration of this Agreement,
neither party, their affiliates, successors and assigns shall solicit for
employment any personnel employed by the other party.
14. Products Modification. Subject to Section 5(c), Company may, at any
time and from time to time and without recourse on Distributor's part, add to,
delete from, or modify any or all of the Products.
15. Force Majeure. Neither Company nor Distributor will have any liability
for any failure or delay in performing any obligation under this Agreement
(except the obligation to make payments promptly when and as due) if the failure
or delay results from force majeure, understood as a cause which is beyond the
control of either party and one which could not have been avoided with the
exercise of due care. The party claiming force majeure will give the other party
written notice of the cause within fifteen (15) days after occurrence thereof,
and will exercise reasonable diligence to remove the cause and resume
performance. If Company is the affected party, it may equitably allocate
production and delivery of affected Products among its Distributors and
customers.
14
16. Term of Agreement; Termination. (a) Term. The term of this Agreement
shall be for an initial period commencing on the Effective Date of this
Agreement and expiring on the date five (5) years after the first date of the
first Contract Year (the "Initial Period"). This Agreement may be automatically
extended by the parties for additional five (5) year period(s) (each, an
"Extension Period") upon mutual written agreement that the parties have agreed
on Minimum Purchase Requirements for the Products for such Extension Period.
Notice of requested extension shall be made by either party to the other not
less than ninety (90) days prior to the end of the Initial Period or any
Extension Period. For purposes of this Agreement, the term "Term" shall refer to
the Initial Period and any and all Extension Periods thereof in accordance with
this Section. This Agreement may be earlier terminated at any time as follows:
(i) in the manner provided in Section 5(a); or
(ii) by either party for cause upon the giving of not less than 30 days
prior written notice of intent to terminate to the other party, and failure of
the party receiving such notice to cure the cause stated in such notice to the
reasonable satisfaction of the notifying party by the end of such 30 day period;
provided, however, that the foregoing right to cure shall not apply to a
material breach that has been notified to the breaching party on two or more
prior occasions or to any material breach after the breaching party has been
notified of any three prior material breaches. For purposes of this Section,
"cause" means the other party's material breach of a duty or obligation under
this Agreement, other than as provided in Section 5(a). For the avoidance of
doubt and without prejudice to whether other acts might constitute material
breach, the parties agree that the violation of any of the provisions contained
in Sections 2, 3(c), 6(a), 6(b), 6(d), 6(e), 11 and 12(a) shall constitute a
material breach; or
(iii) by either party forthwith on written notice of termination to the
other party for the other party's voluntary or involuntary petition of
bankruptcy, or insolvency, or winding up of its operations; or in the event of
nationalization, in whole or part, of the other party; or in the event of
acquisition of all or part of the assets of Distributor by a competitor of
Company in respect of Products; or in the event of Distributor's assignment or
attempted assignment of this Agreement or any of its rights, duties or
obligations hereunder without Company's prior written consent, except as set
forth in Section 17(c); or in the event of introduction or passage of any
legislation in the Territory which would grant to Distributor greater rights
upon termination of this Agreement than Distributor would presently have; or
(iv) immediately by written notice from Company following notice from
Distributor pursuant to sub-paragraphs (i), (ii) or (iii) above, or after a
breach by Distributor of the provisions of Section 6 or Section 11 above.
(b) Effect of Termination. During the period of notice of termination under
Subsection 16(a)(i), (ii) or (iii), the party giving notice may withhold its own
performance (except in respect of the payment of any amount then due and owing
to the other party) unless the other party cures or acts with due diligence to
cure the breach or failure, but such cure or due diligence shall not in and of
itself operate to cancel the notice of termination which must be affirmatively
canceled by the party originally giving notice. During the period of notice of
termination without cause, each party shall diligently perform all of its duties
and obligations under this Agreement.
(c) Rights of Company. Upon expiration or termination of this Agreement,
Company may (at any time thereafter) appoint a new Distributor of Products in
the Territory. The following obligations of Distributor will survive and
continue after any expiration or termination of this Agreement, subject to the
rights of Distributor under 16(d):
(i) to immediately return to Company all documents, or other informational
and advertising materials in tangible form relating to the Intellectual Property
or Information and Ideas, supplied to Distributor by Company;
(ii) to continue to make any payments owed to Company promptly when due;
(iii) to thereafter abstain from using or disclosing to third parties the
Intellectual Property or Information and Ideas for so long as the same is not in
the public domain or for so long as the same is in the public domain due only to
the default of Distributor, whichever period is longer;
15
(iv) to cease promoting Products and give appropriate notice to all
sub-distributors and agents in the Territory of such fact;
(v) to diligently and expediently take all necessary steps to transfer the
medical registrations and import permits (the "Shonin(s)") for the Products to
the Company or to any third party located in the Territory, as notified by
Company, that is authorized and legally entitled to hold the Shonin(s). Company
agrees to reimburse Distributor for all of Distributor's out of pocket expenses
related to Distributor [obtaining and maintaining] [transferring] the Shonin(s).
[For purposes of this section, "out of pocket expenses" shall include, without
limitation, Product costs, documentation and Product testing fees, patient fees
paid to the institution performing the clinical trial, fees paid to the
institutions to perform and conduct the clinical trial including issuance of
final reports, meeting expenses, clinical trial product liability insurance,
post marketing surveillance fees, etc. Specifically excluded from reimbursable
"out of pocket expenses" are Distributor overhead, salary and travel expenses in
the Territory.] Any such reimbursable out of pocket expenses owed to Distributor
upon termination or expiration of this Agreement shall become immediately due
and payable.
During the period that the Shonin(s) is in the process of being
transferred, Distributor agrees to otherwise cooperate with Company by importing
and reselling the Products to Company's next authorized and designated
distributor at Distributor's fully landed cost for the Products plus a mark-up
of ten percent (10%). The general purchase and sales terms of this Agreement
will govern the sale of Products to such distributor during this transfer
period. Company expressly agrees to indemnify Distributor for any non-payment by
Company's next distributor for Products so resold by Distributor or for any
non-performance of Distributor out of Distributor's immediate control during
this transfer period.
(vi) to continue to indemnify Company in respect to all matters as to which
indemnification by Distributor is required by this Agreement; and
(vii) to continue to observe any obligation otherwise expressly provided in
this Agreement to survive expiration or termination.
(d) Rights of Distributor. The following obligations of the Company will
survive and continue after any expiration and termination of this Agreement,
subject to the rights of the Company under 16(c):
(i) to thereafter abstain from using or disclosing to third parties any
Confidential Information of Distributor for so long as the same is not in the
public domain or for so long as the same is in the public domain due only to the
default of the Company, whichever is longer;
(ii) to make any payments to Distributor required by Section 16(c)(v) or
Section 16(e);
(iii) to continue to indemnify Distributor in respect to all matters to
which indemnification by company is required by this Agreement; and
(iv) to continue to observe any obligations otherwise expressly provided in
this Agreement to survive expiration or termination.
(e) Inventory Repurchases. Upon termination or expiration of this
Agreement, Company and Distributor each have the option of causing Distributor
to return for refund of the original purchase price paid by Distributor all of
Distributor's remaining inventory of Products which are in saleable condition.
If neither party elects the option in the preceding sentence, Distributor may
continue to sell such remaining inventory in the Territory for a period which
shall not exceed six (6) months following the date of termination or expiration
of this Agreement, at which date Distributor's remaining saleable inventory of
the Products shall be returned to Company for full refund of the original
purchase price of the Products. Company shall refund Distributor's purchase
price for returned Product within sixty (60) days after Company's receipt of any
Product returned by Distributor pursuant to this Section 16(e). The refund shall
be effected by wire transfer to an account designated by Distributor at such
time. Regardless of the option elected, Distributor must return to Company a
complete set of traceability reports within thirty (30) days of termination or
16
expiration of this Agreement. For purposes of this provision, "saleable
condition" means the Product must be in the original factory packaging,
undamaged, currently sterile and with a remaining shelf life of at least six (6)
months.
This provision shall survive any expiration or termination of this
Agreement.
(f) Limitation of Post Termination Liability. Without limiting any remedy a
party may have at law or at equity in connection with the breach of this
Agreement by the other party neither party to this Agreement shall be liable to
the other by reason of the termination or expiration of this Agreement for
compensation, reimbursement, or damages on account of any loss of prospective
profits, or anticipated sales or on account of expenditures, investments,
leases, or other commitments relating to the business or goodwill of either
party.
17. General.
(a) Notice. Any notice or other communication required or permitted by this
Agreement must be given in writing and must be delivered by personal delivery
(including personal delivery by internationally recognized and reputable
overnight courier, such as Federal Express, DHL, or similar overnight courier),
first class mail (registered or certified), or telecopy (with a copy sent by
personal delivery or first class mail), at the postal address of the party as
set forth herein or such other changed address of the party as to which notice
has been given, and will be deemed as having been given when received or
delivered.
(b) Set Off. Company reserves the right to set off any amounts Distributor
owes to Company against any amount Company owes to Distributor to the extent
acceptable to regulators in the Territory.
(c) Binding; Assignment. This Agreement shall be binding on Distributor,
Company, and their respective successors and assigns; provided, however, that,
subject to Section 1(b), any assignment of this Agreement by Distributor,
whether by operation of law or otherwise, without the prior written consent of
Company is void. Any assignment of this Agreement by Company, whether by
operation of law or otherwise, without the prior written consent of Distributor,
is void: provided, that Company may assign this Agreement without consent in the
event of a sale or transfer of all or substantially all of the stock or Product
device assets of Company, to the purchaser of such stock or assets.
Notwithstanding anything in this Agreement to the contrary, Company hereby
agrees that any direct or indirect sale, assignment or transfer of Company's
rights to manufacture Products to any third party in a manner that prevents the
Company from fulfilling its obligations to Distributor under this Agreement
shall be subject to such third party becoming obliged through such sale,
assignment or transfer to the terms of this Agreement to the same extent, and
subject to the same duties and obligations, as Company.
(d) Entire Agreement; Modification; Waiver. This Agreement contains the
entire agreement between the parties with respect to the subject matter of the
Agreement and shall supersede and terminate all prior agreements, commitments,
or understandings, whether oral or written, related to the Products. No waiver
or modification of any of the provisions of this Agreement shall be binding
unless it is in writing and signed by the parties. Any waiver of any condition
on any one occasion shall not constitute a waiver on any subsequent occasion.
(e) Arbitration. All disputes, controversies, claims or differences which
may arise between the parties hereto arising out of or in relation to or in
connection with this Agreement or any breach thereof shall be settled by
arbitration conducted in accordance with the Commercial Arbitration Rules (the
"Rules") and supplementary Procedures for International Commercial Arbitration
(the "Supplementary Procedures") of the American Arbitration Association, in
effect on July 1, 1996. Whenever any dispute, controversy, claim or difference
which may be submitted to arbitration under this subsection arises between the
parties hereto, either party hereby may give to the other party hereto notice of
its intention to submit such dispute, controversy, claim or difference to
arbitration. Such arbitration shall take place in New York City, New York,
United States of America, before a single arbitrator agreed upon by the parties
to the arbitration. In the event the parties to the arbitration cannot agree
upon an arbitrator within twenty (20) days after either party's notice to
arbitrate, such arbitration shall take place in Atlanta, Georgia, United States
of America, if initiated and brought by Distributor, or Tokyo, Japan if
initiated and brought by Company, before a single arbitrator appointed by the
American Arbitration Association in accordance with the Rules and Supplementary
Procedures.
17
The parties hereto agree that each party to the arbitration is to pay an
equal part of the deposit fixed by the American Arbitration Association or the
arbitrator. The determinations of such arbitrator will be final and binding upon
the parties to the arbitration, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction, or application may
be made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. The arbitrator shall set forth the grounds for
his decision in the award. The parties acknowledge and agree that this Agreement
and any award rendered pursuant to it shall be governed by the 1958 United
Nations Convention on the Recognition and Enforcement of Foreign Arbitral
Awards.
The arbitrator shall apply the law of the State of Georgia, United States
of America, as to both substantive and procedural questions, but excepting any
State of Georgia rule which would result in judicial failure to enforce this
arbitration provision or any portion thereof.
All proceedings before the arbitrator shall be conducted in the English
language. All documents and papers submitted to the arbitrator shall be in the
English language or accompanied by a competent English language translation
thereof.
(g) Controlling Language. This Agreement has been written, and all
discussions leading up to this Agreement have been conducted, in the English
language which both parties thoroughly understand. Each party represents that it
has read and fully understands this Agreement, and further agrees that all
notices and other correspondence or communications between the parties relating
to or under this Agreement will be made solely in the English language.
(h) Independent Contractor. Distributor shall operate as an independent
contractor and nothing contained in this Agreement shall be deemed or construed
to recreate an employer/employee, principal/agent, joint venture, partnership,
or fiduciary relationship between the parties.
(i) Taxes. Distributor shall be responsible for paying all sales, use,
transactional, importation, or other value added taxes (other than taxes
measured by the net income of Company) resulting from the completion of the
transactions in the Territory contemplated by this Agreement.
(j) Authority. EACH OF THE SIGNATORIES INDIVIDUALLY REPRESENTS AND WARRANTS
THAT HE HAS THE REQUISITE POWER AND AUTHORITY TO ENTER INTO THIS AGREEMENT ON
BEHALF OF THE PARTY FOR WHICH HE SIGNS AND THAT THE PARTY HAS THE FULL POWER AND
AUTHORITY TO FULLY PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT.
(k) Waivers. Either party's delay or failure to enforce any right or remedy
available to it under this Agreement or at law for Distributor's material breach
of or repeated failure to perform a duty or an obligation hereunder will not
constitute a waiver of such right or remedy in respect of the same or any
subsequent breach of failure.
(l) Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid or unenforceable, such provision will be
severed from this Agreement without affecting the validity or enforceability of
any of the remaining provisions.
(m) Heading and Captions. Headings and captions used herein are for
convenience only and are not to be deemed part of this Agreement.
(n) Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be an original, and all of which together shall constitute
one and the same instrument.
(o) Further Assurances. The parties agree to execute any and all such
further agreements, instruments or documents, and to take any and all such
further action as may be necessary or desirable to carry out the provisions
hereof and to effectuate the proposes of this Agreement. Company hereby agrees
that any direct or indirect sale, assignment or transfer of Company's rights to
manufacture Products to any third party in manner that prevents the Company from
fulfilling its obligations to Distributor under this Agreement shall be subject
to such third party becoming obliged through such sale, assignment or transfer
to the terms of this Agreement to the same extent and subject to the same duties
and obligations as Company.
18
SCHEDULE F
MARKS
` 19
1343979v1
Exhibit 13
Item 5. Market for Registrant's Equity and Related Stockholder Matters - page
35 of annual shareholder report below:
MARKET PRICE OF COMMON STOCK
The Company's Common Stock is traded under the symbol "CRY." The following table
sets forth, for the periods indicated, the intra-day high and low sale prices
per share of Common Stock on the NYSE.
2000 High Low
- ----------------------------------------------------------------- -------------------- -------------------
First Quarter 16 5/12 7 1/2
Second Quarter 16 1/4 10 3/8
Third Quarter 23 1/8 14 7/8
Fourth Quarter 35 7/8 17 5/6
- ----------------------------------------------------------------- -------------------- -------------------
1999 High Low
- ----------------------------------------------------------------- -------------------- -------------------
First Quarter 8 1/2 6 5/6
Second Quarter 12 5/12 6 2/3
Third Quarter 10 1/6 7 1/2
Fourth Quarter 9 1/4 7 3/8
- ----------------------------------------------------------------- -------------------- -------------------
Reflects adjustment for 3-for-2 stock split effected December 27, 2000.
1
Item 6. Selected Financial Data - page 36 of annual shareholder report below:
SELECTED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------------------------------------------
(In thousands except percentages and per share data) December 31,
OPERATIONS 2000 1999 1998 1997 1996
- --------------------------------------------- ------------- ------------- ------------- -------------- -------------
Revenues $77,096 $66,722 $60,691 $50,571 $36,866
Net Income 7,817 4,451 6,486 4,725 3,927
Research and development as a
percentage of revenues 6.8% 6.6% 7.8% 7.8% 7.6%
EARNINGS PER SHARE 1,2
- --------------------------------------------- ------------- ------------- ------------- -------------- -------------
Basic $ 0.42 $ 0.24 $ 0.36 $ 0.33 $ 0.28
Diluted $ 0.41 $ 0.24 $ 0.35 $ 0.32 $ 0.26
YEAR-END FINANCIAL POSITION
- --------------------------------------------- ------------- ------------- ------------- -------------- -------------
Total assets $112,009 $94,025 $98,390 $54,402 $34,973
Working capital 68,449 59,597 62,310 19,478 10,787
Long-term liabilities 11,905 6,177 8,577 17,846 2,799
Shareholders' equity 89,395 80,226 80,421 30,227 24,929
Current ratio 7:1 9:1 8:1 4:1 3:1
Shareholders' equity per diluted
common share 1,2 $ 4.65 $ 4.27 $ 4.38 $ 2.03 $ 1.68
1 Reflects adjustment for the 3-for-2 stock split effected December 27, 2000.
2 Reflects adjustment for the 2-for-1 stock split effected June 28, 1996.
1343997v1
2
Item 8. Financial Statements and Supplementary Data - pages 22-37 of annual
shareholder report below:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO CRYOLIFE, INC.:
We have audited the accompanying consolidated balance sheet of
CRYOLIFE, INC. AND SUBSIDIARIES as of December 31, 2000 and 1999, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of the Company as of December 31, 1998, and for each of the two years
ended December 31, 1998, were audited by other auditors whose report dated
February 2, 1999 expressed and unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principals used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CryoLife, Inc. and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the two years ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN, LLP
Atlanta, Georgia
February 7, 2001
1344382v1
3
CryoLife, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
ASSETS
December 31, 2000 1999
- ----------------------------------------------------------------------------------------------------------
Current assets:
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 17,480 $ 6,128
Marketable securities, at market 21,234 24,403
Receivables:
Trade accounts, less allowance for doubtful accounts of
$85 in 2000 and $528 in 1999 11,454 11,694
Note receivable, less allowance of $723 1,833 --
Income taxes 574 31
Other 711 608
- ----------------------------------------------------------------------------------------------------------
Total receivables 14,572 12,333
- ----------------------------------------------------------------------------------------------------------
Deferred preservation costs 20,311 17,652
Inventories 3,994 4,597
Prepaid expenses 893 1,123
Deferred income taxes 674 983
- ----------------------------------------------------------------------------------------------------------
Total current assets 79,158 67,219
- ----------------------------------------------------------------------------------------------------------
Property and equipment:
- ----------------------------------------------------------------------------------------------------------
Equipment 12,911 11,882
Furniture and fixtures 4,327 3,147
Leasehold improvements 14,149 14,487
Construction in progress 8,219 1,001
- ----------------------------------------------------------------------------------------------------------
39,606 30,517
Less accumulated depreciation and amortization 14,027 11,843
- ----------------------------------------------------------------------------------------------------------
Net property and equipment 25,579 18,674
- ----------------------------------------------------------------------------------------------------------
Other assets:
- ----------------------------------------------------------------------------------------------------------
Note receivable, less allowance of $241 643 --
Goodwill, less accumulated amortization
of $405 in 2000 and $311 in 1999 1,495 1,590
Patents, less accumulated amortization
of $850 in 2000 and $794 in 1999 2,540 2,363
Other, less accumulated amortization
of $436 in 2000 and $742 in 1999 2,423 2,780
Deferred income taxes 171 1,399
- ----------------------------------------------------------------------------------------------------------
Total assets $ 112,009 $ 94,025
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
CryoLife, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, 2000 1999
- ----------------------------------------------------------------------------------------------------------
Current liabilities:
- ----------------------------------------------------------------------------------------------------------
Accounts payable $ 2,914 $ 975
Accrued expenses 1,054 1,595
Accrued compensation 2,097 1,711
Accrued procurement fees 3,537 2,874
Current maturities of capital lease obligation 173 180
Current maturities of long-term debt 934 287
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 10,709 7,622
- ----------------------------------------------------------------------------------------------------------
Capital lease obligations, less current maturities 1,361 1,534
Convertible debenture 4,393 4,393
Bank line of credit, less current maturities 6,151 --
Other long-term debt -- 250
- ----------------------------------------------------------------------------------------------------------
Total liabilities 22,614 13,799
- ----------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' equity:
Preferred stock $.01 par value per share;
authorized 5,000 shares including 2,000
shares of series A junior participating preferred stock;
no shares issued -- --
Common stock $.01 par value per share;
authorized 75,000 shares; issued 20,077 in 2000 and
20,041 shares in 1999 201 200
Additional paid-in capital 64,936 64,359
Retained earnings 31,381 23,564
Deferred compensation (45) (57)
Accumulated other comprehensive income (1,088) (785)
Treasury stock; 1,356 shares in 2000 and 1,701
shares in 1999, at cost (5,990) (7,055)
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 89,395 80,226
- ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 112,009 $ 94,025
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
CryoLife, Inc.
Consolidated Income Statements
(in thousands, except per share data)
Year Ended
December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
Revenues:
- ---------------------------------------------------------------------------------------------------------
Preservation services and products $ 76,480 $ 65,845 $ 60,179
Research grants and licenses 616 877 512
- ---------------------------------------------------------------------------------------------------------
77,096 66,722 60,691
- ---------------------------------------------------------------------------------------------------------
Costs and Expenses:
- ---------------------------------------------------------------------------------------------------------
Preservation services and products 33,347 30,170 25,303
General, administrative, and marketing 28,731 24,693 23,907
Research and development 5,207 4,396 4,708
Nonrecurring charges -- 2,355 --
Interest expense 299 387 670
Interest income (1,952) (1,556) (1,490)
Other income, net (169) (224) (1,078)
- ----------------------------------------------------------------------------------------------------------
65,463 60,221 52,020
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 11,633 6,501 8,671
Income tax expense 3,816 2,050 2,185
- ---------------------------------------------------------------------------------------------------------
Net income $ 7,817 $ 4,451 $ 6,486
- ---------------------------------------------------------------------------------------------------------
Earnings per share:
- -------------------
Basic $ 0.42 $ 0.24 $ 0.36
- ---------------------------------------------------------------------------------------------------------
Diluted $ 0.41 $ 0.24 $ 0.35
- ---------------------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 18,541 18,512 17,961
- ---------------------------------------------------------------------------------------------------------
Diluted 19,229 18,800 18,396
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
6
CryoLife, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
Net cash flows from operating activities:
- ---------------------------------------------------------------------------------------------------------
Net income $ 7,817 $ 4,451 $ 6,486
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Deferred income recognized -- (1,176) (387)
Gain on sale of marketable equity securities -- (112) (4)
Depreciation of property and equipment 3,023 2,854 2,586
Amortization 199 300 905
Provision for doubtful accounts 21 121 176
Deferred income taxes 1,658 (970) (1,948)
Nonrecurring charges -- 2,355 --
Tax effect of non-qualified option exercises 595 -- --
Changes in operating assets and liabilities:
Trade and other receivables 469 (1,707) (1,797)
Income taxes (543) 40 771
Deferred preservation costs (2,659) (3,413) (1,982)
Inventories (1,433) (2,882) (3,010)
Prepaid expenses and other assets 230 822 (706)
Accounts payable 1,095 (686) 295
Accrued expenses (193) 1,321 (158)
- ----------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 10,279 1,318 1,227
- ---------------------------------------------------------------------------------------------------------
Net cash flows from investing activities:
- ---------------------------------------------------------------------------------------------------------
Capital expenditures (9,491) (3,853) (6,693)
Net proceeds from sale of IFM product line -- -- 15,000
Other assets 43 (783) (752)
Purchases of marketable securities (5,729) (5,123) (34,063)
Sales of marketable securities 8,542 6,149 7,604
- ---------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (6,635) (3,610) (18,904)
- ----------------------------------------------------------------------------------------------------------
Net cash flows from financing activities:
- ---------------------------------------------------------------------------------------------------------
Principal payments of debt (287) (514) (13,990)
Proceeds from debt issuance 6,835 -- 1,680
Proceeds from note receivable 360 -- --
Principal payments on obligations under capital leases (180) (224) (203)
Proceeds from exercise of options and issuance of stock 1,660 571 46,298
Purchase of treasury stock (612) (4,296) (3,350)
Net payments on notes receivable from shareholders -- -- 16
- ---------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) financing activities 7,776 (4,463) 30,451
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 11,420 (6,755) 12,774
Effect of exchange rate changes on cash (68) (2) --
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 6,128 12,885 111
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 17,480 $ 6,128 $ 12,885
- ---------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information -
cash paid during the year for:
- ---------------------------------------------------------------------------------------------------------
Interest $ 471 $ 369 $ 742
Income taxes 2,215 3,816 3,568
- ---------------------------------------------------------------------------------------------------------
Non cash investing and financing activities:
Establishing capital lease obligation $ -- $ -- $ 2,141
- ---------------------------------------------------------------------------------------------------------
Debt conversion into common stock $ -- $ -- $ 608
- ---------------------------------------------------------------------------------------------------------
Purchase of property and equipment
in accounts payable $ 844 $ 6 $ 185
- ---------------------------------------------------------------------------------------------------------
Tax effects of non-qualified option exercises $ 595 $ -- $ --
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
7
CryoLife, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Notes
Common Shares Additional Accumulated Receivable Total
Outstanding Paid-In Retained Deferred Other Treasury From Shareholders'
Shares Amount Capital Earnings Compensation Comprehensive Stock Shareholders Equity
Income
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 14,553 $154 $17,642 $12,627 $-- $-- $(180) $(16) $30,227
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 6,486 -- -- -- -- 6,486
Unrealized gains on
investments -- -- -- -- -- 139 -- -- 139
-------------
Comprehensive income 6,625
Follow-on equity offering,
net of $703 of offering
costs 4,464 44 45,403 -- -- -- -- -- 45,447
Exercise of options 150 1 338 -- -- -- 121 -- 460
Employee stock purchase plan 46 -- 294 -- -- -- 97 -- 391
Convertible debenture 75 1 604 -- -- -- -- -- 605
Purchase of treasury stock (514) -- -- -- -- -- (3,350) -- (3,350)
Payment on shareholder note -- -- -- -- -- -- -- 16 16
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 18,774 200 64,281 19,113 -- 139 (3,312) -- 80,421
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 4,451 -- -- -- -- 4,451
Unrealized losses on
investments -- -- -- -- -- (922) -- -- (922)
Translation adjustment -- -- -- -- -- (2) -- -- (2)
-------------
Comprehensive income 3,527
Exercise of options 74 -- (126) -- -- -- 305 -- 179
Employee stock purchase plan 60 -- 144 -- -- -- 248 -- 392
Issuance of stock options
to a nonemployee -- -- 60 -- (60) -- -- -- --
Amortization of deferred
compensation -- -- -- -- 3 -- -- -- 3
Purchase of treasury stock (567) -- -- -- -- -- (4,296) -- (4,296)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 18,341 200 64,359 23,564 (57) (785) (7,055) -- 80,226
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 7,817 -- -- -- -- 7,817
Unrealized losses on
investments -- -- -- -- -- (235) -- -- (235)
Translation adjustment -- -- -- -- -- (68) -- -- (68)
-------------
Comprehensive income 7,514
Exercise of options 392 1 338 -- -- -- 1,389 -- 1,728
Employee stock purchase plan 66 -- 239 -- -- -- 288 -- 527
Amortization of deferred
compensation -- -- -- -- 12 -- -- -- 12
Purchase of treasury stock (78) -- -- -- -- -- (612) -- (612)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 18,721 $201 $64,936 $31,381 $(45) $(1,088) $(5,990) $-- 89,395
===================================================================================================================================
See accompanying notes to consolidated financial statements.
8
CRYOLIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business
Founded in 1984, CryoLife, Inc. (the "Company") is the leader in the
preservation of viable human tissues for transplant, and is developing and
commercializing additional implantable devices for use in vascular,
cardiovascular, and orthopaedic applications. The Company's primary business
segment, cryopreservation of human tissues, marketed in North and South America,
Europe, and Asia. The Company develops proprietary implantable bioadhesives,
including BioGlue surgical adhesive, which it has begun commercializing for
vascular and pulmonary applications in North America, Europe, South America,
Asia, South Africa, and the Middle East. In addition, the Company's
bioprosthetic implantable products include stentless porcine heart valves
marketed in Europe, South America, the Middle East, Canada, and South Africa, as
well as a proprietary project to transplant human cells onto the structure of
animal tissue. Until October 9, 2000, the Company served as an original
equipment manufacturer for single-use medical devices for use in vascular
surgical procedures. International revenues were $5.1 million in 2000 and $4.0
million in 1999 and 1998. Net revenues by product for the years ended December
31, 2000, 1999, and 1998 were as follows:
2000 1999 1998
----------------- ------------------ -----------------
Preservation services:
Heart valve tissue $29,685 $29,043 $30,836
Vascular tissue 21,279 19,273 14,270
Connective tissue 16,132 11,200 7,720
--------------- --------------- ---------------
Total preservation services 67,096 59,516 52,826
BioGlue surgical adhesive 6,405 1,657 883
Single-use medical devices 2,208 3,717 5,672
Bioprosthetic products 771 955 798
--------------- --------------- ---------------
$76,480 $65,845 $60,179
=============== =============== ===============
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances are
eliminated.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2000
presentation.
Use of Estimates
The preparation of the accompanying consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
9
Revenue Recognition
Revenues for preservation services are recognized as services are performed.
Revenues from medical devices and other products are recognized at the time the
product is shipped or title passes pursuant to customer terms. Revenues from
research grants are recognized in the period the associated costs are incurred,
and license revenues are recognized in the period cash is received and all
licensor obligations have been fulfilled. Amounts recognized as revenues are
fixed and collectibility of the related receivables is reasonably assured.
Cash and cash equivalents
Cash equivalents consist primarily of highly liquid investments with
insignificant interest rate risk and maturity dates of 90 days or less at the
time of acquisition. The carrying value of cash equivalents approximates fair
value.
Marketable Securities
The Company maintains cash equivalents and investments in several large,
well-capitalized financial institutions, and the Company's policy disallows
investment in any securities rated less than "investment-grade" by national
rating services.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designations as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost. Debt securities not
classified as held-to-maturity or trading and marketable equity securities not
classified as trading are classified as available-for-sale. Available-for-sale
securities are stated at their fair values, with the unrealized gains and
losses, net of tax, reported in a separate component of shareholders' equity.
The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Realized gains and losses
and declines in value judged to be other than temporary on available-for-sale
securities are included in investment income. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income. At
December 31, 2000 and 1999, all marketable equity securities and debt securities
were designated as available-for-sale.
Deferred Preservation Costs
Tissue is procured from deceased human donors by organ procurement organizations
and tissue banks which consign the tissue to the Company for processing and
preservation. Preservation costs related to tissue held by the Company are
deferred until shipment to the implanting hospital. Deferred preservation costs
consist primarily of laboratory expenses, tissue procurement fees, fringe and
facility allocations, and freight-in charges, and are stated on a first-in,
first-out basis.
Inventories
Inventories are comprised of single-use medical devices, bioprosthetic
implantable products, and implantable bioadhesives and are valued at the lower
of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets, generally five to ten years, on a
straight-line basis. Leasehold improvements are amortized on a straight-line
basis over the lease term or the estimated useful lives of the assets, whichever
is shorter.
10
Intangible Assets
Goodwill resulting from business acquisitions is amortized on a straight-line
basis over 20 years. Patent costs are amortized over the expected useful lives
of the patents (primarily 17 years) using the straight-line method. Other
intangibles, which consist primarily of manufacturing rights and agreements, are
being amortized over the expected useful lives of the related assets (primarily
five years).
The Company periodically evaluates the recoverability of noncurrent tangible and
intangible assets and measures the amount of impairment, if any, by assessing
current and future levels of income and cash flows as well as other factors,
such as business trends and prospects and market and economic conditions.
Long-lived Assets
The Company records impairment losses on long-lived assets in operations when
events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets.
Income Taxes
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted income tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Stock Split
On November 27, 2000, the Board of Directors declared a three-for-two stock
split, effected in the form of a stock dividend, payable on December 27, 2000,
to shareholders of record on December 8, 2000. All share and per share
information in the accompanying consolidated financial statements has been
adjusted to reflect such split.
Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" ("Statement 130"), establishes standards for the reporting
and display of comprehensive income and its components in a full set of
comparative general-purpose financial statements. The statement became effective
for the Company in 1998. Comprehensive income is defined in Statement 130 as net
income plus other comprehensive income, which, under existing accounting
standards, includes foreign currency items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. Comprehensive income disclosures are included in the
Consolidated Statements of Shareholders' Equity.
New Accounting Pronouncement
On January 1, 2001, the Company was required to adopt SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("Statement 133"), as
amended. Statement 133 requires the Company to recognize all derivative
instruments on the balance sheet at fair value, and changes in the derivative's
fair value must be recognized currently in earnings or other comprehensive
income, as applicable. The adoption of Statement 133 impacts the accounting for
the Company's forward-starting interest rate swap agreement.
The Company maintains a construction line of credit, which converts to floating
rate debt (i.e., term loan) upon completion of the expansion of the Company's
corporate headquarters (Note 5). This floating rate debt exposes the Company to
changes in interest rates going forward. On March 16, 2000, the Company entered
into $4 million in notional amounts of a forward-starting interest swap
11
agreement that take effect on June 1, 2001. This swap agreement has been
designated as a cash flow hedge to effectively convert a portion of its
anticipated term loan balance to a fixed rate basis, thus reducing the impact of
interest rate changes on future income. This agreement involves the receipt of
floating rate amounts in exchange for fixed rate interest payments over the life
of the agreement without an exchange of the underlying principal amounts. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense related to the debt. Upon
adoption of SFAS 133 in 2001, the Company recorded an unrealized loss of
approximately $175,000 related to the interest rate swap, which was recorded as
part of long-term liabilities and accumulated other comprehensive income. The
reclassification of any gains or losses associated with the interest rate swap
into the statement of income is anticipated to occur upon the various maturity
dates of the interest rate swap agreement, which expires in 2006.
During 1999, the Securities and Exchange Commission released Staff Bulletin 101,
"Revenue Recognition in Financial Statements" which clarifies the basic criteria
for recognizing revenue. The Company adopted this bulletin during the fourth
quarter 2000. The adoption of this bulletin did not have a material impact on
the consolidated financial statements.
2. Ideas for Medicine, Inc.
On March 5, 1997 the Company acquired the stock of Ideas for Medicine, Inc.
("IFM"), a medical device company specializing in the manufacture and
distribution of single-use medical devices, for consideration of approximately
$4.5 million in cash and approximately $5.0 million in convertible debentures
plus related expenses. The cash portion of the purchase price was financed by
borrowings under the Company's revolving term loan agreement. Pursuant to the
purchase agreement, an additional consideration of $700,000 was paid in January
2000. In connection with this acquisition, the Company also entered into a
consulting agreement with the former majority shareholder of IFM requiring
monthly payments to such shareholder of approximately $17,000 until March 2002.
On September 30, 1998 the Company completed the sale of substantially all of the
IFM product line and certain related assets to Horizon Medical Products, Inc.
("HMP") for $15 million in cash pursuant to an asset purchase agreement.
Concurrently, IFM and HMP signed a Manufacturing Agreement (the "Agreement")
which provided for the manufacture by IFM of specified minimum dollar amounts of
IFM products to be purchased exclusively by HMP over each of the four years
following the sale. Thereafter, responsibility for such manufacturing was to be
assumed by HMP.
The Company recorded deferred income at the transaction date totaling $2.9
million, representing the selling price less the net book value of the assets
sold, which included $7.7 million of goodwill, net of accumulated amortization,
and the costs related to the sale. The income was deferred because the sale and
manufacturing agreements represented, in the aggregate, a single transaction for
which the related income should be recognized over the term of the manufacturing
agreement. Accordingly, the deferred income was reflected in cost of goods sold
during 1999 and 1998 to maintain margins that would have been approximately
equal over the four-year period of the Agreement on the products manufactured
and sold by IFM to HMP. During 1999 and 1998 amortization of deferred income
totaled $1.2 million and $387,000, respectively.
On June 22, 1999 IFM notified HMP that it was in default of certain provisions
of the Agreement. Specifically, HMP was in violation of the payment provisions
12
contained within the Agreement, which called for inventory purchases to be paid
for within 45 days of delivery. Additionally, HMP was in violation due to
nonpayment of interest related to such past due accounts receivable.
After notification of the default, HMP indicated to the Company that it would
not be able to meet and did not meet the minimum purchase requirements outlined
in the Agreement. At December 31, 1999, the Company determined that it had
incurred an impairment loss on its IFM assets due to the significant
uncertainties related to the Company's ability to realize its investment in IFM.
In calculating the amount of the impairment loss, management used its best
estimate to determine the realizable value of its increase in working capital
due to the HMP default and the recoverability of IFM's long-lived assets,
consisting primarily of leasehold improvements and equipment. As a result,
management recorded a $2.1 million impairment loss on working capital and a $2.6
million impairment loss on leasehold improvements. Additionally, the Company
offset the above charges with $2.5 million of deferred income recorded in
connection with the sale of the IFM product line to HMP. The net pretax effect
of the above nonrecurring charges was $2.2 million and has been included under
the caption "Nonrecurring charges" in the accompanying Consolidated Income
Statements. At December 31, 1999, after recognition of the impairment loss, IFM
assets consisted of $800,000 of accounts receivable, $1.7 million of inventory,
$1.6 million of building, and $360,000 of equipment.
On October 9, 2000 the Company sold substantially all of the remaining assets of
IFM to HMP. The assets consisted primarily of inventory, equipment and leasehold
improvements. The transaction provides for HMP to pay the Company the sum of
approximately $5.9 million, payable in equal monthly installments of principal
and interest of $140,000. The note consists of a portion, approximately $3.8
million, which bears interest at 9% per year, and a non-interest-bearing portion
of approximately $2.1 million. The note also requires an additional $1 million
principal payment at any time prior to April 3, 2001. If the $1 million payment
is made when due, and no other defaults exist under the note, then $1 million of
the non-interest-bearing portion of the note will be forgiven. In addition, at
such time as the principal balance has been paid down to $1.1 million and there
have been no defaults under the promissory note, the remainder of the note will
be forgiven and the note will be canceled.
In addition, CryoLife has entered into a sublease agreement with HMP under which
HMP has assumed responsibility for the IFM manufacturing facility. Also,
substantially all of the employees of IFM have become employees of HMP.
3. Marketable Securities
The following is a summary of available-for-sale securities (in thousands):
Unrealized Estimated
Holding Market
December 31, 2000 Cost Losses Value
----------------- ----------------- -----------------
Municipal obligations $ 17,789 $ (2) $ 17,787
Equity securities 9,889 (1,540) 8,349
---------------- ---------------- ----------------
$ 27,678 $ (1,542) $ 26,136
================ ================ ================
Unrealized Estimated
Holding Market
December 31, 1999 Cost Losses Value
----------------- ----------------- -----------------
Municipal obligations $ 20,223 $ (226) $ 19,997
Equity securities 9,444 (959) 8,485
---------------- ---------------- ----------------
$ 29,667 $ (1,185) $ 28,482
================ ================ ================
13
The gross realized gains on sales of available-for-sale securities totaled $0
and $112,000 in 2000 and 1999, respectively. Differences between cost and market
of a $1.5 million (less deferred taxes of $524,000) and a $1.2 million loss
(less deferred taxes of $403,000) are included as a separate component of
shareholders' equity as of December 31, 2000 and 1999, respectively.
At December 31, 2000 and 1999, approximately $4.9 million and $4.1 million,
respectively, of debt securities with original maturities of 90 days or less at
their acquisition dates were included in cash and cash equivalents. At December
31, 2000 approximately $8.3 million of investments mature within 90 days, no
investments had a maturity date between 90 days and 1 year, and approximately
$21.2 million of investments mature between 1 and 5 years.
4. Inventories
Inventories at December 31 are comprised of the following (in thousands):
2000 1999
-------------------- -------------------
Raw materials $1,796 $1,555
Work in process 405 578
Finished goods 1,793 2,464
----- -----
$3,994 $4,597
====== ======
5. Long-Term Debt
Long-term debt at December 31 consists of the following (in thousands):
2000 1999
---------------- --------------
Line of credit bearing interest equal to the Adjusted LIBOR plus 2%,
to be adjusted monthly. Upon the earlier of completion of construction
of the Company's expanded headquarters or June 30, 2001, the line will
convert to a 5 year term loan bearing interest at Adjusted LIBOR plus
1.5%. $6,835 --
7% convertible debenture, due in March 2002 4,393 4,393
8.25% note payable due in equal annual installments of $250,000 250 500
Note payable due in 2000 with an effective interest rate of 8%, net of
unamortized discount of $3,000 in 1999 -- 37
---------------- --------------
11,478 4,930
Less current maturities 934 287
---------------- --------------
Total long-term debt $10,544 $4,643
================ ==============
14
As amended on June 12, 1998, the Company executed a $10 million revolving loan
agreement (the "Loan Agreement") with a bank which permits the Company to borrow
up to $2.0 million at either the bank's prime rate of interest (9.5% at December
31, 2000) or at adjusted LIBOR, as defined, plus an applicable LIBOR margin. The
Loan Agreement expires on December 31, 2001. The Loan Agreement contains certain
restrictive covenants including, but not limited to, maintenance of certain
financial ratios and a minimum tangible net worth requirement. The Loan
Agreement is secured by substantially all of the Company's assets, excluding
intellectual property. Commitment fees are paid based on the unused portion of
the facility.
On April 25, 2000 the Company entered into a loan agreement ("Line Agreement")
which permits the Company to borrow up to $8 million under a line of credit
during the expansion of the Company's corporate headquarters. Borrowings under
the line of credit bear interest equal to the Adjusted LIBOR plus 2% to be
adjusted monthly (8.8% at December 31, 2000). Upon the earlier of completion of
construction or June 30, 2001, the line of credit will be converted to a term
loan to be paid in 60 equal monthly installments of principal plus interest
computed at Adjusted LIBOR plus 1.5%. The Line Agreement contains certain
restrictive covenants including, but not limited to, maintenance of certain
financial ratios and a minimum tangible net worth requirement. The Line
Agreement is secured by substantially all of the Company's assets. A commitment
fee of $20,000 was paid when the Company entered into the Line Agreement. At
December 31, 2000, $1.2 million was available to be borrowed under the line of
credit.
In March 1997 the Company issued a $5.0 million convertible debenture in
connection with the IFM acquisition. The debenture bears interest at 7% and is
due in March 2002. The debenture is convertible into common stock of the Company
at any time prior to the due date at $8.05 per common share. In conjunction with
the Company's follow-on equity offering in April of 1998, $607,000 of the
convertible debenture was converted into 75,000 shares of the Company's common
stock on March 30, 1998.
On September 12, 1996 the Company acquired the assets of United Cryopreservation
Foundation, Inc. ("UCFI"), a processor and distributor of cryopreserved human
heart valves and saphenous veins for transplant. The Company issued a $1.25
million note in connection with the acquisition. The note bears interest at
prime, as adjusted annually on the anniversary date of the acquisition.
Scheduled maturities of long-term debt for the next five years are as follows
(in thousands):
2001 $934
2002 5,760
2003 1,367
2004 1,367
2005 1,367
Thereafter 683
-------
$11,478
6. Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires the Company to disclose estimated fair
values for its financial instruments. The carrying amounts of receivables and
accounts payable approximate their fair values due to the short-term maturity of
these instruments. The carrying value of the Company's other financial
instruments approximated fair value at December 31, 2000 and 1999.
15
7. Commitments and Contingencies
Leases
The Company leases equipment, furniture, and office space under various leases
with terms of up to 19 years. Commencing January 5, 1998 the Company leased
office and manufacturing facilities under a capital lease for $24,125 per month
with an interest rate at 8% per annum through January 2008 from the former
majority shareholder of IFM. This lease is subject to a sublease agreement with
HMP as discussed in footnote number 2. Certain leases contain escalation clauses
and renewal options for additional periods. Future minimum lease payments under
noncancelable leases as of December 31, 2000 are as follows (in thousands):
Capitalized Operating
Leases Leases
--------------------------------------------------------------------------------------------------
2001 $ 290 $ 2,061
2002 290 1,947
2003 290 1,942
2004 290 1,896
2005 290 1,905
Thereafter 579 20,779
--------------------------------------------------------------------------------------------------
Total minimum lease payments 2,029 $ 30,530
=================
Less amount representing interest 495
------------------------------------------------------------------
Present value of net minimum
lease payments 1,534
Less current portion 173
------------------------------------------------------------------
$ 1,361
==================================================================
Property acquired under capital leases at December 31, 2000 consists of the
following (in thousands):
Buildings $ 1,987
Accumulated depreciation 596
-----------------
$ 1,391
=================
Total rental expense for operating leases amounted to $1,478,000, $1,457,000,
and $1,321,000, for 2000, 1999, and 1998, respectively. Total rental income
under the sublease with HMP was $95,000 in 2000. No rental income was received
in 1999 and 1998.
Litigation, Claims, and Assessments
The Company is party to various legal proceedings arising in the normal course
of business, most of which involve claims for personal injury and property
damage incurred in connection with its operations. Management believes that the
outcome of its various legal proceedings will not have a material adverse effect
on the Company's financial position or results of operations.
16
8. Stock Option Plans
The Company has stock option plans which provide for grants of options to
employees and directors to purchase shares of the Company's common stock at
exercise prices generally equal to the fair values of such stock at the dates of
grant, which generally become exercisable over a five-year vesting period and
expire within ten years of the grant dates. Under the 1993 Employee Incentive
Stock Option Plan, the 1998 Long-Term Incentive Plan, and the amended and
restated Nonemployee Director's Plan, the Company has authorized the grant of
options of up to 1,050,000, 900,000, and 594,000 shares of common stock,
respectively. As of December 31, 2000 and 1999, there were 994,000 and 575,000
shares of common stock reserved for future issuance under the Company's stock
option plans. A summary of stock option transactions under the plans follows:
Exercise Weighted Average
Shares Price Exercise Price
-------------- ----------------- --------------------
Outstanding at December 31, 1997 1,131,000 $2.00-12.29 $5.96
Granted 496,000 8.00-11.50 10.35
Exercised (155,000) 2.08-6.83 3.20
Canceled (232,000) 2.08-12.29 10.69
-------------- ----------------- --------------------
Outstanding at December 31, 1998 1,240,000 2.00-11.50 7.17
Granted 503,000 7.92-11.42 9.24
Exercised (74,000) 2.00-6.83 2.44
Canceled (150,000) 6.83-11.42 11.30
-------------- ----------------- --------------------
Outstanding at December 31, 1999 1,519,000 2.33-11.50 7.67
Granted 492,000 11.50-29.15 13.99
Exercised (416,000) 2.33-9.00 3.85
Canceled (45,000) 6.83-9.00 8.64
-------------- ----------------- --------------------
Outstanding at December 31, 2000 1,550,000 $5.67-29.15 $10.67
============== ================= ====================
The following table summarizes information concerning currently outstanding and
exercisable options:
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------- --------------------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- -------------------- ----------------- ---------------------- -------------- ----------------- --------------
$ 5.67-8.21 393,000 2.8 $7.52 291,000 $7.46
8.23-11.42 506,000 3.6 9.64 275,000 10.56
11.50-11.63 556,000 4.9 11.56 225,000 11.50
12.92-29.15 95,000 6.1 24.04 -- --
----------------- -----------------
$5.67-29.15 1,550,000 4.0 $10.67 791,000 $9.69
================= =================
In September 1999, the Company granted options to a nonemployee to purchase
18,000 shares of common stock at an exercise price of $8.21 per share. In
connection with the issuance of these options, the Company recognized $60,000 as
17
deferred compensation for the estimated fair value of the options. Deferred
compensation is amortized ratably over the vesting period of the options.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations ("APB
25") in accounting for its employee stock options because, as discussed below,
the alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("Statement 123"), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of the grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123, which requires that the information be determined as if the
Company has accounted for its employee stock options granted under the fair
value method of that statement. The fair values for these options were estimated
at the dates of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions:
2000 1999 1998
----------------- ----------------- ----------------
Expected dividend yield 0% 0% 0%
Expected stock price volatility .540 .540 .520
Risk-free interest rate 6.39% 5.78% 5.30%
Expected life of options 4.3 Years 3.6 Years 3.8 Years
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair values of the options
are amortized to expense over the options' vesting periods. The Company's pro
forma information follows (in thousands, except per share data):
2000 1999 1998
----------------- ---------------- -----------------
Net income--as reported $7,817 $4,451 $6,486
Net income--pro forma $6,634 $3,421 $5,705
Earnings per share--as reported:
Basic $ 0.42 $ 0.24 $ 0.36
Dilutive $ 0.41 $ 0.24 $ 0.35
Earnings per share--pro forma:
Basic $ 0.36 $ 0.19 $ 0.32
Dilutive $ 0.35 $ 0.18 $ 0.31
Other information concerning stock options follows:
2000 1999 1998
---------------- ----------------- -----------------
Weighted average fair value of options granted
during the year $6.97 $3.75 $4.36
Number of shares as to which options are
exercisable at end of year 791,000 923,000 757,000
18
9. Shareholder Rights Plan
On November 27, 1995 the Board of Directors adopted a shareholder rights plan to
protect long-term share value for the Company's shareholders. Under the plan,
the Board declared a distribution of one Right for each outstanding share of the
Company's Common Stock to shareholders of record on December 11, 1995.
Additionally, the Company has further authorized and directed the issuance of
one Right with respect to each Common Share that shall become outstanding
between December 11, 1995 and the earliest of the Right's exercise date or
expiration date. Each Right entitles the registered holder to purchase from the
Company one-thirtieth of a share of a newly created Series A Junior
Participating Preferred Stock at an exercise price of $100. The Rights, which
expire on November 27, 2005, may be exercised only if certain conditions are
met, such as the acquisition of 15% or more of the Company's Common Stock by a
person or affiliated group ("Acquiring Person").
In the event the Rights become exercisable, each Right will enable the owner,
other than the Acquiring Person, to purchase, at the Right's then current
exercise price, that number of shares of Common Stock with a market value equal
to twice the exercise price times the number of one-tenth of a share of Series A
Junior Participating Preferred Stock for which the Right is then exercisable. In
addition, unless the Acquiring Person owns more than 50% of the outstanding
shares of Common Stock, the Board of Directors may elect to exchange all
outstanding Rights (other than those owned by such Acquiring Person) at an
exchange ratio of one share of Common Stock per Right appropriately adjusted to
reflect any stock split, stock dividend or similar transaction.
10. Stock Repurchase
On October 14, 1998, the Company's Board of Directors authorized the Company to
purchase up to 1.5 million shares of its common stock. The purchase of shares
will be made from time-to-time in open market or privately negotiated
transactions on such terms as management deems appropriate. As of December 31,
2000, 1999 and 1998, the Company had purchased an aggregate of 1,159,000,
1,081,000 and 514,000 shares, respectively, of its common stock for an aggregate
purchase price of $8,258,000, $7,646,000 and $3,350,000, respectively.
11. Employee Benefit Plans
The Company has a 401(k) savings plan (the "Plan") providing retirement benefits
to all employees who have completed at least six months of service. The Company
makes matching contributions of 50% of each participant's contribution up to 5%
of each participant's salary. Total company contributions approximated $407,000,
$351,000, and $241,000, for 2000, 1999, and 1998, respectively. Additionally,
the Company may make discretionary contributions to the Plan that are allocated
to each participant's account. No such discretionary contributions were made in
2000, 1999, or 1998.
On May 16, 1996 the Company's shareholders approved the CryoLife, Inc. Employee
Stock Purchase Plan (the "ESPP"). The ESPP allows eligible employees the right
to purchase common stock on a quarterly basis at the lower of 85% of the market
price at the beginning or end of each three-month offering period. As of
December 31, 2000 and1999 there were 688,000 and 754,000, respectively, shares
of common stock reserved under the ESPP and there had been 212,000 and 146,000,
respectively, shares issued under the plan.
19
12. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
2000 1999 1998
----------------- --------------- ----------------
Numerator for basic and diluted earnings
per share -- income available to common
shareholders $7,817 $4,451 $6,486
================= =============== ================
Denominator for basic earnings per share -
weighted-average shares 18,541 18,512 17,961
Effect of dilutive stock options 688 288 435
----------------- --------------- ----------------
Denominator for diluted earnings per share
- adjusted weighted-average shares 19,229 18,800 18,396
================= =============== ================
Basic earnings per share $ 0.42 $ 0.24 $ 0.36
================= =============== ================
Diluted earnings per share $ 0.41 $ 0.24 $ 0.35
================= =============== ================
13. Income Taxes
Income tax expense consists of the following (in thousands):
2000 1999 1998
------------------ ------------------ ---------------
Current:
Federal $2,272 $2,912 $3,854
State (114) 108 279
------------------ ------------------ ---------------
2,158 3,020 4,133
Deferred 1,658 (970) (1,948)
------------------ ------------------ ---------------
$3,816 $2,050 $2,185
================== ================== ===============
20
Such amounts differ from the amounts computed by applying the U.S. federal
income tax rate of 34% to pretax income as a result of the following (in
thousands):
2000 1999 1998
------ ------ ------
Tax expense at statutory rate $3,955 $2,210 $2,947
Increase (reduction) in income taxes
Resulting from:
Entertainment expenses 47 47 90
State income taxes, net of federal 231 163 173
Benefit
Nontaxable interest income (264) (232) (63)
Research and development credits (125) (100) (585)
State and local tax refunds -- -- (256)
Other (28) (38) (121)
------ ------ ------
$3,816 $2,050 $2,185
====== ====== ======
The tax effects of temporary differences which give rise to deferred tax
liabilities and assets at December 31 are as follows (in thousands):
2000 1999
----------------- ----------------
Long-term deferred tax (liabilities) assets:
Property $(756) (556)
Intangible assets 538 579
Impairment of IFM long-lived assets -- 993
--------------- --------------
(218) 1,016
Current deferred tax assets (liabilities):
Impairment of IFM inventory -- 634
Unrealized gain on marketable securities 524 403
Allowance for bad debts 398 201
Accrued expenses 104 98
Deferred preservation costs and inventory reserves 87 57
Other (50) (27)
--------------- --------------
1,063 1,366
--------------- --------------
Net deferred tax assets $845 $2,382
=============== ==============
At December 31, 2000, the Company has recorded a net deferred tax asset of
$845,000. Realization of the net deferred tax asset is dependent on generating
sufficient taxable income in future periods. Although realization is not
ensured, management believes that it is more likely than not that the deferred
tax asset will be realized.
14. Executive Insurance Plan
Pursuant to a supplemental life insurance program for certain executive officers
of the Company, the Company and the executives share in the premium payments and
ownership of insurance policies on the lives of such executives. The Company's
aggregate premium contributions under this program were $53,000, $33,000, and
$43,000, for 2000, 1999, and 1998, respectively.
21
15. Equipment on Loan to Implanting Hospitals
The Company consigns liquid nitrogen freezers with certain implanting hospitals
for tissue storage. The freezers are the property of the Company. At December
31, 2000 freezers with a total cost of approximately $1.9 million and related
accumulated depreciation of approximately $1.2 million were located at the
implanting hospitals' premises. Depreciation is provided over the estimated
useful lives of the freezers on a straight-line basis.
16. Transactions with Related Parties
The Company expensed $78,000, $60,000, and $68,000, during 2000, 1999, and 1998,
respectively, relating to services performed by a law firm whose sole proprietor
is a member of the Company's Board of Directors and a shareholder of the
Company. The Company expensed $102,000, $64,000 and $75,000 in 2000, 1999 and
1998, respectively, relating to consulting services performed by a member of the
Company's Board of Directors and a shareholder of the Company. The Company
expensed $150,000, $195,000, and $210,000 in 2000, 1999, and 1998, respectively,
relating to consulting services performed by a shareholder of the Company.
1343740
22
SELECTED QUARTERLY FINANCIAL INFORMATION
- -------------------------------------------------------------------------------------------------------------------
(In thousands except per share data)
First Second Third Fourth
REVENUES Year Quarter Quarter Quarter Quarter
- ----------------------------------------------- ---------- ------------- ------------- ------------- --------------
2000 $19,623 $19,454 $19,524 $18,495
1999 16,325 17,395 16,529 16,473
1998 14,561 15,554 16,014 14,562
NET INCOME
- ----------------------------------------------- ---------- ------------- ------------- ------------- --------------
2000 $1,604 $1,979 $2,308 $1,926
1999 1,380 1,727 1,714 (370)
1998 1,172 2,048 1,902 1,364
EARNINGS PER SHARE - DILUTED 1
- ----------------------------------------------- ---------- ------------- ------------- ------------- --------------
2000 $ 0.09 $ 0.10 $ 0.12 $ 0.10
1999 0.07 0.09 0.09 (0.02)
1998 0.08 0.10 0.10 0.07
1 Reflects adjustment for the 3-for-2 stock split effected December 27, 2000.
1343997v1
23
EXHIBIT 21.1
SUBSIDIARIES OF CRYOLIFE, INC.
Subsidiary Jurisdiction
- ---------- ------------
Ideas for Medicine, Inc. Florida
CryoLife Technology, Inc. Nevada
CryoLife Foreign Sales, Inc. Barbados
CryoLife Europa, LTD. United Kingdom
AuraZyme Pharmaceuticals, Inc. Florida
1345645
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated February 7, 2001, appearing on page 35 of the
Company's 2000 Annual Report and incorporated into Exhibit 13.1 and page S-1 of
this Form 10-K, into the Company's previously filed Registration Statement File
Nos. 333-16581, 33-83996, 33-84048, 333-03513, 333-59853, 333-59849, 333-06141,
333-34025, 333-75535, and 333-47310.
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 27, 2001
1344867
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 2, 1999 with respect to the
consolidated financial statements of CryoLife, Inc. for the year ended December
31, 1998, included in this Annual Report (Form 10-K).
Our audits, also included the financial statement schedule of CryoLife, Inc.
listed in Item 14(a) for the year ended December 31, 1998. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, as of the date of our report
referred to in the preceding paragraph, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein for the year ended December 31, 1998.
We also consent to the incorporation by reference in Registration Statements No.
333-75535, 33-83996, 33-84048, 333-03513, 333-39849, 333-06141, 333-34025,
333-75535, and 333-47310, of our report dated February 2, 1999, with respect to
the consolidated financial statements and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of CryoLife, Inc. for the year ended December 31,
2000.
Ernst & Young LLP
Atlanta, Georgia
March 27, 2001
1345123