UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
Commission File Number 0-21104
CRYOLIFE, INC.
(Exact name of registrant as specified in its charter)
---------
Florida 59-2417093
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1655 Roberts Boulevard, NW
Kennesaw, Georgia 30144
(Address of principal executive offices)
(zip code)
(770) 419-3355
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 for 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.
YES X NO
----- -----
The number of shares of common stock, par value $0.01 per share, outstanding on
May 8, 2001 was 18,783,331.
Part I - FINANCIAL INFORMATION
Item 1. Financial statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Three Months Ended
March 31,
-----------------------------------
2001 2000
-----------------------------------
(Unaudited)
Revenues:
Preservation services and products $ 21,207 $ 19,481
Research grants and licenses 225 142
------------------------------------
21,432 19,623
Costs and expenses:
Cost of preservation services and products 9,105 9,149
General, administrative and marketing 8,159 7,043
Research and development 1,086 1,329
Interest expense --- 100
Interest income (562) (377)
Other expense (income), net --- (15)
------------------------------------
17,788 17,229
-----------------------------------
Income before income taxes 3,644 2,394
Income tax expense 1,166 790
-----------------------------------
Net income $ 2,478 $ 1,604
===================================
Earnings per share:
Basic $ 0.13 $ 0.09
===================================
Diluted $ 0.13 $ 0.09
===================================
Weighted average shares outstanding:
Basic 18,749 18,357
===================================
Diluted 19,508 18,788
===================================
See accompanying notes to summary consolidated financial statements.
2
Item 1. Financial Statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
2001 2000
-----------------------------------
ASSETS (Unaudited)
-
Current Assets:
Cash and cash equivalents $ 15,668 $ 17,480
Marketable securities, at market 20,209 21,234
Receivables, net 13,694 12,739
Note receivable, net 1,775 1,833
Deferred preservation costs, net 20,632 20,311
Inventories 4,344 3,994
Prepaid expenses and other assets 1,058 893
Deferred income taxes 564 674
-----------------------------------
Total current assets 77,944 79,158
-----------------------------------
Property and equipment, net 29,640 25,579
Goodwill, net 1,471 1,495
Patents, net 2,574 2,540
Other, net 2,253 1,780
Note receivable, net 464 643
Deferred income taxes 436 814
-----------------------------------
TOTAL ASSETS $ 114,782 $ 112,009
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,416 $ 2,914
Accrued expenses 1,522 1,054
Accrued procurement fees 4,279 3,537
Accrued compensation 1,705 2,097
Income taxes payable 671 ---
Current maturities of capital lease obligations 176 173
Current maturities of long-term debt 934 934
-----------------------------------
Total current liabilities 10,703 10,709
-----------------------------------
Capital lease obligations, less current maturities 1,315 1,361
Bank loans 6,151 6,151
Convertible debenture 4,393 4,393
-----------------------------------
Total liabilities 22,562 22,614
-----------------------------------
Shareholders' Equity:
Preferred stock --- ---
Common stock (issued 20,091 shares in 2001 and
20, 077 shares in 2000) 201 201
Additional paid-in capital 65,161 64,936
Retained earnings 33,858 31,381
Deferred compensation (42) (45)
Accumulated other comprehensive income (1,060) (1,088)
Less: Treasury stock (1,341 shares in 2001 and
1,356 shares in 2000) (5,898) (5,990)
-----------------------------------
Total shareholders' equity 92,220 89,395
-----------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 114,782 $ 112,009
===================================
See accompanying notes to summary consolidated financial statements.
3
Item 1. Financial Statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three Months Ended
March 31,
-----------------------------------
2001 2000
-----------------------------------
(Unaudited)
Net cash from operating activities:
Net income $ 2,478 $ 1,604
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,009 782
Provision for doubtful accounts 24 24
Deferred income taxes (171) (19)
Tax effect of nonqualified option exercises 72 ---
Changes in operating assets and liabilities:
Receivables (1,553) (814)
Deferred preservation costs and inventories (671) (575)
Prepaid expenses and other assets (165) (297)
Accounts payable and accrued expenses 318 735
-----------------------------------
Net cash provided by operating activities 1,341 1,440
-----------------------------------
Net cash flows from investing activities:
Capital expenditures (5,013) (1,287)
Other assets 106 (11)
Purchases of marketable securities (2,613) (2,714)
Sales and maturities of marketable securities 3,932 2,638
Proceeds from note receivable 237 ---
-----------------------------------
Net cash used in investing activities (3,351) (1,374)
-----------------------------------
Net cash flows from financing activities:
Principal payments on obligations under capital leases (43) (96)
Purchase of treasury stock --- (612)
Proceeds from exercise of stock options and
issuance of common stock 244 430
-----------------------------------
Net cash provided by (used in) financing activities 201 (278)
------------------------------------
Decrease in cash (1,809) (212)
Effect of exchange rate changes on cash (3) (1)
Cash and cash equivalents, beginning of period 17,480 6,128
-----------------------------------
Cash and cash equivalents, end of period $ 15,668 $ 5,915
===================================
See accompanying notes to summary consolidated financial statements.
4
CRYOLIFE, INC. AND SUBSIDIARIES
NOTES TO SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with (i) accounting principles generally accepted in the
United States for interim financial information and (ii) the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial presentations. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Certain prior
year balances have been reclassified to conform to the 2001 presentation.
Operating results for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. For further information, refer to the consolidated financial statements
and notes thereto included in the CryoLife, Inc. ("CryoLife" or the "Company")
Form 10-K for the year ended December 31, 2000.
Note 2 - Investments
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
March 31, 2001 all marketable equity securities and debt securities held by the
Company were designated as available-for-sale.
Total gross realized gains on sales of available-for-sale securities were zero
for the three months ended March 31, 2001 and 2000. As of March 31, 2001
differences between cost and market of a $1.2 million loss (less deferred taxes
of $425,000) were included in accumulated other comprehensive income.
At March 31, 2001 and December 31, 2000, approximately $9.1 million and $4.9
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
March 31, 2001 and December 31, 2000, approximately $10.0 million and $8.3
million of investments, respectively, mature within 90 days, $4.5 million and
zero investments, respectively, had a maturity date between 90 days and 1 year
and approximately $15.7 million and $21.2 million of investments, respectively,
mature in more than one year.
5
Note 3 - Inventories
Inventories are comprised of the following (in thousands):
March 31, December 31,
2001 2000
-----------------------------------
(Unaudited)
Raw materials $ 1,799 $ 1,796
Work-in-process 806 405
Finished goods 1,739 1,793
-----------------------------------
$ 4,344 $ 3,994
===================================
Note 4 - Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Three Months Ended
March 31,
-----------------------------------
2001 2000
-----------------------------------
(Unaudited)
Numerator for basic and diluted earnings per share -
income available to common shareholders $ 2,478 $ 1,604
===================================
Denominator for basic earnings per share - weighted-
average shares 18,749 18,357
Effect of dilutive stock options 759 431
-----------------------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares 19,508 18,788
===================================
Basic earnings per share $ 0.13 $ 0.09
===================================
Diluted earnings per share $ 0.13 $ 0.09
===================================
Note 5 - Debt
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 and manufacturing
facilities. Borrowings under the line of credit bear interest equal to the
Adjusted LIBOR plus 2% to be adjusted monthly (7.1% at March 31, 2001). On June
1, 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 March 31, 2001 $1.2 million in
additional funds were available to be borrowed under the line of credit.
6
Note 6 - Derivatives
On January 1, 2001 the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") as amended. SFAS 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 SFAS 133 impacts the
accounting for the Company's forward-starting interest rate swap agreement.
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 consolidated income statement is anticipated to occur upon the various
maturity dates of the interest rate swap agreement, which expires in 2006.
The Company's Line Agreement converts to floating rate debt on June 1, 2001.
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 agreement that takes 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.
Note 7 - Comprehensive Income
Comprehensive income includes unrealized gains and losses in the fair value of
certain derivative instruments, which qualify for hedge accounting. The
following is a reconciliation of net income to comprehensive income (in
thousands):
Three Months Ended
March 31,
-----------------------------------
2001 2000
-----------------------------------
(Unaudited)
Net income $ 2,478 $ 1,604
Cumulative effect of adoption of SFAS 133, net of income taxes (116) ---
Change in fair value of interest rate swaps, net of income taxes (47) ---
Translation adjustment (3) ---
Unrealized gains (losses) on marketable equity
securities, net of income taxes 194 (88)
-----------------------------------
Comprehensive income $ 2,506 $ 1,516
===================================
Note 8 - Note Receivable
On March 30, 2001, Horizon Medical Products, Inc. ("HMP") sold the Ideas For
Medicine ("IFM") assets to a wholly owned subsidiary of LeMaitre Vascular, Inc.
("LeMaitre"), formerly Vascutech, Inc., and the remaining portion of the
Company's note receivable from HMP was assumed by the LeMaitre subsidiary. The
assumed note is guaranteed by LeMaitre. On April 2, 2001 the Company received a
scheduled $1.0 million principal payment from LeMaitre, in accordance with the
terms of the assumed note.
7
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Revenues increased 9% to $21.4 million for the three months ended March 31, 2001
from $19.6 million for the same period in 2000. The increase in revenues was
primarily due to growth in the Company's human vascular and connective tissue
cryopreservation businesses and increased sales of BioGlue surgical adhesive,
partially offset by the elimination of IFM sales due to the sale of the
remaining assets of IFM and a decrease in heart valve revenues.
Revenues from human heart valve and conduit cryopreservation services decreased
9% to $6.9 million for the three months ended March 31, 2001 from $7.6 million
for the three months ended March 31, 2000, representing 32% and 39%,
respectively, of total revenues during each such period. This decrease in
revenues resulted from a 13% decrease in the number of allograft heart valve
shipments due to a decrease in procurement of hearts year to year and from
record heart volume procurement in the first quarter of 2000, partially offset
by higher fees received for SynerGraft treated human heart valves.
Revenues from human vascular tissue cryopreservation services increased 15% to
$6.4 million for the three months ended March 31, 2001 from $5.6 million for the
three months ended March 31, 2000, representing 30% and 28%, respectively, of
total revenues during each such period. This increase in revenues was primarily
due to a 16% increase in the number of vascular allograft shipments primarily
due to the Company's ability to procure greater amounts of tissue, and an
increase in demand for saphenous vein composite grafts and femoral artery
grafts.
Revenues from human connective tissue of the knee cryopreservation services
increased 34% to $5.2 million for the three months ended March 31, 2001 from
$3.9 million for the three months ended March 31, 2000, representing 24% and
20%, respectively, of total revenues during each such period. This increase in
revenues was primarily due to a 26% increase in the number of allograft
shipments due to increased acceptance of osteoarticular grafts and non-bone
tendons by the orthopaedic surgeon community, the Company's ability to procure
greater amounts of tissue, price increases for cryopreservation services in
domestic and Canadian markets, and a more favorable product mix.
Revenues from the sale of BioGlue surgical adhesive increased 116% to $2.4
million for the three months ended March 31, 2001 from $1.1 million for the
three months ended March 31, 2000, representing 11% and 6%, respectively, of
total revenues during each such period. The increase in revenues is due to a 91%
increase in the number of milliliter shipments of BioGlue. The increase in
shipments was primarily due to increasing acceptance of BioGlue in international
markets for use in vascular and pulmonary repairs, and increased acceptance
domestically following the January 2000 introduction of BioGlue pursuant to a
Humanitarian Use Device Exemption ("HDE") for use as an adjunct in the repair of
acute thoracic aortic dissections.
Revenues from bioprosthetic cardiovascular devices decreased 12% to $199,000 for
the three months ended March 31, 2001 from $226,000 for the three months ended
March 31, 2000, representing 1% of total revenues during each such period. This
decrease in revenues is primarily due to the Company's focus on the start-up of
the SynerGraft bioprosthetic heart valve manufacturing process, which adversely
impacted its ability to manufacture other bioprosthetic cardiovascular devices.
Revenues from IFM decreased to zero in the three months ended March 31, 2001
from $1.1 million for the same period in 2000, due to the October 9, 2000 sale
of substantially all of the remaining assets of IFM to HMP.
8
Grant revenues increased to $225,000 for the three months ended March 31, 2001
from $142,000 for the three months ended March 31, 2000. Grant revenues are
primarily attributable to the SynerGraft research and development programs.
Cost of cryopreservation services and products aggregated $9.1 million for each
of the three month periods ended March 31, 2001 and 2000, representing 43% and
47%, respectively, of total cryopreservation and product revenues. The decrease
in the 2001 cost of cryopreservation services and products as a percentage of
revenues is due to an increase in revenues from BioGlue surgical adhesive, which
carries higher gross margins than cryopreservation services, as well as the
termination of the IFM OEM contract with HMP, which had significantly lower
margins than the Company's core businesses.
General, administrative, and marketing expenses increased 16% to $8.2 million
for the three months ended March 31, 2001, compared to $7.0 million for the
three months ended March 31, 2000, representing 38% and 36%, respectively, of
total cryopreservation and product revenues during each such period. The
increase in expenditures for the three months ended March 31, 2001 was primarily
due to the inclusion of three full months of operations of CryoLife Europa,
Ltd., the Company's European headquarters established in early 2000, and due to
an increase in general expenses to support revenue growth.
Research and development expenses decreased 18% to $1.1 million for the three
months ended March 31, 2001, compared to $1.3 million for the three months ended
March 31, 2000, representing 5% and 7%, respectively, 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.
The decrease in research and development expenses is due to timing of
pre-clinical studies.
Interest income, net of interest expense was $562,000 and $277,000 for the three
months ended March 31, 2001 and 2000, respectively. This increase in interest
income was due primarily to the increase in cash generated from operations
during the quarter ended March 31, 2001 and the year ended December 31, 2000.
The effective income tax rate was 32% and 33% for the periods ended March 31,
2001 and 2000, respectively.
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
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 March 31, 2001, net working capital was $67.2 million, with a current ratio
of 7 to 1, compared to $68.4 million at December 31, 2000. The Company's primary
capital requirements arise out of general working capital needs, capital
expenditures for facilities and equipment and funding of research and
development projects. 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 $1.3 million for the three months
ended March 31, 2001, as compared to $1.4 million for the three months ended
March 31, 2000. This decrease in cash provided was primarily due to an increase
9
in working capital requirements, due to sales growth and construction on the
Company's corporate headquarters and manufacturing facilities, largely offset by
an increase in net income before depreciation and taxes.
Net cash used in investing activities was $3.4 million for the three months
ended March 31, 2001, as compared to $1.4 million for the three months ended
March 31, 2000. This increase in cash used was primarily due to an increase in
capital expenditures related to the expansion of the Company's corporate
headquarters and manufacturing facilities, partially offset by an increase in
proceeds from sales and maturities of marketable securities and by the proceeds
from the Company's note receivable during the first quarter of 2001.
Net cash provided by financing activities was $0.2 million for the three months
ended March 31, 2001, as compared to net cash used in financing activities of
$0.3 million for the three months ended March 31, 2000. This increase was
primarily attributable to the lack of treasury stock repurchases during the
three months ended March 31, 2001 as compared to the prior year period,
partially offset by a decrease in proceeds from stock option exercises.
Management is currently seeking to complete a potential private placement of
equity or equity-oriented securities for the commercial development of its
Activation Control Technology ("ACT") technology through its wholly owned
subsidiary AuraZyme Pharmaceutical, Inc. formed on March 13, 2001. This
strategy, if successful, will allow an affiliated entity to fund the ACT
technology and should expedite the commercial development of its oncology, 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
million was drawn as of May 8, 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
U.S. Food and Drug Administration ("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 facilities, 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.
On March 30, 2001, HMP sold the IFM assets to a wholly owned subsidiary of
LeMaitre, formerly Vascutech, Inc., and the remaining portion of the Company's
note receivable from HMP was assumed by the LeMaitre subsidiary. The assumed
note is guaranteed by LeMaitre. On April 2, 2001 the Company received a
scheduled $1.0 million principal payment from LeMaitre, in accordance with the
terms of the assumed note.
Forward-Looking Statements
This Form 10-Q for the three months ended March 31, 2001 includes statements
that look forward in time or that express management's beliefs, expectations or
hopes regarding future occurrences. Such statements are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
10
of 1995. These future events may not occur when expected, if at all, and are
subject to various risks and uncertainties. Such risks and uncertainties include
the possibility that the Company will be unable to find an investor for its ACT
technology through its wholly owned subsidiary AuraZyme Pharmaceutical, Inc.;
that new technologies will not perform as indicated; that future clinical test
results will prove less encouraging than current results; that regulatory
submissions will not be ready when planned or anticipated regulatory approvals
will not be obtained on a timely basis, if at all; that product offerings will
not be accepted by surgeons; that changes will occur in government regulation of
the Company's business, the Company's competitive position, the availability of
tissue for implant, the status of the Company's products under development, the
protection of the Company's proprietary technology and the reimbursement of
health care costs by third-party payors; and there can be no assurance that the
results and developments anticipated by the Company will be realized or that
they will have the expected consequences to or effects on the Company or its
business or operations. See the "Business-Risk Factors" section of the Company's
Annual Report on Form 10-K for the year ended December 31, 2000 for a more
detailed discussion of factors which might affect the Company's future
performance.
Item 3. 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 $10.0
million and short-term investments in municipal obligations of $13.9 million as
of March 31, 2001 as well as interest paid on its debt. At May 8, 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 a portion (approximately $4 million at May 8, 2001) of its
debt as fixed rate in nature. Due to the timing of the conversion of the Line
Agreement for construction of the Company's corporate headquarters and
manufacturing facilities, an additional $4 million of the $8 million variable
rate debt will convert to a fixed rate in the second quarter of 2001. As a
result, the Company is also subject to a risk that interest rates will decrease
and the Company may be unable to refinance its debt.
11
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibit index can be found below.
Exhibit
Number Description
- ------- -----------
3.1 Restated Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.)
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.
(Incorporated by reference to Exhibit 3.3 to the Registrant's Annual
Report on Form Form 10-K for the fiscal year ended December 31, 2000).
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).)
10.1 Employment Agreement, by and between the Company and Sidney B.
Ashmore, dated September 9, 1996.
10.2+ Assignment and Assumption Agreement, dated March 30, 2001, by and
among Horizon, Vascutech, and IFM.
10.3 Assignment of Sublease, dated March 30, 2001, by and among Horizon,
Vascutech, and IFM.
10.4 Security Agreement, dated March 30, 2001, by Vascutech in favor of
IFM.
+ In accordance with Item 601(b)(2) of Regulation S-K, the exhibits have been
omitted and a list of exhibits is at the end of the Exhibit. The Registrant will
furnish supplementally a copy of any omitted exhibits to the Commission upon
request.
(b) None.
12
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
May 11, 2000 /s/ DAVID ASHLEY LEE
- ------------------ ----------------------------------
DATE DAVID ASHLEY LEE
Vice President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
13
1359181v1
Exhibit 10.1
EMPLOYMENT AGREEMENT
In consideration of the promises hereinafter contained, CryoLife, Inc., a
Florida corporation ("we", "our" and "us") and Sidney B. Ashmore ("you") hereby
agrees as of this 9th day of September, 1996 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.
11
8. Moving Expense. CryoLife, Inc. has paid for certain moving expenses to
facilitate your relocation. We reserve the right to withhold the total amount of
these expenses from any monies due to you if you terminate your employment from
CryoLife, Inc. within 12 months from your first day of work at the Company.
These expenses include all charges associated with moving and storage of your
personal belongings.
9. 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: ________________________________
Its: ______________________________
EMPLOYEE
____________________________________
2
Exhibit to Employment Agreement
Duties: Director, Marketing
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Compensation: $7,750.00/Monthly Plus Company
------------------------------------
Fringe Benefits
------------------------------------
Secrecy and
Noncompetition
Agreements
With Others*: $7,750.00/Monthly Plus Company
------------------------------------
Fringe Benefits
------------------------------------
------------------------------------
------------------------------------
(*Copies of these must be promptly provided
to CryLife)
3
1359140v1
Exhibit 10.2
EXECUTION COPY
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (this "Agreement") is made as of
March 30, 2001 by and among Horizon Medical Products, Inc., a Georgia
corporation ("Horizon"), Vascutech Acquisition LLC, a Delaware limited liability
company ("Vascutech"), and Ideas for Medicine, Inc., a Florida corporation
("IFM").
BACKGROUND
WHEREAS, Horizon is party to that certain Subordinated Promissory Note made
in favor of IFM and dated October 9, 2000, in the original principal amount of
$5,945,216, which was subsequently adjusted upward by an amount equal to
$104,838 (the "Subordinated Note");
WHEREAS, pursuant to the terms of that certain Asset Purchase Agreement
between Horizon and Vascutech, of even date herewith, Vascutech is purchasing
certain assets comprising the Ideas for Medicine business unit of Horizon
("Assets") and a portion of the consideration to be paid by Vascutech to Horizon
for such Assets will be the assumption by Vascutech of the liabilities of
Horizon to IFM under the Subordinated Note (the "Assumption"); and
WHEREAS, IFM desires to consent to the Assumption as set forth herein.
NOW, THEREFORE, for consideration, the receipt and adequacy of which is
hereby acknowledged, the undersigned hereby agree as follows:
A. Assignment and Assumption
1. (a) Horizon, IFM and Vascutech hereby acknowledge and agree that
the current outstanding principal amount of the Subordinated Note is
$5,348,870.27; and (b) Horizon hereby assigns, and Vascutech hereby
assumes, each and every obligation of Horizon under the Subordinated Note,
and Vascutech expressly agrees (i) to pay all amounts under the
Subordinated Note as they become due and payable from and after the date
hereof and (ii) to be unconditionally bound by the terms and conditions of
said Subordinated Note, as such Subordinated Note may be amended, extended,
renewed, modified, amended, restated, substituted or replaced from time to
time, as though Vascutech had originally signed the Subordinated Note
instead of Horizon.
2. IFM hereby consents to the foregoing assignment and assumption.
3. Each of Horizon and Vascutech agree, upon the request of IFM, to
execute such other documents as IFM reasonably deems necessary and
appropriate from time to time to reflect the assignment and assumption as
set forth above.
B. Representations and Warranties of Vascutech: Vascutech hereby represents
and warrants to IFM as follows:
1. Vascutech is validly organized and existing and in good standing as
a limited liability company under the laws of the state of Delaware.
Vascutech has the power to own its property and to carry on its business as
currently conducted.
2. Vascutech has the limited liability company power, right and
authority to execute and deliver this Agreement and the Transaction
Documents (as defined below) and to take all actions and perform all
obligations contemplated to be performed by it under this Agreement and the
Transaction Documents.
3. The execution and delivery of this Agreement, that certain Security
Agreement of even date herewith by Vascutech in favor of IFM (the "Security
Agreement"), that certain Certificate of Consent and Estoppel (exclusively
with respect to Section 6 thereof) of even date herewith among CryoLife,
IFM and, with respect to Section 6 thereof only, Vascutech (the "Consent
and Estoppel"), that certain Consent to Assignment of Sublease of even date
herewith by and among IFM, Horizon, Vascutech and Secret Promise, Ltd. (the
"Sublease Consent") and that certain Assignment of Sublease of even date
herewith by and among IFM, Horizon and Vascutech (the "Sublease Assignment"
and, collectively, with this Agreement, the Security Agreement, the Consent
and Estoppel and the Sublease Consent, the "Transaction Documents"), the
taking of all action required in connection herewith and therewith, and the
performance by Vascutech of all of the obligations by it to be performed
hereunder and thereunder, have been duly authorized by all necessary
limited liability company action, including, without limitation,
authorization by Vascutech's sole manager and sole member. This Agreement
and the rest of the Transaction Documents have been duly executed and
delivered by Vascutech and constitute the valid and binding obligations of
Vascutech enforceable against Vascutech in accordance with their terms,
except as limited by bankruptcy, insolvency, reorganization, and similar
laws affecting the enforcement of creditor's rights or contractual
obligations generally.
C. Representation and Warranty of Horizon: Horizon hereby represents and
warrants to IFM that the Assets being sold by Horizon to Vascutech pursuant
to the Asset Purchase Agreement of even date herewith between Horizon and
Vascutech (the "Vascutech Purchase Agreement") constitute all of the
Collateral existing as of the date hereof under and as defined in that
certain Security Agreement dated as of October 9, 2000 by Horizon in favor
of IFM, except for those items of Collateral included within the definition
of Excluded Assets set forth on Exhibit A attached hereto.
D. Parent Guaranty: In consideration of IFM extending credit to Vascutech
pursuant to the terms of the Subordinated Note, the undersigned, Vascutech,
Inc., a corporation organized and existing under the laws of Delaware and
the 100% parent of Vascutech (the "Guarantor"), hereby unconditionally
guarantees to IFM that Vascutech will duly and punctually pay or perform,
at the place specified therefor, (i) all obligations under the Subordinated
Note and the Transaction Documents (the "Obligations"), and (ii) without
limitation of the foregoing, all fees, costs and expenses incurred by IFM
in attempting to collect or enforce any of the foregoing (collectively the
"Guaranteed Obligations"). This guaranty is an absolute, unconditional and
continuing guaranty of the full and punctual payment and performance by
Vascutech of the Guaranteed Obligations and not of their collectibility
only and is in no way conditioned upon any requirement that IFM first
attempt to collect any of the Guaranteed Obligations from Vascutech or
resort to any security or other means of obtaining payment of any of the
Guaranteed Obligations. Upon the occurrence of an Event of Default under
(and as defined in) the Subordinated Note by Vascutech, the Guaranteed
Obligations shall, at the option of IFM, become forthwith due and payable
to IFM without demand or notice of any nature, all of which are expressly
waived by the Guarantor. Payments by the Guarantor hereunder may be
required by IFM on any number of occasions. The Guarantor further agrees,
as the principal obligor and not as a guarantor only, to pay to IFM
forthwith upon demand, in funds immediately available to IFM, all
reasonable costs and expenses (including court costs and legal expenses)
incurred or expended by IFM in connection with this guaranty and the
enforcement thereof.
E. Miscellaneous: This Agreement shall be governed by the provisions of
Delaware law without regard to conflicts of laws principles thereof.
[SIGNATURES BEGIN ON NEXT PAGE]
2
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first set forth above in multiple counterpart copies, each
of which shall be deemed to be an original for all purposes.
HORIZON MEDICAL PRODUCTS, INC. VASCUTECH ACQUISITION LLC
By: /s/ William E. Peterson, Jr. By: /s/ David B. Roberts
---------------------------------- -------------------------
Name: William E. Peterson, Jr. Name: David B. Roberts
Title: President Title: CFO
hereunto duly authorized hereunto duly authorized
CONSENTED TO:
IDEAS FOR MEDICINE, INC.
By: /s/ D.A. Lee
----------------------------------
Name: D. Ashley Lee
Title: VP - Finance and CFO
hereunto duly authorized
JOINED FOR PURPOSES OF PARAGRAPH D. ONLY:
VASCUTECH, INC.
By: /s/ David B. Roberts
----------------------------------
Name: David B. Roberts
Title: CFO
hereunto duly authorized
3
LIST OF EXHIBITS
----------------
EXHIBIT A - Excluded Assets
EXHIBIT A-1 - Ideas for Medicine Product Line
1358823v1
Exhibit 10.3
ASSIGNMENT OF SUBLEASE
This Assignment of Sublease (the "Assignment") is entered into this 30th
day of March, 2001, by and between HORIZON MEDICAL PRODUCTS, INC., a Georgia
Corporation (the "Assignor"), VASCUTECH ACQUISITION LLC, a Delaware corporation
(the "Assignee"), and IDEAS FOR MEDICINE, INC., formerly known as CryoLife
Acquisition Corporation, a Florida corporation (the "Sublessor").
WHEREAS, Sublessor entered into that certain Commercial Lease Agreement
dated March 5, 1997, ("Master Lease") by which Sublessor leased from Secret
Promise, Ltd., as successor-in-interest to J. Crayton Pruitt Family Trust u/t/a
9/17/76 ("Landlord"), certain premises ("Premises") located at 3101 37th Avenue
North, St. Petersburg, Florida, as more particularly described in Exhibit A
attached hereto;
WHEREAS, Assignor, as Sublessee, entered into that certain Sublease dated
October 9, 2000 ("Sublease"), by which Assignor subleased the Premises from
Sublessor;
WHEREAS, Assignor entered into that certain Assignment of Sublease
(Sublessee's Interest) dated on or about October 9, 2000 (the "Collateral
Assignment") with Bank of America ("BOA");
WHEREAS, the Master Lease provides that Sublessor may not enter into a
sublease or permit any other entity to occupy the Premises without Landlord's
prior written approval;
WHEREAS, the Sublease provides that Assignor may not assign its rights or
interests without Sublessor's prior written approval;
WHEREAS, the Collateral Assignment provides that Assignor may not assign
its rights or interests under the Sublease without the prior written consent of
BOA; and
WHEREAS, Landlord and Sublessor have approved and consented to this
Assignment pursuant to that certain Consent to Assignment of Sublease of even
date herewith.
NOW, THEREFORE, for good and valuable consideration by each of the parties
hereto to the other, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Assignor hereby assigns to Assignee all of its right, title and interest
in and to the Sublease and the Premises and Assignee hereby assumes all rights,
promises, covenants, conditions and duties under the Sublease to be performed by
the subtenant under the Sublease which accrue after the date hereof.
2. Sublessor does hereby consent to the assignment of the Sublease as
provided herein, and hereby acknowledges and agrees that Assignor will not be
liable or obligated for the payment of any sums due under the Sublease or the
performance of any obligations under the Sublease which accrue after the date
hereof, and Assignee will not be liable or obligated for the payment of any sums
due under the Sublease or the performance of any obligations under the Sublease
which accrued prior to the date hereof.
3. All notices, demands, requests, elections, consents or other
communications required or permitted to be given pursuant to the terms of the
Sublease shall be addressed as follows:
Sublessor: 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
Atlantic, Georgia 30309-3450
Attn: Clinton D. Richardson, Esq.
Sublessee: Vascutech Acquisition LLC
164 Middlesex Turnpike
Burlington, MA 01803
Attn: Corporate Controller
4. By execution hereof the parties hereto covenant and warrant, except as
herein amended and as amended by the Consent to Assignment of Sublease, the
Sublease remains unchanged and is in full force and effect in accordance with
the terms and provisions contained therein.
In addition, by execution hereof Assignor hereby represents and warrants to
each of Assignee and Sublessor that the Collateral Assignment has been released,
satisfied and terminated by BOA on or before the date hereof, and that Assignor
has the full right and authority to enter into and consummate this Assignment
without notice to, or the consent or approval of, BOA. As a condition precedent
to the effectiveness of the release of Assignor from future obligations accruing
after the date of this Assignment, Assignor agrees to provide to Assignee and
Sublessor a copy of the executed written instrument of release, satisfaction or
termination of the Collateral Assignment by BOA in recordable form.
2
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals as of the day and year first above written.
Assignor :
Horizon Medical Products, Inc.
By: /s/ William E. Peterson, Jr.
--------------------------------------
Its: President
--------------------------------------
Assignee:
Vascutech Acquisition LLC
By: /s/ David B. Roberts
--------------------------------------
Its: Chief Financial Officer
--------------------------------------
Sublessor:
IDEAS for Medicine, Inc.
By: /s/ D.A. Lee
--------------------------------------
Its: VP Finance and CFO
--------------------------------------
3
Guarantee of Payment and Performance
In consideration of the Sublessor's consent to this Assignment of Sublease
to Assignee, the undersigned VASCUTECH, INC., a corporation organized and
existing under the laws of Delaware and the 100% parent of Assignee (the
"Guarantor"), hereby unconditionally guarantees to Sublessor that Assignee will
duly and punctually pay or perform all obligations under the Sublease (the
"Guaranteed Obligations"). This Guaranty is an absolute, unconditional and
continuing guaranty of the full and punctual payment and performance by Assignee
of the Guaranteed Obligations and not of their collectibility only and is in no
way conditioned upon any requirement that Sublessor first attempt to collect any
of the Guaranteed Obligations from Assignee or resort to any security or other
means of obtaining payment of any of the Guaranteed Obligations.
The Guarantor further agrees, as the principal obligor and not as a
guarantor only, to pay to Sublessor forthwith upon demand, in funds immediately
available to Sublessor, all reasonable costs and expenses (including court costs
and legal expenses) incurred or expended by Sublessor in connection with this
Guarantee and the enforcement thereof.
VASCUTECH, INC.
By: /s/ David B. Roberts
Name: David B. Roberts
Title: CFO
1358827v1
Exhibit 10.4
EXECUTION COPY
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the 30th day of March,
2001, by VASCUTECH ACQUISITION LLC, a Delaware limited liability company
("Vascutech") 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 Subordinated Promissory Note
dated October 9, 2000, originally made by Horizon Medical Products, Inc.
("Horizon") in favor of IFM and assigned by Horizon to Vascutech pursuant to
that certain Assignment and Assumption Agreement dated as of even date herewith
among Horizon, IFM and Vascutech, together with any and all extensions,
renewals, modifications, amendments, restatements, substitutions or replacements
thereof (the "Note"); and the performance of the covenants and obligations of
Vascutech 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. Vascutech 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 Vascutech arising out
of the sale or lease of goods or the rendition of services by Vascutech,
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 Vascutech 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 Vascutech has any interest
including goods held for sale or lease or to be furnished under a contract
of service and all of Vascutech'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, 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, Vascutech'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 Vascutech and Horizon Medical Products, Inc. of even date
herewith and (ii) 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"). It is understood and
agreed by the parties hereto that IFM's security interest shall not attach to
any property of Vascutech other than the Pledged Assets, nor any of the assets
of Vascutech's 100% parent, Vascutech, Inc.
2. WARRANTIES AND REPRESENTATIONS. Vascutech warrants and covenants to IFM
as follows:
2
(a) Payment of Indebtedness. Vascutech will pay the Indebtedness and
perform all obligations related to the Indebtedness when due, whether by
maturity, acceleration or otherwise.
(b) Authority. This Agreement is the valid and binding obligation of
Vascutech, enforceable in accordance with its terms except as limited by
creditors' rights and equity. Vascutech is organized and validly existing and in
good standing under the laws of the State of Delaware, and the execution,
delivery and performance of this Agreement has been duly authorized by all
necessary action of Vascutech's board of directors, and will not violate
Vascutech's governing instruments or other material agreements.
(c) Name, Address; Location of Collateral. Vascutech'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. Vascutech has good and marketable title to
the Collateral. Vascutech 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 (i) the
indebtedness of Vascutech to Brown Brothers Harriman ("BBH") as set forth, and
subject to the limitations, in that certain Subordination Agreement dated as of
even date herewith, by and between BBH and IFM ("Subordination Agreement"), and
any future subordination agreements entered into in connection therewith and
(ii) any ordinary course equipment leases or purchase money security interests
(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 Secretary of State of the
Commonwealth of Massachusetts and the Burlington Clerk's office 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 the landlord under the Sublease or Florida law.
(f) Financing Statements. Vascutech 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. Vascutech 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 Vascutech
is contesting such Taxes in good faith and has maintained adequate reserves with
respect to the payment thereof Vascutech shall also obtain and pay for insurance
for the Collateral in an amount consistent with industry standards and/or
reasonably acceptable to IFM. Vascutech shall furnish proof of payment of taxes
or insurance upon request of IFM.
3
(h) Maintenance of Collateral. Vascutech will maintain the Equipment
in good condition and repair, ordinary wear and tear excepted. Vascutech will
promptly inform IFM of any material loss or material diminution in value of the
Collateral.
3. PROHIBITION ON TRANSFER OR MODIFICATION. Vascutech 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 in the ordinary course
of Vascutech's business and on customary terms and at usual prices.
4. PROHIBITION ON CHANGE OF NAME, ORGANIZATION OR LOCATION. Except as set
forth at the end of this Section 4, Vascutech 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. Vascutech 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. The address of the head office of Vascutech is expected to be
changed in April, 2001 to 26 Ray Avenue, Burlington, MA 01803, however, neither
the location of the Collateral nor the name of Vascutech will change.
5. EXAMINATION OF RECORDS AND COLLATERAL. Vascutech 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 Vascutech and at reasonable times, IFM may
enter upon any property owned by or in the possession of Vascutech to examine
and inspect the Collateral. Vascutech 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. Vascutech 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
Vascutech 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 Vascutech 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
Vascutech 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.
4
8. INDEMNIFICATION. Vascutech 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 Vascutech.
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 Vascutech 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 Vascutech receives written
notice from IFM of such failure.
(ii) Any failure by Vascutech to comply with, or breach by Vascutech
of, any of the non-monetary terms, provisions, warranties or covenants of
the Note, this Agreement or the other Loan Documents, or the
representations and warranties of Vascutech to IFM contained in that
certain Assignment and Assumption Agreement of even date herewith among
Horizon, Vascutech, IFM and (for the limited purpose of Paragraph D thereof
only) Vascutech, Inc., which failure continues for thirty (30) days after
the receipt by Vascutech (or any guarantor of the Note (a "Guarantor")) of
written notice from IFM of such failure.
(iii) The insolvency of Vascutech (or any Guarantor) or the admission
in writing of Vascutech's or any Guarantor's inability to pay debts as they
mature.
(iv) Institution of bankruptcy, reorganization, insolvency or other
similar proceedings by or against Vascutech or any Guarantor, unless the
same is dismissed within sixty (60) days of filing.
(v) The issuance or filing of any judgment, attachment, levy or
garnishment against the Collateral in which the amount of such judgment,
attachment, levy, garnishment or the amount in controversy in any such
related proceeding exceeds $250,000, which such judgment, attachment, levy
or garnishment shall continue undischarged or unstayed for 30 days.
(vi) Termination of Vascutech's existence by dissolution, merger or
consolidation in which Vascutech is not the surviving entity, or otherwise.
(vii) The default by Vascutech (after giving of any required notice
and expiration of any applicable cure period) under Section 11.1(a) of the
Sublease Agreement by and between IFM and Vascutech (as successor interest
to Horizon Medical Products, Inc.), dated as of October 9, 2000.
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(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) Vascutech agrees, upon request of IFM, to assemble the Collateral
and make it available to IFM at any place which is reasonably convenient
for Vascutech and IFM. Vascutech grants IFM permission to enter upon any
premises owned or occupied by Vascutech for the purpose of taking,
possession of the Collateral.
(iii) Subject to the rights of BBH 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 BBH 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
Vascutech 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 Vascutech at least ten (10) days prior to the date of sale,
disposition or other event giving rise to the required notice. Vascutech
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 night 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 Vascutech 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.
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(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.
(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 premiums, and then to unpaid fees and other charges,
then to the outstanding principal balance.
(iv) Fourth, any surplus remaining shall be paid to Vascutech or to
whomsoever may be lawfully entitled.
(e) Further Actions. Promptly upon the reasonable request of IFM,
Vascutech 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 reasonably require 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
Vascutech, within ten (10) business days after the written request of Vascutech,
UCC termination statements with respect to the Collateral secured hereunder,
provided that (a) Vascutech 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 the 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 Vascutech's
expense. Upon the filing of such termination statements in accordance with the
applicable provisions of the UCC, this Agreement shall be terminated.
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11. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be construed according to the
laws of the State of New York.
(b) Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of Vascutech including, without limit, any trustee in
possession or trustee in bankruptcy for Vascutech, 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 Vascutech
of all or any part of the Collateral or of any ownership interest in Vascutech.
(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 and the
Subordination Agreement 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 Vascutech 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 Vascutech 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 Vascutech 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.
8
(ii) In the event of continuation or reinstatement of this Agreement,
Vascutech 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 Vascutech to do so shall not affect in any way the
reinstatement or continuation. If Vascutech 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 Vascutech (with full power of substitution) to execute
and deliver such documents in the name and on behalf of Vascutech.
(h) Assignment. This Agreement is freely assignable, in whole or in
part, by IFM. IFM agrees, however, that it shall give prompt written notice of
any such assignment to Vascutech. 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 10 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. Vascutech hereby waives all defenses which Vascutech 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.
Vascutech 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 prior written consent of IFM.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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Vascutech has executed this Agreement on the day and year first above
written.
VASCUTECH:
VASCUTECH ACQUISITION CORP.
By: /s/ David B. Roberts
----------------------------------------
Its: Chief Financial Officer
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Collateral
Vascutech's principal place of business is located in the County of
Middlesex, Commonwealth of Massachusetts.
Collateral is located at: 3101 37th Avenue North, St. Petersburg, Florida.
1358825v1
