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 September 30, 2002
Commission File Number 1-13165
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
October 28, 2002 was 19,573,970.
Part I - FINANCIAL INFORMATION
Item 1. Financial statements
CRYOLIFE, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
(Unaudited) (Unaudited)
Revenues:
Human tissue preservation services, net $ 11,300 $ 19,737 $ 49,074 $ 57,069
Products 5,354 2,600 15,892 8,029
Distribution and grant 235 230 658 598
------------------------------- ------------------------------
16,889 22,567 65,624 65,696
Costs and expenses:
Human tissue preservation services
(including write-down of $22,691
and $32,715 in the three and nine
months ended September 30, 2002) 27,978 8,188 53,244 23,558
Products 4,739 1,196 8,817 4,051
General, administrative, and marketing 11,193 8,290 32,118 24,569
Research and development 1,347 1,232 3,696 3,604
Goodwill impairment 1,399 -- 1,399 --
Interest expense 155 37 543 53
Interest income (188) (449) (725) (1,587)
Other expense (income), net 35 114 (37) 856
------------------------------- ------------------------------
46,658 18,608 99,055 55,104
------------------------------- ------------------------------
(Loss) income before income taxes (29,769) 3,959 (33,431) 10,592
Income tax (benefit) expense (10,123) 1,267 (11,367) 3,390
------------------------------- ------------------------------
Net (loss) income $ (19,646) $ 2,692 $ (22,064) $ 7,202
=============================== ==============================
Net (loss) earnings per share:
Basic $ (1.01) $ 0.14 $ (1.14) $ 0.38
=============================== ==============================
Diluted $ (1.01) $ 0.14 $ (1.14) $ 0.37
=============================== ==============================
Weighted average shares outstanding:
Basic 19,526 18,832 19,388 18,785
=============================== ==============================
Diluted 19,526 19,771 19,388 19,635
=============================== ==============================
See accompanying notes to summary consolidated financial statements.
2
Item 1. Financial Statements
CRYOLIFE, INC.
SUMMARY CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
2002 2001
-----------------------------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 12,227 $ 7,204
Marketable securities, at market 15,926 26,483
Trade receivables, net 5,851 13,305
Other receivables, net 5,095 2,820
Note receivable, net -- 1,169
Deferred preservation costs, net 1,662 24,199
Inventories 4,659 6,259
Prepaid expenses and other assets 3,650 2,341
Deferred income taxes 12,292 688
-----------------------------------
Total current assets 61,362 84,468
-----------------------------------
Property and equipment, net 39,448 39,246
Goodwill -- 1,399
Patents, net 5,500 2,919
Other, net 1,128 1,278
-----------------------------------
TOTAL ASSETS $ 107,438 $ 129,310
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,782 $ 555
Accrued expenses and other current liabilities 2,739 1,491
Accrued compensation 762 2,560
Accrued procurement fees 6,153 6,592
Current maturities of capital lease obligations 640 609
Current maturities of long-term debt 6,000 1,600
Convertible debenture -- 4,393
-----------------------------------
Total current liabilities 18,076 17,800
-----------------------------------
Capital lease obligations, less current maturities 2,655 3,140
Bank loan, less current maturities -- 5,600
Deferred income taxes 433 449
Other long-term liabilities 1,049 882
-----------------------------------
Total liabilities 22,213 27,871
-----------------------------------
Shareholders' equity:
Preferred stock -- --
Common stock (issued 20,879 shares in 2002 and
20,172 shares in 2001) 208 202
Additional paid-in capital 73,550 66,828
Retained earnings 18,483 40,547
Deferred compensation (24) (33)
Accumulated other comprehensive income (loss) 172 (145)
Less: Treasury stock at cost (1,377 shares in 2002 and
1,286 shares in 2001) (7,164) (5,960)
-----------------------------------
Total shareholders' equity 85,225 101,439
-----------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 107,438 $ 129,310
===================================
See accompanying notes to summary consolidated financial statements.
3
Item 1. Financial Statements
CRYOLIFE, INC.
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended
September 30,
-----------------------------------
2002 2001
-----------------------------------
(Unaudited)
Net cash from operating activities:
Net (loss) income $ (22,064) $ 7,202
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Loss on sale of marketable equity securities 240 --
Depreciation and amortization 3,926 3,294
Provision for doubtful accounts 72 72
Write-down of deferred preservation costs and inventories 35,816 --
Other non-cash adjustments to income 1,399 748
Deferred income taxes (11,674) (85)
Tax effect of nonqualified option exercises 481 179
Changes in operating assets and liabilities:
Receivables 8,190 (2,821)
Income taxes (3,083) (97)
Deferred preservation costs and inventories (11,679) (3,746)
Prepaid expenses and other assets (1,309) (800)
Accounts payable, accrued expenses, and other liabilities 321 671
-----------------------------------
Net cash flows provided by operating activities 636 4,617
-----------------------------------
Net cash flows from investing activities:
Capital expenditures (3,877) (9,531)
Other assets (2,575) (1,281)
Purchases of marketable securities (10,025) (20,254)
Sales and maturities of marketable securities 20,496 16,489
Proceeds from note receivable 1,169 1,846
-----------------------------------
Net cash flows provided by (used in) investing activities 5,188 (12,731)
-----------------------------------
Net cash flows from financing activities:
Principal payments of debt (1,200) (650)
Proceeds from debt issuance -- 1,165
Payment of obligations under capital leases (454) (128)
Proceeds from exercise of stock options and
issuance of common stock 1,313 1,166
Purchase of treasury stock (663) --
-----------------------------------
Net cash (used in) provided by financing activities (1,004) 1,553
-----------------------------------
Increase (decrease) in cash 4,820 (6,561)
Effect of exchange rate changes on cash 203 52
Cash and cash equivalents, beginning of period 7,204 17,480
-----------------------------------
Cash and cash equivalents, end of period $ 12,227 $ 10,971
===================================
See accompanying notes to summary consolidated financial statements.
4
CRYOLIFE, INC. AND SUBSIDIARIES
NOTES TO SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 of the Securities and Exchange
Commission ("SEC"). Accordingly, the statements do not include all of the
information and disclosures required by accounting principles generally accepted
in the United States for a complete presentation of financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals
and estimated write-downs and accruals resulting from an order and the
supplement to the order received from the United States Food and Drug
Administration ("FDA")) considered necessary for a fair presentation have been
included. Certain prior year balances have been reclassified to conform to the
2002 presentation. CryoLife, Inc.'s ("CryoLife" or the "Company") unaudited
September 30, 2001 year to date results of operations have been revised from the
amounts previously reported in the Form 10-Q for the quarter ended September 30,
2001, as indicated in Note 20 to the consolidated financial statements included
in the CryoLife Form 10-K for the year ended December 31, 2001. Operating
results for the three and nine months ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and notes thereto included in the CryoLife Form 10-K for the year
ended December 31, 2001.
In addition to the current effects of the FDA Order, defined in Note 2, the
Company anticipates that the FDA Order will have significant adverse effects on
its future financial position, results of operations, and cash flows as compared
to prior year periods. The Company expects its liquidity to decrease
significantly over the remainder of this year and next year due to the
anticipated significant decrease in revenues as compared to prior year as a
result of the FDA Order and an expected use of cash due to the increased legal
and professional costs relating to the defense of lawsuits and to addressing the
FDA Order. As a result, the Company reduced its employee force by approximately
105 employees on September 3, 2002. Severance and related costs are
approximately $690,000 and were recorded in the third quarter of 2002 in general
and administrative expenses. As a result of the employee reduction, management
anticipates personnel costs will be reduced by approximately $385,000 per month.
The Company believes that anticipated revenue generation, expense management,
savings resulting from the reduction in the number of employees to reflect the
reduction in revenues, tax refunds expected to be in excess of $10 million, and
the Company's existing cash and marketable securities will enable the Company to
meet its liquidity needs through September 30, 2003. Even if the Company is able
to satisfactorily address the observations detailed in the FDA's Warning Letter
dated June 17, 2002 (the "Warning Letter"), as noted in Note 2, there is no
assurance that the Company will experience a return to the level of demand for
its tissue services that existed prior to the FDA Order because of the adverse
publicity or as a result of customers and tissue recovery organizations
switching to competitors.
The Company's long term liquidity and capital requirements will depend upon
numerous factors, including the Company's ability to address the observations
detailed in the FDA's Warning Letter, the extent of any future revenue
decreases, the costs associated with becoming compliant with the FDA
requirements as outlined in the FDA Warning Letter and Order, the outcome of
litigation against the Company as described in Note 11, the level of demand for
tissue based on adverse publicity in the event the FDA Order is resolved in a
manner favorable to the Company, the default on the Term Loan as described in
Note 6 and whether or not the Company can find suitable funding sources to
replace the funds no longer available due to the Company's inability to borrow
on its line of credit as described in Note 6. The Company may require additional
financing or seek to raise additional funds through bank facilities, debt or
equity offerings, or other sources of capital to meet liquidity and capital
requirements beyond September 30, 2003. 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, results of
operations, and cash flows. These are factors that indicate that the Company may
be unable to continue operations.
5
NOTE 2 - FDA ORDER ON HUMAN TISSUE PRESERVATION
On August 13, 2002 the Company received an order from the Atlanta district
office of the FDA regarding the non-valved cardiac, vascular, and orthopaedic
tissue processed by the Company since October 3, 2001 (the "FDA Order"). Revenue
from human tissue preservation services accounted for 78% of the Company's
revenues for the six months ended June 30, 2002, and of those revenues 67% or
$26.9 million were derived from preservation of tissues subject to the FDA
Order. The Company announced the receipt of the FDA Order in a press release
dated August 14, 2002. The FDA Order follows an FDA Warning Letter dated June
17, 2002, which the Company announced in a press release dated June 24, 2002.
Subsequently, the Company responded to the Warning Letter and requested a
meeting with the FDA. The FDA Order contains the following principal provisions:
o The FDA alleges that, based on its inspection of the Company's facility
on March 25 through April 12, 2002, certain human tissue processed and
distributed by the Company may be in violation of 21 Code of Federal
Regulations ("CFR") Part 1270. (Part 1270 requires persons or entities
engaged in the recovery, screening, testing, processing, storage, or
distribution of human tissue to perform certain medical screening and
testing on human tissue intended for transplantation. The rule also
imposes requirements regarding procedures for the prevention of
contamination or cross-contamination of tissues during processing and
the maintenance of certain records related to these activities.)
o The FDA alleges that the Company has not validated procedures for the
prevention of infectious disease contamination or cross-contamination
of tissue during processing at least since October 3, 2001.
o Non-valved cardiac, vascular, and orthopaedic tissue processed by the
Company since October 3, 2001 must be retained until it is recalled,
destroyed, the safety is confirmed, or an agreement is reached with the
FDA for its proper disposition under the supervision of an authorized
official of the FDA.
o The FDA strongly recommends that the Company perform a retrospective
review of all tissue in inventory (i.e. currently in storage at the
Company) that is not referenced in the FDA Order to assure that it was
recovered, processed, stored, and distributed in conformance with 21
CFR 1270.
o The Center for Devices and Radiological Health ("CDRH"), a division of
the FDA, is evaluating whether there are similar risks that may be
posed by the Company's allograft heart valves, and will take further
regulatory action if appropriate.
Pursuant to the FDA Order, the Company placed all non-valved cardiac, vascular,
and orthopaedic tissue subject to the FDA Order on quality assurance quarantine
and is recalling all non-valved cardiac, vascular, and orthopaedic tissues
subject to the FDA Order (i.e. processed since October 3, 2001) that have been
distributed but not implanted. The Company appealed the FDA Order on August 14,
2002 and requested a hearing with the FDA, which has been set for December 12,
2002. After the FDA issued its order regarding the recall, Health Canada also
issued a recall on the same types of tissue and other countries have inquired
about the circumstances surrounding the FDA Order.
On September 5, 2002, the Company reached an agreement with the FDA (the
"Agreement") that supplements the FDA Order and permits the Company to resume
processing and limited distribution of its life-saving and limb-saving
non-valved cardiac and vascular tissues. The Agreement allows the tissue to be
released for distribution after the Company completes steps to assure that the
tissue is used for approved purposes and that patients will be notified of risks
associated with tissue use. Specifically, the Company must obtain physician
prescriptions and tissue packaging must contain appropriate warning labels. The
Agreement also calls for the Company to undertake to identify third-party
records of donor tissue testing, and to destroy tissue from donors in whom
microorganisms associated with an infection are found. In addition, the
Agreement, which has a forty-five working-day term ending November 7, 2002,
specifies interim operating procedures to permit the Company to distribute
6
tissues processed during the term of the Agreement. The Company also agreed to
establish a corrective action plan within 30 days with steps to validate
processing procedures. The corrective action plan was submitted on October 5,
2002. The FDA will review records and other relevant information related to the
Company's release of tissue under the Agreement, as well as the status of the
Company's corrective action plan, before determining whether this Agreement
should be renewed or modified to provide for any further release of tissue
subject to the FDA Order.
After receiving the FDA Order, the Company met with representatives of the FDA's
CDRH division regarding CDRH's review of the Company's processed allograft heart
valves, which are not required to be recalled pursuant to the FDA Order. On
August 21, 2002 the FDA publicly stated that allograft heart valves have not
been included in the FDA recall order as these devices are essential for the
correction of congenital cardiac lesions in neonate and pediatric patients and
no satisfactory alternative device exists. However, the FDA also publicly stated
that it still has serious concerns regarding the processing and handling of
allograft heart valves. The FDA also recommended that surgeons carefully
consider using processed allografts from alternative sources, that surgeons
inform prospective patients of the FDA's concerns with the Company's allograft
heart valves, and that patients be carefully monitored for both fungal and
bacterial infections.
As a result of the FDA Order, the Company recorded a reduction to pretax income
of $12.6 million in the quarter ended June 30, 2002. The reduction was comprised
of a net $8.9 million increase to cost of human tissue preservation services, a
$2.4 million reduction to revenues (and accounts receivable) for the estimated
return of the tissues subject to recall by the FDA Order, and a $1.3 million
accrual recorded in general, administrative, and marketing expenses for
retention levels under the Company's product liability and directors' and
officers' insurance policies of $1.2 million (see Note 11), and for estimated
expenses of $75,000 for packaging and handling for the return of affected
tissues under the FDA Order. The net increase of $8.9 million to cost of
preservation services is comprised of a $10.0 million write-down of deferred
preservation costs for tissues subject to the FDA Order, offset by a $1.1
million decrease in cost of preservation services due to the estimated tissue
returns resulting from the FDA Order (the costs of such recalled tissue are
included in the $10.0 million write-down). The Company evaluated many factors in
determining the magnitude of impairment to deferred preservation costs as of
June 30, 2002, including the impact of the FDA Order, the possibility of
continuing action by the FDA or other United States and foreign government
agencies, and the possibility of unfavorable actions by physicians, customers,
procurement organizations, and others. As a result of this evaluation,
management believed that since all non-valved cardiac, vascular, and orthopaedic
allograft tissues processed since October 3, 2001 are under recall pursuant to
the FDA Order, and the Company did not know if it would obtain a favorable
resolution of its appeal and request for modification of the FDA Order, the
deferred preservation costs for tissues subject to the FDA Order had been
significantly impaired. The Company estimated that this impairment approximated
the full balance of the deferred preservation costs of the tissues subject to
the FDA Order, which included the tissues stored by the Company and the tissues
to be returned to the Company, and therefore recorded a write-down of $10.0
million for these assets.
In the quarter ended September 30, 2002, the Company recorded a reduction to
pretax income of $24.6 million as a result of the FDA Order. The reduction was
comprised of a net $22.2 million increase to cost of human tissue preservation
services, a $1.4 million write-down of goodwill, and a $1.0 million reduction to
revenues (and accounts receivable) for the estimated return of the tissues
shipped during the third quarter subject to recall by the FDA Order. The net
$22.2 million increase to cost of preservation services is comprised of a $22.7
million write-down of deferred preservation costs, offset by a $0.5 million
decrease in cost of preservation services due to the estimated and actual tissue
returns resulting from the FDA Order (the costs of such recalled tissue are
included in the $22.7 million write-down).
The Company evaluated multiple factors in determining the magnitude of
impairment to deferred preservation costs, including the impact of the current
FDA Order, the possibility of continuing action by the FDA or other United
States and foreign government agencies, the possibility of unfavorable actions
7
by physicians, customers, procurement organizations, and others, the progress
made to date on the corrective action plan, and the requirement in the Agreement
that tissues subject to the FDA Order be replaced with tissues processed under
validated methods. As a result of this evaluation, management believes that all
tissues subject to the FDA Order as well as the majority of tissues processed
prior to October 3, 2001, including heart valves which are not subject to the
FDA Order, are fully impaired. Management believes that most of the Company's
customers will only order tissues processed under the interim operating
procedures established under the Agreement or tissues processed under future
procedures approved by the FDA once these tissues are available. The Company
anticipates the tissues processed under the interim operating procedures
established under the Agreement will be available early to mid-November. Thus,
the Company has recorded a write-down of deferred preservation costs for
processed tissues in excess of the supply required to meet demand prior to the
release of these interim processed tissues. As of September 30, 2002 the balance
of the deferred preservation costs after the write-down was $545,000 of
allograft heart valves, $176,000 of non-valved cardiac tissues, $931,000 of
vascular tissues, and $10,000 of orthopaedic tissues.
As a result of the write-down of deferred preservation costs, the Company has
recorded a deferred tax asset of $12.2 million. Upon destruction of the tissues
associated with the deferred preservation costs, the deferred tax asset will be
reclassed as an income tax receivable. An expected refund will be generated
through a carry back of losses resulting from the deferred preservation cost
write-downs. In addition, the Company has recorded $4.2 million in income tax
receivables related to $1.7 million of tax overpayments for 2001 and an
estimated $2.5 million of tax overpayments for 2002.
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), requires the
write-down of a long-lived asset to be held and used if the carrying value of
the asset or the asset group to which the asset belongs, is not recoverable and
exceeds its fair value. The asset or asset group is not recoverable if its
carrying value exceeds the sum of the undiscounted future cash flows expected to
result from the use and eventual disposition of the asset or asset group. In
applying SFAS 144, the Company determined that the asset groups consisted of the
long-lived assets related to the Company's two reporting segments, as these
represent the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities. The Company used
a fourteen-year period for the undiscounted future cash flows. This period of
time was selected based upon the remaining life of the primary assets of the
asset groups, which are leasehold improvements. Based on its analysis,
management does not believe an impairment of the Company's intangible and
tangible assets related to the tissue preservation business or medical device
business had occurred as of September 30, 2002. However, depending on the
Company's ability to address the observations detailed in the Warning Letter and
the future effects of adverse publicity surrounding the FDA Order and reported
infections on preservation revenues, these assets may become impaired.
Management will continue to evaluate the recoverability of these assets.
Goodwill resulting from business acquisitions is not amortized, but is instead
subject to periodic impairment testing in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). As a result of the FDA
Order, the Company determined that an evaluation of the possible impairment of
intangible assets under SFAS 142 was necessary. The Company engaged an
independent valuation expert to perform the valuation using a discounted cash
flow methodology, and as a result of this analysis, the Company determined that
goodwill related to its tissue processing reportable unit was fully impaired as
of September 30, 2002. Therefore, the Company recorded a write-down of $1.4
million in goodwill during the quarter ended September 30, 2002. Management does
not believe an impairment exists related to the other intangible assets.
Management will continue to evaluate the recoverability of these intangible
assets.
NOTE 3 - CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company maintains cash equivalents, which consist primarily of highly liquid
investments with maturity dates of 90 days or less at the time of acquisition,
and marketable securities 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.
8
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. At September 30,
2002 and December 31, 2001, all marketable equity securities and debt securities
were designated 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. Interest income, dividends, realized gains and losses, and
declines in value judged to be other than temporary are included in investment
income. The cost of securities sold is based on the specific identification
method.
The following is a summary of cash equivalents and marketable securities (in
thousands):
Unrealized Estimated
Adjustments Adjusted Holding Market
September 30, 2002 Cost Basis to Cost Basis Cost Basis Gains/(Losses) Value
-----------------------------------------------------------------------------------
Cash equivalents:
Money market funds $ 47 $ -- $ 47 $ -- $ 47
Municipal obligations 5,636 -- 5,636 -- 5,636
-----------------------------------------------------------------------------------
$ 5,683 $ -- $ 5,683 $ -- $ 5,683
===================================================================================
Marketable securities:
Municipal obligations $ 15,615 $ -- $ 15,615 $ 311 $ 15,926
===================================================================================
Unrealized Estimated
Adjustments Adjusted Holding Market
December 31, 2001 Cost Basis to Cost Basis Cost Basis Gains/(Losses) Value
-----------------------------------------------------------------------------------
Cash equivalents:
Money market funds $ 1,301 $ -- $ 1,301 $ -- $ 1,301
Municipal obligations 500 -- 500 -- 500
-----------------------------------------------------------------------------------
$ 1,801 $ -- $ 1,801 $ -- $ 1,801
===================================================================================
Marketable securities:
Municipal obligations $ 17,696 $ -- $ 17,696 $ 147 $ 17,843
Debt securities 6,227 (1,217) 5,010 -- 5,010
Equity securities 3,900 (343) 3,557 10 3,567
Certificates of deposit 63 -- 63 -- 63
-----------------------------------------------------------------------------------
$ 27,886 $ (1,560) $ 26,326 $ 157 $ 26,483
===================================================================================
The Adjustments to Cost Basis column includes a $1.6 million loss as of December
31, 2001 recorded for an other than temporary decline in the market value of
debt and equity securities. Differences between cost and market listed above,
consisting of a net unrealized holding gain less deferred taxes of $106,000 at
September 30, 2002 and $50,000 as of December 31, 2001, are included in the
accumulated other comprehensive income account of shareholders' equity.
The marketable securities of $15.9 million on September 30, 2002 and $26.5
million on December 31, 2001 had maturity dates as follows: approximately $1.3
million and zero, respectively, had a maturity date of less than 90 days,
approximately $3.2 million and $3.4 million, respectively, had a maturity date
between 90 days and 1 year, approximately $11.4 million and $14.5 million,
respectively, had a maturity date between 1 and 5 years, and approximately zero
and $8.6 million matured in more than 5 years or did not have a maturity date.
9
NOTE 4 - INVENTORIES
Inventories are comprised of the following (in thousands):
September 30, December 31,
2002 2001
---------------------------------
Raw materials $ 2,598 $ 1,987
Work-in-process 264 1,183
Finished goods 1,797 3,089
---------------------------------
$ 4,659 $ 6,259
=================================
In the third quarter of 2002, the Company recorded a $3.1 million write-down of
bioprosthetic valves, including SynerGraft(R) and non-SynerGraft treated porcine
heart valves, due to the Company's decision to stop future expenditures on the
development and marketing of these valves and to maintain its focus on its
preservation services business, and its BioGlue(R) and SynerGraft vascular graft
product lines.
NOTE 5 - EARNINGS/(LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings/(loss) per share (in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
Numerator for basic and diluted earnings
per share:
Net (loss) income available to common
shareholders $ (19,646) $ 2,692 $ (22,064) $ 7,202
=============================== ==============================
Denominator for basic earnings per share:
Weighted-average basis 19,526 18,832 19,388 18,785
Effect of dilutive stock options -- 939 -- 850
------------------------------- ------------------------------
Denominator for diluted earnings per share:
Adjusted weighted-average shares 19,526 19,771 19,388 19,635
=============================== ==============================
Net (loss) earnings per share:
Basic $ (1.01) $ 0.14 $ (1.14) $ 0.38
=============================== ==============================
Diluted $ (1.01) $ 0.14 $ (1.14) $ 0.37
=============================== ==============================
The effects of stock options of 791,000 and 975,000 shares for the three and
nine months ended September 30, 2002, respectively, were excluded from the
calculation because the amounts are antidilutive for the periods presented.
On July 23, 2002 the Company's Board of Directors authorized the purchase of up
to $10 million of its common stock. As of August 13, 2002 the Company had
repurchased 68,000 shares of its common stock for $663,000. No further purchases
are anticipated in the near term.
NOTE 6 - DEBT
On April 25, 2000 the Company entered into a loan agreement permitting 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 accrued interest equal to Adjusted LIBOR plus 2%
adjusted monthly. On June 1, 2001, the line of credit was converted to a term
loan (the "Term Loan") to be paid in 60 equal monthly installments of principal
10
plus interest computed at Adjusted LIBOR plus 1.5% (3.32% at September 30,
2002). At September 30, 2002 the principal balance of the Term Loan was $6.0
million. The Term Loan is secured by substantially all of the Company's assets.
The Term Loan contains certain restrictive covenants including, but not limited
to, maintenance of certain financial ratios, a minimum tangible net worth
requirement, and the requirement that no materially adverse event has occurred.
The lender has notified the Company that the FDA Order, as described in Note 2,
and the inquiries of the SEC, as described in Note 11, have had a material
adverse effect on the Company that constitutes an event of default.
Additionally, as of September 30, 2002, the Company is in violation of the debt
coverage ratio and net worth financial covenants. As of October 28, 2002 the
lender has elected not to declare an event of default, but reserves the right to
exercise any such right under the terms of the Term Loan. Therefore, all amounts
due under the Term Loan as of September 30, 2002 are reflected as a current
liability on the Summary Consolidated Balance Sheets.
In March 1997 the Company issued a $5.0 million convertible debenture in
connection with the Ideas for Medicine, Inc. acquisition. The debenture accrued
interest at 7% and was convertible into common stock of the Company at any time
prior to the due date of March 5, 2002 at $8.05 per common share. On March 30,
1998 $607,000 of the convertible debenture was converted into 75,000 shares of
the Company's common stock, and on March 4, 2002 the remaining $4.4 million was
converted into 546,000 shares of the Company's common stock.
On July 30, 2002 the Company entered into a line of credit agreement with the
same lender as for the Term Loan, permitting the Company to borrow up to $10
million. Borrowings under the line of credit agreement accrue interest equal to
Adjusted LIBOR plus 1.25% adjusted monthly. This loan is secured by
substantially all of the Company's assets. As of September 30, 2002 no amounts
were drawn on the line of credit. As a result of the FDA Order, as discussed in
Note 2, the Company is not in compliance with the lender's requirements for
advances of funds under the line of credit. On August 21, 2002 the lender
notified the Company that it was not entitled to any further advances under the
line of credit.
NOTE 7 - DERIVATIVES
The Company's Term Loan, which accrues interest computed at Adjusted LIBOR plus
1.5%, exposes the Company to changes in interest rates going forward. On March
16, 2000, the Company entered into a $4.0 million notional amount
forward-starting interest swap agreement, which took effect on June 1, 2001 and
expires in 2006. This swap agreement was designated as a cash flow hedge to
effectively convert a portion of the 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
recognized in the period in which it accrues as an adjustment to interest
expense on the Term Loan.
On January 1, 2001 the Company adopted SFAS 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, 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 as the
cumulative effect of adopting SFAS 133 within the Statement of Shareholders'
Equity.
In August 2002 the Company determined that changes in the derivative's fair
value could no longer be recorded in other comprehensive income, as a result of
the uncertainty of future cash payments on the Term Loan caused by the lender's
ability to declare an event of default as discussed in Note 6. Beginning in
August 2002 the Company is recording all changes in the fair value of the
derivative currently in other expense/income on the Summary Consolidated
11
Statements of Operation, and is amortizing the amounts previously recorded in
other comprehensive income into other expense/income over the remaining life of
the agreement. If the lender accelerates the payments due under the Term Loan by
declaring an event of default, any remaining balance in other comprehensive
income will be reclassed into other expense/income during that period.
At September 30, 2002 the notional amount of this swap agreement was $3.0
million, and the fair value of the interest rate swap agreement, as estimated by
the bank based on its internal valuation models, was a liability of $305,000.
The fair value of the swap agreement is recorded as part of long-term
liabilities. For the three and nine months ended September 30, 2002 the Company
recorded a loss of $26,000 on the interest rate swap. The unamortized value of
the swap agreement, recorded in the accumulated other comprehensive income
account of shareholders' equity, was $279,000 at September 30, 2002.
NOTE 8 - COMPREHENSIVE INCOME/(LOSS)
Components of comprehensive income/(loss) consist of the following, net of tax
(in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
Net (loss) income $ (19,646) $ 2,692 $ (22,064) $ 7,202
Unrealized gain/(loss) on investments 56 (45) 98 772
Change in fair value of interest rate swap
(including cumulative effect of adopting
SFAS 133 in 2001) (6) (67) 17 (225)
Translation adjustment (12) 176 205 52
------------------------------- ------------------------------
Comprehensive income $ (19,608) $ 2,756 $ (21,744) $ 7,801
=============================== ==============================
The tax effect on the change in unrealized gain/loss on investments is $29,000
and zero for the three months ended September 30, 2002 and 2001, respectively.
The tax effect for the nine months ended September 30, 2002 and 2001 is $56,000
and $398,000, respectively. The tax effect on the change in fair value of the
interest rate swap is $4,000 and $34,000 for the three months ended September
30, 2002 and 2001, respectively. The tax effect for the nine months ended
September 30, 2002 and 2001 is $2,000 and $115,000, respectively. The
translation adjustment is not currently adjusted for income taxes, as it relates
to a permanent investment in a foreign subsidiary.
NOTE 9 - ACCOUNTING PRONOUNCEMENTS
On January 1, 2002 the Company was required to adopt SFAS 142 and SFAS 144. SFAS
142 specifies that goodwill and certain other intangible assets will no longer
be amortized but instead will be subject to periodic impairment testing. SFAS
144 clarifies accounting and reporting for assets held for sale, scheduled for
abandonment or other disposal, and recognition of impairment loss related to the
carrying value of long-lived assets. See Note 2 for a discussion of the impact
of these two statements on the current quarter results.
The Company will be required to adopt SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143") on January 1, 2003. SFAS 143 addresses
accounting and reporting for retirement costs of long-lived assets resulting
from legal obligations associated with acquisition, construction, or development
transactions. The Company has determined that the adoption of SFAS 143 will not
have a material effect on the results of operations or financial position of the
Company.
The Company will be required to adopt SFAS No. 145, "Rescission of FASB
Statements 4, 44 and 64, Amendment to FASB Statement 13, and Technical
Corrections" ("SFAS 145"), on January 1, 2003. SFAS 145 rescinds SFAS No. 4, 44
and 64, which required gains and losses from extinguishments of debt to be
12
classified as extraordinary items. SFAS 145 also amends SFAS No. 13 eliminating
inconsistencies in certain sale-leaseback transactions. The provisions of SFAS
145 are effective for fiscal years beginning after May 15, 2002. The Company is
currently evaluating the impact of this Statement.
The Company will be required to adopt SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146") on January 1, 2003.
SFAS 146 requires that costs associated with exit or disposal activities be
recorded at their fair values when a liability has been incurred. Under previous
guidance, certain exit costs were accrued upon management's commitment to an
exit plan, which is generally before an actual liability has been incurred. The
Company is currently evaluating the impact of this Statement.
NOTE 10 - SEGMENT INFORMATION
The Company has two reportable segments: Human Tissue Preservation Services and
Implantable Medical Devices. The Company's segments are organized according to
services and products.
The HUMAN TISSUE PRESERVATION SERVICES segment includes external revenue from
cryopreservation services of cardiac, vascular, and orthopaedic allograft
tissues. The IMPLANTABLE MEDICAL DEVICES segment includes external revenue from
product sales of BioGlue Surgical Adhesive and bioprosthetic devices, including
stentless porcine heart valves, SynerGraft treated porcine heart valves, and
SynerGraft treated bovine vascular grafts. There are no intersegment revenues.
The primary measure of segment performance, as viewed by the Company's
management, is segment gross margin, or net external revenues less cost of
preservation services and products. The Company does not segregate assets by
segment, therefore asset information is excluded from the segment disclosures
below.
The following table summarizes revenues, cost of preservation services and
products, and gross margins for the Company's operating segments (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
Revenue:
Human tissue preservation services, net a 11,300 19,737 49,074 57,069
Implantable medical devices 5,354 2,600 15,892 8,029
All other b 235 230 658 598
------------------------------- ------------------------------
$ 16,889 $ 22,567 $ 65,624 $ 65,696
------------------------------- ------------------------------
Cost of Preservation Services and Products:
Human tissue preservation services c 27,978 8,188 53,244 23,558
Implantable medical devices 4,739 1,196 8,817 4,051
All other b -- -- -- --
------------------------------- ------------------------------
32,717 9,384 62,061 27,609
------------------------------- ------------------------------
Gross Margin (Loss):
Human tissue preservation services (16,678) 11,549 (4,170) 33,511
Implantable medical devices 615 1,404 7,075 3,978
All other b 235 230 658 598
------------------------------- ------------------------------
$ (15,828) $ 13,183 $ 3,563 $ 38,087
------------------------------- ------------------------------
a Revenue from human tissue preservation services includes the estimated
effect of the return of tissues subject to recall by the FDA Order of $1.0
million and $3.5 million, respectively, in the three and nine months ended
September 30, 2002.
b The "All other" designation includes 1) grant revenue and 2) distribution
revenue.
13
c Cost of human tissue preservation services includes the write-down of
deferred preservation costs for tissues subject to the FDA Order of $22.7
and $32.7 million, respectively, in the three and nine months ended
September 30, 2002.
The following table summarizes net revenues by product (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
Revenue:
Human tissue preservation services, net a:
Cardiovascular tissue $ 5,487 $ 8,209 $ 20,131 $ 22,307
Vascular tissue 3,260 6,192 14,918 18,617
Orthopaedic tissue 2,553 5,336 14,025 16,145
------------------------------- ------------------------------
Total preservation services 11,300 19,737 49,074 57,069
------------------------------- ------------------------------
BioGlue surgical adhesive 5,183 2,431 15,308 7,505
Bioprosthetic devices 171 169 584 524
Distribution and grant 235 230 658 598
------------------------------- ------------------------------
$ 16,889 $ 22,567 $ 65,624 $ 65,696
=============================== ==============================
a Revenue from tissue preservation services includes the estimated effect of
the return of tissues subject to recall by the FDA Order of $170,000 and
$510,000, respectively, in cardiovascular tissue, $833,000 and $2.5 million,
respectively, in vascular tissue, and $28,000 and $408,000, respectively, in
orthopaedic tissue, totaling $1.0 and $3.5 million, respectively, for the
three and nine months ended September 30, 2002.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In the normal course of business as a medical device and services company the
Company has product liability complaints filed against it. As of October 28,
2002 fifteen cases had been filed against the Company between May 18, 2000 and
October 8, 2002. The cases are currently in the pre-discovery or discovery
stages. Of these cases, nine allege product liability claims arising out of the
Company's orthopaedic tissue, four allege product liability claims arising out
of the Company's allograft heart valve tissue, one alleges product liability
claims arising out of the Company's allograft vascular tissue, and one alleges
product liability claims arising out of the non-tissue products made by Ideas
for Medicine, when it was a subsidiary of the Company.
Included in these cases is the complaint filed against the Company in the
Superior Court of Cobb County, Georgia, on July 12, 2002 by Steve Lykins, as
Trustee for the benefit of next of kin of Brian Lykins. This complaint alleges
strict liability, negligence, professional negligence, and breach of warranties
related to tissue implanted in November of 2001. The plaintiff seeks unspecified
compensatory and punitive damages.
The Company maintains insurance policies, which the Company believes to be
adequate to defend against these suits. The Company's insurance company has been
notified of these actions. The Company intends to vigorously defend against
these claims. Nonetheless, an adverse judgment in excess of the Company's
insurance coverage could have a material adverse effect on the Company's
financial position, results of operations, and cash flows.
Several putative class action lawsuits were filed in July through September 2002
against the Company and certain officers of the Company alleging that the
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated there under, by issuing a series of materially
false and misleading statements to the market throughout the Class Period of
August of 2000 through August of 2002, which statements had the effect of
artificially inflating the market price of the Company's securities. The
14
principal allegations of the complaints are that the Company failed to disclose
its alleged lack of compliance with certain FDA regulations regarding the
handling and processing of certain tissues and other product safety matters. The
plaintiffs seek unspecified compensatory damages in an amount to be proven at
trial. The Company believes these cases will be consolidated into one putative
class action lawsuit. The Company believes the claims made in the lawsuits are
without merit and intends to vigorously defend against these claims. Management
has retained the services of the Atlanta based law firm of King & Spalding to
defend the Company. The Company carries director's and officer's liability
insurance, which the Company believes to be adequate to defend against these
suits. Nonetheless, an adverse judgment in excess of the Company's insurance
coverage could have a material adverse effect on the Company's financial
position, results of operations, and cash flows.
The Company received notice in October that a complaint had been filed
instituting a shareholder derivative action against the Company and Company
officers and directors Steven G. Anderson, Albert E. Heacox, John W. Cook,
Ronald C. Elkins, Virginia C. Lacy, Ronald D. McCall, Alexander C. Schwartz and
Bruce J. Van Dyne. The suit was filed in the Superior Court of Gwinnett County,
Georgia, by Rosemary Lichtenberger but has not been served on the defendants.
The suit alleges the individual defendants breached their fiduciary duties to
the Company by causing or allowing the Company to engage in practices that
caused the Company to suffer damages by being out of compliance with FDA
guidelines, and by causing the Company to issue press releases that erroneously
portrayed CryoLife's products, operations, financial results and future
prospects. The complainant seeks undisclosed damages, costs and attorney's fees,
punitive damages and prejudgment interest against the individual defendants
derivatively on behalf of the Company as a nominal defendant. Filing of the
complaint was preceded by a demand letter on behalf of the complainant dated one
day prior to the filing of the suit. Another derivative demand letter of similar
import was received on behalf of complainant Robert F. Fraley; however, to the
Company's knowledge, no suit has yet been filed by Mr. Fraley. The Company's
Board of Directors has established an independent committee to investigate the
claims asserted in the Lichtenberger complaint and the demands made in the
Fraley letter and report back to the Board with its recommendations for action
in response to the shareholders' demands. The independent committee has engaged
independent legal counsel to assist in the investigation.
On August 7, 2002 the Company announced the settlement of its ongoing litigation
with Colorado State University Research Foundation ("CSURF") over the ownership
of the Company's SynerGraft technology. The settlement resolves all disputes
between the parties and extinguishes all CSURF ownership claims to any aspect of
the Company's SynerGraft technology. The settlement includes an unconditional
assignment to the Company of CSURF tissue engineering patents, trade secrets and
know-how relating to tissue decellularization and recellularization. The
technology assignment supercedes the 1996 technology license, which was
terminated by the terms of the settlement. Payment terms include a nonrefundable
advance of $400,000 paid by the Company to CSURF that will be applied to earned
royalties as they accrue through March 2011. The Company recorded these amounts
as prepaid royalties and will expense the amounts as the royalties accrue. The
earned royalty rate is a maximum of 0.75% of net revenues from products or
tissue services utilizing the SynerGraft technology. Royalties earned under the
agreement for revenues through September 30, 2002 were approximately $33,000.
On August 17, 2002 the Company received a letter from the United States
Securities and Exchange Commission (the "SEC Letter") that stated that the
Company was subject to an investigation related to the Company's August 14, 2002
announcement of the FDA Order and requesting information from the Company from
the period between September 1, 2001 through the date of the Company's response
to the SEC Letter. The SEC Letter stated, in part, that "We are trying to
determine whether there have been any violations of the federal securities laws.
The investigation and the subpoena do not mean that we have concluded that
anyone has broken the law. Also, the investigation does not mean that we have a
negative opinion of any person, entity or security." The staff of the SEC
subsequently confirmed that its investigation is informal in nature, and that it
does not have subpoena power at this time. At the present time, the Company is
unable to predict the outcome of this matter.
15
The Company has concluded that it is probable that it will incur losses relating
to claims and litigation of at least $1.2 million; which represents the
aggregate amount of the Company's deductibles under its product liability and
directors' and officers' insurance policies. Therefore the Company has recorded
an accrual of $1.2 million as of June 30, 2002.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RECENT EVENTS
On August 13, 2002 the Company received an order from the Atlanta district
office of the FDA regarding the non-valved cardiac, vascular, and orthopaedic
tissue processed by the Company since October 3, 2001 (the "FDA Order"). Revenue
from human tissue preservation services accounted for 78% of the Company's
revenues for the six months ended June 30, 2002, and of those revenues 67% or
$26.9 million were derived from preservation of tissues subject to the FDA
Order. The Company announced the receipt of the FDA Order in a press release
dated August 14, 2002. The FDA Order follows an FDA Warning Letter dated June
17, 2002, which the Company announced in a press release dated June 24, 2002.
Subsequently, the Company responded to the Warning Letter and requested a
meeting with the FDA. The FDA Order contains the following principal provisions:
o The FDA alleges that, based on its inspection of the Company's facility
on March 25 through April 12, 2002, certain human tissue processed and
distributed by the Company may be in violation of 21 Code of Federal
Regulations ("CFR") Part 1270. (Part 1270 requires persons or entities
engaged in the recovery, screening, testing, processing, storage, or
distribution of human tissue to perform certain medical screening and
testing on human tissue intended for transplantation. The rule also
imposes requirements regarding procedures for the prevention of
contamination or cross-contamination of tissues during processing and
the maintenance of certain records related to these activities.)
o The FDA alleges that the Company has not validated procedures for the
prevention of infectious disease contamination or cross-contamination
of tissue during processing at least since October 3, 2001.
o Non-valved cardiac, vascular, and orthopaedic tissue processed by the
Company since October 3, 2001 must be retained until it is recalled,
destroyed, the safety is confirmed, or an agreement is reached with the
FDA for its proper disposition under the supervision of an authorized
official of the FDA.
o The FDA strongly recommends that the Company perform a retrospective
review of all tissue in inventory (i.e. currently in storage at the
Company) that is not referenced in the FDA Order to assure that it was
recovered, processed, stored, and distributed in conformance with 21
CFR 1270.
o The Center for Devices and Radiological Health ("CDRH"), a division of
the FDA, is evaluating whether there are similar risks that may be
posed by the Company's allograft heart valves, and will take further
regulatory action if appropriate.
Pursuant to the FDA Order, the Company placed all non-valved cardiac, vascular,
and orthopaedic tissue subject to the FDA Order on quality assurance quarantine
and is recalling all non-valved cardiac, vascular, and orthopaedic tissues
subject to the FDA Order (i.e. processed since October 3, 2001) that have been
distributed but not implanted. The Company appealed the FDA Order on August 14,
2002 and requested a hearing with the FDA, which has been set for December 12,
2002. After the FDA issued its order regarding the recall, Health Canada also
issued a recall on the same types of tissue and other countries have inquired
about the circumstances surrounding the FDA Order.
On September 5, 2002, the Company reached an agreement with the FDA (the
"Agreement") that supplements the FDA Order and permits the Company to resume
processing and limited distribution of its life-saving and limb-saving
non-valved cardiac and vascular tissues. The Agreement allows the tissue to be
released for distribution after the Company completes steps to assure that the
tissue is used for approved purposes and that patients will be notified of risks
associated with tissue use. Specifically, the Company must obtain physician
prescriptions and tissue packaging must contain appropriate warning labels. The
Agreement also calls for the Company to undertake to identify third-party
records of donor tissue testing, and to destroy tissue from donors in whom
microorganisms associated with an infection are found. In addition, the
Agreement, which has a forty-five working-day term ending November 7, 2002,
17
specifies interim operating procedures to permit the Company to distribute
tissues processed during the term of the Agreement. The Company also agreed to
establish a corrective action plan within 30 days with steps to validate
processing procedures. The corrective action plan was submitted on October 5,
2002. The FDA will review records and other relevant information related to the
Company's release of tissue under the Agreement, as well as the status of the
Company's corrective action plan, before determining whether this Agreement
should be renewed or modified to provide for any further release of tissue
subject to the FDA Order.
After receiving the FDA Order, the Company met with representatives of the FDA's
CDRH division regarding CDRH's review of the Company's processed allograft heart
valves, which are not required to be recalled pursuant to the FDA Order. On
August 21, 2002 the FDA publicly stated that allograft heart valves have not
been included in the FDA recall order as these devices are essential for the
correction of congenital cardiac lesions in neonate and pediatric patients and
no satisfactory alternative device exists. However, the FDA also publicly stated
that it still has serious concerns regarding the processing and handling of
allograft heart valves. The FDA also recommended that surgeons carefully
consider using processed allografts from alternative sources, that surgeons
inform prospective patients of the FDA's concerns with the Company's allograft
heart valves, and that patients be carefully monitored for both fungal and
bacterial infections.
As a result of the adverse publicity surrounding the FDA Warning Letter, the
Company's procurement of cardiac tissues, from which heart valves and non-valved
cardiac tissues are processed, decreased 15% in September 2002 as compared to
September 2001. Although, the Company expects to be able to maintain the current
level of cardiac tissue procurement if it continues to make progress in
addressing the observations detailed in the Warning Letter, there is no
guarantee that sufficient tissue will be available. The Company has continued to
process and distribute heart valves since the receipt of the FDA Order, as these
tissues are not subject to the FDA Order. The Company reduced the level of
processing for non-valved cardiac tissue to minimum levels after the receipt of
the FDA Order. After the Agreement, the Company resumed processing of non-valved
cardiac tissues under the interim operating procedures.
Upon receipt of the FDA Order, the Company ceased the procurement and processing
of vascular tissues until it entered into the Agreement allowing for interim
processing and distribution of vascular tissues. On September 17, 2002 the
Company resumed the procurement and processing of vascular tissues under the
interim operating procedures. The Company anticipates it will procure and
process vascular tissues at reduced levels as compared to prior year periods at
least until it addresses the observations detailed in the Warning Letter and
evaluates the demand for the vascular tissues.
Upon receipt of the FDA Order, the Company ceased the procurement and processing
of orthopaedic tissues. The Company does not anticipate procuring and processing
additional orthopaedic tissues until after it has satisfied the observations
detailed in the Warning Letter.
As a result of the FDA Order, the Company recorded a reduction to pretax income
of $12.6 million in the quarter ended June 30, 2002. The reduction was comprised
of a net $8.9 million increase to cost of human tissue preservation services, a
$2.4 million reduction to revenues (and accounts receivable) for the estimated
return of the tissues subject to recall by the FDA Order, and a $1.3 million
accrual recorded in general, administrative, and marketing expenses for
retention levels under the Company's product liability and directors' and
officers' insurance policies of $1.2 million (see Note 11), and for estimated
expenses of $75,000 for packaging and handling for the return of affected
tissues under the FDA Order. The net increase of $8.9 million to cost of
preservation services is comprised of a $10.0 million write-down of deferred
preservation costs for tissues subject to the FDA Order, offset by a $1.1
million decrease in cost of preservation services due to the estimated tissue
returns resulting from the FDA Order (the costs of such recalled tissue are
included in the $10.0 million write-down). The Company evaluated many factors in
determining the magnitude of impairment to deferred preservation costs as of
June 30, 2002, including the impact of the FDA Order, the possibility of
continuing action by the FDA or other United States and foreign government
agencies, and the possibility of unfavorable actions by physicians, customers,
procurement organizations, and others. As a result of this evaluation,
management believed that since all non-valved cardiac, vascular, and orthopaedic
allograft tissues processed since October 3, 2001 are under recall pursuant to
18
the FDA Order, and the Company did not know if it would obtain a favorable
resolution of its appeal and request for modification of the FDA Order, the
deferred preservation costs for tissues subject to the FDA Order had been
significantly impaired. The Company estimated that this impairment approximated
the full balance of the deferred preservation costs of the tissues subject to
the FDA Order, which included the tissues stored by the Company and the tissues
to be returned to the Company, and therefore recorded a write-down of $10.0
million for these assets.
In the quarter ended September 30, 2002, the Company recorded a reduction to
pretax income of $24.6 million as a result of the FDA Order. The reduction was
comprised of a net $22.2 million increase to cost of human tissue preservation
services, a $1.4 million write-down of goodwill, and a $1.0 million reduction to
revenues (and accounts receivable) for the estimated return of the tissues
shipped during the third quarter subject to recall by the FDA Order. The net
$22.2 million increase to cost of preservation services is comprised of a $22.7
million write-down of deferred preservation costs, offset by a $0.5 million
decrease in cost of preservation services due to the estimated and actual tissue
returns resulting from the FDA Order (the costs of such recalled tissue are
included in the $22.7 million write-down).
The Company evaluated multiple factors in determining the magnitude of
impairment to deferred preservation costs, including the impact of the current
FDA Order, the possibility of continuing action by the FDA or other United
States and foreign government agencies, the possibility of unfavorable actions
by physicians, customers, procurement organizations, and others, the progress
made to date on the corrective action plan, and the requirement in the Agreement
that tissues subject to the FDA Order be replaced with tissues processed under
validated methods. As a result of this evaluation, management believes that all
tissues subject to the FDA Order as well as the majority of tissues processed
prior to October 3, 2001, including heart valves which are not subject to the
FDA Order, are fully impaired. Management believes that most of the Company's
customers will only order tissues processed under the interim operating
procedures established under the Agreement or tissues processed under future
procedures approved by the FDA once these tissues are available. The Company
anticipates the tissues processed under the interim operating procedures
established under the Agreement will be available early to mid-November. Thus,
the Company has recorded a write-down of deferred preservation costs for
processed tissues in excess of the supply required to meet demand prior to the
release of these interim processed tissues. As of September 30, 2002 the balance
of the deferred preservation costs after the write-down was $545,000 of
allograft heart valves, $176,000 of non-valved cardiac tissues, $931,000 of
vascular tissues, and $10,000 of orthopaedic tissues.
As a result of the write-down of deferred preservation costs, the Company has
recorded a deferred tax asset of $12.2 million. Upon destruction of the tissues
associated with the deferred preservation costs, the deferred tax asset will be
reclassed as an income tax receivable. An expected refund will be generated
through a carry back of losses resulting from the deferred preservation cost
write-downs. In addition, the Company has recorded $4.2 million in income tax
receivables related to $1.7 million of tax overpayments for 2001 and an
estimated $2.5 million of tax overpayments for 2002.
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), requires the
write-down of a long-lived asset to be held and used if the carrying value of
the asset or the asset group to which the asset belongs, is not recoverable and
exceeds its fair value. The asset or asset group is not recoverable if its
carrying value exceeds the sum of the undiscounted future cash flows expected to
result from the use and eventual disposition of the asset or asset group. In
applying SFAS 144, the Company determined that the asset groups consisted of the
long-lived assets related to the Company's two reporting segments, as these
represent the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities. The Company used
a fourteen-year period for the undiscounted future cash flows. This period of
time was selected based upon the remaining life of the primary assets of the
asset groups, which are leasehold improvements. Based on its analysis,
management does not believe an impairment of the Company's intangible and
tangible assets related to the tissue preservation business or medical device
business had occurred as of September 30, 2002. However, depending on the
Company's ability to address the observations detailed in the Warning Letter and
the future effects of adverse publicity surrounding the FDA Order and reported
infections on preservation revenues, these assets may become impaired.
Management will continue to evaluate the recoverability of these assets.
19
Goodwill resulting from business acquisitions is not amortized, but is instead
subject to periodic impairment testing in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). As a result of the FDA
Order, the Company determined that an evaluation of the possible impairment of
intangible assets under SFAS 142 was necessary. The Company engaged an
independent valuation expert to perform the valuation using a discounted cash
flow methodology, and as a result of this analysis, the Company determined that
goodwill related to its tissue processing reportable unit was fully impaired as
of September 30, 2002. Therefore, the Company recorded a write-down of $1.4
million in goodwill during the quarter ended September 30, 2002. Management does
not believe an impairment exists related to the other intangible assets.
Management will continue to evaluate the recoverability of these intangible
assets.
On September 3, 2002 the Company announced a reduction in employee force of
approximately 105 employees. The Company anticipates that severance and related
costs will be approximately $690,000, which was recorded in the third quarter of
2002. As a result of the employee reduction, management anticipates personnel
costs will be reduced by approximately $385,000 per month.
See Part II, Item 1 "Legal Proceedings" for a discussion of certain material
legal proceedings.
CRITICAL ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is included in Note 1
to the consolidated financial statements, as filed in the Form 10-K for the
fiscal year ended December 31, 2001. Management believes that the consistent
application of these policies enables the Company to provide users of the
financial statements with useful and reliable information about the Company's
operating results and financial condition. The consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the
United States, which require the Company to make estimates and assumptions. The
following are accounting policies that management believes are most important to
the portrayal of the Company's financial condition and results and may involve a
higher degree of judgment and complexity.
REVENUE RECOGNITION: The Company recognizes revenue in accordance with SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"), which provides guidance on applying generally accepted accounting
principles to revenue recognition issues. Revenues for human tissue preservation
services are recognized when services are completed and tissue is delivered to
the customer. The Company accepts returned human tissue within 72 hours of
original shipment if certain quality criteria are maintained. The Company has
recorded the estimated revenues of tissues to be recalled pursuant to the FDA
Order as a service revenue return. Revenues for products are recognized at the
time the product is shipped, at which time title passes to the customer. There
are no further performance obligations and delivery occurs upon shipment.
Revenues from research grants are recognized in the period the associated costs
are incurred. The Company assesses the likelihood of collection based on a
number of factors, including past transaction history with the customer and the
credit-worthiness of the customer.
DEFERRED PRESERVATION COSTS: Tissue is procured from deceased human donors by
organ and tissue procurement agencies, which consign the tissue to the Company
for processing and preservation. Preservation costs related to tissue held by
the Company are deferred until revenue is recognized upon shipment of the tissue
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, net of reserve, on a first-in, first-out
basis.
As of September 30, 2002 the deferred preservation costs were $545,000 for
allograft heart valve tissues, $176,000 for non-valved cardiac tissues, $931,000
for vascular tissues, and $10,000 for orthopaedic tissues. For the three and
20
nine months ended September 30, 2002, respectively, the Company recorded a
write-down of deferred preservation costs of $8.7 million and $8.7 million for
valved cardiac tissues, $1.3 million and $2.9 million for non-valved cardiac
tissues, $6.9 million and $11.9 million for vascular tissues, and $5.8 million
and $9.2 million for orthopaedic tissue totaling $22.7 and $32.7 million. These
write-downs were recorded as a result of the FDA Order as discussed in the
Recent Events section. The amount of these write-downs reflects management's
estimate based on information currently available to it. These estimates may
prove inaccurate, as the scope and impact of the FDA Order are determined.
Management will continue to evaluate the recoverability of these deferred
preservation costs based on the factors discussed in the Recent Events section
and record additional write-downs if it becomes clear that additional
impairments have occurred.
VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL: The Company assesses
the impairment of its long-lived, identifiable intangible assets and related
goodwill whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Factors that management considers important that
could trigger an impairment review include the following:
o significant underperformance relative to expected historical or projected
future operating results;
o significant negative industry or economic trends;
o significant decline in the Company's stock price for a sustained period;
and
o the Company's market capitalization relative to net book value.
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), requires the
write-down of a long-lived asset to be held and used if the carrying value of
the asset or the asset group to which the asset belongs, is not recoverable and
exceeds its fair value. The asset or asset group is not recoverable if its
carrying value exceeds the sum of the undiscounted future cash flows expected to
result from the use and eventual disposition of the asset or asset group. In
applying SFAS 144, the Company determined that the asset groups consisted of the
long-lived assets related to the Company's two reporting segments, as these
represent the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities. The Company used
a fourteen-year period for the undiscounted future cash flows. This period of
time was selected based upon the remaining life of the primary assets of the
asset groups, which are leasehold improvements. Based on its analysis,
management does not believe an impairment of the Company's intangible and
tangible assets related to the tissue preservation business or medical device
business had occurred as of September 30, 2002. However, depending on the
Company's ability to address the observations detailed in the Warning Letter and
the future effects of adverse publicity surrounding the FDA Order and reported
infections on preservation revenues, these assets may become impaired.
Management will continue to evaluate the recoverability of these assets.
Goodwill resulting from business acquisitions is not amortized, but is instead
subject to periodic impairment testing in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). 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 amortized over the expected useful
lives of the related assets (primarily five years). As a result of the FDA
Order, the Company determined that an evaluation of the possible impairment of
intangible assets under SFAS 142 was necessary. The Company engaged an
independent valuation expert to perform the valuation using a discounted cash
flow methodology, and as a result of this analysis, the Company determined that
goodwill related to its tissue processing reportable unit was fully impaired as
of September 30, 2002. Therefore, the Company recorded a write-down of $1.4
million in goodwill during the quarter ended September 30, 2002. Management does
not believe an impairment exists related to the other intangible assets.
Management will continue to evaluate the recoverability of these intangible
assets.
21
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2002 the Company was required to adopt SFAS 142 and SFAS 144. See
Critical Accounting policies for a discussion of the impact of these
pronouncements on current financial results.
The Company will be required to adopt SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143") on January 1, 2003. SFAS 143 addresses
accounting and reporting for retirement costs of long-lived assets resulting
from legal obligations associated with acquisition, construction, or development
transactions. The Company has determined that the adoption of SFAS 143 will not
have a material effect on the financial position, results of operations, and
cash flows of the Company.
The Company will be required to adopt SFAS No. 145, "Rescission of FASB
Statements 4, 44 and 64, Amendment to FASB Statement 13, and Technical
Corrections" ("SFAS 145") on January 1, 2003. SFAS 145 rescinds SFAS No. 4, 44
and 64, which required gains and losses from extinguishments of debt to be
classified as extraordinary items. SFAS 145 also amends SFAS No. 13 eliminating
inconsistencies in certain sale-leaseback transactions. The provisions of SFAS
145 are effective for fiscal years beginning after May 15, 2002. The Company is
currently evaluating the impact of this Statement.
The Company will be required to adopt SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146") on January 1, 2003.
SFAS 146 requires that costs associated with exit or disposal activities be
recorded at their fair values when a liability has been incurred. Under previous
guidance, certain exit costs were accrued upon management's commitment to an
exit plan, which is generally before an actual liability has been incurred. The
Company is currently evaluating the impact of this Statement.
RESULTS OF OPERATIONS
REVENUES
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
Revenues as reported $ 16,889 $ 22,567 $ 65,624 $ 65,696
Reduction in revenues due to
estimated tissue returns 1,031 -- 3,464 --
-------------- ------------- ------------- ------------
Revenues prior to reduction for
estimated tissue returns $ 17,920 $ 22,567 $ 69,088 $ 65,696
============== ============= ============= =============
One Month Ended
September 30,
-------------------------------
2002 2001
-------------------------------
Revenues prior to reduction
for estimated tissue returns $ 3,632 $ 7,394
Revenues prior to the reduction for the estimated effect of tissue returns as a
result of the FDA Order decreased 51% and 21% and increased 5%, respectively,
for the one, three, and nine months ended September 30, 2002. This decrease in
revenues for the one and three months ended September 30, 2002, respectively,
was primarily due to a 72% and 38% decrease in human tissue preservation service
revenues as a result of the FDA Order's restriction on shipments of certain
tissues and decreased demand as a result of the adverse publicity surrounding
the FDA Order, partially offset by a 82% and 113% increase in BioGlue(R)
Surgical Adhesive revenues for the one and three months ended September 30,
2002. The increase in revenues for the nine month period ended September 30,
2002 was primarily due to a 104% increase in sales of BioGlue Surgical Adhesive,
22
partially offset by a 14% decrease in human tissue preservation service revenues
as a result of the FDA Order's restriction on shipments of certain tissues and
decreased demand as a result of the adverse publicity surrounding the FDA Order
and reported incidents of infection. The BioGlue increases are primarily
attributable to the receipt of FDA approval for BioGlue in December 2001.
Revenues as reported decreased 25% and less than 1%, respectively, for the three
and nine months ended September 30, 2002. Revenues were adversely impacted by
the estimated effect of the return of tissues subject to recall by the FDA
Order, which resulted in an estimated decrease of $1.0 million and $3.5 million,
respectively, in preservation service revenues during the three and nine months
ended September 30, 2002. As discussed herein, the estimated effect of the
return of tissues subject to recall includes credits for tissues actually
returned to the Company to date and the expected credits for future tissues to
be returned to the Company as a result of the FDA Order.
Although the Company has not yet determined the full impact of the FDA Order on
future revenues, the September revenues for 2002 as compared to 2001 decreased
51% primarily as a result of the FDA Order and adverse publicity. Management
believes that a decrease in revenues as compared to prior periods will continue.
In the event the Company is not successful in addressing the issues detailed in
the Warning Letter as described in the recent events section or is unable to
reach a satisfactory agreement with the FDA, future revenues can be expected to
decrease significantly as compared to prior year periods.
BIOGLUE SURGICAL ADHESIVE
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
Revenues as reported $ 5,183 $ 2,431 $ 15,308 $ 7,505
Percentage of total revenue as reported 31% 11% 23% 11%
Percentage of total revenue prior to
reduction for estimated tissue returns 29% 11% 22% 11%
One Month Ended
September 30,
-------------------------------
2002 2001
-------------------------------
Revenues $ 1,786 $ 981
Percentage of total revenue 49% 13%
Revenues from the sale of BioGlue Surgical Adhesive increased 82%, 113% and
104%, respectively, for the one, three, and nine month periods ended September
30, 2002. The increase in revenues for the one, three, and nine month periods
ended September 30, 2002 was due to an increase in the milliliters of BioGlue
shipped of 56%, 89% and 82%, respectively, and an increase in the average
selling price of the BioGlue shipped. The increase in shipments was primarily
due to the receipt of FDA approval in December 2001 for the use of BioGlue in
the United States as an adjunct in open surgical repair of large vessels for
adult patients. Domestic revenues accounted for 78% and 69% of total BioGlue
revenues for the three months ended September 30, 2002 and 2001, respectively.
Domestic revenues accounted for 78% and 67% of total BioGlue revenues for the
nine months ended September 30, 2002 and 2001, respectively.
Although BioGlue revenue increased as compared to prior year and BioGlue was not
included in the FDA Order, future sales of BioGlue could be adversely affected
due to the adverse publicity surrounding the FDA's review of and correspondence
with the Company. Additionally, there is a possibility the Company's BioGlue
operations could come under increased scrutiny from the FDA as a result of their
review of the Company's tissue processing laboratories.
23
CARDIOVASCULAR PRESERVATION SERVICES
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
Revenues as reported $ 5,487 $ 8,209 $ 20,131 $ 22,307
Percentage of total revenue as reported 32% 36% 31% 34%
Revenues prior to reduction for
estimated tissue returns $ 5,657 $ 8,209 $ 20,643 $ 22,307
Percentage of total revenue prior to
reduction for estimated tissue returns 32% 36% 30% 34%
One Month Ended
September 30,
-------------------------------
2002 2001
-------------------------------
Revenues prior to reduction
for estimated tissue returns $ 1,196 $ 2,487
Percentage of total revenue 33% 34%
Revenues from cardiovascular preservation services, prior to the reduction for
estimated returns of tissue subject to the FDA Order, decreased 52%, 31% and 7%,
respectively, for the one, three, and nine months ended September 30, 2002. This
decrease in revenues for the one, three, and nine month periods ended September
30, 2002 was primarily due to a decline in customer demand due to the adverse
publicity surrounding the FDA Order, certain reported tissue infections, and the
restrictions on shipments of certain tissues subject to the FDA Order.
Revenues as reported from cardiovascular preservation services decreased 33% and
10%, respectively, for the three and nine months ended September 30, 2002. The
revenues from cardiovascular preservation services were adversely impacted by
the estimated effect of the non-valved cardiac tissues returned subject to
recall by the FDA Order, which resulted in an estimated decrease of $170,000 and
$510,000 in service revenues during the three and nine months ended September
30, 2002.
The Company anticipates a future decrease in cardiovascular preservation
revenues as compared to prior year periods as a result of the adverse publicity
surrounding the FDA Warning Letter, FDA Order, and certain reported tissue
infections. If the Company is unable to address the observations detailed in the
Warning Letter, future non-valved cardiac preservation revenue, if any, may be
immaterial.
VASCULAR PRESERVATION SERVICES
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
Revenues as reported $ 3,260 $ 6,192 $ 14,918 $ 18,617
Percentage of total revenue as reported 19% 27% 23% 28%
Revenues prior to reduction for
estimated tissue returns $ 4,093 $ 6,192 $ 17,464 $ 18,617
Percentage of total revenue prior to
reduction for estimated tissue returns 23% 27% 25% 28%
24
One Month Ended
September 30,
-------------------------------
2002 2001
-------------------------------
Revenues prior to reduction
for estimated tissue returns $ 573 $ 1,942
Percentage of total revenue 16% 26%
Revenues from human vascular tissue preservation services, prior to reduction
for estimated returns of tissue subject to the FDA Order, decreased 70%, 34% and
6%, respectively, for the one, three, and nine months ended September 30, 2002.
This decrease in revenues for the one, three, and nine month periods ended
September 30, 2002 was primarily due to a decline in customer demand due to the
adverse publicity surrounding the FDA Order, certain reported tissue infections,
and the restrictions on shipments of certain tissues subject to the FDA Order.
Revenues as reported from human vascular tissue preservation services decreased
47% and 20%, respectively, for the three and nine months ended September 30,
2002. The revenues from vascular tissue preservation services were adversely
impacted by the estimated effect of the return of tissues subject to recall by
the FDA Order, which resulted in an estimated decrease of $833,000 and $2.5
million, respectively, in vascular preservation service revenues during the
three and nine months ended September 30, 2002.
The Company anticipates a future decrease in vascular preservation revenues as
compared to prior year periods as a result of the adverse publicity surrounding
the FDA Warning Letter, FDA Order, and certain reported tissue infections. If
the Company is unable to address the observations detailed in the Warning
Letter, future vascular preservation revenues, if any, may be immaterial.
ORTHOPAEDIC PRESERVATION SERVICES
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
Revenues as reported $ 2,553 $ 5,336 $ 14,025 $ 16,145
Percentage of total revenue as reported 15% 24% 21% 25%
Revenues prior to reduction for
estimated tissue returns $ 2,581 $ 5,336 $ 14,433 $ 16,145
Percentage of total revenue prior to
reduction for estimated tissue returns 14% 24% 21% 25%
One Month Ended
September 30,
-------------------------------
2002 2001
-------------------------------
(Credits) revenues prior to
reduction for estimated tissue returns $ (22) $ 1,870
Percentage of total revenue (1%) 25%
Revenues from human orthopaedic tissue preservation services, prior to reduction
for estimated returns of tissue subject to the FDA Order, decreased 101%, 52%
and 11% for the one, three, and nine months ended September 30, 2002. This
decrease in revenues for the one, three, and nine month periods ended September
30, 2002 was primarily due to a decline in customer demand due to the adverse
publicity surrounding the FDA Order, certain reported tissue infections, and the
restrictions on shipments of certain tissues subject to the FDA Order.
25
Revenues as reported from human orthopaedic tissue preservation services
decreased 52% and 13% for the three and nine months ended September 30, 2002.
The revenues from orthopaedic tissue preservation services were adversely
impacted by the estimated effect of the return of tissues subject to recall by
the FDA Order, which resulted in an estimated decrease of $28,000 and $408,000,
respectively, in orthopaedic preservation service revenues during the three and
nine months ended September 30, 2002.
The Company anticipates a substantial decrease in the orthopaedic preservation
revenues as compared to prior year periods due to the Company's inability to
ship orthopaedic grafts processed since October 3, 2001 pursuant to the FDA
Order, the adverse publicity resulting from the FDA Warning Letter and FDA
Order, and the reported infections in some orthopaedic allograft recipients. If
the Company is unable to address the observations detailed in the Warning Letter
to enable the Company to process and ship orthopaedic tissue, or if demand for
these tissues does not return after the observations are addressed, future
orthopaedic preservation revenue, if any, may be immaterial.
BIOPROSTHETIC DEVICES
Revenues from bioprosthetic cardiovascular devices increased 1% to $171,000 for
the three months ended September 30, 2002 from $169,000 for the three months
ended September 30, 2001, representing 1% of total revenues during each such
period. Revenues from bioprosthetic cardiovascular devices increased 11% to
$584,000 for the nine months ended September 30, 2002 from $524,000 for the nine
months ended September 30, 2001, representing 1% of total revenues during each
such period.
DISTRIBUTION AND GRANT REVENUES
Distribution and grant revenues increased to $235,000 for the three months ended
September 30, 2002 from $230,000 for the three months ended September 30, 2001.
Distribution and grant revenues increased to $658,000 for the nine months ended
September 30, 2002 from $598,000 for the nine months ended September 30, 2001.
Grant revenues of $77,000 and $230,000, for the three months ended September 30,
2002 and 2001, respectively, and $208,000 and $598,000, for the nine months
ended September 30, 2002 and 2001, respectively, are primarily attributable to
the SynerGraft(R) research and development programs. Distribution revenues of
$158,000 for the three months ended September 30, 2002 and $450,000 for the nine
months ended September 30, 2002 are for commissions received for the
distribution of orthopaedic tissues for another processor. Distribution revenues
for 2001 were zero.
COSTS AND EXPENSES
Cost of human tissue preservation services aggregated $28.0 million for the
three months ended September 30, 2002 as compared to $8.2 million for the three
months ended September 30, 2001, representing 248% and 41%, respectively, of
total human tissue preservation service revenues for each such period. Cost of
human tissue preservation services aggregated $53.2 million for the nine months
ended September 30, 2002 as compared to $23.6 million for the nine months ended
September 30, 2001, representing 108% and 41%, respectively of total human
tissue preservation service revenues for each period. The cost of human tissue
preservation services for the three and nine months ended September 30, 2002,
respectively, includes a $22.7 million and $32.7 million write-down of deferred
preservation costs related to the FDA Order as discussed in Recent Events. The
Company anticipates a reduction in the cost of human tissue preservation
services due to a reduction in shipments of tissues as a result of the FDA
Order; however the current cost of human tissue preservation services as a
percent of revenue is likely to increase, especially if the decline in the
demand for the tissues continues.
Cost of products aggregated $4.7 million for the three months ended September
30, 2002 as compared to $1.2 million for the three months ended September 30,
2001, representing 89% and 46%, respectively, of product revenues for each such
period. Cost of products aggregated $8.8 million for the nine months ended
September 30, 2002 as compared to $4.1 million for the nine months ended
September 30, 2001, representing 55% and 50%, respectively, of total product
revenues for each period. The increase in the 2002 cost of products as a
percentage of total product revenues is primarily due to a $3.1 million
write-down of bioprosthetic valves, including SynerGraft and non-SynerGraft
treated porcine valves, in the third quarter of 2002 due to the Company's
26
decision to stop future expenditures on the development and marketing of these
valves and to maintain its focus on its preservation services business, and its
BioGlue and SynerGraft vascular graft product lines. The decrease in the 2002
cost of products as a percentage of total product revenues was partially offset
by a favorable product mix that was impacted by an increase in revenues from
BioGlue Surgical Adhesive, which carries higher gross margins than bioprosthetic
devices.
General, administrative, and marketing expenses increased 35% to $11.2 million
for the three months ended September 30, 2002, compared to $8.3 million for the
three months ended September 30, 2001, representing 66% and 37%, respectively,
of total revenues during each such period. General, administrative, and
marketing expenses increased 31% to $32.1 million for the nine months ended
September 30, 2002, compared to $24.6 million for the nine months ended
September 30, 2001, representing 49% and 37%, respectively, of total revenues
during each such period. The increase in expenditures for the three and nine
months ended September 30, 2002 was primarily due to increased overhead costs in
connection with the expansion of the corporate headquarters and manufacturing
facility, which was substantially completed in the first quarter of 2002, an
increase in insurance premiums, an increase in legal and accounting costs, a
$1.2 million accrual for retention levels under the Company's liability and
directors' and officers' insurance policies (see Legal Proceedings at Part II,
Item 1), and additional professional fees required to address the observations
detailed in the Warning Letter. The Company expects to incur significant
increases in legal costs and professional fees over the remainder of the year to
defend the lawsuits filed against the Company, to address the observations
detailed in the Warning Letter and to appeal the FDA Order. Additional marketing
expenses may also be incurred to address the effects of the adverse publicity
surrounding the FDA Order.
Research and development expenses increased 9% to $1.3 million for the three
months ended September 30, 2002, compared to $1.2 million for the three months
ended September 30, 2001, representing 8% and 5%, respectively, of total
revenues for each such period. Research and development expenses increased 3% to
$3.7 million for the nine months ended September 30, 2002, compared to $3.6
million for the nine months ended September 30, 2001, representing 6% and 5%,
respectively, of total revenues for each such period. Research and development
spending for the three and nine months ended September 30, 2002 was primarily
focused on the Company's SynerGraft and Protein Hydrogel Technologies.
As discussed in New Accounting Pronouncements, the Company has recorded a $1.4
million write-down of its goodwill, which is shown as a separate line on the
Summary Consolidated Statements of Operation for the three and nine months ended
September 30, 2002.
Interest income, net of interest expense, was $33,000 and $412,000 for the three
months ended September 30, 2002 and 2001, respectively. Interest income, net of
interest expense, was $182,000 and $1.5 million for the nine months ended
September 30, 2002 and 2001, respectively. The 2002 decrease in net interest
income is due to reduced interest rates in 2002 as compared to 2001 and the lack
of interest expense capitalized in 2002 in connection with the expansion of the
corporate headquarters and manufacturing facility, which was substantially
completed in the first quarter of 2002.
The effective income tax rate was 34% and 32% for the three and nine months
ended September 30, 2002 and 2001, respectively.
SEASONALITY
The demand for the Company's cardiovascular tissue preservation services is
seasonal, with peak demand generally occurring in the second and third quarters.
Management believes this trend for cardiovascular tissue preservation services
is primarily due to the high number of surgeries scheduled during the summer
months. However, the demand for the Company's human vascular and orthopaedic
tissue preservation services, BioGlue Surgical Adhesive, and bioprosthetic
cardiovascular and vascular devices does not appear to experience seasonal
trends.
27
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002 net working capital was $43.3 million, with a current
ratio of 3 to 1, compared to $66.7 million at December 31, 2001. The Company's
primary capital requirements historically arose out of general working capital
needs, capital expenditures for facilities and equipment, and funding of
research and development projects. The Company funded these requirements through
bank credit facilities, cash generated by operations and equity offerings. Based
on the anticipated decrease in revenues resulting from the FDA Order and
associated adverse publicity, the Company expects that its cash generated by
operations will decrease significantly over the near term, and that net working
capital will decrease. The Company believes that anticipated revenue generation,
expense management, savings resulting from the reduction in the number of
employees to reflect the reduction in revenues, tax refunds expected to be in
excess of $10 million, and the Company's existing cash and marketable securities
will enable the Company to meet its liquidity needs through September 30, 2003.
It is possible that the Company will not have sufficient funds to meet its
primary capital requirements over the long term.
Net cash provided by operating activities was $636,000 for the nine months ended
September 30, 2002, as compared to $4.6 million for the nine months ended
September 30, 2001. The $636,000 in current year cash provided was primarily due
to $8.2 million in net income before depreciation, taxes, and excluding non-cash
items, partially offset by a decrease in cash of $7.6 million due to an increase
in working capital requirements from planned revenue growth, expansion of
product lines, and an increase in tissue procurement. Non-cash adjustments to
net income for the nine months ended September 30, 2002 include a $32.7 million
write-down for the impairment of deferred preservation costs resulting from the
FDA Order as discussed in Recent Events, a $3.1 million write-down for the
impairment of inventory as discussed in Costs and Expenses, and a $1.4 million
write-down of goodwill as discussed in New Accounting Pronouncements.
Net cash provided by investing activities was $5.2 million for the nine months
ended September 30, 2002, as compared to cash used of $12.7 million for the nine
months ended September 30, 2001. The $5.2 million in current year cash provided
was primarily due to a net $10.5 million increase in cash from marketable
securities, primarily due to the maturity of debt securities, and $1.2 million
in proceeds from notes receivable, partially offset by a $3.9 million decrease
due to capital expenditures in 2002, as the expansion and renovation of the
Company's corporate headquarters and manufacturing facilities approached
completion, and a decrease due to spending on patents of $2.6 million, primarily
relating to costs incurred to defend the SynerGraft technology patents, as
discussed in Legal Proceedings.
Net cash used by financing activities was $1.0 million for the nine months ended
September 30, 2002, as compared to cash provided of $1.6 million for the nine
months ended September 30, 2001. The $1.0 million in current year cash used was
primarily due to $1.2 million in principal payments on the Term Loan, $663,000
for the purchase of treasury stock, and $454,000 in principal payments on
capital leases, offset by a $1.3 million increase due to proceeds from stock
option exercises.
The Company's Term Loan, of which the principal balance was $5.9 million as of
October 28, 2002, contains certain restrictive covenants including, but not
limited to, maintenance of certain financial ratios and a minimum tangible net
worth requirement, and the requirement that no materially adverse event has
occurred. The lender has determined that the FDA Order, as described in Note 2
to the Summary Consolidated Financial Statements, and the inquiries of the
Securities and Exchange Commission, as described in Note 11 to the Summary
Consolidated Financial Statements, have a material adverse effect on the Company
that constitutes an event of default. Additionally, as of September 30, 2002,
the Company is in violation of the debt coverage ratio and net worth financial
covenants. As of October 28, 2002 the lender has elected not to declare an event
of default, but reserves the right to exercise any such right under the terms of
the Term Loan. Therefore, all amounts due under the Term Loan as of September
30, 2002 are reflected as a current liability on the Consolidated Balance Sheet.
In the event the lender calls the Term Loan, the Company at present has adequate
funds to pay the principal amount outstanding. The Term Loan is secured by
substantially all of the Company's assets.
28
The Company's Term Loan, which accrues interest computed at Adjusted LIBOR plus
1.5%, exposes the Company to changes in interest rates going forward. On March
16, 2000, the Company entered into a $4 million notional amount forward-starting
interest swap agreement, which took effect on June 1, 2001 and expires in 2006.
This swap agreement was designated as a cash flow hedge to effectively convert a
portion of the 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 recognized in the period in which it
accrues as an adjustment to interest expense on the Term Loan.
On January 1, 2001 the Company adopted SFAS 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, 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 within
the Statement of Shareholders' Equity.
In August 2002 the Company determined that changes in the derivative's fair
value could no longer be recorded in other comprehensive income, as a result of
the uncertainty of future cash payments on the Term Loan caused by the lender's
ability to declare an event of default as discussed in Note 6. Beginning in
August 2002 the Company is recording all changes in the fair value of the
derivative currently in other expense/income on the Summary Consolidated
Statements of Operation, and is amortizing the amounts previously recorded in
other comprehensive income into other expense/income over the remaining life of
the agreement. If the lender accelerates the payments due under the term load by
declaring an event of default, any remaining balance in other comprehensive
income will be reclassed into other expense/income during that period.
At September 30, 2002 the notional amount of this swap agreement was $3.0
million, and the fair value of the interest rate swap agreement, as estimated by
the bank based on its internal valuation models, was a liability of $305,000.
The fair value of the swap agreement is recorded as part of long-term
liabilities. For the three and nine months ended September 30, 2002 the Company
recorded a loss of $26,000 on the interest rate swap. The unamortized value of
the swap agreement, recorded in the accumulated other comprehensive income
account of shareholders' equity, was $279,000 at September 30, 2002.
On July 23, 2002 the Company's Board of Directors authorized the purchase of up
to $10 million of its common stock. As of August 13, 2002 the Company had
repurchased 68,000 shares of its common stock for $663,000. No further purchases
are anticipated in the near term.
On July 30, 2002 the Company entered into a line of credit agreement with the
lender that made the Term Loan, permitting the Company to borrow up to $10
million. Borrowings under the line of credit agreement accrue interest equal to
Adjusted LIBOR plus 1.25% adjusted monthly. This loan is secured by
substantially all of the Company's assets. As of October 28, 2002 no amounts
were drawn on the line of credit. As a result of the FDA Order, as discussed in
Note 2 to the Summary Consolidated Financial Statements, the Company is not in
compliance with the lender's requirements for advances of funds under the line
of credit. On August 21, 2002 the lender notified the Company that it was not
entitled to any further advances under the line of credit.
Since October 1998 management has been seeking to enter into a corporate
collaboration or to complete a potential private placement of equity or
equity-oriented securities to fund the commercial development of its Activation
Control Technology ("ACT"). This technology is now held by the Company's wholly
owned subsidiary AuraZyme Pharmaceutical, Inc.(R), ("AuraZyme") which was formed
on February 26, 2001. This strategy, if successful, will allow an affiliated
entity to fund the ACT and should expedite the commercial development of its
oncology, fibrin olysis (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.
29
However, if the Company is unable to obtain funds for the commercial development
of the ACT and/or if the Company decides to fund the technology itself, the
expenses required to fund the ACT could adversely impact the Company's liquidity
going forward. The Company expects that it will reduce its efforts to fund the
commercial development of ACT in the near term until it has evaluated the
financial impact of the recent FDA Order.
The Company expects its liquidity to decrease significantly over the next year
due to the anticipated significant decrease in revenues as compared to the prior
year period, as a result of the FDA Order and an expected decrease in cash due
to the increased legal and professional costs relating to the defense of
lawsuits and the FDA Order. On September 3, 2002 the Company announced a
reduction in employee force of approximately 105 employees. Severance and
related costs are approximately $690,000 and were recorded in the third quarter
of 2002. As a result of the employee reduction, management anticipates personnel
costs will be reduced by approximately $385,000 per month. The Company believes
that anticipated revenue generation, expense management including the cessation
of the development of the bioprosthetic valves, savings resulting from the
reduction in the number of employees to reflect the reduction in revenues, tax
refunds expected to be in excess of $10 million (consisting of $1.7 million of
overpayments from 2001 received in October of 2002, $2.5 million of expected
overpayments for the 2002 tax year which is expected to be received in the first
quarter of 2003, and at least $5.8 million of loss carrybacks generated from
deferred preservation cost write-downs the receipt of which will be based upon
the timing of the destruction of the related tissues), and the Company's
existing cash and marketable securities will enable the Company to meet its
liquidity needs through September 30, 2003. Even if the Company is able to
address the observations detailed in the FDA's Warning Letter, there is no
assurance that the Company will be able to return to the level of demand for its
tissue services that existed prior to the FDA Order as a result of the adverse
publicity or as a result of customers and tissue banks switching to competitors.
The Company's long term liquidity and capital requirements will depend upon
numerous factors, including the ability of the Company to address the
observations detailed in the Warning Letter, the ability to have the Agreement
with the FDA extended, the extent of the anticipated revenue decreases, the
costs associated with becoming compliant with the FDA requirements as outlined
in the FDA Order, the outcome of litigation against the Company as described in
Part II Item 1 of this Form 10-Q, the level of demand for tissue based on
adverse publicity in the event the FDA Order is resolved in a manner favorable
to the Company, the timing of the Company's receipt of FDA approvals to begin
clinical trials for its products currently in development, the availability of
resources required to further develop its marketing and sales capabilities if
and when those products gain approval, the extent to which the Company's
products generate market acceptance and demand and the resolution of the "Risk
Factors" discussed below. The ultimate impact of many of these factors will be
affected by the outcome of others. 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. 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, results of operations,
and cash flows.
30
RISK FACTORS
FDA ORDER ON HUMAN TISSUE-DEPENDENCE ON PRESERVATION OF HUMAN TISSUE
On August 13, 2002 the Company received an order from the FDA calling for the
retention, recall, and/or destruction of all non-valved cardiac, vascular, and
orthopaedic tissue processed by the Company at its headquarters since at least
October 3, 2001 based upon allegations of FDA violations by the Company of its
handling of such tissue and alleged contamination through the Company's
processing of such tissue that resulted in 14 post-transplant infections
including one death. A significant portion of the Company's current revenues is
derived from the preservation of human tissues. Revenues of human tissue
preservation services for the six months ended June 30, 2002, the last period
ending prior to the issuance of FDA Order, were 78% of the Company's revenues.
Of those revenues, 67% were derived from preservation of tissues subject to the
FDA Order representing $26.9 million. Revenues for human tissue preservation
services for the year ended 2001 were 86% of the Company's revenues. Of those
revenues, 68% were derived from preservation of tissues subject to the FDA
Order. On September 30, 2002, the first full month in which the Company was
subject to the FDA Order as supplemented by the Agreement, revenues derived from
the preservation of tissues for the Company were $1.7 million, a 72% decrease in
revenues from September 2001.
The FDA Order has had a material adverse effect on the Company's business,
financial condition, results of operations and cash flows. As a result of the
FDA Order, the Company has experienced, and continues to expect to experience,
decreases in revenues and profits and there is a possibility that the Company
may not generate sufficient cash from operations to fund its operations.
Although the Agreement that supplements the FDA Order has allowed the Company to
process vascular and non-valve cardiac patch tissues subject to the FDA Order
with certain restrictions, the Company has continued to experience a reduced
demand for such tissues due to the adverse publicity generated from the recall
and from implanting physicians' or risk managers at implanting institutions
decisions to use human tissue from the Company's competitors. Even if the
Company is able to address the observations detailed in the FDA's Warning
Letter, demand for such tissue has been, and may continue to be, reduced by the
adverse publicity generated from the recall or from implanting physicians' and
risk managers' decisions to use human tissue from the Company's competitors.
Therefore, even if the Company is able to address the observations detailed in
the FDA's Warning Letter, the Company could still experience significant
decreases in revenues and profits and there is a possibility that the Company
would not generate sufficient cash from operations to fund its operations. Even
if the Company is able to address the observations detailed in the FDA's Warning
Letter, the Company currently believes that the time for processing human tissue
and the costs of such processing are likely to increase, which could have a
material adverse affect on the Company's business, results of operations and
financial position.
In the event that the Company is able to address the observations detailed in
the FDA's Warning Letter, the success of the Company 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 (most of which are not-for-profit) and
others to educate the public and foster a willingness to donate tissue. Because
of the adverse publicity associated with the recall and uncertainty regarding
future tissue processing, some procurement agencies have ceased sending tissue
to the Company for processing. If the Company's relationships with procurement
agencies continue to be adversely affected or the Company is unable to obtain
tissues from procurement agencies that have ceased sending tissue to the Company
for processing, the Company may be unable to obtain adequate supplies of donated
tissues to operate profitably.
EFFECTS OF FDA ORDER ON LIQUIDITY AND CAPITAL RESOURCES
Based upon the FDA Order, the Company anticipates a continued decrease in
liquidity. Based upon the anticipated decrease in revenues and profits from the
FDA Order and associated adverse publicity, the Company expects that cash
generated by operations will continue to decrease over the near term and working
capital could decrease. Although the Company has reduced its level of operation
and the number of personnel employed in response to the FDA Order, there is a
possibility that the Company may not have sufficient funds to fund its primary
capital requirements or to meet its operating and development needs.
31
CURRENT DEMAND FOR OUR ORTHOPAEDIC TISSUE PRESERVATION SERVICES IS MINIMAL AND
MAY NOT RETURN
As a result of the FDA Order and related adverse publicity the Company has
received only nominal revenue from the cryopreservation of orthopaedic tissues
since August 14, 2002. For the year ended December 2001, human tissue
preservation services revenues for orthopaedic tissues were $22.5 million, which
represented 26% of the Company's revenues. For the six months ended June 30,
2002, revenues for preservation services for orthopaedic tissues were $11.9
million, which represented 23% of the Company's revenues. Even if the Company is
able to address the observations in the FDA's Warning Letter and the Company is
allowed to resume processing and shipping of orthopaedic tissues, because
orthopaedic tissue is generally not involved in life-saving or limb-saving
procedures and due to the adverse publicity, the demand for orthopaedic tissue
from the Company may be minimal and may never return to the levels in existence
before the FDA Order. As a result, this portion of the Company's business may
have to be permanently discontinued or may only continue at an extremely reduced
level. Any of these occurrences would result in a significant decrease in the
Company's revenues and profitability in the future as compared to historical
results.
PHYSICIANS MAY BE RELUCTANT TO IMPLANT THE COMPANY'S PRESERVED TISSUES
Even if the Company is able to address the observations detailed in the FDA's
Warning Letter, and the Company is allowed to resume shipping all of the tissues
subject to the FDA Order without the restrictions set forth in the Agreement,
there is a risk that physicians or implanting institutions will be reluctant to
choose the Company's preserved tissues for use in implantation, due to a
perception that they may not be safe or to a belief that the implanting
physician or hospital may be subject to a heightened liability risk if the
Company's tissues are used. In addition, for similar reasons, hospital risk
managers may forbid implanting surgeons to utilize the Company's tissues where
alternatives are available. If a significant number of implanting hospitals or
physicians refused to use tissues preserved by the Company, the Company's
revenues and profits would be materially adversely affected.
HEART VALVES PROCESSED BY THE COMPANY MAY ALSO BE RECALLED
On August 21, 2002 the FDA publicly stated that allograft heart valves have not
been included in the FDA recall order as these devices are essential for the
correction of congenital cardiac lesions in neonate and pediatric patients and
no satisfactory alternative device exists. However, the FDA also publicly stated
that it still has serious concerns regarding the processing and handling of
allograft heart valves. The FDA also recommended that surgeons carefully
consider using processed allografts from alternative sources, that surgeons
should inform prospective patients of the FDA's concerns with the Company's
allograft heart valves, and that patients should be carefully monitored for both
fungal and bacterial infections. The FDA could institute a recall or other
corrective measures if it felt that the Company was not making progress in
complying with the FDA Order. Any adverse finding by the FDA regarding allograft
heart valves, including a recall, would cause further decreases in the Company's
revenue base and profits and significantly reduce the Company's potential for
growth. If such a recall occurs, the Company may also be required to write-down
all or a portion of the deferred preservation costs for allograft heart valves,
which could have a material adverse effect on the results of operations and
financial condition of the Company.
DEMAND FOR HEART VALVES PROCESSED BY THE COMPANY HAS DECREASED AND MAY CONTINUE
TO DECREASE
Possibly as a result of the FDA's public statement on August 21, 2002 regarding
allograft heart valves, and due to the adverse publicity associated with the FDA
Order, some physicians and implanting institutions have been reluctant to choose
the Company's allograft heart valves for use in implantation, due to a
perception that they may not be safe or to a belief that the implanting
institutions or hospitals may be subject to a heightened liability risk if the
Company's preserved tissues are used, especially if alternatives are available.
If adverse publicity continues, and if the Company is unable to address the
observations in the FDA's Warning Letter and the FDA's public statement is not
retracted, the demand for Company's allograft heart valves could continue to
decrease and may never return to the levels exhibited before the FDA Order. In
such an event, the Company's revenues and profits would be materially adversely
affected as compared to historical results.
32
ESTIMATED COSTS OF RECALL AND RELATED WRITE-DOWNS
The Company's financial statements reflect the estimated cost of recalling
tissue pursuant to the FDA Order. The Company has recorded a write-down of $32.7
million of deferred preservation costs for tissues subject to the FDA Order.
While these estimates are based on the Company's best estimate of the costs
associated with the recall and the impairment of deferred preservation costs
subject to the FDA Order, there can be no assurance that these costs and
write-downs will in fact be limited to the amount estimated.
RISKS RELATED TO PRODUCTS NOT AFFECTED BY THE FDA RECALL
Even though the Company's BioGlue products and its porcine heart valve products
(which are not sold in the United States) are not included in the FDA Order,
there is a possibility that surgeons or risk managers at institutions that use
such products may be reluctant to use such products because of the adverse
publicity associated with the FDA Order. Decreased demand for such products,
particularly BioGlue, could have a material adverse effect on the Company's
business, results of operations and financial position.
REGULATORY ACTION OUTSIDE OF THE UNITED STATES
After the FDA issued its order regarding the recall, Health Canada also issued a
recall on the same types of tissue. In addition, other countries have inquired
as to the tissues exported by the Company, although their inquiries are now, to
the Company's knowledge, complete. In addition, the Company has not shipped
tissue out of the United States without following the restrictions set forth in
the FDA Order as supplemented by the Agreement. In the event that the Company is
unable address the observations detailed in the FDA's Warning Letter or
additional regulatory concerns raised by other countries, the Company may be
unable to export tissues subject to the FDA Order.
THE COMPANY MAY BE FORCED TO CEASE TISSUE PRESERVATION
If the Company is not able to address the observations detailed in the Warning
Letter, or if the allograft heart valves processed by the Company are also
recalled, or if the Agreement expires and is not extended, the Company may not
be able to profitably continue its tissue processing business. In such an event,
the Company would attempt to continue as a smaller adhesives and valve
manufacturing company; however, in order to do so the Company would be required
to divest itself of a number of assets related to its tissue processing business
and would have to institute large-scale workforce reductions. There is no
guarantee that the resulting entity would be able to generate sufficient
revenues to operate profitably, and in any event, the Company would be much
smaller and would likely be valued at a reduced level by the marketplace.
THE COMPANY'S COMMON STOCK IS POTENTIALLY AT RISK OF BEING DELISTED FROM THE NEW
YORK STOCK EXCHANGE
Because of the FDA Order and the current trading price of the Company's common
stock, there is a possibility that the Company's common stock could be delisted
from the New York Stock Exchange. If the stock is delisted, there is no
guarantee that there will be a liquid market for the stock and the trading price
of the stock would likely be adversely affected.
THE COMPANY IS THE SUBJECT OF AN ONGOING SEC INVESTIGATION
The Company received notice from the Securities and Exchange Commission on
August 17, 2002 that it is the subject of an investigation with respect to
accounting issues and trades in the Company's stock related to the FDA Order.
The Company does not know any details of what the SEC is specifically
investigating, but believes that an adverse finding by the SEC could have a
material adverse effect on its business financial position, results of
operations, and cash flows. The staff of the SEC subsequently confirmed that its
investigation is informal in nature, and that it does not have subpoena power at
this time. At the present time, the Company is unable to predict the outcome of
this matter.
33
EFFECTS OF THE FDA RECALL ON CREDIT FACILITY
The Term Loan contains certain restrictive covenants including, but not limited
to, maintenance of certain financial ratios, a minimum tangible net worth
requirement, and the requirement that no materially adverse event has occurred.
The lender has determined that the FDA Order, as described in Note 2 to the
Summary Consolidated Financial Statements, and the inquiries of the Securities
and Exchange Commission, as described in Note 12 to the Summary Consolidated
Financial Statements, have a material adverse effect on the Company that
constitutes an event of default. Additionally, as of September 30, 2002, the
Company is in violation of the debt coverage ratio and net worth financial
covenants. As of October 28, 2002 the lender has elected not to declare an event
of default, but reserves the right to exercise any such right under the terms of
the Term Loan. There is no assurance the lender will not exercise its rights,
which could have a material adverse effect on the Company's liquidity.
THE COMPANY'S INSURANCE COVERAGE MAY BE INSUFFICIENT TO COVER CURRENT AND FUTURE
CLAIMS AND ADDITIONAL COVERAGE MAY BE DIFFICULT OR IMPOSSIBLE TO OBTAIN IN THE
FUTURE
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. As a result, 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,
including the lawsuits filed against the Company relating to infection of
implanted tissue described below in Part II, Item 1 "Legal Proceedings." The
recent FDA Order could adversely influence the outcome of current product
liability claims relating to infection of tissue processed by the Company. In
addition, due to the publicity surrounding the recent FDA Order more product
liability claims relating to alleged infection of tissue processed by the
Company could be filed.
In addition, a recent United States 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.
Whether or not the Company is ultimately determined to be liable for product
liability claims, the Company will 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, the
Company may incur significant losses in the future. Management believes that the
coverage is adequate to cover any losses due to product claims if actually
incurred however, there can be no assurance that such coverage will be adequate.
In addition, there can be no assurance that such coverage will continue to be
available on terms acceptable to the Company, especially in light of the FDA
Order and the number of product liability claims the Company has had made
against it. Furthermore, if any product liability claims are successful, it
could have a material adverse effect on the Company's business, financial
condition, results of operations, and cash flows.
Because of the current litigation and the adverse publicity from the FDA Order,
the Company may be unable to obtain additional insurance coverage in the future,
causing the Company to be subject to additional future exposure from product
liability claims.
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.
During the time that the Company has been restricted in its processing and
distribution of human tissue due to the FDA Order as supplemented by the
Agreement, tissue preservation service customers have been forced to obtain
tissue from the Company's competitors, which could lead to permanent
substitution when, and if, the Company resumes processing tissues without the
restrictions of the FDA Order, as supplemented by the Agreement.
34
Management believes that at least four tissue banks offer preservation services
for allograft 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
would 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, results of operations and cash flows.
The FDA Order and related adverse publicity have had an adverse effect on the
Company's competitive position, which has had a material adverse effect on the
Company's results of operations. The FDA Order and related adverse publicity may
continue to have an adverse effect on the Company's competitive position, which
may continue to have a material adverse effect on the Company's results of
operations. As a result of the FDA Order, the Company's competitors may gain
competitive advantages that may be difficult to overcome.
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, results
of operations, and cash flows.
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.
The Company may be required to undertake time consuming and costly development
activities and seek regulatory clearance or approval for new products. The
Company has had minimal reduction in its development efforts since the receipt
of the FDA Order. The Company may have to further reduce its development efforts
in the future because of the impact of the FDA Order on the Company's financial
condition or if it is unable to address the observations detailed in the Warning
Letter.
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, the
Company's products under development may not be successfully developed or
manufactured or, if developed and manufactured, such products may not meet price
or performance objectives, be developed on a timely basis or prove to be as
effective as competing products.
35
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, results of operations, and cash flows. The Company's
porcine heart valve products, including its SynerGraft treated porcine valves,
are currently only offered for sale outside of the United States. 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 United States. 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. The introduction of new human tissue products may require
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 is a reversible linker technology that has potential uses in the areas
of cancer therapy, fibrin olysis (blood clot dissolving) and other drug delivery
applications. The Company has formed AuraZyme, a wholly owned subsidiary, in
order to seek a corporate collaboration or to complete a potential private
placement of equity or equity-oriented securities to fund the commercial
development of the ACT.
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, especially in light of the recent FDA
Order. If such funding is not obtained, the Company may be unable to effectively
test and develop the ACT, and may therefore be unable to determine its
effectiveness. Even if such financing is obtained, there is no guarantee that
the ACT will in fact prove to be effective in the above applications. Failure to
obtain the desired financing, or failure of the ACT to perform as anticipated in
future tests, could have a material adverse effect on the Company's future
expansion plans and could limit future growth.
UNCERTAINTIES REGARDING THE SYNERGRAFT TECHNOLOGY
The Company processes porcine, bovine 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 improved longevity over the CryoLife
standard processing technology 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 United States, the EC and other jurisdictions
represents a potentially determinative factor in the success of the Company's
efforts to market and develop its products. The allograft heart valves to which
the Company applies its preservation services are currently regulated as Class
II medical devices by the FDA and are subject to significant regulatory
requirements, including Quality System Regulations and record keeping
requirements. Changes in regulatory treatment or the adoption of new statutory
or regulatory requirements are likely to 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 record keeping
36
relating to these activities and impose certain registration and product listing
requirements on establishments that process or distribute human tissue or
cellular-based products. The FDA has proposed and is refining a regulation that
will improve good tissue practices, akin to good manufacturing practices,
followed by tissue banks and processors of human tissue. It is anticipated that
these good tissue practices regulations when promulgated will enhance regulatory
oversight of the Company and other processors of human tissue.
BioGlue Surgical Adhesive is regulated as a Class III medical device and the
Company believes that its ACT may be regulated as a biologic or drug by the FDA.
The ACT has not been approved for commercial distribution in the United States.
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 porcine heart valve products
in the United States. 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 premarket approval ("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 United States 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 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 or services
marketed by the Company pursuant to FDA or foreign oversight or approvals are
subject to continuing regulation. In the United States, 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, warnings, citations, product recalls or
detentions and other penalties and could have a material adverse effect on the
Company's business, financial condition, results of operations, and cash flows.
As noted above, the FDA Order has had, and may continue to have such an effect.
37
In addition, The National Organ Transplant Act ("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 preservation
services. The Company's laboratory operations are subject to the United States
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.
More restrictive state laws or regulations may be adopted in the future and they
could have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows.
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, results of operations, and cash flows. 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, results of operations, and cash
flows.
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 preservation services with respect to its cardiac, vascular, and
orthopaedic tissues may be particularly susceptible to third-party cost
containment measures. For example, the initial cost of a cryopreserved allograft
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, hospitals, 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
38
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, results
of operations and cash flows.
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 who 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, results of operations and cash
flows.
VOLATILITY OF SECURITIES PRICES
The trading price of the Company's common stock has been subject to wide
fluctuations recently and may continue to be subject to such volatility in the
future. Trading price fluctuations can be caused by a variety of factors,
including regulatory actions such as the recent FDA Order, recent product
liability claims, 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 further,
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. If the Company's share prices do not meet the requirements of the New
York Stock Exchange, the Company's shares may be delisted. The Company's closing
stock price since January 1, 2002 has ranged from a high of $31.31 to a low of
$1.89.
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 of Directors 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.
39
FORWARD-LOOKING STATEMENTS
This Form 10-Q 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 herein which
address activities, events or developments which the Company expects or
anticipates will or may occur in the future, including statements regarding the
impact of recent accounting pronouncements, adequacy of product liability
insurance to defend against lawsuits, the outcome of lawsuits filed against the
Company, the impact of the FDA Order and related Agreement on future revenues,
profits and business operations, the effect of the FDA Order on sales of
BioGlue, future tissue procurement levels resulting from the FDA Order, the
Company's ability to address the observations detailed in the Warning Letter,
the outcome of the Company's appeal of the FDA Order, the estimates underlying
the charges recorded in the second quarter due to the FDA Order, the estimates
underlying the accrual to second quarter earnings established to account for the
cost to the Company of the FDA Order and the legal and professional fees
necessary because of the FDA Order, the estimates of the amounts accrued for the
retention levels under its product liability and directors' and officers'
insurance policies, future costs of human tissue preservation services, changes
in liquidity and capital resources as a result of the FDA Order, the outcome of
any evaluation of allograft heart valves by the FDA, the possible adverse
outcome of the SEC investigation referenced in the SEC Letter, future product
development plans as a result of the FDA Order, the Company's competitive
position, the successful development of its SynerGraft porcine heart valves,
funding available to continue development of the ACT, estimated dates relating
to the Company's proposed regulatory submissions, the Company's expectations
regarding the adequacy of current financing arrangements, product demand and
market growth, the potential of the ACT for use in cancer therapies, fibrin
olysis (blood clot dissolving), and other drug delivery applications, the
outcome of litigation, the impact on the Company of adverse results of surgery
utilizing tissue processed by it, 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 to the Company's expectations and predictions is
subject to a number of risks and uncertainties, as is the Company's business.
These risks and uncertainties, which could cause actual results to differ
materially from the Company's expectations, include the risk factors discussed
in this Form 10-Q 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-Q 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.
40
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 United States interest rates. In this regard, changes in United
States interest rates affect the interest earned on the Company's cash and cash
equivalents of $12.2 million and short-term investments in municipal obligations
of $15.9 million as of September 30, 2002, as well as interest paid on its debt.
A 10% adverse change in interest rates affecting the Company's cash equivalents
and short-term investments would not have a material impact on the Company's
interest income for 2002.
The Company manages interest rate risk through the use of fixed debt and an
interest rate swap agreement. At September 30, 2002 approximately $3.0 million
of the Company's $6.0 million in debt charged interest at a fixed rate. This
fixed rate debt includes a portion of the Company's outstanding term loan
balance that has been effectively converted to fixed rate debt through an
interest rate swap agreement. A 10% increase in interest rates affecting the
Company's variable rate debt, net of the effect of the interest rate swap
agreement, would not have a material increase in the Company's interest expense
for 2002.
Item 4. Controls and Procedures.
With the participation of management, the Company's President and Chief
Executive Officer along with the Company's Vice President of Finance and Chief
Financial Officer evaluated the Company's disclosure controls and procedures
within 90 days of the filing date of this quarterly report. Based upon this
evaluation, the Company's President and Chief Executive Officer along with the
Company's Vice President of Finance and Chief Financial Officer concluded that
the Company's disclosure controls and procedures are effective in ensuring that
material information required to be disclosed is included in the reports that it
files with the Securities and Exchange Commission.
There were no significant changes in the Company's internal controls or, to the
knowledge of the management of the Company, in other factors that could
significantly affect these controls subsequent to the evaluation date.
41
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
In the normal course of business as a medical device and services
company the Company has product liability complaints filed against it.
As of October 28, 2002 fifteen cases had been filed against the Company
between May 18, 2000 and October 8, 2002. The cases are currently in the
pre-discovery or discovery stages. Of these cases, nine allege product
liability claims arising out of the Company's orthopaedic tissue, four
allege product liability claims arising out of the Company's allograft
heart valve tissue, one alleges product liability claims arising out of
the Company's allograft vascular tissue, and one alleges product
liability claims arising out of the non-tissue products made by Ideas
for Medicine, when it was a subsidiary of the Company.
Included in these cases is the complaint filed against the Company in
the Superior Court of Cobb County, Georgia, on July 12, 2002 by Steve
Lykins, as Trustee for the benefit of next of kin of Brian Lykins. This
complaint alleges strict liability, negligence, professional negligence,
and breach of warranties related to tissue implanted in November of
2001. The plaintiff seeks unspecified compensatory and punitive damages.
The Company maintains insurance policies, which the Company believes to
be adequate to defend against these suits. The Company's insurance
company has been notified of these actions. The Company intends to
vigorously defend against these claims. Nonetheless, an adverse judgment
in excess of the Company's insurance coverage could have a material
adverse effect on the Company's financial position, results of
operations, and cash flows.
Several putative class action lawsuits were filed in July through
September 2002 against the Company and certain officers of the Company
alleging that the defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under,
by issuing a series of materially false and misleading statements to the
market throughout the Class Period of August of 2000 through August of
2002, which statements had the effect of artificially inflating the
market price of the Company's securities. The principal allegations of
the complaints are that the Company failed to disclose its alleged lack
of compliance with certain FDA regulations regarding the handling and
processing of certain tissues and other product safety matters. The
plaintiffs seek unspecified compensatory damages in an amount to be
proven at trial. The Company believes these cases will be consolidated
into one putative class action lawsuit. The Company believes the claims
made in the lawsuits are without merit and intends to vigorously defend
against these claims. Management has retained the services of the
Atlanta based law firm of King & Spalding to defend the Company. The
Company carries director's and officer's liability insurance, which the
Company believes to be adequate to defend against these suits.
Nonetheless, an adverse judgment in excess of the Company's insurance
coverage could have a material adverse effect on the Company's financial
position, results of operations, and cash flows.
The Company received notice in October that a complaint had been filed
instituting a shareholder derivative action against the Company and
Company officers and directors Steven G. Anderson, Albert E. Heacox,
John W. Cook, Ronald C. Elkins, Virginia C. Lacy, Ronald D. McCall,
Alexander C. Schwartz and Bruce J. Van Dyne. The suit was filed in the
Superior Court of Gwinnett County, Georgia, by Rosemary Lichtenberger
but has not been served on the defendants. The suit alleges the
individual defendants breached their fiduciary duties to the Company by
causing or allowing the Company to engage in practices that caused the
Company to suffer damages by being out of compliance with FDA
guidelines, and by causing the Company to issue press releases that
erroneously portrayed CryoLife's products, operations, financial results
and future prospects. The complainant seeks undisclosed damages, costs
and attorney's fees, punitive damages and prejudgment interest against
the individual defendants derivatively on behalf of the Company as a
nominal defendant. Filing of the complaint was preceded by a demand
letter on behalf of the complainant dated one day prior to the filing of
the suit. Another derivative demand letter of similar import was
received on behalf of complainant Robert F. Fraley; however, to the
Company's knowledge, no suit has yet been filed by Mr. Fraley. The
42
Company's Board of Directors has established an independent committee to
investigate the claims asserted in the Lichtenberger complaint and the
demands made in the Fraley letter and report back to the Board with its
recommendations for action in response to the shareholders' demands. The
independent committee has engaged independent legal counsel to assist in
the investigation.
On August 7, 2002 the Company announced the settlement of its ongoing
litigation with Colorado State University Research Foundation ("CSURF")
over the ownership of the Company's SynerGraft technology. The
settlement resolves all disputes between the parties and extinguishes
all CSURF ownership claims to any aspect of the Company's SynerGraft
technology. The settlement includes an unconditional assignment to the
Company of CSURF tissue engineering patents, trade secrets and know-how
relating to tissue decellularization and recellularization. The
technology assignment supercedes the 1996 technology license, which was
terminated by the terms of the settlement. Payment terms include a
nonrefundable advance of $400,000 paid by the Company to CSURF that will
be applied to earned royalties as they accrue through March 2011. The
Company recorded these amounts as prepaid royalties and will expense the
amounts as the royalties accrue. The earned royalty rate is a maximum of
0.75% of net revenues from products or tissue services utilizing the
SynerGraft technology. Royalties earned under the agreement for revenues
through September 30, 2002 were approximately $33,000.
On August 17, 2002 the Company received a letter from the United States
Securities and Exchange Commission (the "SEC Letter") that stated that
the Company was subject to an investigation related to the Company's
August 14, 2002 announcement of the FDA Order and requesting information
from the Company from the period between September 1, 2001 through the
date of the Company's response to the SEC Letter. The SEC Letter stated,
in part, that "We are trying to determine whether there have been any
violations of the federal securities laws. The investigation and the
subpoena do not mean that we have concluded that anyone has broken the
law. Also, the investigation does not mean that we have a negative
opinion of any person, entity or security." The staff of the SEC
subsequently confirmed that its investigation is informal in nature, and
that it does not have subpoena power at this time. At the present time,
the Company is unable to predict the outcome of this matter.
The Company has concluded that it is probable that it will incur losses
relating to claims and litigation of at least $1.2 million; which
represents the aggregate amount of the Company's deductibles under its
product liability and directors and officer's insurance policies.
Therefore the Company has recorded an accrual of $1.2 million as of June
30, 2002.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
See Note 6 to the Summary Consolidated Financial Statements for
information regarding a notification by the Company's lender that the
FDA Order and the inquiries of the SEC have had a material adverse
effect on the Company, which constitutes an event of default. The
lender has elected not to declare an event of default at this time.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
43
Item 5. Other information.
Alexander C. Schwartz, Jr. resigned from the Board of Directors on
October 14, 2002 due to health reasons following a lengthy illness.
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 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* Second Amendment to Construction Loan and Permanent Financing
Agreement, dated July 30, 2002, by and between the Company and Bank of
America.
10.2* Promissory Note by and between the Company and Bank of America, dated
July 30, 2002.
10.3* Settlement and Release Agreement, dated August 2, 2002, by and between
Colorado State University Research Foundation, the Company and Dr. E.
Christopher Orton.
10.4* Employment Agreement, by and between the Company and D. Ashley Lee,
dated September 3, 2002.
10.5* Employment Agreement, by and between the Company and Sidney B.
Ashmore, dated September 3, 2002.
10.6* Employment Agreement, by and between the Company and Kirby S. Black,
dated September 3, 2002.
10.7* Employment Agreement, by and between the Company and Albert E. Heacox,
dated September 3, 2002.
10.8* Employment Agreement, by and between the Company and David M. Fronk,
dated September 3, 2002.
10.9* Employment Agreement, by and between the Company and James C. Vander
Wyk, dated September 3, 2002.
10.10* Employment Agreement, by and between the Company and Steven G.
Anderson, dated September 3, 2002.
44
10.11 Letter Agreement between the Company and FDA, dated September 5, 2002.
(Incorporated by reference to Exhibit 10.38 to the registrant's report
of Form 8-K filed on September 6, 2002).
10.12* Eighth 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 November 18, 1998.
10.13* Ninth 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 July 25, 2001.
10.14* Tenth 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 June 25, 2002.
10.15* First Amendment to Lease dated July 23, 1993, by and between Newmarket
Partners I, Laing Properties, Inc. and Laing Management Company,
General Partner, as Landlord, and the Company as Tenant, dated June 9,
1994.
10.16* Second Amendment to Lease dated July 23, 1993, by and between
Newmarket Partners I, Laing Properties, Inc. and Laing Management
Company, General Partner, as Landlord, and the Company as Tenant,
dated June 6, 1998.
10.17* Third Amendment to Lease dated July 23, 1993, by and between Newmarket
Partners I, Laing Properties, Inc. and Laing Management Company,
General Partner, as Landlord, and the Company as Tenant, dated August
3, 2001.
10.18* Fourth Amendment to Lease dated July 23, 1993, by and between
Newmarket Partners I, Laing Properties, Inc. and Laing Management
Company, General Partner, as Landlord, and the Company as Tenant,
dated June 25, 2002.
99.1* Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant
To Section 906 Of The Sarbanes-Oxley Act Of 2002.
- --------
* Filed herewith.
(b) Current Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K with the Commission on
September 6, 2002 with respect to the Letter Agreement between the Company and
the FDA.
45
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)
/s/ STEVEN G. ANDERSON /s/ DAVID ASHLEY LEE
- --------------------------------------- ----------------------------------
STEVEN G. ANDERSON DAVID ASHLEY LEE
Chairman, President, and Vice President and Chief Financial
Chief Executive Officer Officer
(Principal Financial and
Accounting Officer)
October 29, 2002
- ------------------------
DATE
46
CERTIFICATIONS
I, Steven G. Anderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CryoLife, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 29, 2002
/s/ STEVEN G. ANDERSON
-------------------------------------
Chief Executive Officer
47
I, David Ashley Lee, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CryoLife, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 29, 2002
/s/ DAVID ASHLEY LEE
-----------------------------------
Chief Financial Officer
48
1505366v2
EXHIBIT 10.1
SECOND AMENDMENT TO CONSTRUCTION LOAN
AND PERMANENT FINANCING AGREEMENT
This Second Amendment to Construction Loan and Permanent Financing
Agreement (this "Amendment") is made and entered into as of July 30, 2002 by and
between CRYOLIFE, INC. (the "Borrower"), and BANK OF AMERICA, N.A. (the
"Lender");
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have made and entered into that
Construction Loan and Permanent Financing Agreement, dated as of April 25, 2000,
as amended through the date hereof (the "Original Loan Agreement" and, as
amended hereby, the "Loan Agreement"; capitalized terms used herein and not
otherwise defined shall have the meanings ascribed thereto in the Loan
Agreement);
WHEREAS, the Borrower's obligations to the Lender are secured by that
certain Security Agreement, dated as of April 25, 2000, as amended through the
date hereof (the "Original Security Agreement" and, as so amended, the "Security
Agreement");
WHEREAS, pursuant to the Original Loan Agreement, the Lender has extended
to the Borrower a construction/permanent loan facility in the original principal
amount of up to $8,000,000;
WHEREAS, the Lender has previously extended to the Borrower a revolving
loan facility in the original principal amount of up to $2,000,000, which has
expired;
WHEREAS, Borrower desires to obtain a new revolving loan facility of up to
$10,000,000 and to make certain other changes to the Loan Agreement;
WHEREAS, the Borrower desires to amend certain provisions of the Loan
Agreement, and the Lender is willing to agree to the same on the terms and
conditions set forth herein;
NOW THEREFORE, for and in consideration of the foregoing and for ten
dollars ($10.00) and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1.
AMENDMENTS TO LOAN AGREEMENT
SECTION 1.1 DEFINITION AMENDMENTS. The following definitions in Section 1.1
of the Loan Agreement are hereby amended in their entirety to read as follows:
"Adjusted LIBO Rate" means:
(i) with respect to the Construction Loan (and Term Loan), the LIBO Rate
divided by a percentage equal to one (1) minus the then average stated
maximum amount (stated as a decimal) of all reserve requirements applicable
to any member of the Federal Reserve System in respect of Eurocurrency
liabilities as defined in Regulation D of the Board of Governors of the
Federal Reserve System (or any successor categories for such liabilities
under such Regulation D). The Adjusted LIBO Rate shall be set on the date
of Closing and shall be recalculated each thirtieth (30th) day thereafter.
The Adjusted LIBO Rate, once so calculated or recalculated, shall remain in
effect until the next scheduled recalculation date. If any recalculation
date for the Adjusted LIBO Rate is not a Business Day, the recalculation of
the Adjusted LIBO Rate shall be made on the next Business Day following
such date.
(ii) with respect to the Line of Credit, the fluctuating rate of interest
(rounded upwards, if necessary to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the 1 month London interbank
offered rate for deposits in United States Dollars at approximately 11:00
a.m. (London time) on the second preceding business day, as adjusted from
time to time in Lender's sole discretion for then-applicable reserve
requirements, deposit insurance assessment rates and other regulatory
costs; if for any reason such rate is not available, the term "LIBOR Daily
Floating Rate" shall mean the fluctuating rate of interest equal to the
rate of interest (rounded upwards, if necessary to the nearest 1/100 of 1%)
appearing on Reuters Screen LIBO Page as the 1 month London interbank
offered rate for deposits in United States Dollars at approximately 11:00
a.m. (London time) on the second preceding day, as adjusted from time to
time in Lender's sole discretion for then-applicable reserve requirements,
deposit insurance assessment rates and other regulatory costs; provided,
however, if more than one rate is specified on Reuters Screen LIBO page,
the applicable rate shall be the arithmetic mean of all such rates (the
"Index"). The Index is not necessarily the lowest charged by Lender on its
loans, Lender may make loans based on other rates as well and if the Index
becomes unavailable during the term of this Line of Credit, Lender may
designate a substitute index after notice to Borrower. The interest rate
change applicable to the Line of Credit will not occur more often than each
date of such change in the Index.
"Advances" means, (i) with respect to the Construction Loan, any direct or
indirect advance made by Lender to Borrower pursuant to Article Two of this
Agreement, and (ii) with respect to the Line of Credit, any direct or
indirect advance made by Lender to Borrower pursuant to Article IIIA of
this Agreement.
"Commitment" means, (i) with respect to the Construction Loan (and Term
Loan), $8,000,000, and (ii) with respect to the Line of Credit,
$10,000,000.
"Commitment Letter" means, (i) with respect to the Construction Loan (and
Term Loan), that certain letter from Lender to Borrower dated March 9,
2000, a copy of which is attached hereto as Exhibit B, and (ii) with
respect to the Line of Credit, that certain letter from Lender to Borrower
dated June 18, 2002, a copy of which is attached hereto as Exhibit B-1.
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"Line of Credit" means the revolving line of credit extended by Lender to
Borrower pursuant to Section IIIA hereof.
"Loan" means (i) either the Construction Loan or the Term Loan, or both, as
the context may require, or (ii) the Line of Credit, or both (i) and (ii)
as the context may require.
"Note" means (i) with respect to the Construction Loan (and Term Loan), the
promissory note, dated as of April 25, 2000, from Borrower to Lender, in
the principal amount of $8,000,000, as amended, modified, supplemented,
restated or renewed from time to time, and (ii) with respect to the Line of
Credit, the promissory note, dated as of July 30, 2002, from Borrower to
Lender, in the principal amount of $10,000,000, as amended, modified,
supplemented, restated or renewed from time to time.
SECTION 1.2 NEW DEFINITIONS. The following definitions are hereby added in
Section 1.1 of the Loan Agreement to read in their entirety as follows:
"Line of Credit Commitment" means $10,000,000.
"Termination Date" means July 30, 2005.
SECTION 1.3 LOAN AGREEMENT AMENDMENT. The Loan Agreement is hereby amended
by adding a new Article IIIA to read in its entirety as follows:
3.01A The Line of Credit. (a) From time to time upon Borrower's request,
and subject to the terms and conditions of this Agreement, Lender agrees to
advance to Borrower prior to the Termination Date amounts which do not
exceed the Line of Credit Commitment in aggregate outstanding principal
amount at any one time. Notwithstanding anything in this Agreement to the
contrary, Lender shall not be obligated hereunder to make any Advance under
the Line of Credit on or after the earlier of (i) the Termination Date or
(ii) the occurrence of a Default or Event of Default hereunder. Subject to
the terms and conditions hereof, prior to the Termination Date, Borrower,
at its option, from time to time may borrow, repay and reborrow all or any
portion of the Line of Credit.
(b) The proceeds of the Line of Credit may be used by Borrower only to
finance Borrower's and its Subsidiaries' working capital and other general
corporate needs.
(c) The Advances under the Line of Credit shall bear interest at a floating
rate per annum equal to the Adjusted LIBO Rate plus one and one-quarter
percent (1.25%). To the extent permitted by law, any overdue interest on
the Advances under the Line of Credit shall bear interest, payable on
demand, for each day until paid at a rate equal to the Default Rate.
(d) Borrower shall pay to Lender unused facility fees for Borrower's Line
of Credit facility hereunder during the term hereof computed on the daily
average unused portion of the Line of Credit Commitment at a rate per annum
3
of one-quarter of one percent (.25%). Such unused facility fees shall be
payable by Borrower to Lender monthly in arrears, commencing on August 31,
2002, and continuing to be due on the last Business Day of each month
thereafter as well as on the Termination Date.
(e) Interest on the principal amount of the Advances under the Line of
Credit shall be due and payable monthly in arrears on the first (1st) day
of each calendar month commencing September 1, 2002 with respect to all
interest accrued during the calendar month immediately preceding the
interest payment date, and on the Termination Date.
(f) The outstanding principal balance of the Advances under the Line of
Credit, together with all accrued but unpaid interest thereon, shall be due
and payable in full on the Termination Date.
(g) Borrower hereby authorizes Lender automatically to deduct from
Borrower's account numbered 6218199 the amount of any interest payments on
Line of Credit when and as due. If the funds in the account are
insufficient to cover any such interest payment, Lender shall not be
obligated to advance funds to cover the payment. At any time and for any
reason, Borrower or Lender may voluntarily terminate automatic payments of
interest on the Line of Credit. In the event that Borrower terminates the
automatic payment arrangement with Lender, Borrower agrees that the
interest rate for the Line of Credit will increase, at the discretion of
the Lender, by one-half percentage point (0.50%) per annum over the rate of
interest stated above, and the amount of each interest installment will be
increased accordingly. The effective rate of interest under the Line of
Credit shall not in any event exceed the maximum rate permitted by law.
(h) The Line of Credit may be prepaid, in whole or in part, by Borrower at
any time or from time to time hereafter without premium or penalty.
(i) All of the Advances under the Line of Credit shall constitute one loan
by Lender to Borrower. Lender shall maintain a loan account on its books in
which shall be recorded all Advances under the Line of Credit, all payments
made by Borrower on the Line of Credit and all other appropriate debits and
credits as provided in this Agreement and the Note with respect thereto,
including without limitation all charges, expenses and interests. All
entries in such account shall be made in accordance with the Lender's
customary accounting practices as in effect from time to time. Lender shall
render to Borrower a monthly statement setting forth the balance of such
account, including principal, interest, expenses and fees, and each such
statement shall, absence manifest error or omissions, be presumed correct
and binding upon Borrower and shall constitute an account stated unless,
within thirty (30) days after receipt of any such statement from Lender,
Borrower shall deliver to Lender a written objection thereto specifying the
error or errors of omission or omissions, if any, contained in such
statement.
4
(g) All interest and fees owing by Borrower to Lender hereunder or under
the other Financing Documents shall be computed on the basis of a 360-day
year and the actual days elapsed.
SECTION 1.4 LOAN AGREEMENT AMENDMENT. Section 5.02 of the Loan Agreement
shall apply to the Construction Loan Advances only and the Loan Agreement is
hereby further amended by adding a new Section 5.03 to read in its entirety as
follows:
5.03 Conditions Precedent to Each Line of Credit Advance. The following
conditions, in addition to any other requirements set forth in this
Agreement, shall have been met or performed by the date of such Line of
Credit Advance with respect to any request for a Line of Credit Advance and
each request for an Advance (whether or not a written Advance request is
required) shall be deemed to be a representation that all such conditions
have been satisfied:
(a) All provisions of the Commitment Letter with respect to the Line of
Credit shall have been complied with;
(b) Borrower's representations and warranties set forth herein and in the
other Financing Documents shall remain true and correct in all material
respects;
(c) No Default or Event of Default shall have occurred under this Agreement
or under any other Financing Document;
(d) There shall have occurred no act, omission or undertaking which would,
singly or in the aggregate, have a materially adverse effect upon the
business, assets, liabilities, financial condition, results of operations
or financial prospects of Borrower, or upon the ability of Borrower to
perform any material obligations arising under the Financing Documents;
(e) The proposed Advance shall not cause the outstanding principal balance
of the Line of Credit to exceed the Line of Credit Commitment.
(f) Borrower shall have delivered such further documentation or assurances
as Lender may reasonably require.
SECTION 1.5 LOAN AGREEMENT AMENDMENT. The Loan Agreement is hereby amended
by adding new Section 7.25 to read in its entirety as follows:
7.25 New Subsidiaries. Within thirty (30) days after Borrower's creation or
acquisition of any Subsidiary, Borrower shall cause such Subsidiary to
guaranty the repayment of the Liabilities and Obligations to Lender,
pursuant to a Subsidiary Guaranty and other documents as are acceptable in
all respects to the Lender. Borrower also shall provide Lender with any and
all closing certificates, opinions of counsel and other closing documents
as the Lender may request with respect to such guaranty and other
documents.
5
SECTION 1.6 LOAN AGREEMENT AMENDMENT. The reference to "$5,000,000" in
Section 8.03(iii)(e) of the Loan Agreement is hereby amended to read
"$10,000,000".
SECTION 1.7 LOAN AGREEMENT AMENDMENT. Section 8.08(c) of the Loan Agreement
is hereby amended in its entirety to read as follows:
(c) Borrower shall not permit its Leverage Ratio to exceed 0.5 to 1.0 at
any time.
SECTION 1.8 LOAN AGREEMENT AMENDMENT. Section 8.08(d) of the Loan Agreement
is hereby amended in its entirety to read as follows:
(d) Borrower shall not permit its Net Worth at any time after the date of
this Agreement to be less than $90,000,000 plus (i) 80% of the positive
amount of Net Income of Borrower for each fiscal quarter ending after the
date hereof and (ii) the amount of any increase in Net Worth resulting from
the issuance of stock, corporate reorganizations, recapitalizations or any
similar event.
SECTION 1.9 LOAN AGREEMENT AMENDMENT. The Loan Agreement is hereby amended
by adding a new Section 8.12 to read in its entirety as follows:
8.12 Investments. Borrower shall not make loans or advances to any Person,
or investments in any Person, except for (a) investments permitted by
Section 8.03 hereof, (b) U.S. dollar denominated time deposits and
certificates of deposit issued by Lender or another domestic commercial
bank of recognized standing having capital and surplus in excess of
$500,000,000, (c) securities issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality
thereof (provided the full faith and credit of the United States of America
is pledged in support thereof), (d) municipal bonds or equity securities
that have an investment grade rating from a nationally recognized ratings
service, and (e) loans and advances not in excess of $250,000 in the
aggregate at any time.
SECTION 1.10 LOAN AGREEMENT AMENDMENT. Notwithstanding anything to the
contrary herein, all notices and communications to the Lender shall be directed
to the following address:
Bank of America, N.A.
Jacksonville CLSC; Attn: Notice Desk
9000 Southside Blvd., 3rd Floor
Jacksonville, FL 32256
SECTION 1.11 EXHIBITS. The Loan Agreement is hereby amended by adding a new
Exhibit B-1 in the form attached hereto as Exhibit B-1, Exhibit E to the Loan
Agreement is hereby amended in its entirety to read in the form attached hereto
as Exhibit E, and Schedule 6.05 to the Loan Agreement is hereby amended in its
entirety to read in the form attached hereto as Schedule 6.05.
6
ARTICLE 2.
CONDITIONS TO EFFECTIVENESS
SECTION 2.1 CONDITIONS. The amendments to the Loan Agreement set forth in
this Amendment shall become effective as of the date first above written (the
"Effective Date") after all of the conditions set forth in Sections 2.2 through
2.6 hereof shall have been satisfied.
SECTION 2.2 EXECUTION OF AMENDMENT. This Amendment shall have been executed
and delivered by the Borrower.
SECTION 2.3 EXECUTION OF REVOLVING NOTE. The Revolving Note shall have been
executed and delivered by the Borrower.
SECTION 2.4 GUARANTIES. Each of Cryolife Acquisition Corp., Cryolife
Europa, Ltd., Cryolife Technology, Inc., AuraZyme Pharmaceuticals Inc. and
Cryolife International, Inc. shall have executed and delivered a guaranty of
Borrower's Obligations and Liabilities.
SECTION 2.5 SECRETARIAL AND INCUMBENCY CERTIFICATE. The Lender shall have
received counterparts of a Secretarial and Incumbency Certificate from the
Borrower and each corporate Guarantor.
SECTION 2.6 REPRESENTATIONS AND WARRANTIES. (a) As of the Effective Date,
except as modified by Schedule 4.06 hereto, the representations and warranties
set forth in the Loan Agreement, and the representations and warranties set
forth in each of the Loan Documents, shall be true and correct in all material
respects; (b) as of the Effective Date, no Defaults or Events of Default shall
have occurred and be continuing; (c) the Lender shall have received from the
Borrower a certificate dated the Effective Date, certifying the matters set
forth in subsections (a) and (b) of this Section 2.6.
ARTICLE 3.
MISCELLANEOUS
SECTION 3.1 ENTIRE AGREEMENT; NO NOVATION OR RELEASE. This Amendment,
together with the Loan Documents, as in effect on the Effective Date, reflects
the entire understanding with respect to the subject matter contained herein,
and supersedes any prior agreements, whether written or oral. This Amendment is
not intended to be, and shall not be deemed or construed to be, a satisfaction,
novation or release of the Loan Agreement or any other Loan Document. Except as
expressly amended hereby, all representations, warranties, terms, covenants and
conditions of the Loan Agreement and the other Loan Documents shall remain
unamended and unwaived and shall continue in full force and effect.
SECTION 3.2 FEES AND EXPENSES. All fees and expenses of the Lender incurred
in connection with the issuance, preparation and closing of the transactions
contemplated hereby shall be payable by the Borrower promptly upon the
submission of the bill therefor. If the Borrower shall fail to promptly pay such
7
bill, the Lender is authorized to pay such bill through an advance of funds
under the Loan.
SECTION 3.3 CHOICE OF LAW; SUCCESSORS AND ASSIGNS. This Amendment shall be
construed and enforced in accordance with and governed by the internal laws (as
opposed to the conflicts of laws provisions) of the State of Georgia. This
Amendment shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
WITNESS the hand and seal of each of the undersigned as of the date first
written above.
LENDER:
BANK OF AMERICA, N.A.
By: /s/ Ken Topham
-----------------------------------------
Title: Vice President
--------------------------------------
BORROWER:
CRYOLIFE, INC.
By: /s/ D. A. Lee
----------------------------------------
Title: VP & CFO
------------------------------------
Attest: /s/ Suzanne K. Gabbert
------------------------------------
Title: Asst. Corp. Secretary
-------------------------------------
[Seal]
8
Exhibit "B-1"
9
[Bank of America Letterhead]
June 18, 2002
Mr. Ashley Lee
Chief Financial Officer
Cryolife, Inc.
1655 Roberts Boulevard, NW
Kennesaw, GA 30144
Re: Letter of Commitment
Dear Mr. Lee:
Bank of America (hereafter the "Bank") is pleased to offer you a commitment
(hereafter the "Commitment") for a loan (hereafter the "Loan"), subject to the
following terms and conditions:
1. BORROWER: Cryolife, Inc.
GENERAL CORPORATE USE LINE:
2A. LOAN AMOUNT: Up to Ten Million & 00/100 Dollars
($10,000,000.00).
2B. USE OF PROCEEDS: The proceeds from this loan will be used for
general corporate use including the funding of
future acquisitions by the Borrower.
2C. TERMS: The Terms of this proposed loan shall be for a
thirty-six (36) month period from closing.
Payments will be interest only with principal due
at maturity.
2D. INTEREST RATE: Interest on the daily unpaid balance from Loan
date until maturity at a floating rate of 30-Day
LIBOR, as determined by Bank of America and
adjusted for reserves, deposit insurance
assessments and other regulatory costs, plus
1.25%. This line shall bear a fee of 25 basis
points per annum based on the unused portion of
the Loan Amount.
3. LOAN ADVANCES: Borrower may borrow, repay, and reborrow funds
under the Loan at its option during the term of
the Loan.
4. COLLATERAL: The Acquisition Line shall be secured at all
Cryolife, Inc.
June 18, 2002
Page 2 of 8
times by a valid, perfected, first priority
security interest in all Accounts Receivable,
Inventory, Equipment and Leasehold Improvements
of the Borrower of every description now or
hereafter acquired or existing. Note that the
Bank will continue a negative pledge against the
intangible assets of the company.
The Acquisition Line shall be cross pledged
and collateralized by the existing Term Loan.
5. GUARANTORS: The Loan and the other Obligations shall be fully
guaranteed by the Subsidiaries of Borrower
pursuant to a Subsidiary Guaranty (or
confirmation of an existing Guaranty, as
applicable) which shall be duly executed and
delivered by each Subsidiary to Lender in
connection with this Agreement.
The list of guarantors is and is not limited to
the following:
Cryolife Acquisition Corp.
Cryolife Technology, Inc.
Cryolife Foreign Sales, Inc.
Cryolife Europa, LTD.
AuraZyme Pharmaceuticals, Inc.
6. SPECIAL PROVISIONS: a. Borrower will provide the Bank, annually,
within one hundred twenty (120) days of the end
of its fiscal year end, with CPA Audited
financial statements to include a statement of
revenues and expenditures as well as a balance
sheet. Three statements shall be presented on a
consolidated basis.
b. Borrower will provide the Bank with
quarterly internally-prepared financial
statements within forty-five (45) days of the end
of each quarter. These statements shall be
presented on a consolidated basis.
Cryolife, Inc.
June 18, 2002
Page 3 of 8
c. Each Financial statement submitted to the
Bank shall be accompanied by a duly completed
Compliance Certificate executed on behalf of
Borrower by its Chief Financial Officer.
d. Borrower will provide to the Bank from time
to time such financial or other information, as
the Bank shall reasonably request.
e. Borrower will maintain adequate property
damage insurance, naming the Bank as
mortgagee/loss payee, and furnish evidence
thereof at Loan closing.
f. Borrower will provide the Bank with certain
legal information at Loan closing to include
"Articles of Incorporation", "Certificate of
Incorporation", "Corporate Resolution", and a
"Certificate of Good Standing" with the Office of
the Secretary of State.
g. Borrower will maintain all primary operating
deposit accounts with Bank of America during the
life of the Loan.
h. Borrower will maintain certain financial
covenants as described on Exhibit "A" attached.
7. COSTS, EXPENSES,
AND ATTORNEY'S FEES: Borrower shall pay to Bank immediately upon
demand the full amount of all costs and expenses,
including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of
Bank's in-house counsel if permitted by
applicable law), incurred by Bank in connection
with negotiation and preparation of this
Agreement and each of the Loan Documents.
8. EXTENSIONS OF CREDIT: In an amount not to exceed $250,000.00, Borrower
can make loans or advances to any partnership,
corporation, individual or other entity,
including the normal extensions of trade credit
Cryolife, Inc.
June 18, 2002
Page 4 of 8
in the ordinary course of Borrower's business.
9. OUTSIDE BORROWING: Borrower shall not create, incur, assume or
become liable in any manner for any indebtedness
in excess of $250,000.00 (for borrowed money,
deferred payment for the purchase of assets,
lease payments, as surety or guarantor for the
debt of another, or otherwise) other than to
Bank, except for normal trade debts incurred in
the ordinary course of Borrower's business.
10. SUCCESSORS AND ASSIGNS: This Commitment shall be binding on all parties
thereto, their successors, assigns and
representatives.
11. COUNTERPARTS: This Commitment may be executed simultaneously in
two or more counterparts, each of which shall be
deemed an original for evidentiary purposes, but
all of which together shall constitute one and
the same instrument.
12. DEFAULT: Borrower shall be in default under this
Commitment and under any and all promissory notes
executed by Borrower in favor of Bank and any and
all other documents, instruments, deeds of trust,
mortgages, security agreements, guarantees
executed and/or delivered by Borrower in
connection with the Loan (collectively, the "Loan
Documents"), if it shall default in the payment
of any amounts due and owing under the Loan or to
some other party (if the default to some other
party would materially impact the Borrower's
ability to operate their business) or should it
fail to timely and properly perform, keep and
observe any term, covenant, agreement or
condition in this Commitment or any of the Loan
Documents.
13. CANCELLATION: The Bank reserves the right to cancel this
Cryolife, Inc.
June 18, 2002
Page 5 of 8
Commitment and terminate the obligation
thereunder at any time upon the occurrence of any
of the following: (a) Failure of the Borrower to
comply with any of the applicable conditions of
this Commitment within the time specified, (b)
Non-payment of any of the fees or expenses to be
paid by the Borrower in connection with this
Commitment, or (c) Any filing by or against the
Borrower of any petition in bankruptcy or
insolvency or for the appointment of a receiver,
or the reorganization of Borrower under such
conditions or the making of any assignment for
the benefit of creditors.
14. ERRORS OR OMISSIONS: Borrower agrees that should any inadvertent
errors or omissions later be discovered in any
documents executed at closing, Borrower shall
promptly execute such corrective documents and
remit such sums as may be required to adjust or
correct such errors or omissions.
15. MATERIAL ADVERSE
CHANGE: This Commitment is conditioned upon there having
occurred no act, omission or undertaking which
would, singly, or in the aggregate, have a
materially adverse effect upon the business,
assets, liabilities, financial condition, results
of operations or business prospects of the
Borrower, and any of its subsidiaries or of any
Guarantor, or upon the ability of the Borrower to
perform any material obligations arising under
the Loan Documents.
16. ARBITRATION: Any controversy or claim between or among the
parties hereto including but not limited to those
arising out of or relating to this Commitment or
any related instruments, agreements or documents
including any claim based on or arising from an
alleged tort, shall be determined by binding
arbitration in accordance with the Federal
Cryolife, Inc.
June 18, 2002
Page 6 of 8
Arbitration Act (or if not applicable, the
applicable state law), and the rules of practice
and procedure for the arbitration of commercial
disputes of Judicial Arbitration and Mediation
Services, Inc. (J.A.M.S.) as supplemented by any
special rules set forth in any of the Loan
Documents. Judgment upon any arbitration award
may be entered in any court having jurisdiction.
Any party to this Commitment may bring an action,
including a summary or expedited proceeding, to
compel arbitration of any controversy or claim to
which this Commitment applies in any court having
jurisdiction over such action.
17. LOAN AGREEMENT: Borrower shall execute a Loan Agreement at Loan
closing in form and substance satisfactory to
Bank.
18. INCORPORATION INTO
DOCUMENTATION: At the time of Loan closing, this executed Letter
of Commitment shall become a part of the Loan
documentation.
19. ENTIRE AGREEMENT: This Commitment, together with Loan Documents,
supersede all prior written or oral
understandings or agreements between Borrower and
Bank with respect to the matters addressed in the
Loan Documents.
If the terms and conditions of this Letter of Commitment meet with your
approval, please indicate your acceptance by signing and returning the original
to us.
This Letter of Commitment shall become null and void if not accepted within
fifteen (15) days of the date hereof, and closed within thirty (30) days of
acceptance of this Commitment.
Cryolife, Inc.
June 18, 2002
Page 7 of 8
Thank you for banking with Bank of America.
Sincerely,
/s/ Ken Topham
- --------------------------------------------
Ken Topham
Vice President
Signed and accepted the 19th day of June, 2002.
BORROWER:
Cryolife, Inc.
BY: /s/ D. A. Lee
------------------------------
NAME: D. Ashley Lee
------------------------------
TITLE: VP & CFO
------------------------------
Cryolife, Inc.
June 18, 2002
Page 8 of 8
EXHIBIT "A"
Debt Coverage Ratio: Borrower shall not permit its Debt Coverage Ratio for any
fiscal quarter or year-end to be less than 1.3 to 1.0. The Debt Coverage Ratio
is defined as, with respect to any particular fiscal period of Borrower, the
ratio of (a) Borrower's EBITDAR for the consecutive 4-quarter period ending
therewith to (b) the sum (without duplication) of (i) Borrower's Current
Maturities of Funded Debt for the immediately succeeding consecutive 4-quarter
period plus (ii) Borrower's Interest Expense for the consecutive 4-quarter
period ending therewith plus (iii) Borrower's Rental Expense for the immediately
succeeding consecutive 4-quarter period, all as determined on a consolidated
basis.
Leverage Ratio. Borrower agrees to maintain a ratio of Total Liabilities to its
Net Worth of no greater than 0.5 to 1.0 at all times. Total Liabilities shall
mean, as of any particular date, the amount which all liabilities of Borrower
would be shown on a consolidated balance sheet of Borrower at such date prepared
in accordance with generally accepted accounting principles consistently
applied. Net Worth means, as of any particular date, Borrower's total
shareholder's equity (including capital stock, additional paid-in capital, and
retained earnings after deducting treasury stock) which would appear as such on
a consolidated balance sheet of Borrower prepared in accordance with generally
accepted accounting principles as then in effect.
Net Worth Minimum. Borrower agrees to maintain a minimum net worth of
$90,000,000 at all times. Borrower shall increase its minimum net worth by 80%
of the positive amount of Net Income of Borrower for each fiscal year period
after the date hereof and the amount of any increase in Net Worth resulting from
the issuance of stock, corporate reorganizations, capitizations or similar
event. Net Worth means, as of any particular date, Borrower's total
shareholder's equity (including capital stock, additional paid-in capital, and
retained earnings after deducting treasury stock) which would appear as such on
a consolidated balance sheet of Borrower prepared in accordance with generally
accepted accounting principles as then in effect.
Maximum Annual Capital Expenditures. Borrower agrees to spend no more than
$5,000,000 annually on capital expenditures. Borrower shall not make Capital
Expenditures in excess of $5,000,000 in the aggregate in any fiscal year.
Exhibit "E"
FORM OF
COMPLIANCE CERTIFICATE
This Certificate is delivered pursuant to that certain Loan Agreement,
dated as of April 25, 2000, as amended (the "Agreement"), by and between
CRYOLIFE, INC., a Florida corporation (the "Borrower"), and BANK OF AMERICA,
N.A., a national banking association (the "Lender"). All capitalized terms used
in this Certificate which are defined in the Agreement are used in this
Certificate with the same meanings given such terms in the Agreement. Unless
otherwise defined in the Agreement, all accounting terms used herein shall have
the meaning given such terms under generally accepted accounting principles
consistently applied ("GAAP").
I hereby certify, to the best of my knowledge and believe and in my
representative capacity on behalf of the Borrower, to the Lender as follows:
1. I am the duly qualified and acting chief financial officer of the
Borrower.
2. I have prepared or reviewed the financial statements of the Borrower as
of and for the period ending _________________, _____, true, complete and
correct copies of which are attached hereto as Exhibit 1 (collectively, the
"Financial Statements").
3. The Financial Statements were prepared in accordance with GAAP and
fairly present the financial position and results of operations of the Borrower
(and its consolidated subsidiaries, if any) as of and for the period ending on
the date of the Financial Statements (subject to normal year-end adjustments).
4. I further certify that as of, and for the period ending on, the date of
the Financial Statements, and except as may be disclosed on Exhibit 2 attached
hereto (all of the following being calculated on a consolidated basis and in
accordance with GAAP and the Agreement):
(a) The Borrower's Leverage Ratio did not exceed 0.5 to 1.0 at any
time during such period;
(b) The Borrower's Debt Coverage Ratio was not less than 1.3 to 1.0
for such period;
(c) The Borrower's Net Worth was not less than __________________
[insert an amount equal to $90,000,000 plus 80% of the positive aggregate amount
of Net Income of Borrower for each fiscal quarter beginning with quarter ending
6/30/2002 plus aggregate proceeds from issuance of stock, corporate
reorganizations, recapitalization or any similar event]; and
(d) The Borrower's Capital Expenditures for such fiscal year (or for
the portion thereof ending with such period) did not exceed $5,000,000 in total.
Attached hereto as Exhibit 3 are calculations demonstrating whether or not
the Borrower was in compliance, as of and for the period ending on the date of
the Financial Statements, with the covenants in the Loan Agreement which are
summarized in items (a) through (e) above.
5. No Default or Event of Default has occurred and is continuing as of the
date of this Certificate other than those Defaults or Events of Defaults (if
any) which are described on the aforesaid Exhibit 2 attached hereto.
I represent the foregoing information to be true and correct to the best of
my knowledge and belief and I execute this Certificate in my representative
capacity on behalf of the Borrower as of this _____ day of ---------------,
- -----.
--------------------------------------------
Name:
Title:
Schedule 6.05
A. CryoLife as a Defendant:
1. Gregory A. Link and Diane Link, as Husband & Wife v. Abington Memorial
Hospital, V. Paul Addonizio, M.D. and CryoLife, Inc.
Date Filed: September 15, 2000
Case No. 2000-01095
Court of Common Pleas, Montgomery County, Pennsylvania
2. Ann Regner, Leo J. Regner, Michael Shawn Steele and Brandon Steele vs.
Inland Eye & Tissue Bank of Redlands; Inland Eye & Tissue Bank of Bakersfield;
Pacific Coast Tissue Bank; Doheny Eye & Tissue Transplant Bank; Northern
California Transplant Bank; University of California, San Diego, Regional Tissue
Bank; University of California, Irvine, Willed Body Program; Musculoskeletal
Transplant Foundation; American Red Cross; CryoLife, Inc.; Dr. Steven Burres;
Fascia Biosystems; Edwards Life Sciences, LLP; Tissue Banks International; TBI,
Inc. d/b/a Northern CA Transplant Bank; Gensci Orthobiologics, Inc.; Osteotech,
Inc.; Lifecell Corporation; and Does 1 to 400, Inclusive.
Date Filed: May 4, 2000
Case No. SCVSS 66746
Superior Court of California, San Bernardino County, Central District
3. Majid Sadeghi and Sandra Sadeghi, as Husband and Wife v. CryoLife, Inc.;
CryoLife International, Inc.; Jefferson Health System, Inc., d/b/a Bryn Mawr
Hospital; Main Line Health, Inc., d/b/a Bryn Mawr Hospital; Orthopaedic
Specialists; and William D. Emper, M.D.
Date Filed: June 21, 2001
Case No. 002695
Court of Common Pleas, Philadelphia County, Pennsylvania
4. Pamela Drahos, as Mother and Next Friend of Cassidy Dawn Chandler-Drahos
a/k/a Chandler v. CryoLife, Inc.; St. Francis Hospital, Inc.; and Dr. Richard D.
Ranne.
Date Filed: May 18, 2000
Case No. CJ 2000-281
District Court In and For Wagoner County, State of Oklahoma
5. Lee Travis Montgomery and wife, Ann Montgomery v. CryoLife, Inc.
Date Filed: January 22, 2002
Case No. 3:02-CV-29
United States District Court. Eastern District of Tennessee,
Northern Division
6. Alan J. Minvielle v. CryoLife, Inc., Jeffrey Carter, M.D., and Does 1
through 100, Inclusive.
Date Filed: April 10, 2002
Case No. CV 143210
Superior Court of California, County of Santa Cruz
7. Kenneth Alesescu and Pamela Alesescu v.CryoLife, Inc.; Midwest
Transplant Network; Mercy General Hospital; and Does 1-50, Inclusive.
Date Filed: July 2, 2002
Case No. 02AS04017
Superior Court of California, County of Sacramento
8. Julie S. Dayton v. CryoLife, Inc.; and Breg, Inc.
Date Filed: June 11, 2002
Case No. 3:02-CV-305
United States District Court, Eastern District of Tennessee,
Northern Division at Knoxville
9. William G. Karnes and wife Kelly C. Karnes v. CryoLife, Inc.
Date Filed: June 20, 2002
Case No. 3:02-CV-330
United States District Court, Eastern District of Tennessee,
Northern Division at Knoxville
10. Steve Lykins, as Trustee for the benefit of the next of kin of Brian
Lykins, Deceased v. CryoLife, Inc.; Intermountain Donor Services, Inc.; Michael
White, John Doe, Inc., 1 through 5, and John Does Individually, 1 through 5.
Date Filed: July 12, 2002
Case No. 0210561324
Superior Court of Cobb County, State of Georgia
11. Joann Savitt, individually and on behalf of all other persons similarly
situated v. Doheny Eye & Tissue Bank, Tissue Banks International, Lifecell
Corp.; CryoLife, Inc.; Osteotech, Inc.; and Does 1-199, Inclusive.
Date Filed: June 7, 2002
Case No. BC275521
Superior Court of California, County of Los Angeles
B. CryoLife Acquisition Corporation (f/k/a Ideas for Medicine) as defendant:
1. David A. Ganz, Dr. William I. Ganz and Cecelia Hecht as co-personal
representatives of the Estate of Jean Ganz, deceased v. Dr. Alan S. Livingstone;
Dr. Jorge De La Pedraja; University of Miami, a private University d/b/a
University of Miami School of Medicine; The Public Health Trust of Dade County
d/b/a Jackson Memorial Hospital; and CryoLife, Inc.
Date Filed: June 13, 2001
Case No. 00-13275 CA 06
Circuit Court of the Eleventh Judicial Circuit In and
For Dade County, FL, General Jurisdiction Division
2. Bernard Michaels, as Administrator of the estate of Irene Michaels v.
Our Lady of Victory Hospital of Lackawanna, Perala S. Rao, M.D., Perala S. Rao,
P.C., Frederick M. Occhino, M.D., Frederick M. Occhino, M.D., P.C., Leo M.
Michalek, M.D., and Ideas for Medicine, Inc.
Date filed: August 15, 2000
Case No. 12000/7109
Supreme Court of New York: Erie County
C. The following is a list of law firms that have filed or are contemplating
filing class actions alleging securities law violations by CryoLife, Inc.
CryoLife has not yet been served in any of these suits.
Berger & Montague, P.C.
Cauley Geller Bowman & Coates, LLP
Charles J. Piven, P.A.
Holzer & Holzer
Mark McNair, P.A.
Leo W. Desmond
Schiffrin & Barroway, LLP
Wolf Popper LLP
Chitwood & Harley
D. In addition, CryoLife is aware of the following suits that may be filed by
the following individuals, but CryoLife has not yet been served:
Hailey Moulton
Timothy C. Talton
Andrew T. Swanson, III and/or Andrew T. Swanson, Jr. (father)
Benjamin Saile
Ramona Pursley
Kevin Ryan Wheeler, a minor, and Kimberly Leahew, individually and parent and
next friend of Kevin Ryan Wheeler
Date Filed: July 2, 2002
Case No. 46834
Circuit Court for Rutherford County, Tennessee
E. On June 17, 2002 CryoLife, Inc. received a warning letter from the Food and
Drug Administration.
1549728
EXHIBIT 10.2
PROMISSORY NOTE
Atlanta, Georgia
As of July 30, 2002
For value received, CRYOLIFE, INC., a corporation organized and existing
under the laws of the State of Florida (the "Borrower"), promises to pay to the
order of BANK OF AMERICA, N.A. (together with any holder hereof, the "Bank"),
the principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), or such
lesser amount as shall equal the unpaid principal amount of the Loan advanced by
the Bank to the Borrower pursuant to the Loan Agreement referred to below, on
the dates and in the amounts provided in the Loan Agreement. The Borrower
promises to pay interest on the unpaid principal amount of this Note on the
dates and at the rate or rates provided for in the Loan Agreement. Interest on
any overdue principal of and, to the extent permitted by law, overdue interest
on the principal amount hereof shall bear interest at the Default Rate, as
provided for in the Loan Agreement. All such payments of principal and interest
shall be made in lawful money of the United States in Federal or other
immediately available funds at the office of Bank of America, N.A., Commercial
Loan Service Center, P.O. Box 45247, Jacksonville, Florida 32256-0771, or such
other address as may be specified from time to time pursuant to the Loan
Agreement.
All loans and advances made by the Bank, the maturity date therefor, the
interest rate from time to time applicable thereto, and all repayments of the
principal thereof shall be recorded by the Bank and, such records of the Bank
shall be deemed conclusive as to the information contained absent manifest
error, subject to the rights of Borrower under the Loan Agreement; provided that
the failure of the Bank to make any such recordation or endorsement shall not
affect the Obligations (as defined in the Loan Agreement) of the Borrower
hereunder or under the Loan Agreement.
This Note evidences the Line of Credit referred to in the Construction Loan
and Permanent Financing Agreement dated as of April 25, 2000, as amended, by and
between the Borrower and the Bank (as the same may be amended and modified from
time to time, the "Loan Agreement"). Terms defined in the Loan Agreement are
used herein with the same meanings. Reference is made to the Loan Agreement for
provisions for the optional and mandatory prepayment and the repayment hereof
and the acceleration of the maturity hereof.
This is a revolving credit note. Borrower may borrow, repay and reborrow,
and Lender may advance and readvance under this Note respectively from time to
time, so long as the total indebtedness outstanding at any one time does not
exceed the face principal amount hereof. Lender's obligation to advance or
readvance under this Note shall be suspended if a Default or Event of Default
exists.
IN WITNESS WHEREOF, the Borrower has caused this Promissory Note to be duly
under seal, by its duly authorized officers as of the day and year first above
written.
CRYOLIFE, INC., a Florida corporation
By: /s/ D.A. Lee
--------------------------------------------
David Ashley Lee
Vice President and Chief Financial Officer
[CORPORATE SEAL]
2
1546613
EXHIBIT 10.3
SETTLEMENT AND RELEASE AGREEMENT
THIS SETTLEMENT AND RELEASE AGREEMENT (the "Agreement") is made and entered
into this the 2nd day of August, 2002 (the "Effective Date"), by and between
Colorado State University Research Foundation ("CSURF" or "Plaintiff"),
CryoLife, Inc. ("CryoLife" or "Defendant"), and Dr. E. Christopher Orton
("Orton").
I. RECITALS
1. The case of Colorado State University Research Foundation v. CryoLife,
Inc., Civil Action No. 01-N-933 (OES) (the "Lawsuit") is pending in the United
States District Court for the District of Colorado between Plaintiff and
Defendant.
2. In the Lawsuit, Plaintiff alleges, among other things, that Defendant
breached a certain Technology License (the "Technology License") dated March 26,
1996 between Plaintiff and Defendant, improperly identified the inventors on
certain patents, and violated the Lanham Act (15 U.S.C. ss. 1125(a)(1)), and
seeks damages, termination of the Technology License, assignment of certain
patents, and other relief from Defendant. Defendant denies all allegations in
the Lawsuit and denies that Plaintiff is entitled to the relief it seeks from
Defendant.
3. Defendant has filed a counterclaim against Plaintiff for declaratory
judgment that it did not breach the Technology License. Plaintiff denies the
allegations contained in Defendant's counterclaim.
4. Orton, the inventor of the ORTON PATENTS (as defined below), who has
assigned to CSURF all of his rights in the ORTON Patents and certain other
technology licensed under the Technology License to CryoLife , is a necessary
party to this Agreement.
Page 1 of 29
5. Plaintiff, Defendant, and Orton desire to compromise and settle all
claims and disputes existing amongst themselves as of the Effective Date of this
Agreement.
II. SETTLEMENT AND RELEASE TERMS
NOW, THEREFORE, in consideration of the foregoing recitals, the payment
described below, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Plaintiff and Defendant, by and
through authorized representatives whose signatures appear below, and Orton do
hereby agree as follows:
A. Definitions
1. ORTON PATENTS shall mean all U.S. and foreign patents and patent
applications filed as of the Effective Date or directed to inventions made as of
the Effective Date naming Orton as inventor or co-inventor together with all
U.S. and foreign future applications, continuations, continued prosecution
applications, continuations-in-part, divisions, or substitutions thereof. ORTON
PATENTS include, but are not limited to, U.S. Patent Nos. 5,192,312; 5,772,695;
5,863,296; 5,855,617, and U.S. Provisional Application Serial No. 60/219,548 as
well as corresponding Non-Provisional Application Serial No. 09/909914 and PCT
Application Serial No. PCT/US01/22018.
2. GOLDSTEIN PATENTS shall mean U.S. Patent Nos. 5,613,982; 5,632,778;
5,843,182; 5,899,936; and all pending and future applications and patents, both
U.S. and foreign, arising from these patents, as well as any continuations,
continued prosecution applications, continuations-in-part, divisions, or
substitutions thereof.
3. TISSUE DECELLULARIZATION PATENT APPLICATIONS shall mean U.S. Application
Serial Nos. 08/838,852 and 09/735,522 and all pending and future applications
Page 2 of 29
and patents, both U.S. and foreign, arising from these patent applications, as
well as any continuations, continued prosecution applications,
continuations-in-part, divisions, or substitutions thereof.
4. TISSUE GRAFT PATENT APPLICATIONS shall mean U.S. Application Serial Nos.
60/178,632 and 09/769,769 and all pending and future applications and patents,
both U.S. and foreign arising from these patents, as well as any continuations,
continued prosecution applications, continuations-in-part, divisions, or
substitutions thereof.
5. UNSTENTED HEART VALVE PATENT APPLICATIONS shall mean U.S. Application
Serial No. 09/540,525 and all pending and future applications and patents, both
U.S. and foreign, arising from these patents, as well as any continuations,
continued prosecution applications, continuations-in-part, divisions, or
substitutions thereof.
6. DECELLULARIZATION PROCESS shall mean any method that removes endogenous
cells or cellular material by methods which include (a) cellular lysis in a
hypotonic solution followed by nuclease digestion utilizing RNAse or DNAse or
other nucleases, or (b) irradiation followed by nuclease digestion utilizing
RNAse and/or DNAse or other nucleases.
7. PROCESSED TISSUE shall mean xenograft and allograft tissue CryoLife
processed or processes using a DECELLULARIZATION PROCESS.
8. NET RECEIPTS FROM XENOGRAFT TISSUE SALES shall mean CryoLife's gross
receipts from the sale of xenograft PROCESSED TISSUE minus any sales tax,
returns, discounts and freight charges attributable to the sale or return of
xenograft PROCESSED TISSUE.
Page 3 of 29
9. ALLOGRAFT STANDARD TISSUE shall mean allograft tissues which have not
undergone a DECELLULARIZATION PROCESS.
10. PROCESSING FEES FOR ALLOGRAFT PROCESSED TISSUE shall mean CryoLife's
gross receipts from processing fees collected with the transfer of allograft
PROCESSED TISSUE minus any sales tax, returns, discounts and freight charges
attributable to the sale or return of allograft PROCESSED TISSUE.
11. PROCESSING FEE FOR ALLOGRAFT STANDARD TISSUE shall mean CryoLife's
gross receipts from processing fees collected with the transfer of ALLOGRAFT
STANDARD TISSUE minus any sales tax, returns, discounts and freight charges
attributable to the sale or return of ALLOGRAFT STANDARD TISSUE.
12. NET INCREASED RECEIPTS FROM ALLOGRAFT TISSUE PROCESSING shall mean all
PROCESSING FEES FOR ALLOGRAFT PROCESSED TISSUE multiplied by the following
fraction (the "Fraction")
(Average Per Unit Processing Fee for Allograft Processed Tissue) -
(Average Per Unit PROCESSING FEE FOR ALLOGRAFT STANDARD TISSUE)
_________________________________________________
Average Per Unit Processing Fee for Allograft Processed Tissue
The Processing Fees used for purposes of calculation of the Fraction shall be
CryoLife's average unit processing receipts during the royalty period (except
only that the Fraction calculated for the royalty period January 1, 2002 to June
30, 2002 shall be applied to determine royalties payable for allograft PROCESSED
TISSUE transferred or sold from March 26, 1996 to and including June 30, 2002).
A calculation of the Fraction for all tissues currently processed using a
DECELLULARIZATION PROCESS is attached hereto as Exhibit "A". The determination
Page 4 of 29
of the Fraction for tissues, if any, processed using a DECELLULARIZATION PROCESS
in the future which are not currently processed using a DECELLULARIZATION
PROCESS will be determined at the end of the first royalty period after such
tissues are first offered by CryoLife on a commercial basis.
B. Payments
1. CryoLife will pay CSURF a royalty as described below on PROCESSED TISSUE
transferred or sold from March 26, 1996 to and including March 28, 2011. Upon
payment of royalties accruing pursuant to this Section B, Cryolife shall have no
further payment obligations whatsoever, but all other provisions of this
Agreement shall remain in full force and effect.
2. CryoLife will pay to CSURF the sum of four hundred thousand dollars
($400,000.00) (the "Advance") as a nonrefundable advance payment of royalties
which have accrued or which will accrue pursuant to paragraphs B(1), B(3), and
B(4) herein. Promptly upon execution of this Agreement, North Star Trust Company
("Escrow Agent") shall be directed, by a letter in the form of the attached
Exhibit "B," to terminate the Escrow Agreement entered into between CSURF and
Cryolife and to transfer to CSURF the accumulated balance of the escrow account
(No. 70 - 4139), pursuant to the Escrow Agreement, as the initial payment of the
Advance. CryoLife will wire transfer to CSURF the remaining portion of the
Advance within ten (10) business days following distribution of the Escrow
funds.
3. The royalty payable with respect to xenograft PROCESSED TISSUE sold
shall be determined by multiplying 0.75% times NET RECEIPTS FROM XENOGRAFT
TISSUE SALES.
Page 5 of 29
4. The royalty payable with respect to allograft PROCESSED TISSUE
transferred shall be determined by multiplying 0.75% times NET INCREASED
RECEIPTS FROM ALLOGRAFT TISSUE PROCESSING.
5. CryoLife will pay royalties to CSURF on a semi-annual calendar basis in
arrears. Payments with respect to each royalty period shall be due before the
end of the following calendar quarter and shall be accompanied by a written
report, signed by a Cryolife officer who certifies the accuracy of the report,
which shows royalties accrued since March 26, 1996 through the end of the
preceding royalty period, royalties accrued in the preceding royalty period, and
royalties payable, if any, after adjustment for the Advance. The written report,
and the information contained therein, shall be kept confidential by CSURF and
Orton and shall not be disclosed to any other person or entity unless disclosure
is required by judicial or administrative process, in which case CSURF and/or
Orton will promptly notify CryoLife in order to allow CryoLife a reasonable time
to oppose such process. The parties acknowledge that no royalty payments shall
be due or payable unless and until the amount of the total accrued royalties
exceeds the amount of the Advance.
6. CSURF shall have the right for a period of three (3) years after
receiving any royalty calculation and/or payment to appoint an independent
certified public accountant, who is acceptable to CryoLife and who shall have
access to CryoLife's records during reasonable business hours, for the purpose
of verifying the royalties payable under this Agreement. This verification right
may not be exercised by CSURF more than once in any calendar year, and the
accountant shall disclose to CSURF only information relating solely to the
Page 6 of 29
accuracy of the royalty calculation and the royalty payments made in accordance
with this Agreement. Such certified public accountant must agree to sign a
confidentiality agreement prior to receiving access to CryoLife's records. Any
information disclosed to CSURF by such certified public accountant shall be kept
confidential by CSURF and shall not be disclosed to any other person or entity.
The failure of CSURF to request verification of any royalty calculation during
said three year period shall be considered acceptance of the accuracy of such
calculation, and CryoLife shall have no obligation to maintain any records
pertaining to such calculation beyond the three year period.
7. Orton and CSURF agree and acknowledge that Orton, by virtue of his
separate agreement(s) with Colorado State University ("CSU"), will receive
financial compensation directly from CSURF as a result of the settlement
contained in this Agreement. Orton hereby acknowledges this as good and valuable
consideration for his entering into this Agreement. CryoLife shall have no
obligation to make any payment to Orton.
C. Termination of Technology License
The Technology License is terminated as of the Effective Date of this
Agreement. All obligations, undertakings and payments contained in the
Technology License are no longer in effect.
D. Disposition of Patent, Other Intellectual Property and Rights to Technology
1. CSURF and Orton hereby assign to CryoLife all rights to the ORTON
PATENTS and their interests in the Unstented Heart Valve Applications.
Simultaneously with the execution of this Agreement, CSURF and Orton will
Page 7 of 29
execute the assignment to CryoLife in the form of the attached Exhibit "C".
2. CSURF and Orton hereby assign to CryoLife all rights to inventions
(whether patentable or not), technology, patents, trade secrets, know-how and
information, owned or controlled by CSURF or Orton, and developed or identified
by Orton or those working with Orton, related to tissue decellularization and/or
recellularization. Simultaneously with the execution of this Agreement, CSURF
and Orton will execute the assignment to CryoLife in the form of the attached
Exhibit "C". Neither CSURF nor Orton shall have any obligation to assign to
Cryolife any inventions (whether patentable or not), technology, patents, trade
secrets, know-how and information, related to tissue decellularization and/or
recellularization which they may create after the Effective Date .
3. CSURF and Orton represent and warrant that the only patent applications
which they have placed on file anywhere and which relate to tissue
decellularization or tissue recellularization are U.S. Patent Serial No.
09/909,914, PCT Application Serial No. PCT/US01/22018, U.S. Provisional
Application Serial No. 60/306,673 and U.S. Provisional Application Serial No.
60/309,454 ("Pending Orton Applications"). Within ten (10) business days of the
Effective Date, CSURF shall expressly abandon the Pending Orton Applications and
shall immediately forward copies of the abandonment documents to counsel for
CryoLife. CSURF further agrees not to file any additional patent applications,
extensions or substitutions thereof claiming priority to any of the
above-referenced applications or the ORTON PATENTS.
Page 8 of 29
4. CSURF and Orton shall not voluntarily take any action to interfere with
or oppose any CryoLife patent applications or future applications related to
tissue decellularization or tissue recellularization or to deter the issuance of
any such patent or patents that might issue therefrom. CSURF and Orton further
agree not to contest the inventorship, enforceability or validity of the
GOLDSTEIN PATENTS, the TISSUE DECELLULARIZATION PATENT APPLICATIONS, the
UNSTENTED HEART VALVE PATENT APPLICATIONS or the TISSUE GRAFT PATENT
APPLICATIONS.
5. Upon reasonable request, payment of a reasonable consulting fee and as
may be reasonably necessary, CSURF and Orton shall provide assistance to and
cooperate with Cryolife in prosecution of patent applications related to or
arising from the ORTON PATENTS, the GOLDSTEIN PATENTS, the TISSUE
DECELLULARIZATION PATENT APPLICATIONS, the TISSUE GRAFT PATENT APPLICATIONS or
the UNSTENTED HEART VALVE PATENT APPLICATIONS.
E. Releases
1. CSURF and Orton, for and in consideration of the payments and other
undertakings of CryoLife set forth in this Agreement, the receipt of which is
hereby acknowledged, do hereby release, acquit, and forever discharge Defendant,
and all of its past and present affiliates, agents, subsidiaries, parent
companies, officers, directors, employees, insurers, attorneys, heirs,
successors, and assigns and the affiliates, agents, partners, principals,
employees, insurers, officers, directors, attorneys, heirs, successors and
assigns of their subsidiaries and parent companies (hereinafter collectively and
individually referred to as "CryoLife Released Parties") of and from any and all
claims, causes of action, suits, torts, fraud, negligence, bad faith,
defamation, accounts, covenants, contracts, agreements, representations,
Page 9 of 29
promises, judgments, damages, expenses, any extra-contractual damages and any
act known or unknown, foreseen or unforeseen, in law or in equity, which CSURF
or Orton have ever had or may have against any of the CryoLife Released Parties
from the beginning of time to the date of the Effective Date of this Agreement,
except as to any obligations or undertakings pursuant to this Agreement.
2. CryoLife, for and in consideration of the assignments and other
undertakings of CSURF and Orton set forth in this Agreement, the receipt of
which is hereby acknowledged, does hereby release, acquit, and forever discharge
Plaintiff and Orton, and all of its past and present affiliates, agents,
subsidiaries, parent companies, officers, directors, employees, insurers,
attorneys, heirs, successors, and assigns and the affiliates, agents, partners,
principals, employees, insurers, officers, directors, attorneys, heirs,
successors and assigns of their subsidiaries and parent companies (hereinafter
collectively and individually referred to as "CSURF Released Parties") of and
from any and all claims, causes of action, suits, torts, fraud, negligence, bad
faith, defamation, accounts, covenants, contracts, agreements, representations,
promises, judgments, damages, expenses, any extra-contractual damages and any
act known or unknown, foreseen or unforeseen, in law or in equity, which
CryoLife has ever had or may have against any of the CSURF Released Parties from
the beginning of time to the date of the Effective Date of this Agreement,
except as to any obligations or undertakings pursuant to this Agreement.
F. Use of Disclosed Technology, Trade Secrets, Know-How
1. CryoLife shall be authorized to freely and forever make, use, sell,
license, sublicense and/or commercialize any inventions (whether patentable or
not), technology patents, trade secrets, know-how and information that Orton or
Page 10 of 29
CSURF disclosed to CryoLife up to the Effective Date of this Agreement.
2. Orton shall have the royalty-free, non-exclusive and non-assignable
right to use the ORTON PATENTS solely for non-commercial, academic research
purposes and solely at an academic institution. Other than this limited right to
use the ORTON PATENTS, neither CSURF nor Orton may disclose, use, sell,
commercialize, license, sublicense or encumber confidential or proprietary
CryoLife technology, patents, information, trade secrets, and/or know-how.
3. Notwithstanding anything to the contrary herein, CSURF and Orton are
free to use any information, whether originally provided by CryoLife or
otherwise, which is otherwise available for use by the public, subject to the
restrictions of 35 U.S.C. ss. 1, et. seq. and related foreign laws. However,
information shall not be deemed to fall within the foregoing exception merely
because it may be embraced within a body of generally available public
information, nor shall any combination of features be deemed to fall within such
exception merely because the individual features thereof are publicly available.
G. Dismissal of Lawsuit
Promptly after the execution of this Agreement, Plaintiff and Defendant
will file a Joint Stipulation of Dismissal With Prejudice in the form of the
attached Exhibit "C".
Page 11 of 29
H. Warranty
1. CSURF hereby represents and warrants that it has not sold, conveyed,
licensed, encumbered, or otherwise transferred all or any portion of the claims
asserted in the Lawsuit or its claimed rights in the ORTON PATENTS, GOLDSTEIN
PATENTS, TISSUE DECELLULARIZATION PATENT APPLICATIONS, TISSUE GRAFT PATENT
APPLICATIONS or UNSTENTED HEART VALVE PATENT APPLICATIONS to any person or
entity.
2. Orton hereby represents and warrants that he has not sold, conveyed,
licensed, encumbered, or otherwise transferred all or any portion of the claims
asserted in the Lawsuit or his claimed rights in the ORTON PATENTS, GOLDSTEIN
PATENTS, TISSUE DECELLULARIZATION PATENT APPLICATIONS, TISSUE GRAFT PATENT
APPLICATIONS or UNSTENTED HEART VALVE PATENT APPLICATIONS to any person or
entity except CSURF.
3. CryoLife hereby represents and warrants that it has not sold, conveyed,
licensed, encumbered, or otherwise transferred all or any portion of the claims
asserted in the Lawsuit.
4. CSURF and CryoLife each hereby represents and warrants that it is duly
authorized to enter into this Agreement and the individuals executing this
Agreement represent and warrant that they are duly authorized to execute this
Agreement on behalf of their respective principals.
5. CryoLife represents and warrants that it currently processes certain of
its allograft tissue products using a DECELLULARIZATION PROCESS.
Page 12 of 29
I. Confidentiality
1. Pursuant to Paragraph 14 of the Protective Order entered in the Lawsuit,
the Protective Order shall remain in full force and effect and survive the entry
of any other order by the Court resulting in the termination of the Lawsuit. The
parties agree, however, that the provisions of the Protective Order shall be
modified by CryoLife's right, pursuant to Paragraph F(1) of this Agreement, to
use information disclosed to it by CSURF or Orton.
2. CSURF and Orton hereby represent and warrant that neither of them has
had access to any CryoLife information or documents designated "Attorneys Eyes
Only" and produced in this lawsuit pursuant to the Protective Order. CSURF and
Orton shall return to their counsel all CryoLife information or documents
designated "Confidential " pursuant to the Protective order for disposition in
accordance with the terms of the Protective Order.
3. CryoLife represents and warrants that it has not had access to any CSURF
or Orton information or documents designated "Attorney's Eyes Only" and produced
in this lawsuit pursuant to the Protective Order.
J. Miscellaneous
1. Each party to this Agreement agrees to pay all of its own costs,
attorney's fees and other expenses related to the Lawsuit. No additional claim
shall be filed by any party, or on its behalf or by its attorneys, for any
additional fees or costs pertaining in any way to the Lawsuit.
2. This Agreement constitutes the entire agreement between the parties with
respect to the resolution and settlement of the Lawsuit and the claims released
by CSURF hereunder, and supersedes all prior or contemporaneous agreements,
promises, or understandings between the parties thereto. Neither CSURF,
Page 13 of 29
CryoLife, nor Orton is relying upon any representations, promises,
understandings or agreements except as expressly set forth herein.
3. This Agreement does not constitute an admission by any party hereto of
liability to the other with respect to any claim asserted in the Lawsuit or
otherwise, but is entered into solely for purposes of compromising and settling
the disputes between the parties and the Lawsuit, and avoiding the time and
expense that would be involved in proceeding with litigation.
4. Each of the parties has fully, finally, and completely compromised
matters involving disputed issues of law and fact as between them. The parties
hereto assume the risk that the facts or law may be otherwise than it believes,
whether through ignorance, oversight, error, negligence, or otherwise, and
which, if known, would materially affect its decision to enter into this
Agreement.
5. The parties hereto each have been represented by competent legal counsel
of its or his own choosing in the negotiation, preparation and execution of this
Agreement. The parties further agree that they each have participated fully and
freely in the negotiation and drafting of this Agreement and that as a result,
this Agreement shall not be construed in favor of or against either party
hereto.
6. It is further understood and agreed that should any portion of this
Agreement be held invalid by operation of law or otherwise, the remaining
portion shall be given full force and effect and shall not in any way be
affected thereby.
Page 14 of 29
7. This Agreement may be executed in multiple counterparts and, when
executed by each of the parties, shall constitute a single agreement.
8. Facsimile signatures are acceptable to bind the parties hereto.
9. Venue for any action filed to enforce this Agreement shall be in the
United States District Court for the District of Colorado. Any disputes arising
out of or related to this Agreement shall be governed by Colorado law.
IN WITNESS WHEREOF, Colorado State University Research Foundation,
CryoLife, Inc., and Dr. E. Christopher Orton have hereunder set their hands and
seals on this the 2nd day of August, 2002.
[SIGNATURES ON NEXT PAGE]
Page 15 of 29
PLEASE READ CAREFULLY BEFORE SIGNING
I HAVE READ, UNDERSTAND AND
AGREE TO THE FOREGOING.
Colorado State University Research
Foundation
By: /s/ Kathleen Henry
------------------------------
Its: President/CEO
------------------------------
With express authority to enter
this agreement on behalf of Colorado
State University Research Foundation
STATE OF COLORADO )
COUNTY OF LARIMER )
I, Dian Marie Kammeyer, a Notary Public in and for said county and state,
hereby certify that Kathleen Henry, President/CEO of Plaintiff Colorado State
University Research Foundation, whose name is signed to the foregoing Settlement
and Release Agreement, and who is known to me, acknowledged before me on this
day that, being informed of the contents of such instrument, he executed the
same voluntarily on the day the same bears date.
Given under my hand and seal, this 2nd day of August, 2002.
/s/ Dian Marie Kammeyer
--------------------------------------
(SEAL) Notary Public
My Commission Expires: 4-9-04
------------------
Page 16 of 29
PLEASE READ CAREFULLY BEFORE SIGNING
I HAVE READ, UNDERSTAND AND
AGREE TO THE FOREGOING.
CryoLife, Inc.
By: /s/ Steven G. Anderson
---------------------------------------
Its: President/CEO
---------------------------------------
With express authority to enter this
agreement on behalf of CryoLife, Inc.
STATE OF GEORGIA )
--------------------
COUNTY OF COBB )
-------------------
I, Suzanne K. Gabbert, a Notary Public in and for said county and state,
hereby certify that Steven G. Anderson, President & CEO of Defendant CryoLife,
Inc., whose name is signed to the foregoing Settlement and Release Agreement,
and who is known to me, acknowledged before me on this day that, being informed
of the contents of such instrument, he executed the same voluntarily on the day
the same bears date.
Given under my hand and seal, this 30th day of July, 2002.
/s/ Suzanne K. Gabbert
-------------------------------------
(SEAL) Notary Public
My Commission Expires: 9-13-04
---------------
Page 17 of 29
PLEASE READ CAREFULLY BEFORE SIGNING
I HAVE READ, UNDERSTAND AND
AGREE TO THE FOREGOING.
Dr. E. Christopher Orton
/s/ Dr. E. Christopher Orton
---------------------------------------
STATE OF COLORADO )
----------------
COUNTY OF LARIMER )
----------------
I, Dian Marie Kammeyer, a Notary Public in and for said county and state,
hereby certify that Dr. E. Christopher Orton, whose name is signed to the
foregoing Settlement and Release Agreement, and who is known to me, acknowledged
before me on this day that, being informed of the contents of such instrument,
he executed the same voluntarily on the day the same bears date.
Given under my hand and seal, this 5th day of August, 2002.
/s/ Dian Marie Kammeyer
--------------------------
(SEAL) Notary Public
My Commission Expires: 4-9-04
----------
Page 18 of 29
EXHIBITS
A. Paragraph A(8) Calculation of the "Fraction."
B. Paragraph B(2) Joint letter to Escrow Agent authorizing release of funds
and termination of Escrow Agreement.
C. Paragraph D(1, 2) Assignment of ORTON PATENTS and all of Orton's and
CSURF's technology related to decellularization and recellularization to
CryoLife.
D. Paragraph G Joint Stipulation of Dismissal with Prejudice.
Page 19 of 29
EXHIBIT A
Average Service
Fees as of
6/30/02 Fraction
------------------ --------------
AV 6,863
AV-SG 8,764 21.69%
PV 6,376
PV-SG 8,640 26.20%
NVC/P 1,973
NVC/P-SG 2,303 14.33%
FV 2,714
FV-SG 3,203 15.27%
SFA 2,634
SFA-SG 2,934 10.22%
Page 19 of 29
EXHIBIT B
Ms. Kathleen Henry Mr. Steven G. Anderson
Colorado State University Research Foundation CryoLife, Inc.
4100 University Services Center 1655 Roberts Boulevard
Fort Collins, Colorado 80523 Kennesaw, Georgia 30144
August 1, 2002
E. Via Federal Express
Andrew Dobzyn, Esq.
North Star Trust Company
500 West Madison Street
Suite 3800
Chicago, Illinois 60661
Re: Escrow Account No. 70 - 4139
Termination of Escrow Agreement
Dear Mr. Dobzyn:
This letter is to inform you that Colorado State University Research
Foundation ("CSURF") and CryoLife, Inc. ("CryoLife"), the parties to the
December 4, 2001 Escrow Agreement appointing North Star Trust Company as Escrow
Agent and funding Escrow Account No. 70 - 4139, have settled the dispute between
them.
Under the terms of the settlement entered into between CSURF and CryoLife,
the Escrow Agreement has been terminated. Please immediately wire the remaining
balance of Escrow Account No. 70 - 4139 to CSURF. CSURF's wire transfer
information is as follows:
Bank: First National Bank, Fort Collins, Colorado
ABA Routing Number: 107000262
Account Number: 00 9050 1
Account Name: CSURF
As of Friday, June 21, 2002, there was approximately $192,416.00 held in the
Escrow Account. Pursuant to Paragraph 7(b) of the Escrow Agreement, upon your
delivery of the remaining balance to CSURF, North Star Trust Company shall be
released and discharged from all further obligations under the Escrow Agreement.
Finally, if there are any outstanding expenses pursuant to Paragraph 8 of
the Escrow Agreement, please send an invoice to CryoLife for payment. Likewise,
if CryoLife is due a refund of its expenses under the Escrow Agreement, please
send the refund to CryoLife.
Thank you for your prompt cooperation.
Sincerely,
COLORADO STATE UNIVERSITY CRYOLIFE, INC.
RESEARCH FOUNDATION
____________________________ _________________________________
Kathleen Henry Steven G. Anderson
President President and CEO
cc: Robert R. Brunelli, Esq.
Kevin B. Getzendanner, Esq.
EXHIBIT C
ASSIGNMENT
In consideration of other good and valuable consideration, of which
receipt is acknowledged, Colorado State University Research Foundation, a
corporation formed under the laws of the state of Colorado, and E. Christopher
Orton each hereby sell and assign to CryoLife, Inc., a corporation of Florida,
its and his entire right, title, and interest in and to all inventions (whether
patentable or not), technology, patents, trade secrets, know-how and
information, owned or controlled by Colorado State University Research
Foundation or E. Christopher Orton, and developed or identified by E.
Christopher Orton or those working with E. Christopher Orton, related to tissue
decellularization and recellularization to be held and enjoyed by CryoLife Inc.,
its successors, and assigns, as fully and entirely as the same would have been
held and enjoyed by the Colorado State University Research Foundation or E.
Christopher Orton had this assignment and sale not been made. The Colorado State
University Research Foundation and E. Christopher Orton further agree to execute
all further papers and do all further acts appropriate to fully vest in
CryoLife, Inc. the rights herein conveyed.
In testimony whereof, the Colorado State University Research Foundation and
E. Christopher Orton have caused this assignment to be signed by its duly
authorized officers and its seal to be attached and by E. Christopher Orton this
__________ day of _________, 2002.
________________________________
COLORADO STATE UNIVERSITY
RESEARCH FOUNDATION
Attest
________________________________
By: Kathleen Henry, President
(CORPORATE SEAL)
__________________________
Secretary
State of Colorado
ss
County of ______________
On this the ____ day of ___________, 2002, before me personally appeared
Kathleen Henry, who acknowledged herself to be the President of Colorado State
University Research Foundation, a corporation, that she knows the seal of said
corporation, that the seal affixed to the foregoing instrument is that seal,
that it was so affixed by authority of the Board of Directors of the
corporation, and that, by like authority, she executed the instrument for the
purposes stated in it by signing the name of the corporation by herself as
President.
In witness whereof I hereunto set my hand and the seal of my office.
________________________________________
Notary Public
________________________________________
E. CHRISTOPHER ORTON
State of Colorado
ss
County of ______________
On this the ____ day of ___________, 2002, before me personally appeared E.
Christopher Orton, who executed the instrument for the purposes stated in it by
signing his name.
In witness whereof I hereunto set my hand and the seal of my office.
_________________________________________
Notary Public
ASSIGNMENT
In consideration of other good and valuable consideration, of which receipt
is acknowledged, Colorado State University Research Foundation, a corporation
formed under the laws of the state of Colorado, owner of the entire right,
title, and interest in the following United States Letters Patents and patent
applications:
1. Letters Patent No. 5,192,312, granted in the name of E. Christopher
Orton, on March 3, 1993, by assignment recorded in the U.S. Patent and Trademark
Office on Reel 006169, Frame 0272,
2. Letters Patent No. 5,772,695, granted in the name of E. Christopher
Orton, on June 30, 1998, by assignment recorded in the U.S. Patent and Trademark
Office on Reel 009128, Frame 0392,
3. Letters Patent No. 5,863,296, granted in the name of E. Christopher
Orton, on January 26, 1999, by assignment recorded in the U.S. Patent and
Trademark Office on Reel _____________, Frame __________,
4. Letters Patent No. 5,855,617, granted in the name of E. Christopher
Orton, on January 5, 1999, by assignment recorded in the U.S. Patent and
Trademark Office on Reel 009128, Frame 0392,
5. U.S. Non-Provisional Patent Application No. 09/909,914, naming E.
Christopher Orton as inventor, by assignment recorded in the U.S. Patent and
Trademark Office on Reel 012269, Frame 0694.
6. U.S. Provisional Application Serial No. 60/219,545, naming E.
Christopher Orton as inventor, by assignment recorded in the U.S. Patent and
Trademark Office on Reel ____, Frame _____.
7. PCT Application Serial No. PCT/US01/22018, naming E. Christopher Orton
as inventor, by assignment recorded in the U.S. Patent and Trademark Office on
Reel ____, Frame _____.
8. U.S. Application Serial No. 09/540,525, naming E. Christopher Orton,
inter alia, as an inventor, by assignment of E. Christopher Orton's rights
solely, recorded in the U.S. Patent and Trademark Office on Reel ____, Frame
_____.
and E. Christopher Orton, inventor of the above-listed Letters Patents and
patent applications, hereby sell and assign to CryoLife, Inc., a corporation of
Florida, its and his entire right, title, and interest in the said Letters
Patents, together with all reissues or reexaminations of said Letters Patents,
all divisions and continuations of said applications, and all applications and
patent rights for said inventions set forth in these applications in foreign
countries, to be held and enjoyed by CryoLife Inc., its successors, and assigns,
as fully and entirely as the same would have been held and enjoyed by the
Colorado State University Research Foundation or E. Christopher Orton had this
assignment and sale not been made. The Colorado State University Research
Foundation and E. Christopher Orton further agree to execute all further papers
and do all further acts appropriate to fully vest in CryoLife, Inc. the rights
herein conveyed.
In testimony whereof, the Colorado State University Research Foundation and
E. Christopher Orton have caused this assignment to be signed by its duly
authorized officers and its seal to be attached and by E. Christopher Orton this
__________ day of _________, 2002.
_______________________________
COLORADO STATE UNIVERSITY
RESEARCH FOUNDATION
Attest
_______________________________
By: Kathleen Henry, President
(CORPORATE SEAL)
___________________________
Secretary
State of Coloardo
ss
County of ______________
On this the ____ day of ___________, 2002, before me personally appeared
Kathleen Henry, who acknowledged herself to be the President of Colorado State
University Research Foundation, a corporation, that she knows the seal of said
corporation, that the seal affixed to the foregoing instrument is that seal,
that it was so affixed by authority of the Board of Directors of the
corporation, and that, by like authority, she executed the instrument for the
purposes stated in it by signing the name of the corporation by herself as
President.
In witness whereof I hereunto set my hand and the seal of my office.
____________________________________
Notary Public
____________________________________
E. CHRISTOPHER ORTON
State of Coloardo
ss
County of ______________
On this the ____ day of ___________, 2002, before me personally appeared E.
Christopher Orton, who executed the instrument for the purposes stated in it by
signing his name.
In witness whereof I hereunto set my hand and the seal of my office.
____________________________________
Notary Public
EXHIBIT D
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 01-N-0933 (OES)
COLORADO STATE UNIVERSITY
RESEARCH FOUNDATION, a Colorado
non-profit corporation,
Plaintiff/ Counterclaim Defendant,
vs.
CRYOLIFE, INC., a Florida corporation,
Defendant/Counterclaimant.
________________________________________________________________________________
JOINT STIPULATION OF DISMISSAL WITH PREJUDICE
________________________________________________________________________________
WHEREAS Plaintiff/Counterclaim Defendant Colorado State University Research
Foundation ("Plaintiff") and Defendant/Counterclaimant CryoLife, Inc.
("Defendant") having settled all claims pending the above-referenced action, and
it being the intent of Plaintiff and Defendant that all claims and actions be
dismissed with prejudice, pursuant to their mutual consents set forth below;
COMES NOW Plaintiff, by and through its undersigned attorneys of record,
and pursuant to F.R.C.P. 41(a), dismisses with prejudice its Complaint and all
claims and actions it has asserted or instituted in the above-referenced action;
and
COMES NOW Defendant, by and through its undersigned attorneys of record,
and pursuant to F.R.C.P. 41(a, c), dismisses with prejudice its Counterclaim and
all claims and actions it has asserted or instituted in the above-referenced
action.
The parties will bear their own costs and attorneys' fees.
This 2nd day of August, 2002.
___________________________________ ____________________________________
Robert R. Brunelli Kevin B. Getzendanner
Joseph. E. Kovarik Stephen M. Dorvee
Scott R. Bialecki Aaron M. Danzig
SHERIDAN ROSS P.C. ARNALL GOLDEN GREGORY LLP
1560 Broadway, Suite 1200 1201 W. Peachtree Street, Suite 2800
Denver, Colorado 80202-5141 Atlanta, Georgia 30309-3450
(303) 863-9700 (404) 873-8500
Attorneys for Plaintiff CSURF HOLME ROBERTS & OWEN LLP
Richard L. Gabriel
Katheryn Jarvis Coggon
1700 Lincoln, Suite 4100
D.C. Box No. 07
Denver, Colorado 80203
Telephone: (303) 861-7000
BRINKS HOFER GILSON & LIONE
Jeffery M. Duncan
Helen A. Odar
455 North Cityfront Plaza Drive
Suite 3600
Chicago, Illinois 60611
(312) 321-4200
Attorneys for Defendant
Cryolife, Inc.
1474312
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Agreement ("the Agreement") dated as of the 3rd day of September, 2002
(the "Effective Date"), is by and between CryoLife, Inc., a Florida corporation
("CryoLife") and David Ashley Lee (the "Employee").
WITNESSETH:
WHEREAS, the Board of Directors of CryoLife (the "Board"), has determined
that it is in the best interests of CryoLife and its shareholders to enter into
this Employment Agreement in order to assure the Employee of CryoLife's
commitment and, in so doing, to motivate the Employee to continue in Employee's
dedicated service to CryoLife even in circumstances such as a possible future
threat or occurrence of a Change of Control (defined below) of CryoLife; and,
WHEREAS, in order to accomplish these objectives, the Board has caused
CryoLife to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the promises hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledges, it is hereby agreed as follows:
1. Employment.
(a) CryoLife hereby employs Employee in the capacity of Vice President and
Chief Financial Officer and Employee hereby accepts such duties as are
customarily performed and exercised by such officer subject to the supervision
of the President of CryoLife. The duties of Employee shall include those duties
more specifically described on Exhibit A attached hereto together with such
additional duties as are assigned by the President of CryoLife.
(b) CryoLife agrees to continue the Employee in its employ, and the
Employee hereby agrees to remain in the employ of CryoLife subject to the terms
and conditions of this Agreement, for the period commencing on the Effective
Date and ending on the second anniversary of such date (the "Employment
Period"). Unless either party elects not to extend the term of this Agreement by
so notifying the other in writing at least 30 days prior to the first
anniversary of the Effective Date, the Employment Period shall automatically
extend for an additional one year.
2. Employment Duties.
(a) During the Employment Period, (A) the Employee's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Employee's services shall be performed at the location where the Employee was
employed immediately preceding the Effective Date.
(b) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee agrees to devote
reasonable attention and time to the business and affairs of CryoLife and, to
the extent necessary to discharge the responsibilities assigned to the Employee
hereunder, to use the Employee's reasonable best efforts to perform faithfully
and efficiently such responsibilities.
(c) During the Employment Period, the Employee will not, without the prior
written consent of CryoLife, directly or indirectly other than in the
performance of the duties hereunder, render services of a business, professional
or commercial nature to any other person or firm, whether for compensation or
otherwise, except with respect to any noncompetitive family businesses of the
Employee for which the rendering of such services will not have an adverse
effect upon Employee's performance of his duties and obligations hereunder.
3. Compensation, Benefits and Business Expenses.
(a) For all services which Employee renders to CryoLife or any of its
subsidiaries or affiliates during the term hereof, CryoLife agrees to pay the
Employee the salary and bonus compensation as set by the Compensation Advisory
Committee of the Board of Directors. Employee's salary at the Effective Date is
set forth on Exhibit A.
(b) CryoLife shall pay all reasonable expenses incurred by the Employee
directly related to performance of his responsibilities and duties for CryoLife
hereunder. Employee shall submit to CryoLife statements that justify in
reasonable detail all reasonable expenses so incurred. Subject to such audits as
CryoLife may deem necessary, CryoLife shall reimburse Employee the full amount
of any such expenses advanced by Employee.
(c) Employee shall be entitled to a vacation each year of his employment
with CryoLife, according to the standard vacation policy, as well as insurance
and other employment benefits, as more particularly described on Exhibit A.
Vacations not taken shall be cumulative and carried over to a subsequent year.
4. Change of Control. For the purposes of this Agreement, the term "Change
of Control" shall mean a change in the beneficial ownership of CryoLife's voting
stock or a change in the composition of the Board that occurs as follows:
2
(a) Any "person," including a "syndication" or "group" as those terms are
used in Section 13(d)(3) of the Securities Exchange Act of 1934, is or becomes
the beneficial owner, directly or indirectly, of securities of CryoLife
representing 20% or more of the combined voting power of CryoLife's then
outstanding "Voting Securities," which is any security which ordinarily
possesses the power to vote in the election of the Board of Directors of a
corporation without the happening of any precondition or contingency;
(b) CryoLife is merged or consolidated with another corporation and
immediately after giving effect to the merger or consolidation less than 80% of
the outstanding Voting Securities of the surviving or resulting entity are then
beneficially owned in the aggregate by (x) the shareholders of CryoLife
immediately prior to such merger or consolidation, or (y) if a record date has
been set to determine the shareholders of CryoLife entitled to vote on such
merger or consolidation, the shareholders of CryoLife as of such record date;
(c) If at any time the following do not constitute a majority of the Board
of Directors of CryoLife (or any successor entity referred to in clause (ii)
above): individuals who, prior to their election as a director of CryoLife (or
successor entity if applicable) were nominated, recommended or endorsed by a
formal resolution of the Board; or
(d) CryoLife transfers substantially all of its assets to another
corporation which is a less than 80% owned subsidiary of CryoLife.
5. Termination of Employment.
(a) Disability or Death. If CryoLife determines in good faith that the
Disability of the Employee has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Employee
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Employee's employment. In such event, the Employee's
employment with CryoLife shall terminate effective on the 30th day after receipt
of such notice by the Employee (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Employee shall not have returned to
full-time performance of the Employee's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Employee from the Employee's duties
with CryoLife on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by CryoLife or its insurers and acceptable
to the Employee or the Employee's legal representative. The Employee's
employment shall terminate automatically upon the Employee's death during the
Employment Period.
(b) Cause. CryoLife may terminate the Employee's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
3
(i) the willful and continued failure of the Employee to perform
substantially the Employee's duties with CryoLife (other than any such failure
resulting from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to Employee by the Board or the
Chief Executive Officer of CryoLife which specifically identifies the manner in
which CryoLife believes that the Employee has not substantially performed the
Employee's duties, or
(ii) the willful engaging by the Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to CryoLife.
For purposes of this provision, no act or failure to act, on the part of the
Employee, shall be considered "willful" unless it is done, or omitted to be
done, by the Employee in bad faith or without reasonable belief that the
Employee's action or omission was in the best interests of CryoLife. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or upon the instructions of the Chief Employee Officer or a senior
officer of CryoLife or based upon the advice of counsel for CryoLife shall be
conclusively presumed to be done, or omitted to be done, by the Employee in good
faith and in the best interests of CryoLife.
(c) Good Reason. The Employee's employment may be terminated by the
Employee for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1(a) of this Agreement, or any other action by CryoLife which results
in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by CryoLife promptly after receipt of
notice thereof given by the Employee;
(ii) any failure by CryoLife to comply with any of the provisions of
Section 3(a) or 3(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
CryoLife promptly after receipt of notice thereof given by the Employee;
(iii) any purported or threatened termination by CryoLife of the Employee's
employment otherwise than for Cause, Death or Disability; or
(iv) any failure by CryoLife to comply with and satisfy Section 11(c) of
this Agreement.
4
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Employee shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Employee for any reason at least
90 but not more than 120 days following consummation of a Change of Control or
during the 30 day period immediately following the first anniversary of a Change
of Control shall be deemed to be a termination for Good Reason for all purposes
of this Agreement.
(d) Notice of Termination. Any termination by CryoLife for Cause, or by the
Employee for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Employee or CryoLife to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or CryoLife,
respectively, hereunder or preclude the Employee or CryoLife, respectively, from
asserting such fact or circumstance in enforcing the Employee's or CryoLife's
rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Employee's
employment is terminated by CryoLife for Cause, or by the Employee for Good
Reason, the date of receipt of the Notice of Termination, or any later date
specified therein, as the case may be, (ii) if the Employee's employment is
terminated by CryoLife other than for Cause or Disability, the Date of
Termination shall be the date on which CryoLife notifies the Employee of such
termination and (iii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
6. Obligations of CryoLife upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, (i) CryoLife shall terminate the Employee's employment other
than for Cause, Death or Disability or (ii) the Employee shall terminate
employment for Good Reason, then CryoLife shall pay to Employee as severance
compensation an amount equal to $330,000.00. Such payment shall be in addition
to sums due to Employee through the Date of Termination and shall be subject to
normal withholding requirements of CryoLife. Payment of the amount shall be made
in one lump sum payment or in six equal monthly installments as directed by the
Employee.
(b) Death. If the Employee's employment is terminated by reason of the
Employee's death during the Employment Period, this Agreement shall terminate
without further obligations to the Employee's legal representatives under this
Agreement, other than for payment of obligations accruing through the Date of
Termination.
5
(c) Disability. If the Employee's employment is terminated by reason of the
Employee's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Employee, other than for payment
obligations accruing through the Date of Termination.
(d) Cause; Other than for Good Reason. If the Employee's employment shall
be terminated by CryoLife for Cause or by the Employee without Good Reason
during the Employment Period, this Agreement shall terminate without further
obligations to the Employee other than the obligation to pay to the Employee his
or her salary through the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by CryoLife or any of its affiliated companies and
for which the Employee may qualify, nor shall anything herein limit or otherwise
affect such rights as the Employee may have under any contract or agreement with
CryoLife or any of its affiliated companies. Amounts which are vested benefits
or which the Employee is otherwise entitled to receive under any plan, practice
or program of or any contract or agreement with CryoLife or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Employee obtains other
employment. CryoLife agrees to pay as incurred, to the full extent permitted by
law, all legal fees and expenses which the Employee may reasonably incur as a
result of any contest (regardless of the outcome thereof) by CryoLife, the
Employee or others of the validity or enforceability of, or liability under, any
provision of this Agreement.
9. Limitation or Expansion of Benefits.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any benefit, payment or distribution by the
Company to or for the benefit of the Employee (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if
paid, be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"; such excise tax, the "Excise
Tax"), then the Payment shall be reduced to the extent necessary of avoid the
imposition of the Excise Tax. The Employee may select the Payment to be limited
or reduced.
6
(b) All determinations required to be made under this Section 9, including
whether an Excise Tax would otherwise be imposed and the assumptions to be
utilized in arriving at such determination and the value of the maximum amount
payable without imposition of the Excise Tax, shall be made by the certified
public accounting firm regularly engaged by the Company (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Employee within 30 business days of the receipt of notice from the Employee that
a Payment is due to be made, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Employee may appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and the Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be paid by the Company to or
for the benefit of the Employee.
(c) The provisions of this Section 9 shall not apply unless and until
amounts become payable to Employee pursuant to Section 6(a) hereof.
10. Confidential Information. The Employee and CryoLife are parties to one
or more separate agreements respecting confidential information, trade secrets,
inventions and non-competition (collectively, the "IP Agreements"). The parties
agree that the IP Agreements shall not be superceded or terminated by this
Agreement and shall survive any termination of this Agreement.
11. Successors.
(a) This Agreement is personal to the Employee and without the prior
written consent of CryoLife shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
CryoLife and its successors and assigns.
7
(c) CryoLife will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of CryoLife to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that CryoLife would be
required to perform it if no such succession had taken place. As used in this
Agreement, "CryoLife" shall mean CryoLife as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force and effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
David Ashley Lee
3802 Wieuca Terrace NE
Atlanta, GA 30342
If to CryoLife:
CryoLife, Inc.
1655 Roberts Boulevard, N.W,
Kennesaw, Georgia 30144
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability or any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) CryoLife may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
8
(e) From and after the Effective Date this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Employee has hereunder set the Employee's hand and,
pursuant to the authorization from its Board, CryoLife has caused these presents
to be executed in its name on its behalf, all as of the day and year first above
written.
/s/ D.A. Lee
--------------------------------------------
David Ashley Lee
CRYOLIFE, INC.
By: /s/ Steven G. Anderson
-----------------------------------------
Steven G. Anderson
Chairman, President and CEO
9
Exhibit A
Duties and Responsibilities of DAVID ASHLEY LEE:
- -----------------------------------------------
All duties of Vice President and Chief Financial Officer and duties not
inconsistent with such duties that are assigned by the President.
Compensation:
- ------------
Salary of $220,000 and bonus set by the Compensation Advisory Committee.
Salary & Bonus subject to yearly review by the Compensation Advisory
Committee of the Board of Directors:
Vacation and Employee Benefits:
- ------------------------------
See attached Company vacation plan, standard Company medical plan and
contributory 401K plan.
Company Business:
- ----------------
The development, marketing, sale and distribution of tissue preservation
services and biomedical and medical products.
1546367v1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Agreement ("the Agreement") dated as of the 3rd day of September, 2002
(the "Effective Date"), is by and between CryoLife, Inc., a Florida corporation
("CryoLife") and Sidney B. Ashmore (the "Employee").
WITNESSETH:
WHEREAS, the Board of Directors of CryoLife (the "Board"), has determined
that it is in the best interests of CryoLife and its shareholders to enter into
this Employment Agreement in order to assure the Employee of CryoLife's
commitment and, in so doing, to motivate the Employee to continue in Employee's
dedicated service to CryoLife even in circumstances such as a possible future
threat or occurrence of a Change of Control (defined below) of CryoLife; and,
WHEREAS, in order to accomplish these objectives, the Board has caused
CryoLife to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the promises hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledges, it is hereby agreed as follows:
1. Employment.
(a) CryoLife hereby employs Employee in the capacity of Vice President,
Marketing and Employee hereby accepts such duties as are customarily performed
and exercised by such officer subject to the supervision of the President of
CryoLife. The duties of Employee shall include those duties more specifically
described on Exhibit A attached hereto together with such additional duties as
are assigned by the President of CryoLife.
(b) CryoLife agrees to continue the Employee in its employ, and the
Employee hereby agrees to remain in the employ of CryoLife subject to the terms
and conditions of this Agreement, for the period commencing on the Effective
Date and ending on the first anniversary of such date (the "Employment Period").
Unless either party elects not to extend the term of this Agreement by so
notifying the other in writing at least 30 days prior to the first anniversary
of the Effective Date, the Employment Period shall automatically extend for an
additional one year.
2. Employment Duties.
(a) During the Employment Period, (A) the Employee's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Employee's services shall be performed at the location where the Employee was
employed immediately preceding the Effective Date.
(b) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee agrees to devote
reasonable attention and time to the business and affairs of CryoLife and, to
the extent necessary to discharge the responsibilities assigned to the Employee
hereunder, to use the Employee's reasonable best efforts to perform faithfully
and efficiently such responsibilities.
(c) During the Employment Period, the Employee will not, without the prior
written consent of CryoLife, directly or indirectly other than in the
performance of the duties hereunder, render services of a business, professional
or commercial nature to any other person or firm, whether for compensation or
otherwise, except with respect to any noncompetitive family businesses of the
Employee for which the rendering of such services will not have an adverse
effect upon Employee's performance of his duties and obligations hereunder.
3. Compensation, Benefits and Business Expenses.
(a) For all services which Employee renders to CryoLife or any of its
subsidiaries or affiliates during the term hereof, CryoLife agrees to pay the
Employee the salary and bonus compensation as set by the Compensation Advisory
Committee of the Board of Directors. Employee's salary at the Effective Date is
set forth on Exhibit A.
(b) CryoLife shall pay all reasonable expenses incurred by the Employee
directly related to performance of his responsibilities and duties for CryoLife
hereunder. Employee shall submit to CryoLife statements that justify in
reasonable detail all reasonable expenses so incurred. Subject to such audits as
CryoLife may deem necessary, CryoLife shall reimburse Employee the full amount
of any such expenses advanced by Employee.
(c) Employee shall be entitled to a vacation each year of his employment
with CryoLife, according to the standard vacation policy, as well as insurance
and other employment benefits, as more particularly described on Exhibit A.
Vacations not taken shall be cumulative and carried over to a subsequent year.
4. Change of Control. For the purposes of this Agreement, the term "Change
of Control" shall mean a change in the beneficial ownership of CryoLife's voting
stock or a change in the composition of the Board that occurs as follows:
2
(a) Any "person," including a "syndication" or "group" as those terms are
used in Section 13(d)(3) of the Securities Exchange Act of 1934, is or becomes
the beneficial owner, directly or indirectly, of securities of CryoLife
representing 20% or more of the combined voting power of CryoLife's then
outstanding "Voting Securities," which is any security which ordinarily
possesses the power to vote in the election of the Board of Directors of a
corporation without the happening of any precondition or contingency;
(b) CryoLife is merged or consolidated with another corporation and
immediately after giving effect to the merger or consolidation less than 80% of
the outstanding Voting Securities of the surviving or resulting entity are then
beneficially owned in the aggregate by (x) the shareholders of CryoLife
immediately prior to such merger or consolidation, or (y) if a record date has
been set to determine the shareholders of CryoLife entitled to vote on such
merger or consolidation, the shareholders of CryoLife as of such record date;
(c) If at any time the following do not constitute a majority of the Board
of Directors of CryoLife (or any successor entity referred to in clause (ii)
above): individuals who, prior to their election as a director of CryoLife (or
successor entity if applicable) were nominated, recommended or endorsed by a
formal resolution of the Board; or
(d) CryoLife transfers substantially all of its assets to another
corporation which is a less than 80% owned subsidiary of CryoLife.
5. Termination of Employment.
(a) Disability or Death. If CryoLife determines in good faith that the
Disability of the Employee has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Employee
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Employee's employment. In such event, the Employee's
employment with CryoLife shall terminate effective on the 30th day after receipt
of such notice by the Employee (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Employee shall not have returned to
full-time performance of the Employee's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Employee from the Employee's duties
with CryoLife on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by CryoLife or its insurers and acceptable
to the Employee or the Employee's legal representative. The Employee's
employment shall terminate automatically upon the Employee's death during the
Employment Period.
(b) Cause. CryoLife may terminate the Employee's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Employee to perform
substantially the Employee's duties with CryoLife (other than any such failure
resulting from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to Employee by the Board or the
Chief Executive Officer of CryoLife which specifically identifies the manner in
which CryoLife believes that the Employee has not substantially performed the
Employee's duties, or
3
(ii) the willful engaging by the Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to CryoLife.
For purposes of this provision, no act or failure to act, on the part of the
Employee, shall be considered "willful" unless it is done, or omitted to be
done, by the Employee in bad faith or without reasonable belief that the
Employee's action or omission was in the best interests of CryoLife. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or upon the instructions of the Chief Employee Officer or a senior
officer of CryoLife or based upon the advice of counsel for CryoLife shall be
conclusively presumed to be done, or omitted to be done, by the Employee in good
faith and in the best interests of CryoLife.
(c) Good Reason. The Employee's employment may be terminated by the
Employee for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1(a) of this Agreement, or any other action by CryoLife which results
in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by CryoLife promptly after receipt of
notice thereof given by the Employee;
(ii) any failure by CryoLife to comply with any of the provisions of
Section 3(a) or 3(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
CryoLife promptly after receipt of notice thereof given by the Employee;
(iii) any purported or threatened termination by CryoLife of the Employee's
employment otherwise than for Cause, Death or Disability; or
(iv) any failure by CryoLife to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Employee shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Employee for any reason at least
90 but not more than 120 days following consummation of a Change of Control or
during the 30 day period immediately following the first anniversary of a Change
of Control shall be deemed to be a termination for Good Reason for all purposes
of this Agreement.
(d) Notice of Termination. Any termination by CryoLife for Cause, or by the
Employee for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
4
and circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Employee or CryoLife to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or CryoLife,
respectively, hereunder or preclude the Employee or CryoLife, respectively, from
asserting such fact or circumstance in enforcing the Employee's or CryoLife's
rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Employee's
employment is terminated by CryoLife for Cause, or by the Employee for Good
Reason, the date of receipt of the Notice of Termination, or any later date
specified therein, as the case may be, (ii) if the Employee's employment is
terminated by CryoLife other than for Cause or Disability, the Date of
Termination shall be the date on which CryoLife notifies the Employee of such
termination and (iii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
6. Obligations of CryoLife upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, (i) CryoLife shall terminate the Employee's employment other
than for Cause, Death or Disability or (ii) the Employee shall terminate
employment for Good Reason, then CryoLife shall pay to Employee as severance
compensation an amount equal to $255,000.00. Such payment shall be in addition
to sums due to Employee through the Date of Termination and shall be subject to
normal withholding requirements of CryoLife. Payment of the amount shall be made
in one lump sum payment or in six equal monthly installments as directed by the
Employee.
(b) Death. If the Employee's employment is terminated by reason of the
Employee's death during the Employment Period, this Agreement shall terminate
without further obligations to the Employee's legal representatives under this
Agreement, other than for payment of obligations accruing through the Date of
Termination.
(c) Disability. If the Employee's employment is terminated by reason of the
Employee's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Employee, other than for payment
obligations accruing through the Date of Termination.
(d) Cause; Other than for Good Reason. If the Employee's employment shall
be terminated by CryoLife for Cause or by the Employee without Good Reason
during the Employment Period, this Agreement shall terminate without further
obligations to the Employee other than the obligation to pay to the Employee his
or her salary through the Date of Termination.
5
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by CryoLife or any of its affiliated companies and
for which the Employee may qualify, nor shall anything herein limit or otherwise
affect such rights as the Employee may have under any contract or agreement with
CryoLife or any of its affiliated companies. Amounts which are vested benefits
or which the Employee is otherwise entitled to receive under any plan, practice
or program of or any contract or agreement with CryoLife or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Employee obtains other
employment. CryoLife agrees to pay as incurred, to the full extent permitted by
law, all legal fees and expenses which the Employee may reasonably incur as a
result of any contest (regardless of the outcome thereof) by CryoLife, the
Employee or others of the validity or enforceability of, or liability under, any
provision of this Agreement.
9. Limitation or Expansion of Benefits.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any benefit, payment or distribution by the
Company to or for the benefit of the Employee (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if
paid, be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"; such excise tax, the "Excise
Tax"), then the Payment shall be reduced to the extent necessary of avoid the
imposition of the Excise Tax. The Employee may select the Payment to be limited
or reduced.
(b) All determinations required to be made under this Section 9, including
whether an Excise Tax would otherwise be imposed and the assumptions to be
utilized in arriving at such determination and the value of the maximum amount
payable without imposition of the Excise Tax, shall be made by the certified
public accounting firm regularly engaged by the Company (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Employee within 30 business days of the receipt of notice from the Employee that
a Payment is due to be made, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Employee may appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and the Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be paid by the Company to or
for the benefit of the Employee.
6
(c) The provisions of this Section 9 shall not apply unless and until
amounts become payable to Employee pursuant to Section 6(a) hereof.
10. Confidential Information. The Employee and CryoLife are parties to one
or more separate agreements respecting confidential information, trade secrets,
inventions and non-competition (collectively, the "IP Agreements"). The parties
agree that the IP Agreements shall not be superceded or terminated by this
Agreement and shall survive any termination of this Agreement.
11. Successors.
(a) This Agreement is personal to the Employee and without the prior
written consent of CryoLife shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
CryoLife and its successors and assigns.
(c) CryoLife will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of CryoLife to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that CryoLife would be
required to perform it if no such succession had taken place. As used in this
Agreement, "CryoLife" shall mean CryoLife as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force and effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
7
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
Sidney B. Ashmore
_________________________
_________________________
If to CryoLife:
CryoLife, Inc.
1655 Roberts Boulevard, N.W,
Kennesaw, Georgia 30144
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability or any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) CryoLife may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) From and after the Effective Date this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Employee has hereunder set the Employee's hand and,
pursuant to the authorization from its Board, CryoLife has caused these presents
to be executed in its name on its behalf, all as of the day and year first above
written.
/s/ Sidney B. Ashmore
--------------------------------------------
Sidney B. Ashmore
CRYOLIFE, INC.
By: /s/ Steven G. Anderson
-----------------------------------------
Steven G. Anderson
Chairman, President and CEO
8
Exhibit A
Duties and Responsibilities of SIDNEY B. ASHMORE:
- ------------------------------------------------
All duties of Vice President, Marketing and duties not inconsistent with
such duties that are assigned by the President.
Compensation:
- ------------
Salary of $170,000 and bonus set by the Compensation Advisory Committee.
Salary & Bonus subject to yearly review by the Compensation Advisory
Committee of the Board of Directors:
Vacation and Employee Benefits:
- ------------------------------
See attached Company vacation plan, standard Company medical plan and
contributory 401K plan.
Company Business:
- ----------------
The development, marketing, sale and distribution of tissue preservation
services and biomedical and medical products.
1546365v1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Agreement ("the Agreement") dated as of the 3rd day of September, 2002
(the "Effective Date"), is by and between CryoLife, Inc., a Florida corporation
("CryoLife") and Kirby S. Black, Ph.D. (the "Employee").
WITNESSETH:
WHEREAS, the Board of Directors of CryoLife (the "Board"), has determined
that it is in the best interests of CryoLife and its shareholders to enter into
this Employment Agreement in order to assure the Employee of CryoLife's
commitment and, in so doing, to motivate the Employee to continue in Employee's
dedicated service to CryoLife even in circumstances such as a possible future
threat or occurrence of a Change of Control (defined below) of CryoLife; and,
WHEREAS, in order to accomplish these objectives, the Board has caused
CryoLife to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the promises hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledges, it is hereby agreed as follows:
1. Employment.
(a) CryoLife hereby employs Employee in the capacity of Senior Vice
President, Research and Development and Employee hereby accepts such duties as
are customarily performed and exercised by such officer subject to the
supervision of the President of CryoLife. The duties of Employee shall include
those duties more specifically described on Exhibit A attached hereto together
with such additional duties as are assigned by the President of CryoLife.
(b) CryoLife agrees to continue the Employee in its employ, and the
Employee hereby agrees to remain in the employ of CryoLife subject to the terms
and conditions of this Agreement, for the period commencing on the Effective
Date and ending on the first anniversary of such date (the "Employment Period").
Unless either party elects not to extend the term of this Agreement by so
notifying the other in writing at least 30 days prior to the first anniversary
of the Effective Date, the Employment Period shall automatically extend for an
additional one year.
2. Employment Duties.
(a) During the Employment Period, (A) the Employee's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Employee's services shall be performed at the location where the Employee was
employed immediately preceding the Effective Date.
(b) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee agrees to devote
reasonable attention and time to the business and affairs of CryoLife and, to
the extent necessary to discharge the responsibilities assigned to the Employee
hereunder, to use the Employee's reasonable best efforts to perform faithfully
and efficiently such responsibilities.
(c) During the Employment Period, the Employee will not, without the prior
written consent of CryoLife, directly or indirectly other than in the
performance of the duties hereunder, render services of a business, professional
or commercial nature to any other person or firm, whether for compensation or
otherwise, except with respect to any noncompetitive family businesses of the
Employee for which the rendering of such services will not have an adverse
effect upon Employee's performance of his duties and obligations hereunder.
3. Compensation, Benefits and Business Expenses.
(a) For all services which Employee renders to CryoLife or any of its
subsidiaries or affiliates during the term hereof, CryoLife agrees to pay the
Employee the salary and bonus compensation as set by the Compensation Advisory
Committee of the Board of Directors. Employee's salary at the Effective Date is
set forth on Exhibit A.
(b) CryoLife shall pay all reasonable expenses incurred by the Employee
directly related to performance of his responsibilities and duties for CryoLife
hereunder. Employee shall submit to CryoLife statements that justify in
reasonable detail all reasonable expenses so incurred. Subject to such audits as
CryoLife may deem necessary, CryoLife shall reimburse Employee the full amount
of any such expenses advanced by Employee.
(c) Employee shall be entitled to a vacation each year of his employment
with CryoLife, according to the standard vacation policy, as well as insurance
and other employment benefits, as more particularly described on Exhibit A.
Vacations not taken shall be cumulative and carried over to a subsequent year.
4. Change of Control. For the purposes of this Agreement, the term "Change
of Control" shall mean a change in the beneficial ownership of CryoLife's voting
stock or a change in the composition of the Board that occurs as follows:
2
(a) Any "person," including a "syndication" or "group" as those terms are
used in Section 13(d)(3) of the Securities Exchange Act of 1934, is or becomes
the beneficial owner, directly or indirectly, of securities of CryoLife
representing 20% or more of the combined voting power of CryoLife's then
outstanding "Voting Securities," which is any security which ordinarily
possesses the power to vote in the election of the Board of Directors of a
corporation without the happening of any precondition or contingency;
(b) CryoLife is merged or consolidated with another corporation and
immediately after giving effect to the merger or consolidation less than 80% of
the outstanding Voting Securities of the surviving or resulting entity are then
beneficially owned in the aggregate by (x) the shareholders of CryoLife
immediately prior to such merger or consolidation, or (y) if a record date has
been set to determine the shareholders of CryoLife entitled to vote on such
merger or consolidation, the shareholders of CryoLife as of such record date;
(c) If at any time the following do not constitute a majority of the Board
of Directors of CryoLife (or any successor entity referred to in clause (ii)
above): individuals who, prior to their election as a director of CryoLife (or
successor entity if applicable) were nominated, recommended or endorsed by a
formal resolution of the Board; or
(d) CryoLife transfers substantially all of its assets to another
corporation which is a less than 80% owned subsidiary of CryoLife.
5. Termination of Employment.
(a) Disability or Death. If CryoLife determines in good faith that the
Disability of the Employee has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Employee
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Employee's employment. In such event, the Employee's
employment with CryoLife shall terminate effective on the 30th day after receipt
of such notice by the Employee (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Employee shall not have returned to
full-time performance of the Employee's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Employee from the Employee's duties
with CryoLife on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by CryoLife or its insurers and acceptable
to the Employee or the Employee's legal representative. The Employee's
employment shall terminate automatically upon the Employee's death during the
Employment Period.
(b) Cause. CryoLife may terminate the Employee's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Employee to perform
substantially the Employee's duties with CryoLife (other than any such failure
resulting from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to Employee by the Board or the
Chief Executive Officer of CryoLife which specifically identifies the manner in
which CryoLife believes that the Employee has not substantially performed the
Employee's duties, or
3
(ii) the willful engaging by the Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to CryoLife.
For purposes of this provision, no act or failure to act, on the part of the
Employee, shall be considered "willful" unless it is done, or omitted to be
done, by the Employee in bad faith or without reasonable belief that the
Employee's action or omission was in the best interests of CryoLife. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or upon the instructions of the Chief Employee Officer or a senior
officer of CryoLife or based upon the advice of counsel for CryoLife shall be
conclusively presumed to be done, or omitted to be done, by the Employee in good
faith and in the best interests of CryoLife.
(c) Good Reason. The Employee's employment may be terminated by the
Employee for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1(a) of this Agreement, or any other action by CryoLife which results
in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by CryoLife promptly after receipt of
notice thereof given by the Employee;
(ii) any failure by CryoLife to comply with any of the provisions of
Section 3(a) or 3(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
CryoLife promptly after receipt of notice thereof given by the Employee;
(iii) any purported or threatened termination by CryoLife of the Employee's
employment otherwise than for Cause, Death or Disability; or
(iv) any failure by CryoLife to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Employee shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Employee for any reason at least
90 but not more than 120 days following consummation of a Change of Control or
during the 30 day period immediately following the first anniversary of a Change
of Control shall be deemed to be a termination for Good Reason for all purposes
of this Agreement.
(d) Notice of Termination. Any termination by CryoLife for Cause, or by the
Employee for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
4
and circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Employee or CryoLife to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or CryoLife,
respectively, hereunder or preclude the Employee or CryoLife, respectively, from
asserting such fact or circumstance in enforcing the Employee's or CryoLife's
rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Employee's
employment is terminated by CryoLife for Cause, or by the Employee for Good
Reason, the date of receipt of the Notice of Termination, or any later date
specified therein, as the case may be, (ii) if the Employee's employment is
terminated by CryoLife other than for Cause or Disability, the Date of
Termination shall be the date on which CryoLife notifies the Employee of such
termination and (iii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
6. Obligations of CryoLife upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, (i) CryoLife shall terminate the Employee's employment other
than for Cause, Death or Disability or (ii) the Employee shall terminate
employment for Good Reason, then CryoLife shall pay to Employee as severance
compensation an amount equal to $337,500.00. Such payment shall be in addition
to sums due to Employee through the Date of Termination and shall be subject to
normal withholding requirements of CryoLife. Payment of the amount shall be made
in one lump sum payment or in six equal monthly installments as directed by the
Employee.
(b) Death. If the Employee's employment is terminated by reason of the
Employee's death during the Employment Period, this Agreement shall terminate
without further obligations to the Employee's legal representatives under this
Agreement, other than for payment of obligations accruing through the Date of
Termination.
(c) Disability. If the Employee's employment is terminated by reason of the
Employee's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Employee, other than for payment
obligations accruing through the Date of Termination.
(d) Cause; Other than for Good Reason. If the Employee's employment shall
be terminated by CryoLife for Cause or by the Employee without Good Reason
during the Employment Period, this Agreement shall terminate without further
obligations to the Employee other than the obligation to pay to the Employee his
or her salary through the Date of Termination.
5
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by CryoLife or any of its affiliated companies and
for which the Employee may qualify, nor shall anything herein limit or otherwise
affect such rights as the Employee may have under any contract or agreement with
CryoLife or any of its affiliated companies. Amounts which are vested benefits
or which the Employee is otherwise entitled to receive under any plan, practice
or program of or any contract or agreement with CryoLife or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Employee obtains other
employment. CryoLife agrees to pay as incurred, to the full extent permitted by
law, all legal fees and expenses which the Employee may reasonably incur as a
result of any contest (regardless of the outcome thereof) by CryoLife, the
Employee or others of the validity or enforceability of, or liability under, any
provision of this Agreement.
9. Limitation or Expansion of Benefits.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any benefit, payment or distribution by the
Company to or for the benefit of the Employee (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if
paid, be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"; such excise tax, the "Excise
Tax"), then the Payment shall be reduced to the extent necessary of avoid the
imposition of the Excise Tax. The Employee may select the Payment to be limited
or reduced.
(b) All determinations required to be made under this Section 9, including
whether an Excise Tax would otherwise be imposed and the assumptions to be
utilized in arriving at such determination and the value of the maximum amount
payable without imposition of the Excise Tax, shall be made by the certified
public accounting firm regularly engaged by the Company (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Employee within 30 business days of the receipt of notice from the Employee that
a Payment is due to be made, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Employee may appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and the Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be paid by the Company to or
for the benefit of the Employee.
6
(c) The provisions of this Section 9 shall not apply unless and until
amounts become payable to Employee pursuant to Section 6(a) hereof.
10. Confidential Information. The Employee and CryoLife are parties to one
or more separate agreements respecting confidential information, trade secrets,
inventions and non-competition (collectively, the "IP Agreements"). The parties
agree that the IP Agreements shall not be superceded or terminated by this
Agreement and shall survive any termination of this Agreement.
11. Successors.
(a) This Agreement is personal to the Employee and without the prior
written consent of CryoLife shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
CryoLife and its successors and assigns.
(c) CryoLife will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of CryoLife to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that CryoLife would be
required to perform it if no such succession had taken place. As used in this
Agreement, "CryoLife" shall mean CryoLife as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force and effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
7
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
Kirby S. Black, Ph.D.
1371 Peppergrass Trail
Acworth, GA 30101
If to CryoLife:
CryoLife, Inc.
1655 Roberts Boulevard, N.W,
Kennesaw, Georgia 30144
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability or any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) CryoLife may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) From and after the Effective Date this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Employee has hereunder set the Employee's hand and,
pursuant to the authorization from its Board, CryoLife has caused these presents
to be executed in its name on its behalf, all as of the day and year first above
written.
/s/ Kirby S. Black
--------------------------------------------
Kirby S. Black, Ph.D.
CRYOLIFE, INC.
By: /s/ Steven G. Anderson
-----------------------------------------
Steven G. Anderson
Chairman, President and CEO
8
Exhibit A
Duties and Responsibilities of KIRBY S. BLACK, PH.D.:
- ---------------------------------------------------
All duties of Senior Vice President, Research and Development and duties
not inconsistent with such duties that are assigned by the President.
Compensation:
- ------------
Salary of $225,000 and bonus set by the Compensation Advisory Committee.
Salary & Bonus subject to yearly review by the Compensation Advisory
Committee of the Board of Directors:
Vacation and Employee Benefits:
- ------------------------------
See attached Company vacation plan, standard Company medical plan and
contributory 401K plan.
Company Business:
- ----------------
The development, marketing, sale and distribution of tissue preservation
services and biomedical and medical products.
1546365v1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Agreement ("the Agreement") dated as of the 3rd day of September, 2002
(the "Effective Date"), is by and between CryoLife, Inc., a Florida corporation
("CryoLife") and Albert E. Heacox, Ph.D. (the "Employee").
WITNESSETH:
WHEREAS, the Board of Directors of CryoLife (the "Board"), has determined
that it is in the best interests of CryoLife and its shareholders to enter into
this Employment Agreement in order to assure the Employee of CryoLife's
commitment and, in so doing, to motivate the Employee to continue in Employee's
dedicated service to CryoLife even in circumstances such as a possible future
threat or occurrence of a Change of Control (defined below) of CryoLife; and,
WHEREAS, in order to accomplish these objectives, the Board has caused
CryoLife to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the promises hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledges, it is hereby agreed as follows:
1. Employment.
(a) CryoLife hereby employs Employee in the capacity of Senior Vice
President, Laboratory Operations and Employee hereby accepts such duties as are
customarily performed and exercised by such officer subject to the supervision
of the President of CryoLife. The duties of Employee shall include those duties
more specifically described on Exhibit A attached hereto together with such
additional duties as are assigned by the President of CryoLife.
(b) CryoLife agrees to continue the Employee in its employ, and the
Employee hereby agrees to remain in the employ of CryoLife subject to the terms
and conditions of this Agreement, for the period commencing on the Effective
Date and ending on the second anniversary of such date (the "Employment
Period"). Unless either party elects not to extend the term of this Agreement by
so notifying the other in writing at least 30 days prior to the first
anniversary of the Effective Date, the Employment Period shall automatically
extend for an additional one year.
2. Employment Duties.
(a) During the Employment Period, (A) the Employee's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Employee's services shall be performed at the location where the Employee was
employed immediately preceding the Effective Date.
(b) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee agrees to devote
reasonable attention and time to the business and affairs of CryoLife and, to
the extent necessary to discharge the responsibilities assigned to the Employee
hereunder, to use the Employee's reasonable best efforts to perform faithfully
and efficiently such responsibilities.
(c) During the Employment Period, the Employee will not, without the prior
written consent of CryoLife, directly or indirectly other than in the
performance of the duties hereunder, render services of a business, professional
or commercial nature to any other person or firm, whether for compensation or
otherwise, except with respect to any noncompetitive family businesses of the
Employee for which the rendering of such services will not have an adverse
effect upon Employee's performance of his duties and obligations hereunder.
3. Compensation, Benefits and Business Expenses.
(a) For all services which Employee renders to CryoLife or any of its
subsidiaries or affiliates during the term hereof, CryoLife agrees to pay the
Employee the salary and bonus compensation as set by the Compensation Advisory
Committee of the Board of Directors. Employee's salary at the Effective Date is
set forth on Exhibit A.
(b) CryoLife shall pay all reasonable expenses incurred by the Employee
directly related to performance of his responsibilities and duties for CryoLife
hereunder. Employee shall submit to CryoLife statements that justify in
reasonable detail all reasonable expenses so incurred. Subject to such audits as
CryoLife may deem necessary, CryoLife shall reimburse Employee the full amount
of any such expenses advanced by Employee.
(c) Employee shall be entitled to a vacation each year of his employment
with CryoLife, according to the standard vacation policy, as well as insurance
and other employment benefits, as more particularly described on Exhibit A.
Vacations not taken shall be cumulative and carried over to a subsequent year.
4. Change of Control. For the purposes of this Agreement, the term "Change
of Control" shall mean a change in the beneficial ownership of CryoLife's voting
stock or a change in the composition of the Board that occurs as follows:
2
(a) Any "person," including a "syndication" or "group" as those terms are
used in Section 13(d)(3) of the Securities Exchange Act of 1934, is or becomes
the beneficial owner, directly or indirectly, of securities of CryoLife
representing 20% or more of the combined voting power of CryoLife's then
outstanding "Voting Securities," which is any security which ordinarily
possesses the power to vote in the election of the Board of Directors of a
corporation without the happening of any precondition or contingency;
(b) CryoLife is merged or consolidated with another corporation and
immediately after giving effect to the merger or consolidation less than 80% of
the outstanding Voting Securities of the surviving or resulting entity are then
beneficially owned in the aggregate by (x) the shareholders of CryoLife
immediately prior to such merger or consolidation, or (y) if a record date has
been set to determine the shareholders of CryoLife entitled to vote on such
merger or consolidation, the shareholders of CryoLife as of such record date;
(c) If at any time the following do not constitute a majority of the Board
of Directors of CryoLife (or any successor entity referred to in clause (ii)
above): individuals who, prior to their election as a director of CryoLife (or
successor entity if applicable) were nominated, recommended or endorsed by a
formal resolution of the Board; or
(d) CryoLife transfers substantially all of its assets to another
corporation which is a less than 80% owned subsidiary of CryoLife.
5. Termination of Employment.
(a) Disability or Death. If CryoLife determines in good faith that the
Disability of the Employee has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Employee
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Employee's employment. In such event, the Employee's
employment with CryoLife shall terminate effective on the 30th day after receipt
of such notice by the Employee (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Employee shall not have returned to
full-time performance of the Employee's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Employee from the Employee's duties
with CryoLife on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by CryoLife or its insurers and acceptable
to the Employee or the Employee's legal representative. The Employee's
employment shall terminate automatically upon the Employee's death during the
Employment Period.
(b) Cause. CryoLife may terminate the Employee's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
3
(i) the willful and continued failure of the Employee to perform
substantially the Employee's duties with CryoLife (other than any such failure
resulting from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to Employee by the Board or the
Chief Executive Officer of CryoLife which specifically identifies the manner in
which CryoLife believes that the Employee has not substantially performed the
Employee's duties, or
(ii) the willful engaging by the Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to CryoLife.
For purposes of this provision, no act or failure to act, on the part of the
Employee, shall be considered "willful" unless it is done, or omitted to be
done, by the Employee in bad faith or without reasonable belief that the
Employee's action or omission was in the best interests of CryoLife. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or upon the instructions of the Chief Employee Officer or a senior
officer of CryoLife or based upon the advice of counsel for CryoLife shall be
conclusively presumed to be done, or omitted to be done, by the Employee in good
faith and in the best interests of CryoLife.
(c) Good Reason. The Employee's employment may be terminated by the
Employee for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1(a) of this Agreement, or any other action by CryoLife which results
in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by CryoLife promptly after receipt of
notice thereof given by the Employee;
(ii) any failure by CryoLife to comply with any of the provisions of
Section 3(a) or 3(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
CryoLife promptly after receipt of notice thereof given by the Employee;
(iii) any purported or threatened termination by CryoLife of the Employee's
employment otherwise than for Cause, Death or Disability; or
(iv) any failure by CryoLife to comply with and satisfy Section 11(c) of
this Agreement.
4
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Employee shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Employee for any reason at least
90 but not more than 120 days following consummation of a Change of Control or
during the 30 day period immediately following the first anniversary of a Change
of Control shall be deemed to be a termination for Good Reason for all purposes
of this Agreement.
(d) Notice of Termination. Any termination by CryoLife for Cause, or by the
Employee for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Employee or CryoLife to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or CryoLife,
respectively, hereunder or preclude the Employee or CryoLife, respectively, from
asserting such fact or circumstance in enforcing the Employee's or CryoLife's
rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Employee's
employment is terminated by CryoLife for Cause, or by the Employee for Good
Reason, the date of receipt of the Notice of Termination, or any later date
specified therein, as the case may be, (ii) if the Employee's employment is
terminated by CryoLife other than for Cause or Disability, the Date of
Termination shall be the date on which CryoLife notifies the Employee of such
termination and (iii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
6. Obligations of CryoLife upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, (i) CryoLife shall terminate the Employee's employment other
than for Cause, Death or Disability or (ii) the Employee shall terminate
employment for Good Reason, then CryoLife shall pay to Employee as severance
compensation an amount equal to $337,500.00. Such payment shall be in addition
to sums due to Employee through the Date of Termination and shall be subject to
normal withholding requirements of CryoLife. Payment of the amount shall be made
in one lump sum payment or in six equal monthly installments as directed by the
Employee.
(b) Death. If the Employee's employment is terminated by reason of the
Employee's death during the Employment Period, this Agreement shall terminate
without further obligations to the Employee's legal representatives under this
Agreement, other than for payment of obligations accruing through the Date of
Termination.
5
(c) Disability. If the Employee's employment is terminated by reason of the
Employee's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Employee, other than for payment
obligations accruing through the Date of Termination.
(d) Cause; Other than for Good Reason. If the Employee's employment shall
be terminated by CryoLife for Cause or by the Employee without Good Reason
during the Employment Period, this Agreement shall terminate without further
obligations to the Employee other than the obligation to pay to the Employee his
or her salary through the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by CryoLife or any of its affiliated companies and
for which the Employee may qualify, nor shall anything herein limit or otherwise
affect such rights as the Employee may have under any contract or agreement with
CryoLife or any of its affiliated companies. Amounts which are vested benefits
or which the Employee is otherwise entitled to receive under any plan, practice
or program of or any contract or agreement with CryoLife or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Employee obtains other
employment. CryoLife agrees to pay as incurred, to the full extent permitted by
law, all legal fees and expenses which the Employee may reasonably incur as a
result of any contest (regardless of the outcome thereof) by CryoLife, the
Employee or others of the validity or enforceability of, or liability under, any
provision of this Agreement.
9. Limitation or Expansion of Benefits.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any benefit, payment or distribution by the
Company to or for the benefit of the Employee (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if
paid, be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"; such excise tax, the "Excise
Tax"), then the Payment shall be reduced to the extent necessary of avoid the
imposition of the Excise Tax. The Employee may select the Payment to be limited
or reduced.
6
(b) All determinations required to be made under this Section 9, including
whether an Excise Tax would otherwise be imposed and the assumptions to be
utilized in arriving at such determination and the value of the maximum amount
payable without imposition of the Excise Tax, shall be made by the certified
public accounting firm regularly engaged by the Company (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Employee within 30 business days of the receipt of notice from the Employee that
a Payment is due to be made, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Employee may appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and the Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be paid by the Company to or
for the benefit of the Employee.
(c) The provisions of this Section 9 shall not apply unless and until
amounts become payable to Employee pursuant to Section 6(a) hereof.
10. Confidential Information. The Employee and CryoLife are parties to one
or more separate agreements respecting confidential information, trade secrets,
inventions and non-competition (collectively, the "IP Agreements"). The parties
agree that the IP Agreements shall not be superceded or terminated by this
Agreement and shall survive any termination of this Agreement.
11. Successors.
(a) This Agreement is personal to the Employee and without the prior
written consent of CryoLife shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
CryoLife and its successors and assigns.
7
(c) CryoLife will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of CryoLife to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that CryoLife would be
required to perform it if no such succession had taken place. As used in this
Agreement, "CryoLife" shall mean CryoLife as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force and effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
Albert E. Heacox, Ph.D.
_________________________
_________________________
If to CryoLife:
CryoLife, Inc.
1655 Roberts Boulevard, N.W,
Kennesaw, Georgia 30144
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability or any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) CryoLife may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
8
(e) From and after the Effective Date this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Employee has hereunder set the Employee's hand and,
pursuant to the authorization from its Board, CryoLife has caused these presents
to be executed in its name on its behalf, all as of the day and year first above
written.
/s/ Albert E. Heacox
--------------------------------------------
Albert E. Heacox, Ph.D.
CRYOLIFE, INC.
By: /s/ Steven G. Anderson
-----------------------------------------
Steven G. Anderson
Chairman, President and CEO
9
Exhibit A
Duties and Responsibilities of ALBERT E. HEACOX, PH.D.:
- ------------------------------------------------------
All duties of Senior Vice President, Laboratory Operations and duties not
inconsistent with such duties that are assigned by the President.
Compensation:
- ------------
Salary of $225,000 and bonus set by the Compensation Advisory Committee.
Salary & Bonus subject to yearly review by the Compensation Advisory
Committee of the Board of Directors:
Vacation and Employee Benefits:
- ------------------------------
See attached Company vacation plan, standard Company medical plan and
contributory 401K plan.
Company Business:
- ----------------
The development, marketing, sale and distribution of tissue preservation
services and biomedical and medical products.
1546367v1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Agreement ("the Agreement") dated as of the 3rd day of September, 2002
(the "Effective Date"), is by and between CryoLife, Inc., a Florida corporation
("CryoLife") and David Fronk (the "Employee").
WITNESSETH:
WHEREAS, the Board of Directors of CryoLife (the "Board"), has determined
that it is in the best interests of CryoLife and its shareholders to enter into
this Employment Agreement in order to assure the Employee of CryoLife's
commitment and, in so doing, to motivate the Employee to continue in Employee's
dedicated service to CryoLife even in circumstances such as a possible future
threat or occurrence of a Change of Control (defined below) of CryoLife; and,
WHEREAS, in order to accomplish these objectives, the Board has caused
CryoLife to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the promises hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledges, it is hereby agreed as follows:
1. Employment.
(a) CryoLife hereby employs Employee in the capacity of Vice President,
Clinical Research and Employee hereby accepts such duties as are customarily
performed and exercised by such officer subject to the supervision of the
President of CryoLife. The duties of Employee shall include those duties more
specifically described on Exhibit A attached hereto together with such
additional duties as are assigned by the President of CryoLife.
(b) CryoLife agrees to continue the Employee in its employ, and the
Employee hereby agrees to remain in the employ of CryoLife subject to the terms
and conditions of this Agreement, for the period commencing on the Effective
Date and ending on the second anniversary of such date (the "Employment
Period"). Unless either party elects not to extend the term of this Agreement by
so notifying the other in writing at least 30 days prior to the first
anniversary of the Effective Date, the Employment Period shall automatically
extend for an additional one year.
2. Employment Duties.
(a) During the Employment Period, (A) the Employee's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Employee's services shall be performed at the location where the Employee was
employed immediately preceding the Effective Date.
(b) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee agrees to devote
reasonable attention and time to the business and affairs of CryoLife and, to
the extent necessary to discharge the responsibilities assigned to the Employee
hereunder, to use the Employee's reasonable best efforts to perform faithfully
and efficiently such responsibilities.
(c) During the Employment Period, the Employee will not, without the prior
written consent of CryoLife, directly or indirectly other than in the
performance of the duties hereunder, render services of a business, professional
or commercial nature to any other person or firm, whether for compensation or
otherwise, except with respect to any noncompetitive family businesses of the
Employee for which the rendering of such services will not have an adverse
effect upon Employee's performance of his duties and obligations hereunder.
3. Compensation, Benefits and Business Expenses.
(a) For all services which Employee renders to CryoLife or any of its
subsidiaries or affiliates during the term hereof, CryoLife agrees to pay the
Employee the salary and bonus compensation as set by the Compensation Advisory
Committee of the Board of Directors. Employee's salary at the Effective Date is
set forth on Exhibit A.
(b) CryoLife shall pay all reasonable expenses incurred by the Employee
directly related to performance of his responsibilities and duties for CryoLife
hereunder. Employee shall submit to CryoLife statements that justify in
reasonable detail all reasonable expenses so incurred. Subject to such audits as
CryoLife may deem necessary, CryoLife shall reimburse Employee the full amount
of any such expenses advanced by Employee.
(c) Employee shall be entitled to a vacation each year of his employment
with CryoLife, according to the standard vacation policy, as well as insurance
and other employment benefits, as more particularly described on Exhibit A.
Vacations not taken shall be cumulative and carried over to a subsequent year.
4. Change of Control. For the purposes of this Agreement, the term "Change
of Control" shall mean a change in the beneficial ownership of CryoLife's voting
stock or a change in the composition of the Board that occurs as follows:
2
(a) Any "person," including a "syndication" or "group" as those terms are
used in Section 13(d)(3) of the Securities Exchange Act of 1934, is or becomes
the beneficial owner, directly or indirectly, of securities of CryoLife
representing 20% or more of the combined voting power of CryoLife's then
outstanding "Voting Securities," which is any security which ordinarily
possesses the power to vote in the election of the Board of Directors of a
corporation without the happening of any precondition or contingency;
(b) CryoLife is merged or consolidated with another corporation and
immediately after giving effect to the merger or consolidation less than 80% of
the outstanding Voting Securities of the surviving or resulting entity are then
beneficially owned in the aggregate by (x) the shareholders of CryoLife
immediately prior to such merger or consolidation, or (y) if a record date has
been set to determine the shareholders of CryoLife entitled to vote on such
merger or consolidation, the shareholders of CryoLife as of such record date;
(c) If at any time the following do not constitute a majority of the Board
of Directors of CryoLife (or any successor entity referred to in clause (ii)
above): individuals who, prior to their election as a director of CryoLife (or
successor entity if applicable) were nominated, recommended or endorsed by a
formal resolution of the Board; or
(d) CryoLife transfers substantially all of its assets to another
corporation which is a less than 80% owned subsidiary of CryoLife.
5. Termination of Employment.
(a) Disability or Death. If CryoLife determines in good faith that the
Disability of the Employee has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Employee
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Employee's employment. In such event, the Employee's
employment with CryoLife shall terminate effective on the 30th day after receipt
of such notice by the Employee (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Employee shall not have returned to
full-time performance of the Employee's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Employee from the Employee's duties
with CryoLife on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by CryoLife or its insurers and acceptable
to the Employee or the Employee's legal representative. The Employee's
employment shall terminate automatically upon the Employee's death during the
Employment Period.
(b) Cause. CryoLife may terminate the Employee's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
3
(i) the willful and continued failure of the Employee to perform
substantially the Employee's duties with CryoLife (other than any such failure
resulting from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to Employee by the Board or the
Chief Executive Officer of CryoLife which specifically identifies the manner in
which CryoLife believes that the Employee has not substantially performed the
Employee's duties, or
(ii) the willful engaging by the Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to CryoLife.
For purposes of this provision, no act or failure to act, on the part of the
Employee, shall be considered "willful" unless it is done, or omitted to be
done, by the Employee in bad faith or without reasonable belief that the
Employee's action or omission was in the best interests of CryoLife. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or upon the instructions of the Chief Employee Officer or a senior
officer of CryoLife or based upon the advice of counsel for CryoLife shall be
conclusively presumed to be done, or omitted to be done, by the Employee in good
faith and in the best interests of CryoLife.
(c) Good Reason. The Employee's employment may be terminated by the
Employee for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1(a) of this Agreement, or any other action by CryoLife which results
in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by CryoLife promptly after receipt of
notice thereof given by the Employee;
(ii) any failure by CryoLife to comply with any of the provisions of
Section 3(a) or 3(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
CryoLife promptly after receipt of notice thereof given by the Employee;
(iii) any purported or threatened termination by CryoLife of the Employee's
employment otherwise than for Cause, Death or Disability; or
(iv) any failure by CryoLife to comply with and satisfy Section 11(c) of
this Agreement.
4
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Employee shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Employee for any reason at least
90 but not more than 120 days following consummation of a Change of Control or
during the 30 day period immediately following the first anniversary of a Change
of Control shall be deemed to be a termination for Good Reason for all purposes
of this Agreement.
(d) Notice of Termination. Any termination by CryoLife for Cause, or by the
Employee for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Employee or CryoLife to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or CryoLife,
respectively, hereunder or preclude the Employee or CryoLife, respectively, from
asserting such fact or circumstance in enforcing the Employee's or CryoLife's
rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Employee's
employment is terminated by CryoLife for Cause, or by the Employee for Good
Reason, the date of receipt of the Notice of Termination, or any later date
specified therein, as the case may be, (ii) if the Employee's employment is
terminated by CryoLife other than for Cause or Disability, the Date of
Termination shall be the date on which CryoLife notifies the Employee of such
termination and (iii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
6. Obligations of CryoLife upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, (i) CryoLife shall terminate the Employee's employment other
than for Cause, Death or Disability or (ii) the Employee shall terminate
employment for Good Reason, then CryoLife shall pay to Employee as severance
compensation an amount equal to $292,500.00. Such payment shall be in addition
to sums due to Employee through the Date of Termination and shall be subject to
normal withholding requirements of CryoLife. Payment of the amount shall be made
in one lump sum payment or in six equal monthly installments as directed by the
Employee.
(b) Death. If the Employee's employment is terminated by reason of the
Employee's death during the Employment Period, this Agreement shall terminate
without further obligations to the Employee's legal representatives under this
Agreement, other than for payment of obligations accruing through the Date of
Termination.
5
(c) Disability. If the Employee's employment is terminated by reason of the
Employee's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Employee, other than for payment
obligations accruing through the Date of Termination.
(d) Cause; Other than for Good Reason. If the Employee's employment shall
be terminated by CryoLife for Cause or by the Employee without Good Reason
during the Employment Period, this Agreement shall terminate without further
obligations to the Employee other than the obligation to pay to the Employee his
or her salary through the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by CryoLife or any of its affiliated companies and
for which the Employee may qualify, nor shall anything herein limit or otherwise
affect such rights as the Employee may have under any contract or agreement with
CryoLife or any of its affiliated companies. Amounts which are vested benefits
or which the Employee is otherwise entitled to receive under any plan, practice
or program of or any contract or agreement with CryoLife or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Employee obtains other
employment. CryoLife agrees to pay as incurred, to the full extent permitted by
law, all legal fees and expenses which the Employee may reasonably incur as a
result of any contest (regardless of the outcome thereof) by CryoLife, the
Employee or others of the validity or enforceability of, or liability under, any
provision of this Agreement.
9. Limitation or Expansion of Benefits.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any benefit, payment or distribution by the
Company to or for the benefit of the Employee (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if
paid, be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"; such excise tax, the "Excise
Tax"), then the Payment shall be reduced to the extent necessary of avoid the
imposition of the Excise Tax. The Employee may select the Payment to be limited
or reduced.
6
(b) All determinations required to be made under this Section 9, including
whether an Excise Tax would otherwise be imposed and the assumptions to be
utilized in arriving at such determination and the value of the maximum amount
payable without imposition of the Excise Tax, shall be made by the certified
public accounting firm regularly engaged by the Company (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Employee within 30 business days of the receipt of notice from the Employee that
a Payment is due to be made, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Employee may appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and the Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be paid by the Company to or
for the benefit of the Employee.
(c) The provisions of this Section 9 shall not apply unless and until
amounts become payable to Employee pursuant to Section 6(a) hereof.
10. Confidential Information. The Employee and CryoLife are parties to one
or more separate agreements respecting confidential information, trade secrets,
inventions and non-competition (collectively, the "IP Agreements"). The parties
agree that the IP Agreements shall not be superceded or terminated by this
Agreement and shall survive any termination of this Agreement.
11. Successors.
(a) This Agreement is personal to the Employee and without the prior
written consent of CryoLife shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
CryoLife and its successors and assigns.
7
(c) CryoLife will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of CryoLife to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that CryoLife would be
required to perform it if no such succession had taken place. As used in this
Agreement, "CryoLife" shall mean CryoLife as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force and effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
David Fronk
353 Battle Woods Trail
Marietta, GA 30067
If to CryoLife:
CryoLife, Inc.
1655 Roberts Boulevard, N.W,
Kennesaw, Georgia 30144
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability or any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) CryoLife may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
8
(e) From and after the Effective Date this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Employee has hereunder set the Employee's hand and,
pursuant to the authorization from its Board, CryoLife has caused these presents
to be executed in its name on its behalf, all as of the day and year first above
written.
/s/ David Fronk
--------------------------------------------
David Fronk
CRYOLIFE, INC.
By: /s/ Steven G. Anderson
-----------------------------------------
Steven G. Anderson
Chairman, President and CEO
9
Exhibit A
Duties and Responsibilities of DAVID FRONK:
- ------------------------------------------
All duties of Vice President, Clinical Research and duties not inconsistent
with such duties that are assigned by the President.
Compensation:
- ------------
Salary of $195,000 and bonus set by the Compensation Advisory Committee.
Salary & Bonus subject to yearly review by the Compensation Advisory
Committee of the Board of Directors:
Vacation and Employee Benefits:
- ------------------------------
See attached Company vacation plan, standard Company medical plan and
contributory 401K plan.
Company Business:
- ----------------
The development, marketing, sale and distribution of tissue preservation
services and biomedical and medical products.
1546367v1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Agreement ("the Agreement") dated as of the 3rd day of September, 2002
(the "Effective Date"), is by and between CryoLife, Inc., a Florida corporation
("CryoLife") and James C. Vander Wyk (the "Employee").
WITNESSETH:
WHEREAS, the Board of Directors of CryoLife (the "Board"), has determined
that it is in the best interests of CryoLife and its shareholders to enter into
this Employment Agreement in order to assure the Employee of CryoLife's
commitment and, in so doing, to motivate the Employee to continue in Employee's
dedicated service to CryoLife even in circumstances such as a possible future
threat or occurrence of a Change of Control (defined below) of CryoLife; and,
WHEREAS, in order to accomplish these objectives, the Board has caused
CryoLife to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the promises hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledges, it is hereby agreed as follows:
1. Employment.
(a) CryoLife hereby employs Employee in the capacity of Vice President,
Regulatory Affairs and Quality Assurance and Employee hereby accepts such duties
as are customarily performed and exercised by such officer subject to the
supervision of the President of CryoLife. The duties of Employee shall include
those duties more specifically described on Exhibit A attached hereto together
with such additional duties as are assigned by the President of CryoLife.
(b) CryoLife agrees to continue the Employee in its employ, and the
Employee hereby agrees to remain in the employ of CryoLife subject to the terms
and conditions of this Agreement, for the period commencing on the Effective
Date and ending on the second anniversary of such date (the "Employment
Period"). Unless either party elects not to extend the term of this Agreement by
so notifying the other in writing at least 30 days prior to the first
anniversary of the Effective Date, the Employment Period shall automatically
extend for an additional one year.
2. Employment Duties.
(a) During the Employment Period, (A) the Employee's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Employee's services shall be performed at the location where the Employee was
employed immediately preceding the Effective Date.
(b) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee agrees to devote
reasonable attention and time to the business and affairs of CryoLife and, to
the extent necessary to discharge the responsibilities assigned to the Employee
hereunder, to use the Employee's reasonable best efforts to perform faithfully
and efficiently such responsibilities.
(c) During the Employment Period, the Employee will not, without the prior
written consent of CryoLife, directly or indirectly other than in the
performance of the duties hereunder, render services of a business, professional
or commercial nature to any other person or firm, whether for compensation or
otherwise, except with respect to any noncompetitive family businesses of the
Employee for which the rendering of such services will not have an adverse
effect upon Employee's performance of his duties and obligations hereunder.
3. Compensation, Benefits and Business Expenses.
(a) For all services which Employee renders to CryoLife or any of its
subsidiaries or affiliates during the term hereof, CryoLife agrees to pay the
Employee the salary and bonus compensation as set by the Compensation Advisory
Committee of the Board of Directors. Employee's salary at the Effective Date is
set forth on Exhibit A.
(b) CryoLife shall pay all reasonable expenses incurred by the Employee
directly related to performance of his responsibilities and duties for CryoLife
hereunder. Employee shall submit to CryoLife statements that justify in
reasonable detail all reasonable expenses so incurred. Subject to such audits as
CryoLife may deem necessary, CryoLife shall reimburse Employee the full amount
of any such expenses advanced by Employee.
(c) Employee shall be entitled to a vacation each year of his employment
with CryoLife, according to the standard vacation policy, as well as insurance
and other employment benefits, as more particularly described on Exhibit A.
Vacations not taken shall be cumulative and carried over to a subsequent year.
4. Change of Control. For the purposes of this Agreement, the term "Change
of Control" shall mean a change in the beneficial ownership of CryoLife's voting
stock or a change in the composition of the Board that occurs as follows:
2
(a) Any "person," including a "syndication" or "group" as those terms are
used in Section 13(d)(3) of the Securities Exchange Act of 1934, is or becomes
the beneficial owner, directly or indirectly, of securities of CryoLife
representing 20% or more of the combined voting power of CryoLife's then
outstanding "Voting Securities," which is any security which ordinarily
possesses the power to vote in the election of the Board of Directors of a
corporation without the happening of any precondition or contingency;
(b) CryoLife is merged or consolidated with another corporation and
immediately after giving effect to the merger or consolidation less than 80% of
the outstanding Voting Securities of the surviving or resulting entity are then
beneficially owned in the aggregate by (x) the shareholders of CryoLife
immediately prior to such merger or consolidation, or (y) if a record date has
been set to determine the shareholders of CryoLife entitled to vote on such
merger or consolidation, the shareholders of CryoLife as of such record date;
(c) If at any time the following do not constitute a majority of the Board
of Directors of CryoLife (or any successor entity referred to in clause (ii)
above): individuals who, prior to their election as a director of CryoLife (or
successor entity if applicable) were nominated, recommended or endorsed by a
formal resolution of the Board; or
(d) CryoLife transfers substantially all of its assets to another
corporation which is a less than 80% owned subsidiary of CryoLife.
5. Termination of Employment.
(a) Disability or Death. If CryoLife determines in good faith that the
Disability of the Employee has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Employee
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Employee's employment. In such event, the Employee's
employment with CryoLife shall terminate effective on the 30th day after receipt
of such notice by the Employee (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Employee shall not have returned to
full-time performance of the Employee's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Employee from the Employee's duties
with CryoLife on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by CryoLife or its insurers and acceptable
to the Employee or the Employee's legal representative. The Employee's
employment shall terminate automatically upon the Employee's death during the
Employment Period.
(b) Cause. CryoLife may terminate the Employee's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
3
(i) the willful and continued failure of the Employee to perform
substantially the Employee's duties with CryoLife (other than any such failure
resulting from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to Employee by the Board or the
Chief Executive Officer of CryoLife which specifically identifies the manner in
which CryoLife believes that the Employee has not substantially performed the
Employee's duties, or
(ii) the willful engaging by the Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to CryoLife.
For purposes of this provision, no act or failure to act, on the part of the
Employee, shall be considered "willful" unless it is done, or omitted to be
done, by the Employee in bad faith or without reasonable belief that the
Employee's action or omission was in the best interests of CryoLife. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or upon the instructions of the Chief Employee Officer or a senior
officer of CryoLife or based upon the advice of counsel for CryoLife shall be
conclusively presumed to be done, or omitted to be done, by the Employee in good
faith and in the best interests of CryoLife.
(c) Good Reason. The Employee's employment may be terminated by the
Employee for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1(a) of this Agreement, or any other action by CryoLife which results
in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by CryoLife promptly after receipt of
notice thereof given by the Employee;
(ii) any failure by CryoLife to comply with any of the provisions of
Section 3(a) or 3(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
CryoLife promptly after receipt of notice thereof given by the Employee;
(iii) any purported or threatened termination by CryoLife of the Employee's
employment otherwise than for Cause, Death or Disability; or
(iv) any failure by CryoLife to comply with and satisfy Section 11(c) of
this Agreement.
4
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Employee shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Employee for any reason at least
90 but not more than 120 days following consummation of a Change of Control or
during the 30 day period immediately following the first anniversary of a Change
of Control shall be deemed to be a termination for Good Reason for all purposes
of this Agreement.
(d) Notice of Termination. Any termination by CryoLife for Cause, or by the
Employee for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Employee or CryoLife to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or CryoLife,
respectively, hereunder or preclude the Employee or CryoLife, respectively, from
asserting such fact or circumstance in enforcing the Employee's or CryoLife's
rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Employee's
employment is terminated by CryoLife for Cause, or by the Employee for Good
Reason, the date of receipt of the Notice of Termination, or any later date
specified therein, as the case may be, (ii) if the Employee's employment is
terminated by CryoLife other than for Cause or Disability, the Date of
Termination shall be the date on which CryoLife notifies the Employee of such
termination and (iii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
6. Obligations of CryoLife upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, (i) CryoLife shall terminate the Employee's employment other
than for Cause, Death or Disability or (ii) the Employee shall terminate
employment for Good Reason, then CryoLife shall pay to Employee as severance
compensation an amount equal to $360,000.00. Such payment shall be in addition
to sums due to Employee through the Date of Termination and shall be subject to
normal withholding requirements of CryoLife. Payment of the amount shall be made
in one lump sum payment or in six equal monthly installments as directed by the
Employee.
(b) Death. If the Employee's employment is terminated by reason of the
Employee's death during the Employment Period, this Agreement shall terminate
without further obligations to the Employee's legal representatives under this
Agreement, other than for payment of obligations accruing through the Date of
Termination.
5
(c) Disability. If the Employee's employment is terminated by reason of the
Employee's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Employee, other than for payment
obligations accruing through the Date of Termination.
(d) Cause; Other than for Good Reason. If the Employee's employment shall
be terminated by CryoLife for Cause or by the Employee without Good Reason
during the Employment Period, this Agreement shall terminate without further
obligations to the Employee other than the obligation to pay to the Employee his
or her salary through the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by CryoLife or any of its affiliated companies and
for which the Employee may qualify, nor shall anything herein limit or otherwise
affect such rights as the Employee may have under any contract or agreement with
CryoLife or any of its affiliated companies. Amounts which are vested benefits
or which the Employee is otherwise entitled to receive under any plan, practice
or program of or any contract or agreement with CryoLife or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Employee obtains other
employment. CryoLife agrees to pay as incurred, to the full extent permitted by
law, all legal fees and expenses which the Employee may reasonably incur as a
result of any contest (regardless of the outcome thereof) by CryoLife, the
Employee or others of the validity or enforceability of, or liability under, any
provision of this Agreement.
9. Limitation or Expansion of Benefits.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any benefit, payment or distribution by the
Company to or for the benefit of the Employee (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if
paid, be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"; such excise tax, the "Excise
Tax"), then the Payment shall be reduced to the extent necessary of avoid the
imposition of the Excise Tax. The Employee may select the Payment to be limited
or reduced.
6
(b) All determinations required to be made under this Section 9, including
whether an Excise Tax would otherwise be imposed and the assumptions to be
utilized in arriving at such determination and the value of the maximum amount
payable without imposition of the Excise Tax, shall be made by the certified
public accounting firm regularly engaged by the Company (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Employee within 30 business days of the receipt of notice from the Employee that
a Payment is due to be made, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Employee may appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and the Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be paid by the Company to or
for the benefit of the Employee.
(c) The provisions of this Section 9 shall not apply unless and until
amounts become payable to Employee pursuant to Section 6(a) hereof.
10. Confidential Information. The Employee and CryoLife are parties to one
or more separate agreements respecting confidential information, trade secrets,
inventions and non-competition (collectively, the "IP Agreements"). The parties
agree that the IP Agreements shall not be superceded or terminated by this
Agreement and shall survive any termination of this Agreement.
11. Successors.
(a) This Agreement is personal to the Employee and without the prior
written consent of CryoLife shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
CryoLife and its successors and assigns.
7
(c) CryoLife will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of CryoLife to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that CryoLife would be
required to perform it if no such succession had taken place. As used in this
Agreement, "CryoLife" shall mean CryoLife as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force and effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
James C. Vander Wyk, Ph.D.
638 Goldenwood Ct.
Powder Springs, GA 30127
If to CryoLife:
CryoLife, Inc.
1655 Roberts Boulevard, N.W,
Kennesaw, Georgia 30144
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability or any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) CryoLife may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
8
(e) From and after the Effective Date this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Employee has hereunder set the Employee's hand and,
pursuant to the authorization from its Board, CryoLife has caused these presents
to be executed in its name on its behalf, all as of the day and year first above
written.
/s/ James C. Vander Wyk
--------------------------------------------
James C. Vander Wyk, Ph.D.
CRYOLIFE, INC.
By: /s/ Steven G. Anderson
-----------------------------------------
Steven G. Anderson
Chairman, President and CEO
9
Exhibit A
Duties and Responsibilities of JAMES C. VANDER WYK, PH.D.:
- ---------------------------------------------------------
All duties of Vice President, Regulatory Affairs and Quality Assurance and
duties not inconsistent with such duties that are assigned by the
President.
Compensation:
- ------------
Salary of $240,000 and bonus set by the Compensation Advisory Committee.
Salary & Bonus subject to yearly review by the Compensation Advisory
Committee of the Board of Directors:
Vacation and Employee Benefits:
- ------------------------------
See attached Company vacation plan, standard Company medical plan and
contributory 401K plan.
Company Business:
- ----------------
The development, marketing, sale and distribution of tissue preservation
services and biomedical and medical products.
1546367v1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Agreement ("the Agreement") dated as of the 3rd day of September, 2002
(the "Effective Date"), is by and between CryoLife, Inc., a Florida corporation
("CryoLife") and Steven G. Anderson (the "Employee").
WITNESSETH:
WHEREAS, the Board of Directors of CryoLife (the "Board"), has determined
that it is in the best interests of CryoLife and its shareholders to enter into
this Employment Agreement in order to assure the Employee of CryoLife's
commitment and, in so doing, to motivate the Employee to continue in Employee's
dedicated service to CryoLife even in circumstances such as a possible future
threat or occurrence of a Change of Control (defined below) of CryoLife; and,
WHEREAS, in order to accomplish these objectives, the Board has caused
CryoLife to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the promises hereinafter
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledges, it is hereby agreed as follows:
1. Employment.
(a) CryoLife hereby employs Employee in the capacity of President and Chief
Executive Officer and Employee hereby accepts such duties as are customarily
performed and exercised by such officer subject to the supervision of the
President of CryoLife. The duties of Employee shall include those duties more
specifically described on Exhibit A attached hereto together with such
additional duties as are assigned by the President of CryoLife.
(b) CryoLife agrees to continue the Employee in its employ, and the
Employee hereby agrees to remain in the employ of CryoLife subject to the terms
and conditions of this Agreement, for the period commencing on the Effective
Date and ending on the second anniversary of such date (the "Employment
Period"). Unless either party elects not to extend the term of this Agreement by
so notifying the other in writing at least 30 days prior to the first
anniversary of the Effective Date, the Employment Period shall automatically
extend for an additional one year.
2. Employment Duties.
(a) During the Employment Period, (A) the Employee's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Employee's services shall be performed at the location where the Employee was
employed immediately preceding the Effective Date.
(b) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee agrees to devote
reasonable attention and time to the business and affairs of CryoLife and, to
the extent necessary to discharge the responsibilities assigned to the Employee
hereunder, to use the Employee's reasonable best efforts to perform faithfully
and efficiently such responsibilities.
(c) During the Employment Period, the Employee will not, without the prior
written consent of CryoLife, directly or indirectly other than in the
performance of the duties hereunder, render services of a business, professional
or commercial nature to any other person or firm, whether for compensation or
otherwise, except with respect to any noncompetitive family businesses of the
Employee for which the rendering of such services will not have an adverse
effect upon Employee's performance of his duties and obligations hereunder.
3. Compensation, Benefits and Business Expenses.
(a) For all services which Employee renders to CryoLife or any of its
subsidiaries or affiliates during the term hereof, CryoLife agrees to pay the
Employee the salary and bonus compensation as set by the Compensation Advisory
Committee of the Board of Directors. Employee's salary at the Effective Date is
set forth on Exhibit A.
(b) CryoLife shall pay all reasonable expenses incurred by the Employee
directly related to performance of his responsibilities and duties for CryoLife
hereunder. Employee shall submit to CryoLife statements that justify in
reasonable detail all reasonable expenses so incurred. Subject to such audits as
CryoLife may deem necessary, CryoLife shall reimburse Employee the full amount
of any such expenses advanced by Employee.
(c) Employee shall be entitled to a vacation each year of his employment
with CryoLife, according to the standard vacation policy, as well as insurance
and other employment benefits, as more particularly described on Exhibit A.
Vacations not taken shall be cumulative and carried over to a subsequent year.
4. Change of Control. For the purposes of this Agreement, the term "Change
of Control" shall mean a change in the beneficial ownership of CryoLife's voting
stock or a change in the composition of the Board that occurs as follows:
2
(a) Any "person," including a "syndication" or "group" as those terms are
used in Section 13(d)(3) of the Securities Exchange Act of 1934, is or becomes
the beneficial owner, directly or indirectly, of securities of CryoLife
representing 20% or more of the combined voting power of CryoLife's then
outstanding "Voting Securities," which is any security which ordinarily
possesses the power to vote in the election of the Board of Directors of a
corporation without the happening of any precondition or contingency;
(b) CryoLife is merged or consolidated with another corporation and
immediately after giving effect to the merger or consolidation less than 80% of
the outstanding Voting Securities of the surviving or resulting entity are then
beneficially owned in the aggregate by (x) the shareholders of CryoLife
immediately prior to such merger or consolidation, or (y) if a record date has
been set to determine the shareholders of CryoLife entitled to vote on such
merger or consolidation, the shareholders of CryoLife as of such record date;
(c) If at any time the following do not constitute a majority of the Board
of Directors of CryoLife (or any successor entity referred to in clause (ii)
above): individuals who, prior to their election as a director of CryoLife (or
successor entity if applicable) were nominated, recommended or endorsed by a
formal resolution of the Board; or
(d) CryoLife transfers substantially all of its assets to another
corporation which is a less than 80% owned subsidiary of CryoLife.
5. Termination of Employment.
(a) Disability or Death. If CryoLife determines in good faith that the
Disability of the Employee has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Employee
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Employee's employment. In such event, the Employee's
employment with CryoLife shall terminate effective on the 30th day after receipt
of such notice by the Employee (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Employee shall not have returned to
full-time performance of the Employee's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Employee from the Employee's duties
with CryoLife on a full-time basis for 180 consecutive business days as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by CryoLife or its insurers and acceptable
to the Employee or the Employee's legal representative. The Employee's
employment shall terminate automatically upon the Employee's death during the
Employment Period.
(b) Cause. CryoLife may terminate the Employee's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
3
(i) the willful and continued failure of the Employee to perform
substantially the Employee's duties with CryoLife (other than any such failure
resulting from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to Employee by the Board or the
Chief Executive Officer of CryoLife which specifically identifies the manner in
which CryoLife believes that the Employee has not substantially performed the
Employee's duties, or
(ii) the willful engaging by the Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to CryoLife.
For purposes of this provision, no act or failure to act, on the part of the
Employee, shall be considered "willful" unless it is done, or omitted to be
done, by the Employee in bad faith or without reasonable belief that the
Employee's action or omission was in the best interests of CryoLife. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or upon the instructions of the Chief Employee Officer or a senior
officer of CryoLife or based upon the advice of counsel for CryoLife shall be
conclusively presumed to be done, or omitted to be done, by the Employee in good
faith and in the best interests of CryoLife.
(c) Good Reason. The Employee's employment may be terminated by the
Employee for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 1(a) of this Agreement, or any other action by CryoLife which results
in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by CryoLife promptly after receipt of
notice thereof given by the Employee;
(ii) any failure by CryoLife to comply with any of the provisions of
Section 3(a) or 3(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
CryoLife promptly after receipt of notice thereof given by the Employee;
(iii) any purported or threatened termination by CryoLife of the Employee's
employment otherwise than for Cause, Death or Disability; or
(iv) any failure by CryoLife to comply with and satisfy Section 11(c) of
this Agreement.
4
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Employee shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Employee for any reason at least
90 but not more than 120 days following consummation of a Change of Control or
during the 30 day period immediately following the first anniversary of a Change
of Control shall be deemed to be a termination for Good Reason for all purposes
of this Agreement.
(d) Notice of Termination. Any termination by CryoLife for Cause, or by the
Employee for Good Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Employee or CryoLife to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or CryoLife,
respectively, hereunder or preclude the Employee or CryoLife, respectively, from
asserting such fact or circumstance in enforcing the Employee's or CryoLife's
rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Employee's
employment is terminated by CryoLife for Cause, or by the Employee for Good
Reason, the date of receipt of the Notice of Termination, or any later date
specified therein, as the case may be, (ii) if the Employee's employment is
terminated by CryoLife other than for Cause or Disability, the Date of
Termination shall be the date on which CryoLife notifies the Employee of such
termination and (iii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
6. Obligations of CryoLife upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, (i) CryoLife shall terminate the Employee's employment other
than for Cause, Death or Disability or (ii) the Employee shall terminate
employment for Good Reason, then CryoLife shall pay to Employee as severance
compensation an amount equal to $900,000.00. Such payment shall be in addition
to sums due to Employee through the Date of Termination and shall be subject to
normal withholding requirements of CryoLife. Payment of the amount shall be made
in one lump sum payment or in six equal monthly installments as directed by the
Employee.
(b) Death. If the Employee's employment is terminated by reason of the
Employee's death during the Employment Period, this Agreement shall terminate
without further obligations to the Employee's legal representatives under this
Agreement, other than for payment of obligations accruing through the Date of
Termination.
5
(c) Disability. If the Employee's employment is terminated by reason of the
Employee's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Employee, other than for payment
obligations accruing through the Date of Termination.
(d) Cause; Other than for Good Reason. If the Employee's employment shall
be terminated by CryoLife for Cause or by the Employee without Good Reason
during the Employment Period, this Agreement shall terminate without further
obligations to the Employee other than the obligation to pay to the Employee his
or her salary through the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by CryoLife or any of its affiliated companies and
for which the Employee may qualify, nor shall anything herein limit or otherwise
affect such rights as the Employee may have under any contract or agreement with
CryoLife or any of its affiliated companies. Amounts which are vested benefits
or which the Employee is otherwise entitled to receive under any plan, practice
or program of or any contract or agreement with CryoLife or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Employee obtains other
employment. CryoLife agrees to pay as incurred, to the full extent permitted by
law, all legal fees and expenses which the Employee may reasonably incur as a
result of any contest (regardless of the outcome thereof) by CryoLife, the
Employee or others of the validity or enforceability of, or liability under, any
provision of this Agreement.
9. Limitation or Expansion of Benefits.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any benefit, payment or distribution by the
Company to or for the benefit of the Employee (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if
paid, be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"; such excise tax, the "Excise
Tax"), then the Payment shall be reduced to the extent necessary of avoid the
imposition of the Excise Tax. The Employee may select the Payment to be limited
or reduced.
6
(b) All determinations required to be made under this Section 9, including
whether an Excise Tax would otherwise be imposed and the assumptions to be
utilized in arriving at such determination and the value of the maximum amount
payable without imposition of the Excise Tax, shall be made by the certified
public accounting firm regularly engaged by the Company (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Employee within 30 business days of the receipt of notice from the Employee that
a Payment is due to be made, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Employee may appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and the Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be paid by the Company to or
for the benefit of the Employee.
(c) The provisions of this Section 9 shall not apply unless and until
amounts become payable to Employee pursuant to Section 6(a) hereof.
10. Confidential Information. The Employee and CryoLife are parties to one
or more separate agreements respecting confidential information, trade secrets,
inventions and non-competition (collectively, the "IP Agreements"). The parties
agree that the IP Agreements shall not be superceded or terminated by this
Agreement and shall survive any termination of this Agreement.
11. Successors.
(a) This Agreement is personal to the Employee and without the prior
written consent of CryoLife shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
CryoLife and its successors and assigns.
7
(c) CryoLife will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of CryoLife to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that CryoLife would be
required to perform it if no such succession had taken place. As used in this
Agreement, "CryoLife" shall mean CryoLife as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force and effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
Steven G. Anderson
5040 Northside Drive
Atlanta, GA 30327
If to CryoLife:
CryoLife, Inc.
1655 Roberts Boulevard, N.W,
Kennesaw, Georgia 30144
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability or any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) CryoLife may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
8
(e) From and after the Effective Date this Agreement shall supersede any
other agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Employee has hereunder set the Employee's hand and,
pursuant to the authorization from its Board, CryoLife has caused these presents
to be executed in its name on its behalf, all as of the day and year first above
written.
/s/ Steven G. Anderson
--------------------------------------------
Steven G. Anderson
CRYOLIFE, INC.
By: /s/ Ronald D. McCall
-----------------------------------------
Ronald D. McCall, Esq.
Director, Secretary/Treasurer
9
Exhibit A
Duties and Responsibilities of STEVEN G. ANDERSON:
- -------------------------------------------------
All duties of President and Chief Executive Officer and duties not
inconsistent with such duties that are assigned by the President.
Compensation:
- ------------
Salary of $600,000 and bonus set by the Compensation Advisory Committee.
Salary & Bonus subject to yearly review by the Compensation Advisory
Committee of the Board of Directors:
Vacation and Employee Benefits:
- ------------------------------
See attached Company vacation plan, standard Company medical plan and
contributory 401K plan.
Company Business:
- ----------------
The development, marketing, sale and distribution of tissue preservation
services and biomedical and medical products.
1546367v1
EXHIBIT 10.12
EIGHTH AMENDMENT TO LEASE
THIS AGREEMENT, made and entered into this 18th day of November, 1998, by
and between Newmarket Partners III, Limited, a Georgia Limited Partnership,
whose general partners are Laing Properties, Inc. and Laing Management Company
(hereinafter called "Landlord") and Cryolife, Inc., a Florida corporation
(hereinafter called "Tenant").
WITNESSETH THAT:
WHEREAS, Landlord and Tenant entered into a certain Lease Agreement dated
February 13, 1986, as amended April 7, 1986, May 15, 1987, June 22, 1988, April
4, 1989, October 15, 1990, March 14, 1995 and May 15, 1996 (collectively
hereinafter "Lease") for Suites 122 through 150 (hereinafter "Premises") at 2211
Newmarket Parkway, Building 8, Marietta, Georgia 30067.
WHEREAS, Tenant desires to extend the Term of the Lease; and
WHEREAS, Landlord and Tenant desire to amend the Lease in order to modify
some of the other terms and conditions of the Lease;
NOW, THEREFORE, in consideration of the mutual agreements of the
undersigned and other good valuable consideration, this Lease is hereby amended,
effective December 1, 1999 as follows:
48. BROKER DISCLOSURE
Pursuant to Georgia Real Estate Commission Regulation 520-1-08, Laing
Marketing Company makes the following disclosures concerning this Lease
transaction:
a) In this transaction, Laing Marketing Company represents Landlord and
not Tenant.
b) In this transaction, Richard Bowers and Company represents Tenant and
not Landlord.
c) In this transaction, both Laing Marketing Company and Richard Bowers
and Company shall receive their compensation from Landlord
exclusively.
Both Tenant and Landlord acknowledge, agree with and consent to the
representation and compensation disclosed above.
49. Paragraph 2, Term, of the Lease shall be amended to read:
To have and to hold the same for the term to commence on December 1, 1999
and ending on the 30th day of November, 2001, at midnight unless sooner
terminated as hereinafter provided.
50. Paragraph 3, Rental, of the Lease shall be amended to read:
The Tenant agrees to pay to the Landlord promptly on the first day of each
month in advance, during the term of this Lease, a monthly rental as
follows:
December 1, 1999 through November 30, 2000 @ $14,849.84 per month
December 1, 2000 through November 30, 2001 @ $15,295.33 per month
Payments received after the tenth day of the month may be assessed an
additional five percent (5%) charge as agreed liquidated damages due
Landlord. Acceptance by Landlord of a rental payment in an amount less than
that which is currently due shall in no way affect Landlord's rights under
this Lease and in no way be an accord and satisfaction.
Page 2 of Eighth Amendment to Lease by and between Newmarket Partners III,
Limited, a Georgia Limited Partnership, whose general partners are Laing
Properties, Inc. and Laing Management Company and Cryolife, Inc., a Florida
corporation, dated November 18, 1996.
51. RENEWAL OPTION
A. Tenant shall have the right to renew this Lease for one (1) additional
term of one (1) year commencing on December 1, 2001 (such term being
hereinafter referred to as the "Renewal Lease Term"). Said right of
renewal shall be subject, however, to the following conditions
precedent:
1. Tenant shall give Landlord written notice of its exercise of such
renewal option at least six (6) months, but no more than nine (9)
months, prior to the expiration of the Term;
2. Tenant shall not have been in default in performance of or with
respect to any of the terms, covenants, and conditions of the
Lease with respect to any matter as to which notice of default
has, if required, been given and which has not been remedied
within the time provided by the Lease; and
3. In no event shall such renewal rights be granted to any
subtenant(s) or assignee(s) of Tenant.
B. All of the terms, covenants and conditions of this Lease shall
continue in full force and effect during the Renewal Lease Term,
except that the monthly rental shall be as follows:
December 1, 2001 through November 30, 2002 @ $15,754.19 per
month.
Except as herein amended, all terms and conditions of the Lease shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereunto have executed this Eighth
Amendment to Lease as of the day and year first above written.
Signed, sealed and delivered LANDLORD: NEWMARKET PARTNERS III, LIMITED,
in the presence of: a Georgia Limited Partnership, whose general
partners are Laing Properties, Inc. and
Laing Management Company
BY: LAING PROPERTIES, INC.
MANAGING GENERAL PARTNER
/s/ Felicia E. Trott BY:/s/ Albert E. Heacox
- --------------------------- ----------------------------------------
Witness
TITLE:V.P. Laboratory Operations
-------------------------------------
s/ Suzanne K. Gabbert ATTEST:/s/ Ed B. Cordell
- --------------------------- ------------------------------------
Notary Public
TITLE:VP Finance
-------------------------------------
Notary Public, Cobb County, (CORPORATE SEAL)
Georgia
My Commission Expires
Sept. 13, 2000
Page 3 of Eighth Amendment to Lease by and between Newmarket Partners III,
Limited, a Georgia Limited Partnership, whose general partners are Laing
Properties, Inc. and Laing Management Company and Cryolife, Inc., a Florida
corporation, dated November 18, 1996.
Signed, sealed and delivered TENANT: CRYOLIFE, INC., a Florida
in the presence of: corporation
/s/ Felicia E. Trott BY:/s/ Albert E. Heacox
- --------------------------- ---------------------------------------
Witness
TITLE:V.P. Laboratory Operations
------------------------------------
/s/ Suzanne K. Gabbert ATTEST:/s/ Ed B. Cordell
- --------------------------- -----------------------------------
Notary Public
TITLE:VP Finance
------------------------------------
Notary Public, Cobb County, (CORPORATE SEAL)
Georgia
My Commission Expires
Sept. 13, 2000
Signed, sealed and delivered LANDLORD: NEWMARKET PARTNERS III,
in the presence of: LIMITED, a Georgia Limited Partnership
whose general partners are Laing Properties,
Inc. and Laing Management Company
BY: Laing Properties, Inc.
Managing General Partner
BY:/s/James A. Gillespie
- --------------------------- --------------------------------------
Witness
TITLE: V.P.
-----------------------------------
/s/ Julie J. Waller
- ---------------------------
Notary Public
ATTEST: /s/ Robert R. Stubbs
----------------------------------
TITLE: Vice President & Secretary
-----------------------------------
(CORPORATE SEAL)
1545699v1
EXHIBIT 10.13
NINTH AMENDMENT OF LEASE
THIS NINTH AMENDMENT OF LEASE ("Ninth Amendment") is made on July 25, 2001
between TRIZECHAHN CENTERS INC., a California corporation, d/b/a "TrizecHahn
Newmarket 1 to 8", f/k/a FASHION PLACE ASSOCIATES, LTD., a Utah limited
partnership, d/b/a "TrizecHahn Newmarket 1 to 8 Management" ("Landlord"), whose
address is 100 Colony Square, Suite 600, 1175 Peachtree Street, N.E., Atlanta,
GA 30361 and CRYOLIFE, INC., a Florida corporation ("Tenant").
RECITALS
This Ninth Amendment is based upon the following recitals:
A. Newmarket Partners III, Laing Properties, Inc. General Partner
("Newmarket III"), as landlord and Tenant entered into a Lease dated February
13, 1986 ("Lease"), for the premises known as Suites 134-144 located at 2211
Newmarket Parkway, Marietta, GA 30067 ("Premises").
B. Newmarket III and Tenant amended the Lease by Amendment to Lease dated
April 7, 1986; Amendment to Lease dated May 15, 1987; Second Amendment to Lease
dated June 22, 1988; Third Amendment to Lease dated April 4, 1989; Fourth
Amendment to Lease dated April 2, 1990; Fifth Amendment to Lease dated October
15, 1990; Sixth Amendment to Lease dated March 14, 1995; Seventh Amendment to
Lease dated May 15, 1996 and Eighth Amendment to Lease dated November 18, 1998
(Lease and Amendment(s) collectively, "Lease as amended").
C. Landlord is successor in interest to Newmarket III's interest as
landlord under the Lease as amended.
D. Landlord and Tenant desire to further amend the Lease as amended to
extend the term and otherwise amend the Lease as amended accordingly.
THEREFORE , in consideration of the mutual covenants and agreements stated
in the Lease as amended and below, and for other sufficient consideration
received and acknowledged by each party, Landlord and Tenant agree to amend the
Lease as amended as follows:
1. RECITALS. All recitals are fully incorporated.
2. ADDRESS - NOTICES. Landlord's address for notices as set forth in Lease
as amended shall be deleted and the following substituted therefore:
TRIZECHAHN CENTERS INC
c/o TrizecHahn Office Properties Inc.
100 Colony Square, Suite 600
1175 Peachtree Street, N.E.
Atlanta, GA 30361
Attention: David D. Canaday, Vice President
1
with a copy to:
TRIZECHAHN CENTERS, INC.
c/o TrizecHahn Office Properties Inc.
100 Colony Square
Suite 600
1175 Peachtree Street, N.E.
Atlanta, GA 30361
Attention: Lease Administrator
and if notice of default, a copy to:
TRIZECHAHN CENTERS INC.
c/o TrizecHahn Office Properties Inc.
100 Colony Square
Suite 600
1175 Peachtree Street, N.E.
Atlanta, Georgia 30361
Attention: Regional Counsel
3. EXTENSION OF LEASE TERM. The Lease Term for the Premises shall be
extended for a twelve (12)-month period only, to begin December 1, 2001 and
expire on November 30, 2002 ("5th Extension Term").
4. RENTAL, COMMON AREA MAINTENANCE EXPENSES, TAX AND INSURANCE ESCALATION
EXPENSES. Effective during the 5th Extension Term, Tenant's obligation to pay
Rental, Common Area Maintenance Expenses and Tax and Insurance Escalation
Expenses shall be as follows with respect to the Premises:
A. RENTAL. Effective during the 5th Extension Term, Tenant shall pay
Landlord monthly rental in advance on the first day of each month in equal
monthly installments of $16,089.94; and
B. COMMON AREA MAINTENANCE EXPENSES. Tenant shall reimburse Landlord
for the cost of Common Area Maintenance Expenses (as described in Paragraph 4 of
the Lease, "CAM") which shall be $0.80 per rentable square foot and subject to a
4% annual increase each calendar year; and
C. TAX AND INSURANCE ESCALATIONS EXPENSES. In addition to Rental and
CAM, Tenant shall continue to be responsible for tax and insurance escalation
expenses with respect to the entire Premises in accordance with the terms and
conditions of Paragraph 13 of the Lease; however, and the base year with respect
to determining tax and insurance escalation expenses for the Premises shall
remain the calendar year ending December 31, 2002.
5. DELIVERY OF AND IMPROVEMENTS TO THE PREMISES. Landlord shall provide and
Tenant shall accept the Premises in "as-is" condition. No promises to alter,
remodel or improve the Premises or Building and no representations concerning
the condition of the Premises or Building have been made by Landlord to Tenant
2
other than as may be expressly stated in the Lease as amended.
6. HOLDOVER. Tenant understands that it does not have the right to hold
over at any time and Landlord may exercise any and all remedies at law or in
equity to recover possession of the Premises, as well as any damages incurred by
Landlord, due to Tenant's failure to vacate the Premises and deliver possession
to Landlord as required by this Lease. If Tenant holds over after the expiration
of the 5th Extension Term with Landlord's prior written consent, Tenant will be
deemed to be a tenant from month to month, at a monthly Rental, payable in
advance, equal to 150% of the monthly Rental payable during the 5th Extension
Term, and Tenant will be bound by all of the other terms, covenants and
agreements of the Lease as amended as the same may apply to a month-to-month
tenancy. If Tenant holds over after the expiration of the 5th Extension Term
without Landlord's prior written consent, Tenant will be deemed a tenant at
sufferance, at a daily Rental, payable in advance, equal to 200% of the Rental
per day payable during the 5th Extension Term, and Tenant will be bound by all
of the other terms, covenants and agreements of the Lease as amended as the same
may apply to a tenancy at sufferance.
7. BROKERS. Landlord and Tenant represent and warrant that no broker or
agent negotiated or was instrumental in negotiating or consummating this Ninth
Amendment except TrizecHahn Colony Square GP LLC and Richard Bowers & Company
("Brokers"). Neither party knows of any other real estate broker or agent who is
or might be entitled to a commission or compensation in connection with this
Ninth Amendment. Pursuant to Georgia Real Estate Commission Regulation
520-1-108, TrizecHahn Colony Square GP LLC hereby discloses the following
concerning this lease transaction: (1) TrizecHahn Colony Square GP LLC
represents Landlord and not Tenant; (2) Richard Bowers & Company represents
Tenant and not Landlord; and (3) both TrizecHahn Colony Square GP LLC and
Richard Bowers & Company shall receive their compensation from Landlord. Tenant
and Landlord will indemnify and hold each other harmless from all damages paid
or incurred by the other resulting from any claims asserted against either party
by brokers or agents claiming through the other party.
8. CONFLICTING PROVISIONS. If any provisions of this Ninth Amendment
conflict with any of those of the Lease as amended, then the provisions of this
Ninth Amendment shall govern.
9. REMAINING LEASE PROVISIONS. Except as stated in this Ninth Amendment,
all other viable and applicable provisions of the Lease as amended shall remain
unchanged and continue in full force and effect throughout the Lease Term.
10. BINDING EFFECT. Landlord and Tenant ratify and confirm the Lease as
amended and agree that this Ninth Amendment shall bind and inure to the benefit
of the parties, and their respective successors, assigns and representatives as
of the date first stated.
-- signatures appear on the following page--
3
AFFIRMING THE ABOVE, the parties have executed this Ninth Amendment of
Lease on the date first stated.
WITNESSES LANDLORD TRIZECHAHN CENTERS, INC.,
a California corporation
BY: /s/
- ----------------------------- -------------------------------------
Robert R. Stubbs
Assistant Secretar
BY: /s/
- ----------------------------- -------------------------------------
Paul H. Layne
Vice President
TENANT
CRYOLIFE, INC., a Florida Corporation
BY: /s/ Albert E. Heacox
- ----------------------------- ------------------------------------
ITS: V.P., Laboratory Operation
------------------------------------
4
1545036
EXHIBIT 10.14
TENTH AMENDMENT OF LEASE
THIS TENTH AMENDMENT OF LEASE ("Tenth Amendment") is made on June 25, 2002
between TRIZEC REALTY, INC., a California corporation ("Landlord"), whose
address is 100 Colony Square, Suite 600, 1175 Peachtree Street, N.E., Atlanta,
GA 30361 and CRYOLIFE, INC., a Florida corporation ("Tenant").
RECITALS
This Tenth Amendment is based upon the following recitals:
A. Newmarket Partners III, Limited, a Georgia Limited Partnership
("Newmarket III"), as landlord and Tenant entered into a Lease dated February
13, 1986 ("Lease"), for the premises measuring approximately 6,989 rentable
square feet and known as Suites 142 and 144 and a portion of Suite 140 located
at 2211 Newmarket Parkway, Marietta, GA 30067 ("Premises").
B. Newmarket III and Tenant amended the Lease by Amendment to Lease signed
by Newmarket III on April 7, 1986; Amendment to Lease signed by Tenant on May
15, 1987; Second Amendment to Lease signed by Newmarket III on June 22, 1988;
Third Amendment to Lease signed by Newmarket III on April 4, 1989; Fourth
Amendment to Lease dated April 4, 1989; Fifth Amendment to Lease dated October
15, 1990; Sixth Amendment to Lease dated March 14, 1995; Seventh Amendment to
Lease dated May 15, 1996 and Eighth Amendment to Lease dated November 18, 1998.
C. Fashion Place Associates, Ltd. ("Fashion") subsequently succeeded to the
interest of Newmarket III under the Lease.
D. Fashion subsequently assigned its interest as landlord to TrizecHahn
Centers Inc. ("TrizecHahn").
E. TrizecHahn and Tenant amended the Lease by Ninth Amendment to Lease
dated August 3, 2001 (Lease and Amendment(s) collectively, "Lease as amended").
F. Landlord is successor in interest to TrizecHahn's interest as landlord
under the Lease as amended.
G. The Premises size currently measures approximately 18,837 rentable
square feet and includes Suites 134, 136, 138, 140, 142 and 144 of the Building.
H. Landlord and Tenant desire to further amend the Lease as amended to
extend the term and otherwise amend the Lease as amended accordingly.
THEREFORE, in consideration of the mutual covenants and agreements stated
in the Lease as amended and below, and for other sufficient consideration
received and acknowledged by each party, Landlord and Tenant agree to amend the
Lease as amended as follows:
1. RECITALS. All recitals are fully incorporated.
2. EXTENSION OF LEASE TERM. The Lease Term for the Premises shall be
extended for a three (3)-year period only, to begin January 1, 2003 and expire
on December 31, 2005 ("Sixth Extension Term").
4. RENTAL, COMMON AREA MAINTENANCE EXPENSES, TAX AND INSURANCE ESCALATION
EXPENSES. Effective during the Sixth Extension Term, Tenant's obligation to pay
Rental, Common Area Maintenance Expenses and Tax and Insurance Escalation
Expenses shall be as follows with respect to the Premises.
A. RENTAL. Effective during the Sixth Extension Term, Tenant shall pay
Landlord monthly rental in advance on the first day of each month as follows:
Annual Rate Per Rentable Amount of Rental Payable Amount of Rental Payable
Lease Year Square Foot Per Month Per Annum
1 $9.50 $14,912.63 $178,951.50
2 $9.69 $15,210.88 $182,530.53
3 $9.88 $15,509.13 $186,109.56
B. COMMON AREA MAINTENANCE EXPENSES. Tenant shall reimburse Landlord
for the cost of Common Area Maintenance Expenses (as described in Paragraph 4 of
the Lease, "CAM") which shall be $0.83 per rentable square foot and subject to a
4% annual increase each calendar year; and
C. TAX AND INSURANCE EXCALATIONS EXPENSES. In addition to Rental and
CAM, Tenant shall continue to be responsible for tax and insurance escalation
expenses with respect to the entire Premises in accordance with the terms and
conditions of Paragraph 13 of the Lease; however, the base year with respect to
determining tax and insurance escalation expenses for the Premises shall be the
calendar year ending December 31, 2003.
5. DELIVERY OF AND IMPROVEMENTS TO THE PREMSIES. Landlord shall provide and
Tenant shall accept the Premises in "as-is" condition. No promises to alter,
remodel or improve the Premises or Building and no representations concerning
the condition of the Premises or Building have been made by Landlord to Tenant
other than as may be expressly stated in the Lease as amended.
6. HOLDOVER. Tenant understands that it does not have the right to hold
over at any time and Landlord may exercise any and all remedies at law or in
equity to recover possession of the Premises, as well as any damages incurred by
Landlord, due to Tenant's failure to vacate the Premises and deliver possession
to Landlord as required by this Lease. If Tenant holds over after the expiration
of the 5th Extension Term with Landlord's prior written consent, Tenant will be
deemed to be a tenant from month to month, at a monthly Rental, payable in
advance, equal to 150% of the monthly Rental payable during the 5th Extension
Term, and Tenant will be bound by all of the other terms, covenants and
2
agreements of the Lease as amended as the same may apply to a month-to-month
tenancy. If Tenant holds over after the expiration of the 5th Extension Term
without Landlord's prior written consent, Tenant will be deemed a tenant at
sufferance, at a daily Rental, payable in advance, equal to 200% of the Rental
per day payable during the 5th Extension Term, and Tenant will be bound by all
of the other terms, covenants and agreements of the Lease as amended as the same
may apply to a tenancy at sufferance.
7. BROKERS. Landlord and Tenant represent and warrant that no broker or
agent negotiated or was instrumental in negotiating or consummating this Tenant
Amendment except TrizecHahn Colony Square GP LLC and Richard Bowers & Company
("Brokers"). Neither party knows of any other real estate broker or agent who is
or might be entitled to a commission or compensation in connection with this
Tenth Amendment. Pursuant to Georgia Real Estate Commission Regulation
520-1-108, TrizecHanz Colony Square GP LLC hereby discloses the following
concerning this lease transaction: (1) TrizecHahn Colony Square GP LLC
represents Landlord and not Tenant; (2) Richard Bowers & Company represents
Tenant and not Landlord; and (3) both TrizecHahn Colony Square GP LLC and
Richard Bowers & Company shall receive their compensation from Landlord. Tenant
and Landlord will indemnify and hold each other harmless from all damages paid
or incurred by the other resulting from any claims asserted against either party
by brokers or agents claiming through the other party.
8. CONFLICTING PROVISIONS. If any provisions of this Tenth Amendment
conflict with any of those of the Lease as amended, then the provisions of this
Tenth Amendment shall govern.
9. REMAINING LEASE PROVISIONS. Except as stated in this Tenth Amendment,
all other viable and applicable provisions of the Lease as amended shall remain
unchanged and continue in full force and effect throughout the Lease Term.
10. BINDING EFFECT. Landlord and Tenant ratify and confirm the Lease as
amended and agree that this Tenth Amendment shall bind and inure to the benefit
of the parties, and their respective successors, assigns and representatives as
of the date first stated.
3
AFFIRMING THE ABOVE, the parties have executed this TENTH AMENDMENT OF LEASE on
the date first stated.
WITNESSES LANDLORD:
TRIZEC REALTY, INC., a California corporation
/s/ Mardi Taft BY: /s/ Robert R. Stubbs
- ------------------------ --------------------------
Robert R. Stubbs
Assistant Secretary
/s/
BY: /s/ Stephen E. Budorick
Stephen E. Budorick
Vice President
TENANT:
CRYOLIFE, INC., a Florida corporation
/s/ Felicia E. Trott BY: /s/ Albert E. Heacox
- ------------------------ --------------------------
ITS: Sr. V.P. Laboratory Operation
----------------------------------
4
1545078
EXHIBIT 10.15
FIRST AMENDMENT TO LEASE
THIS AGREEMENT, made and entered into this 9th day of June, 1994, by and
between NEWMARKET PARTNERS I, LIMITED, a Georgia Limited Partnership whose
general partners are Laing Properties, Inc. and Laing Management Company
(hereinafter called "Landlord") and CRYOLIFE, INC. (hereinafter called
"Tenant").
WITNESSETH THAT:
WHEREAS, Landlord and Tenant entered into a certain Lease Agreement dated
July 23, 1993 (hereinafter "Lease") for Suite 124 (hereinafter "Premises") 2121
Newmarket Parkway, Building 5, Marietta, Georgia 30067;
WHEREAS, Landlord and Tenant desire to amend the Lease in order to modify
some of the terms and conditions of the Lease;
NOW, THEREFORE, in consideration of the mutual agreements of the
undersigned and other good valuable consideration, this Lease is hereby amended,
effective November 16, 1993, as follows:
45. As provided for in Paragraph 44 of Exhibit "D", Special Stipulations, of
the Lease, both Landlord and Tenant agree that the final construction cost
is $183,684.00 (see Exhibit "G", Construction Cost Summary, attached hereto
and made a part hereof) and therefore, desire to establish the adjusted
monthly rental.
The adjusted monthly rentals are determined by the following:
Rentable square footage = 11,227 R.S.F.
Useable square footage = 10,692 U.S.F. (5% loss factor)
Allowances:
$1.00/USF for architect services: $ 10,692.00
$45.00/RSF for construction costs: $505,215.00
-----------
Total Improvement Allowance: $515,907.00
$515,907.00 - Total Improvement Allowance
183,684.00 - Actual Construction Cost
----------
$332,223.00 - Construction Savings
Monthly Interest Rate: .83333% (10% Annual Interest Rate)
Number of Months in the Term: 60 Months
Payment Timing: Beginning of each month
Monthly Payment: $7,000.42 ($332,223 amortized at 10%
for 60 months)
Amortized
Initial Construction Adjusted
Monthly Rental Savings Monthly Rental
11/16/93 through 11/15/94 $14,196.32 $7,000.42 = $7,195.90
11/16/94 through 11/15/95 $14,430.21 $7,000.42 = $7,429.79
11/16/95 through 11/15/96 $14,673.46 $7,000.42 = $7,673.04
11/16/96 through 11/15/97 $14,926.45 $7,000.42 = $7,926.03
11/16/97 through 11/15/98 $15,189.55 $7,000.42 = $8,189.13
1
Page 2 of First Amendment to Lease by and between Newmarket Partners I,
Limited, a Georgia Limited Partnership whose general partners are Laing
Properties, Inc. and Laing Management Company (Landlord) and Cryolife, Inc.
(Tenant) dated June 9, 1994.
Pursuant to Paragraph 3, Rental, of the Lease, Tenant agrees to pay to the
Landlord promptly on the first day of each month in advance during the term
of this Lease, an adjusted monthly rental of:
November 16, 1993 through November 15, 1994 @ $7,195.90
November 16, 1994 through November 15, 1995 @ $7,429.79
November 16, 1995 through November 15, 1996 @ $7,673.04
November 16, 1996 through November 15, 1997 @ $7,926.03
November 16, 1997 through November 15, 1998 @ $8,189.13
46. BROKER DISCLOSURE
Pursuant to Georgia Real Estate Commission Regulation 520-1-08, Laing
Marketing Company makes the following disclosures concerning this Lease
transaction:
a) In this transaction, Laing Marketing Company represents Landlord and
not Tenant.
b) In this transaction, Richard Bowers & Company represents Tenant and
not Landlord.
c) In this transaction, both Laing Marketing Company and Richard Bowers &
Company shall receive their compensation from Landlord exclusively.
Both Tenant and Landlord acknowledge, agree with and consent to the
representation and compensation disclosed above.
Except as herein amended, all terms and conditions of the Lease shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereunto have executed this First Amendment
to Lease as of the day and year first above written.
Signed, sealed and delivered in LANDLORD: NEWMARKET PARTNERS I,
the presence of: LIMITED, a Georgia Limited Partnership
whose general partners are Laing Properties,
Inc. and Laing Management Company
BY: Laing Properties, Inc.
Managing General Partner
/s/ Christine M. Carroll BY: /s/ James A. Gillespie
- -------------------------------- ---------------------------
Witness James A. Gillespie
TITLE: Executive Vice President
2
Page 3 of First Amendment to Lease by and between Newmarket Partners I, Limited,
a Georgia Limited Partnership whose general partners are Laing Properties, Inc.
and Laing Management Company (Landlord) and Cryolife, Inc. (Tenant) dated June
9, 1994.
Signed, sealed and delivered in the TENANT: CRYOLIFE, INC.
presence of:
/s/ D. J. Blankers BY: /s/ Steven G. Anderson
- ----------------------------------- ----------------------
Witness Steven G. Anderson
TITLE: President
/s/ Suzanne K. Gabbert ATTEST: /s/ Ronald D. McCall
- ----------------------------------- --------------------
Notary Public Ronald D. McCall
Cobb County, Georgia
My Commission Expires: TITLE: Secretary
September 13, 1996 (Corporate Seal)
3
EXHIBIT "G"
CONSTRUCTION COST SUMMARY
Date: 4-12-94
TENANT: CRYOLIFE, INC. 93 WORK R#SAM349
LOCATION: NEWMARKET - BLDG. 5, SUITE 124 Architect: Carlsten
RENTABLE AREA 11,227 Planner:
OCCUPANY DATE: 1-31-94 SP Costs: By Others
SP Cost/SF: $0.00
- --------------------------------------------------------------------------------
Direct Tenant Construction Costs
Contractors: Buyout Changes Total Budget Net Cost/SF Notes
G.C.: QUA-SER (ALL
PHASES) 170,653 4,284 174,937 0 (174,937) 15.58
Elec 0 0 0 0 0 0.00
HVAC 0 0 0 0 0 0.00
Floor Cov. 0 0 0 0 0 0.00
Oth: 0 0 0 0 0 0.00
Oth: Tenant Signage 0 0 0 0 0
Oth: Tenant
Reimbursement 0 0 0 0 0 0.00
SUBTOTAL 170,653 4,284 174,937 481,157 306,220 15.58
CM-FEE 8,533 214 8,747 24,058 15,311 0.78
TOTALS $179,186 4,498 183,684 505,215 321,531 16.36
- --------------------------------------------------------------------------------
NON-TENANT COSTS:
Description: Buyout Changes Total Budget Net Cost/SF Notes
A - 0 0 0 0 0 0.00
B - 0 0 0 0 0 0.00
C - 0 0 0 0 0 0.00
D - 0 0 0 0 0 0.00
E - 0 0 0 0 0 0.00
F - Total Space
Planning By Others 0 0 By Others 0 0.00
SUBTOTAL $0 $0 $0 $0 0 0.00
CM FEE 0 0 0 0 0 0.00
TOTAL $0 $0 $0 $0 $0 0.00
- --------------------------------------------------------------------------------
Summary-Total Cost Buyout Changes Total Budget Net Cost/SF
TOTAL 179,186 4,498 183,684 505,215 321,531 $16.36
- --------------------------------------------------------------------------------
NOTES:
A - CHANGE ORDER FOR $4,284 WAS FOR EQUIPMENT DRAINS AND HVAC REVISIONS.
B - TENANT HAS SPENT $183,684 TOWARD THEIR TOTAL AVAILABLE ALLOWANCE OF
$505,215. THIS LEAVES A BALANCE REMAINING OF $321,531.
4
IN WITNESS WHEREOF, the undersigned has executed this Waiver and Consent
and affixed its seal hereto as of the day and year first written above.
(Individual Mortgagee of Lessor Sign Here)
Signed, sealed and delivered this
____ day of __________, 1994, in (SEAL)
--------------------------------------------
the presence of: Name:
---------------------------------------
Notary Public
(NOTARIAL SEAL)
(Corporate or Partnership Mortgagee or Lessor Sign Here)
Newmarket Partners III Limited, a Georgia
Limited Partnership whose general partners are
Laing Properties, Inc. and Laing Management
Company
(CORPORATE SEAL)
BY: Laing Properties, Inc.
Managing General Partner
BY: /s/ James A. Gillespie
-----------------------------------
James A. Gillespie
Title: Executive Vice President
ATTEST:
/s/ Robert R. Stubbs
- ---------------------------------
Robert R. Stubbs
Title: Vice President & Secretary
Signed, sealed and delivered this
30th day of June, 1994, in the
presence of:
/s/ Christine M. Carroll
- ---------------------------------
Notary Public
(NOTARIAL SEAL)
5
1545566
EXHIBIT 10.16
SECOND AMENDMENT TO LEASE
THIS AGREEMENT, made as of and entered as of this 6th day of June 1998, by
and between Newmarket Partners I, Ltd., a Georgia Limited Partnership, whose
general partners are Laing Properties, Inc. and Laing Management Company
(hereinafter called "Landlord") and Cryolife, Inc., a Florida corporation
(hereinafter called "Tenant").
WITNESSETH THAT:
WHEREAS, Landlord and Tenant entered into a certain Lease Agreement dated
July 23, 1993, as amended June 9, 1994 (collectively, hereinafter "Lease") for
Suite 124, Building 5, (hereinafter "Premises") at 2121 Newmarket Parkway,
Marietta, Cobb County, Georgia 30067.
WHEREAS, Landlord and Tenant desire to amend the Lease in order to modify
some of the terms and conditions of the Lease; and
WHEREAS, Tenant desires to extend the Term of the Lease an additional three
(3) years for the period of November 16, 1998 through November 15, 2001
(hereinafter "Renewal Term").
NOW, THEREFORE in consideration of the mutual agreements of the undersigned
and other good and valuable consideration, this Lease is hereby amended,
effective November 16, 1998, as follows:
47. BROKER DISCLOSURE
Pursuant to Georgia Real Estate Commission Regulation 520-1-08, Laing
Marketing Company makes the following disclosures concerning this Lease
transaction:
a) In this transaction, Laing Marketing Company represents Landlord and
not Tenant.
b) In this transaction, Richard Bowers & Company represents Tenant and
not Landlord.
c) In this transaction, both Laing Marketing Company and Richard Bowers &
Company shall receive their compensation from Landlord exclusively.
Both Tenant and Landlord acknowledge, agree with and consent to the
representation and compensation disclosed above.
48. ENVIRONMENTAL MATTERS
Tenant will be subject to the provisions contained in Exhibit "E" entitled,
"Environmental Matters', attached hereto and by this reference made a part
hereof.
49. TERM
Paragraph 2, Term, of the Lease shall be amended to read:
To have and to hold the same for the term to commence on the sixteenth
(16th) day of November 1998 and ending on the fifteenth (15th) day of
November 2001, at midnight, unless sooner terminated as hereinafter
provided.
50. RENTAL
Paragraph 3, Rental, of the Lease shall be amended to read:
The Tenant agrees to pay to the Landlord promptly on the first day of each
month in advance, during the term of this Lease, a monthly rental of:
November 16, 1998 through November 15, 1999 @ $7,952.46 per month
November 16, 1999 through November 15, 2000 @ $8,270.56 per month
November 16, 2000 through November 15, 2001 @ $8,601.38 per month
Page 2 of Second Amendment to Lease by and between Newmarket Partners I Ltd., a
Georgia Limited Partnership, whose general partners are Laing Properties, Inc.
and Laing Management Company and Cryolife Inc., a Florida corporation, dated
June 6, 1998.
Payments received after the tenth day of the month may be assessed an
additional five percent (5%) charge as agreed liquidated damages due
Landlord. Acceptance by Landlord of a rental payment in an amount less
than that which is currently due shall in no way affect Landlord's
rights under this Lease and in no way be an accord and satisfaction.
51. TENANT IMPROVEMENTS
The Premises will be leased "as-is" during the Renewal Term and any and all
improvements shall be at Tenant's sole cost and expense.
Except as herein amended, all terms and conditions of the Lease shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereunto have executed this Second
Amendment to Lease as of the day and year first above written.
Signed, sealed and delivered LANDLORD: Newmarket Partners I, Ltd. a
in the presence of: Georgia Limited Partnership,
whose general partners are Laing
Properties, Inc. and Laing
Management Company
BY: Laing Properties, Inc.
Managing General Partner
/s/ Patricia L. Pendley BY: /s/ James A. Gillespie
- -------------------------- -------------------------------------
Witness James A. Gillespie
TITLE: Executive Vice President
/s/ Julie J. Waller ATTEST: /s/ Robert R. Stubbs
- -------------------------- -------------------------------------
Notary Public Robert R. Stubbs
TITLE: Vice President & Secretary
-------------------------------------
(CORPORATE SEAL)
Signed, sealed and delivered TENANT: Cryolife, Inc., a Florida Corporation
in the presence of:
/s/ Felicia E. Trott BY: /s/ Albert E. Heacox
- -------------------------- -------------------------------------
Witness
TITLE: V.P. Laboratory Operations
-------------------------------------
/s/ Suzanne K. Gabbert ATTEST: /s/ Suzanne K. Gabbert
- -------------------------- -------------------------------------
Notary Public
TITLE: Assistant Corporate Secretary
-------------------------------------
Notary Public, Cobb County, Georgia (CORPORATE SEAL)
My Commission Expires:
September 13, 2000
2
EXHIBIT "E"
ENVIRONMENTAL MATTERS
A. Tenant covenants that it will not cause or permit, knowingly or
unknowingly, any Hazardous Wastes (as hereinafter defined) to be brought
upon, disposed on or stored in or on the Premises or any Hazardous Material
(as hereinafter defined) to be released in, on or about the Premises and
that it will comply with any and all applicable laws, ordinances, rules,
regulations and requirements respecting the presence, use or release of
Hazardous Materials in, on or about the Premises.
B. Tenant covenants that it will immediately notify Landlord, in writing, of
any existing, pending or threatened (i) investigation, inquiry, claim or
action by any governmental authority in connection with any Environmental
Laws (as hereinafter defined); (ii) third party claims; (iii) regulatory
actions; and/or (iv) contamination of the Premises.
C. Tenant shall, at Tenant's expense, investigate, monitor, remediate, and/or
clean up any Hazardous Material, Hazardous Waste, or other environmental
condition on, about, or under the Premises required as a result of Tenant's
use or occupancy of the Premises.
D. Tenant covenants that it shall keep the Premises free of any lien imposed
pursuant to any Environmental Laws.
E. Tenant shall indemnify, defend and hold Landlord harmless from and against
any and all claims, judgments, damages, penalties, fines, costs (including
without limitation, attorney's fees and court costs), liabilities or losses
(collectively, the "Tenant Indemnified Claims") resulting from (i) the
presence of Hazardous Wastes in or about the Premises or the release of
Hazardous Materials in, on or a bout the Premises on or after the date of
this Lease, and (ii) any Hazardous Waste placed or any Hazardous Materials
released elsewhere in Newmarket Business Park by Tenant, its agents,
invitees, employees and contractors.
F. The provisions of this Exhibit "E" shall survive the expiration or
termination of this Lease.
G. For purposes of this Lease, the term Hazardous Waste has the same meaning
as the term is defined in the Resource Conservation and Recovery Act, as
amended, 42 U.S.C.ss.6901 et. seq. ("RCRA").
H. For the purposes of this Lease, the term Hazardous Material, is defined to
include those matters described in the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C.ss.9601 et.
seq. ("CERCLA"). As used herein the term Hazardous Materials shall also
mean (i) asbestos, or any substance containing asbestos; (ii)
polychlorinated biphenyls; (iii) lead; (iv) radon; (v) pesticides; (vi)
petroleum or any other substance containing hydrocarbons; (vii) any
substance which, when on the Premises, is prohibited by any Environmental
Laws; and (viii) any other substance, material or waste which, (x) by any
Environmental Laws requires special handling or notification of any
governmental authority in its collection, storage, treatment, or disposal
or (y) is defined or classified as hazardous, dangerous or toxic pursuant
to any legal requirement.
I. For purposes of this Lease, Environmental Laws shall mean: any and all
federal, state and local laws, statutes, codes, ordinances, regulations,
rules or other requirements relating to human health or safety or to the
environment including, but not limited to, those applicable to the storage,
treatment, disposal, handling and release of any Hazardous Waste or
Hazardous Materials, all as amended or modified from time to time.
-i-
1545087
EXHIBIT 10.17
THIRD AMENDMENT OF LEASE
THIS THIRD AMENDMENT OF LEASE ("Third Amendment") is made on August 3, 2001
between TRIZECHAHN CENTERS INC., a California corporation, d/b/a "TrizecHahn
Newmarket 1 to 8 Management" ("Landlord"), whose address is 100 Colony Square,
Suite 600, 1175 Peachtree Street, N.E., Atlanta, GA 30361 and CRYOLIFE, INC., a
Florida corporation ("Tenant").
RECITALS
This Third Amendment is based upon the following recitals:
A. Newmarket Partners I, Limited ("Newmarket"), as landlord and Tenant
entered into a Lease dated July 23, 1993 ("Lease"), for the premises measuring
11,227 rentable square feet and known as Suite 124 located at 2121 Newmarket
Parkway, Marietta, GA 30067 ("Premises").
B. Newmarket and Tenant amended the Lease by First Amendment to Lease dated
June 9, 1994 and Second Amendment to Lease dated June 6, 1998 (Lease and
Amendment(s) collectively, "Lease as amended").
C. Landlord is successor in interest to Newmarket's interest as landlord
under the Lease as amended.
D. The Premises size currently measures approximately 11,227 rentable
square feet and includes Suite 124 of the Building.
E. Landlord and Tenant desire to further amend the Lease as amended to
extend the term and otherwise amend the Lease as
amended accordingly.
THEREFORE, in consideration of the mutual covenants and agreements stated
in the Lease as amended and below, and for other sufficient consideration
received and acknowledged by each party, Landlord and Tenant agree to amend the
Lease as amended as follows:
1. RECITALS. All recitals are fully incorporated.
2. ADDRESS - NOTICES. Landlord's address for notices as set forth in Lease
as amended shall be deleted and the following substituted therefor:
TRIZECHAHNCENTERS INC.
c/o TrizecHahn Office Properties, Inc.
100 Colony Square, Suite 600
1175 Peachtree Street, N.E.
Atlanta, GA 30361
Attention: David D. Canaday, Vice President
1545085v1
with a copy to:
TRIZECHAHN CENTERS INC.
c/o TrizecHahn Office Properties, Inc.
100 Colony Square, Suite 600
1175 Peachtree Street, N.E.
Atlanta, GA 30361
Attention: Lease Administrator
and if notice of default, a copy to:
TRIZECHAHN CENTERS INC.
c/o TrizecHahn Office Properties, Inc.
100 Colony Square, Suite 600
1175 Peachtree Street, N.E.
Atlanta, GA 30361
Attention: Regional Counsel
3. EXTENSION OF LEASE TERM. The Lease Term for the Premises shall be
extended for approximately thirteen and one-half (13 1/2) months, to begin
November 16, 2001 and expire on December 31, 2002 ("2nd Extension Term").
4. RENTAL, COMMON AREA MAINTENACE EXPENSES, TAX AND INSURANCE ESCALATION
EXPENSES.Effective during 2nd Extension Term, Tenant's obligation to pay Rental,
Common Area Maintenance Expenses and Tax and Insurance Escalation Expenses shall
be as follows with respect to the Premises:
A. RENTAL. Effective during the 2nd Extension Term, Tenant shall pay
Landlord monthly rental in advance on the first day of each month in the amount
of $9,355.83; and
B. COMMON AREA MAINTENACE EXPENSES. Tenant shall reimburse Landlord
for the cost of Common Area Maintenance Expenses (as described in Paragraph 4 of
the Lease, "CAM") which shall be $0.80 per rentable square foot and subject to a
4% annual increase each calendar year; and
C. TAX AND INSURANCE ESCALATIONS EXPENSES. In addition to Rental and
CAM, Tenant shall continue to be responsible for tax and insurance escalation
expenses with respect to the entire Premises in accordance with the terms and
conditions of Paragraph 5 of the Lease; however the base year with respect to
determining tax and insurance escalation expenses for the Premises shall be the
calendar year ending December 31, 2002.
5. DELIVERY OF AND IMPROVEMENTS TO THE PREMISES. Landlord shall provide and
Tenant shall accept the Premises in "as-is" condition. No promises to alter,
remodel or improve the Premises or Building and no representations concerning
the condition of the Premises or Building have been made by Landlord to Tenant
other than as may be expressly stated in the Lease as amended.
6. HOLDOVER. Tenant understands that it does not have the right to hold
over at any time and Landlord may exercise any and all remedies at law or in
equity to recover possession of the Premises, as well as any damages incurred by
Landlord, due to Tenant's failure to vacate the Premises and deliver possession
to Landlord as required by this Lease. If Tenant holds over after the expiration
of the 2nd Extension Term with Landlord's prior written consent, Tenant will be
deemed to be a tenant from month to month, at a monthly Rental, payable in
advance, equal to 150% of the monthly Rental payable during the last year of the
2nd Extension Term, and Tenant will be bound by all of the other terms,
covenants and agreements of the Lease as amended as the same may apply to a
month-to-month tenancy. If Tenant holds over after the expiration of the 2nd
Extension Term without Landlord's prior written consent, Tenant will be deemed a
tenant at sufferance, at a daily Rental, payable in advance, equal to 200% of
the Rental per day payable during the 2nd Extension Term, and Tenant will be
bound by all of the other terms, covenants and agreements of the Lease as
amended as the same may apply to a tenancy at sufferance.
7. BROKERS. Landlord and Tenant represent and warrant that no broker or
agent negotiated or was instrumental in negotiating or consummating this Third
Amendment except TrizecHahn Colony Square GP LLC and Richard Bowers & Company
("Brokers"). Neither party knows of any other real estate broker or agent who is
or might be entitled to a commission or compensation in connection with this
Third Amendment. Pursuant to Georgia Real Estate Commission Regulation
520-1-108, TrizecHahn Colony Square GP LLC hereby discloses the following
concerning this lease transaction: (1) TrizecHahn Colony Square GP LLC
represents Landlord and not Tenant; (2) Richard Bowers & Company represents
Tenant and not Landlord; and (3) both TrizecHahn Colony Square GP LLC and
Richard Bowers & Company shall receive their compensation from Landlord. Tenant
and Landlord will indemnify and hold each other harmless from all damages paid
or incurred by the other resulting from any claims asserted against either party
by brokers or agents claiming through the other party.
8. CONFLICTING PROVISIONS. If any provisions of this Third Amendment
conflict with any of those of the Lease as amended, then the provisions of this
Third Amendment shall govern.
9. REMAINING LEASE PROVISIONS. Except as stated in this Third Amendment,
all other viable and applicable provisions of the Lease as amended shall remain
unchanged and continue in full force and effect throughout the Lease Term.
10. BINDING EFFECT. Landlord and Tenant ratify and confirm the Lease as
amended and agree that this Third Amendment shall bind and inure to the benefit
of the parties, and their respective successors, assigns and representatives as
of the date first stated.
-signatures appear on the following page-
AFFIRMING THE ABOVE, the parties have executed this THIRD AMENDMENT OF
LEASE on the date first stated.
WITNESSES: LANDLORD:
TRIZECHAHN CENTERS INC., a
California corporation
/s/ Mardi Taft BY: /s/ Robert R. Stubbs
- -------------------------- --------------------------------
Robert R. Stubbs
Assistant Secretary
/s/ Carmel Malfeo BY: /s/ Antonio A. Bismonte
- -------------------------- --------------------------------
Antonio A. Bismonte
Vice President
TENANT:
CRYOLIFE, INC., a Florida
corporation
By: /s/ Albert E. Heacox
--------------------------------
ITS: Sr. V.P. Laboratory Operations
-------------------------------
1545085
EXHIBIT 10.18
FOURTH AMENDMENT OF LEASE
THIS FOURTH AMENDMENT OF LEASE ("Fourth Amendment") is made on June 25,
2002 between TRIZEC REALTY, INC., a California corporation ("Landlord"), whose
address is 100 Colony Square, Suite 600, 1175 Peachtree Street, N.E., Atlanta,
GA 30361 and CRYOLIFE, INC., a Florida corporation ("Tenant").
RECITALS
This Fourth Amendment is based upon the following recitals:
A. Newmarket Partners I, Limited ("Newmarket"), as landlord and Tenant
entered into a Lease dated July 23, 1993 ("Lease"), for the premises known as
Suite 124 located at 2121 Newmarket Parkway, Marietta, GA 30067 ("Premises").
B. Newmarket and Tenant amended the Lease by First Amendment to Lease dated
June 9, 1994 and Second Amendment to Lease dated June 6, 1998.
C. Newmarket subsequently assigned its interest as landlord to TrizecHahn
Centers Inc. ("TrizecHahn").
D. TrizecHahn and Tenant amended the Lease by Third Amendment dated August
3, 2001 (Lease and Amendment(s) collectively, "Lease as amended").
E. Landlord is successor in interest to TrizecHahn's interest as landlord
under the Lease as amended.
F. Landlord and Tenant desire to further amend the Lease as amended to
extend the term and otherwise amend the Lease as amended accordingly.
THEREFORE, in consideration of the mutual covenants and agreements stated
in the Lease as amended and below, and for other sufficient consideration
received and acknowledged by each party, Landlord and Tenant agree to amend the
Lease as amended as follows:
1. RECITALS. All recitals are fully incorporated.
2. EXTENSION OF LEASE TERM. The Lease Term for the Premises shall be
extended for approximately one (1) year, to begin January 1, 2003 and expire on
December 31, 2003 ("Third Extension Term").
3. RENTAL, COMMON AREA MAINTENANCE EXPENSES, TAX AND INSURANCE ESCALATION
EXPENSES. Effective during the Third Extension Term, Tenant's obligation to pay
Rental, Common Area Maintenance Expenses and Tax and Insurance Escalation
Expenses shall be as follows with respect to the Premises:
A. RENTAL. Effective during the Third Extension Term, Tenant shall pay
Landlord monthly rental in advance on the first day of each month in the amount
of $8,888.04; and
B. COMMON AREA MAINTENANCE EXPENSES. Tenant shall reimburse Landlord
for the cost of Common Area Maintenance Expenses (as described in Paragraph 4 of
the Lease, "CAM") which shall be $0.83 per rentable square foot and subject to a
4% annual increase each calendar year; and
C. TAX AND INSURANCE ESCALATIONS EXPENSES. In addition to Rental and
CAM, Tenant shall continue to be responsible for tax and insurance escalation
expenses with respect to the entire Premises in accordance with the terms and
conditions of Paragraph 5 of the Lease; however, the base year with respect to
determining tax and insurance escalation expenses for the Premises shall be the
calendar year ending December 31, 2003.
4. DELIVERY OF AND IMPROVEMENTS TO THE PREMISES. Landlord shall provide and
Tenant shall accept the Premises in "as-is" condition. No promises to alter,
remodel or improve the Premises or Building and no representations concerning
the condition of the Premises or Building have been made by Landlord to Tenant
other than as may be expressly stated in the Lease as amended.
5. HOLDOVER. Tenant understands that it does not have the right to hold
over at any time and Landlord may exercise any and all remedies at law or in
equity to recover possession of the Premises, as well as any damages incurred by
Landlord, due to Tenant's failure to vacate the Premises and deliver possession
to Landlord as required by this Lease. If Tenant holds over after the expiration
of the Third Extension Term with Landlord's prior written consent, Tenant will
be deemed to be a tenant from month to month, at a monthly Rental, payable in
advance, equal to 150% of the monthly Rental payable during the last year of the
Third Extension Term, and Tenant will be bound by all of the other terms,
covenants and agreements of the Lease as amended as the same may apply to a
month-to-month tenancy. If Tenant holds over after the expiration of the Third
Extension Term without Landlord's prior written consent, Tenant will be deemed a
tenant at sufferance, at a daily Rental, payable in advance, equal to 200% of
the Rental per day payable during the Third Extension Term, and Tenant will be
bound by all of the other terms, covenants and agreements of the Lease as
amended as the same may apply to a tenancy at sufferance.
6. BROKERS. Landlord and Tenant represent and warrant that no broker or
agent negotiated or was instrumental in negotiating or consummating this Fourth
Amendment except TrizecHahn Colony Square GP LLC and Richard Bowers & Company
("Brokers"). Neither party knows of any other real estate broker or agent who is
or might be entitled to a commission or compensation in connection with this
Fourth Amendment. Pursuant to Georgia Real Estate Commission Regulation
520-1-108, TrizecHahn Colony Square GP LLC hereby discloses the following
concerning this lease transaction: (1) TrizecHahn Colony Square GP LLC
represents Landlord and not Tenant; (2) Richard Bowers & Company represents
Tenant and not Landlord; and (3) both TrizecHahn Colony Square GP LLC and
Richard Bowers & Company shall receive their compensation from Landlord. Tenant
and Landlord will indemnify and hold each other harmless from all damages paid
2
or incurred by the other resulting from any claims asserted against either party
by brokers or agents claiming through the other party.
7. CONFLICTING PROVISIONS. If any provisions of this Fourth Amendment
conflict with any of those of the Lease as amended, then the provisions of this
Fourth Amendment shall govern.
8. REMAINING LEASE PROVISIONS. Except as stated in this Fourth Amendment,
all other viable and applicable provisions of the Lease as amended shall remain
unchanged and continue in full force and effect throughout the Lease Term.
9. BINDING EFFECT. Landlord and Tenant ratify and confirm the Lease as
amended and agree that this Fourth Amendment shall bind and inure to the benefit
of the parties, and their respective successors, assigns and representatives as
of the date first stated.
AFFIRMING THE ABOVE, the parties have executed this FOURTH AMENDMENT OF
LEASE on the date first stated.
WITNESSES LANDLORD
TRIZEC REALTY, INC., a California corporation
/s/ Mardi Taft BY: /s/ Robert R. Stubbs
- ----------------------- -------------------------------------
Robert R. Stubbs
Assistant Secretary
BY: /s/ Stephen E. Budorick
- ----------------------- -------------------------------------
Stephen E. Budorick
Vice President
TENANT
CRYOLIFE, INC., a Florida corporation
/s/ Felicia E. Trott BY: /s/ Albert E. Heacox
- ----------------------- ------------------------------------
ITS: Sr. V.P. Laboratory Operations
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3
1544973v1
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CryoLife Inc. (the "Company") on Form
10-Q for the quarter ending September 30, 2002, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), each of Steven G.
Anderson, the Chairman, President, and Chief Executive Officer of the Company,
and David Ashley Lee, the Chief Financial Officer of the Company, hereby
certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ STEVEN G. ANDERSON /s/ DAVID ASHLEY LEE
- ---------------------------------- ----------------------------------
STEVEN G. ANDERSON DAVID ASHLEY LEE
Chairman, President, and Vice President and Chief Financial
Chief Executive Officer Officer
October 29, 2002 October 29, 2002