As filed with the Securities and Exchange Commission on December 17, 2004
Registration No. 333-_______
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CRYOLIFE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2417093
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
CRYOLIFE, INC.
1655 ROBERTS BOULEVARD, NW
KENNESAW, GEORGIA 30144
(770) 419-3355
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
COPIES TO:
STEVEN G. ANDERSON, PRESIDENT, CHIEF EXECUTIVE OFFICER T. CLARK FITZGERALD III, ESQ.
AND CHAIRMAN OF THE BOARD OF DIRECTORS ARNALL GOLDEN GREGORY LLP
CRYOLIFE, INC. 2800 ONE ATLANTIC CENTER
1655 ROBERTS BOULEVARD, NW 1201 WEST PEACHTREE STREET
KENNESAW, GEORGIA 30144 ATLANTA, GEORGIA 30309-3450
(770) 419-3355 (404) 873-8500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate Date of Commencement of Proposed Sale to the Public: FROM TIME
TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Aggregate
Offering Price Amount of
Title of Each Class of Securities to be Registered (1)(2) Registration Fee
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Preferred Stock (3)
Depositary Shares (4)
Common Stock (including attached preferred share purchase rights) (5)
Total $ 50,000,000 $ 5,885(5)
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(1) Rule 457(o) under the Securities Act of 1933, as amended, permits the
registration fee to be calculated on the basis of the maximum offering
price of all of the securities listed and, therefore, the table does not
specify by each class information as to the amount to be registered or the
proposed maximum offering price per security.
(2) This registration statement also covers an indeterminate amount of
securities that may be issued in exchange for, or upon conversion or
exercise of, as the case may be, any securities registered hereunder that
provide for conversion, exercise or exchange. Any securities registered
hereunder may be sold separately or as units with other securities
registered hereunder.
(3) An indeterminate amount of preferred stock, depositary shares and common
stock may be issued from time to time at indeterminate prices, with an
aggregate offering price not to exceed $50,000,000.
(4) The depositary shares registered hereunder will be evidenced by depositary
receipts issued pursuant to a depositary agreement. If the registrant
elects to offer to the public fractional interests in shares of preferred
stock, then depositary receipts will be distributed to those persons
purchasing the fractional interests and the shares will be issued to the
depositary under the depositary agreement.
(5) Calculated pursuant to Rule 457(o) at the statutory rate of $117.70 per
$1,000,000 of securities registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS INCOMPLETE AND MAY BE CHANGED. THE
REGISTRANT MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
$50,000,000
CRYOLIFE, INC.
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
We may from time to time offer and sell common stock, preferred stock and
depositary shares.
This prospectus provides you with a general description of the securities
that may be offered. Each time securities are sold, we will provide one or more
supplements to this prospectus that will contain additional information about
the specific offering and the terms of the securities being offered. The
supplements may also add, update or change information contained in this
prospectus. You should carefully read this prospectus and any accompanying
prospectus supplement before you invest in any of our securities.
Our common stock is listed for trading on the New York Stock Exchange under
the symbol "CRY." Our executive offices are located at 1655 Roberts Boulevard,
NW, Kennesaw, Georgia 30144. Our telephone number is (770) 419-3355. The last
reported sale price of the common stock on December 16, 2004 was $7.40 per
share.
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THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is _____________, 2004.
TABLE OF CONTENTS
PAGE
SUMMARY................................................................1
ABOUT THIS PROSPECTUS..................................................1
ABOUT CRYOLIFE.........................................................1
RISK FACTORS...........................................................6
FORWARD LOOKING STATEMENTS............................................18
USE OF PROCEEDS.......................................................19
RATIO OF EARNINGS TO FIXED CHARGES....................................19
DESCRIPTION OF CAPITAL STOCK..........................................20
DESCRIPTION OF DEPOSITARY SHARES......................................25
PLAN OF DISTRIBUTION..................................................26
WHERE YOU CAN FIND MORE INFORMATION...................................28
LEGAL MATTERS.........................................................28
EXPERTS...............................................................29
You should rely only on the information included or incorporated by
reference in this prospectus and any accompanying prospectus supplement. We have
not authorized any dealer, salesman or other person to provide you with
additional or different information. This prospectus and any accompanying
prospectus supplement are not an offer to sell or the solicitation of an offer
to buy any securities other than the securities to which they relate and are not
an offer to sell or the solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make an offer or
solicitation in that jurisdiction. You should not assume that the information in
this prospectus or any accompanying prospectus supplement or in any document
incorporated by reference in this prospectus or any accompanying prospectus
supplement is accurate as of any date other than the date of the document
containing the information.
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SUMMARY
This summary highlights information that we believe is especially important
concerning our business and this offering. It does not contain all of the
information that may be important to your investment decision. You should read
the entire prospectus, including the documents incorporated herein by reference,
"Risk Factors" and our financial statements and related notes, before deciding
to purchase our securities.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission, which we refer to as the
"SEC," using a "shelf' registration process. Under this shelf process, we may,
over time, sell any combination of the securities described in this prospectus
in one or more offerings up to a total dollar amount of $50.0 million. This
prospectus provides you with a general description of the securities we may
offer pursuant to this prospectus. Each time we sell securities, we will provide
one or more prospectus supplements that will contain specific information about
the terms of that offering. This prospectus does not contain all of the
information included in the registration statement. For a complete understanding
of the offering of securities, you should refer to the registration statement
relating to this prospectus, including its exhibits. A prospectus supplement may
also add, update or change information contained in this prospectus. You should
read both this prospectus and any accompanying prospectus supplement together
with the additional information described under the heading "Where You Can Find
More Information. "
ABOUT CRYOLIFE
CryoLife develops and commercializes medical devices which may be implanted
into the body during surgery and preserves and distributes human tissues for
cardiovascular, vascular and orthopaedic transplant applications. The
implantable devices include BioGlue(R) Surgical Adhesive, porcine heart valves,
and grafts of bovine tissue processed using our proprietary SynerGraft(R)
technology.
CryoLife's proprietary BioGlue Surgical Adhesive, designed for
cardiovascular, vascular, pulmonary, and general surgical applications, is a
polymer based on bovine blood clotting protein and an agent for linking together
proteins. CryoLife can distribute BioGlue throughout the United States and more
than 40 other countries for designated applications. In the U.S., BioGlue is FDA
approved as an adjunct to sutures and staples for use in adult patients in open
surgical repair of large vessels. In Europe, CryoLife distributes BioGlue under
CE Mark product certification for vascular applications, pulmonary indications,
such as the repair of air leaks in lungs, and soft tissue repair procedures.
CryoLife has also received approval and distributes BioGlue for vascular,
pulmonary and soft tissue repairs in Canada. Additional marketing approvals have
been granted for specified applications in Australia, and in several countries
in South America and Asia.
CryoLife distributes preserved human cardiovascular, vascular and
orthopaedic tissue to implanting institutions throughout the United States,
Canada and Europe. We preserve human tissue using special freezing techniques,
or cryopreservation. Management believes the cryopreserved human tissues it
distributes offer specific advantages over mechanical, synthetic, and
animal-derived alternatives. Depending on the alternative, these advantages
include more natural blood flow properties for our cryopreserved heart valves,
the elimination of a long-term need for drug therapy to prevent excessive blood
clotting, and a reduced risk of catastrophic failure, thromboembolism (stroke),
or calcification.
Through its continuing research and development activities, CryoLife
endeavors to use its expertise in protein chemistry, biochemistry, cell biology,
and immunology and its understanding of the cardiovascular, vascular, and
orthopaedic surgery medical specialties, to acquire and develop useful
implantable products and technologies. We seek to identify market areas that can
benefit from preserved living tissues and other related technologies, to develop
innovative techniques and products within these areas, to secure their
commercial protection, to establish their efficacy and then to market these
techniques and products. In order to expand CryoLife's service and product
offerings, we are in the process of developing or investigating several
technologies and products. The products in development have not been subject to
completed clinical trials, and have not received FDA or other regulatory
approval, so we are not certain if we will derive any revenues from them.
CryoLife generally performs significant research and development work before
offering its services and products, building on either existing non-proprietary
1
knowledge or acquired technology and know-how. Our tissue preservation services
were developed based on work done some years before. Our BioGlue product was
developed by us from a substance originally developed by a third party and
acquired by us. In addition we continue to explore technologies that may further
enhance the safety of our tissue processing.
CryoLife is using the technology underlying its BioGlue surgical adhesive
as the base for several potential products in development. Other potential
applications for BioGlue surgical adhesive in the U.S. include hernia repair and
sealing the membranes surrounding the brain and spinal cord. BioGlue also has
the potential to be used as a replacement for the soft tissue in spinal discs.
One of our subsidiaries is developing a new drug delivery technology that has
potential uses in the areas of cancer therapy, fibrinolysis (blood clot
dissolving), and other drug delivery applications.
CryoLife also distributes its SynerGraft processed bovine vascular graft
and a porcine heart valve, the CryoLife-O'Brien(R) aortic heart valve. The
SynerGraft process involves the depopulation of cells leaving a matrix of
protein fibers that has the potential to be repopulated with the recipient's
cells. CryoLife believes that this process increases graft longevity, and
improves the biocompatibility and functionality of the tissue. CryoLife markets
the SynerGraft bovine vascular graft in Europe and the Middle East. CryoLife's
porcine valves contain minimal amounts of synthetic materials, compared to many
other fixed porcine heart valves. This decreases the risk of endocarditis, a
debilitating and potentially fatal infection. CryoLife currently markets this
valve in Europe and certain other territories outside the U.S.
CryoLife's business is subject to a number of risks, including the
possibility of FDA actions, additional expenses and losses from product recalls,
possible losses from ongoing product liability, securities and other litigation,
regulatory action, adverse publicity and lower demand for CryoLife products
resulting from product recalls and other FDA activity, inability to obtain
sufficient insurance coverage, possible inability to protect the intellectual
property rights in our technology, the possible inability to obtain necessary
regulatory approvals, and possible future lack of capital.
Food and Drug Administration (FDA) Activity.
In August 2002 the FDA issued an order, which we refer to as the FDA Order,
regarding several types of tissue processed by CryoLife. Non-valved cardiac,
vascular, and orthopaedic tissue processed by CryoLife from October 3, 2001 to
September 5, 2002 was required to be retained until recalled, destroyed, the
safety was confirmed, or an agreement was reached with the FDA for its proper
disposition under the supervision of an authorized official of the FDA. Pursuant
to the FDA Order, CryoLife placed tissue subject to the FDA Order under quality
assurance quarantine and recalled the subject tissues (i.e. processed since
October 3, 2001) that had been distributed but not implanted. In addition,
CryoLife ceased processing non-valved cardiac, vascular, and orthopaedic
tissues. In September 2002, CryoLife and the FDA reached an agreement permitting
CryoLife to immediately resume processing and limited distribution of its
non-valved cardiac and vascular tissues. The Company made changes to its
procedures, and now processes most of the tissues that were subject to the FDA
recall.
The FDA subsequently issued several notices on its Form 483, called Notices
of Observation, which set forth its observations at the conclusion of an
inspection of our processing facility. The observations included several as to
documentation and procedures. The most recent Notice of Observations was issued
in February 2004.
During 2003, we received other notices from the FDA stating that the FDA
had determined that non-valved cardiovascular tissue processed using CryoLife's
SynerGraft technology would be regulated as medical devices and would require
additional premarket approval authorization for continued distribution of these
tissues. FDA also notified CryoLife that the application of the SynerGraft
technology to allograft heart valves (CryoValve SG), currently regulated as
Class II medical devices, was considered to be a major manufacturing change
requiring a 510(k) submission.
CryoLife submitted the required 510(k) for CryoValve SG and has received
two requests for additional information from FDA. While most of the requested
2
information has been provided, CryoLife is seeking to resolve certain other
requests, involving bench-testing and additional clinical trials, through
administrative procedures at the FDA.
CryoLife has also appealed the designation of non-valved cardiovascular
tissue processed using CryoLife's SynerGraft technology as medical devices.
CryoLife has provided extensive clinical and preclinical evidence of the safety
and effectiveness of SynerGraft cardiovascular tissue. Discussions with the
Agency to resolve this issue are ongoing.
There can be no assurance that the outstanding issues with respect to the
CryoValve SG 510(k) or the designation of SynerGraft cardiovascular tissue will
be resolved favorably. In the meantime, CryoLife has voluntarily suspended the
use of the SynerGraft technology in the processing of allograft heart valves and
other cardiovascular tissue. Additionally, CryoLife discontinued labeling
vascular (blood vessel) grafts as suitable for use in arteriovenous access
because FDA has determined that this indication is a "non-homologous" use that
would require premarket approval as a medical device.
Until the issues surrounding the SynerGraft treated tissues are resolved,
CryoLife will employ its traditional processing methods on cardiovascular and
vascular tissues. Distribution of allograft heart valves and vascular tissue
processed using CryoLife's traditional processing protocols will continue.
CryoLife currently has nominal amounts of SynerGraft processed cardiovascular
and vascular tissue on hand.
Products Liability Litigation and Insurance Coverage.
As of December 15, 2004 we were aware of ten pending product liability
lawsuits. The lawsuits are currently in the pre-discovery or discovery stages.
Of these lawsuits, four allege product liability claims arising out of our
orthopaedic tissue services, four allege product liability claims arising out of
our allograft heart valve tissue services, one alleges product liability claims
arising from BioGlue, and one alleges product liability claims arising out of
the non-tissue products made by Ideas for Medicine when it was a subsidiary of
CryoLife.
Of the ten open lawsuits a total of four are covered by CryoLife's
insurance coverage as follows: two lawsuits by the 2000/2001 insurance policy,
one by the 2003/2004 insurance policy and one by the 2004/2005 insurance policy.
For the 2000/2001 insurance policy year CryoLife maintained claims-made
insurance policies which CryoLife believes to be adequate to defend against the
suits filed during this period. As of September 30, 2004 the Company accrued
$100,000 for the remaining retention levels related to the 2000/2001 insurance
policy year. The Company believes its 2003/2004 and 2004/2005 insurance policies
to be adequate to defend against the covered suits filed during these time
periods.
Of the ten open lawsuits the remaining six are not covered by CryoLife's
insurance policies as either these lawsuits relate to the 2002/2003 insurance
policy year for which CryoLife has used all of its insurance coverage,
aggregating $25 million, or they were asserted in periods after the coverage in
the related incident year had lapsed. Other product liability claims have been
asserted against CryoLife that have not resulted in lawsuits. We are monitoring
these claims.
CryoLife performed an analysis as of September 30, 2004 of the pending
product liability claims based on settlement negotiations to date and advice
from counsel. As of September 30, 2004 CryoLife had accrued a total of $1.8
million for pending product liability claims and recorded zero representing
amounts to be recovered from CryoLife's insurance carriers. The $1.8 million
accrual is included as a component of accrued expenses and other current
liabilities on the September 30, 2004 Summary Consolidated Balance Sheet. This
amount represents CryoLife's estimate of the probable losses related to six of
the ten pending product liability claims. CryoLife has not recorded an accrual
for the remaining four product liability claims because management has concluded
that either a loss is remote or that, although a loss is reasonably possible or
probable, a reasonable estimate of that loss or the range of losses cannot be
made at this time. The amount recorded as a liability is reflective of estimated
legal fees and settlement costs related to these claims and does not reflect
actual settlement arrangements, actual judgments, including punitive damages,
which may be assessed by the courts, or cash set aside for the purpose of making
payments. Prior to 2004, CryoLife recorded accruals for the uninsured portion of
product liability claims for which the amount of probable loss was reasonably
estimable. Had CryoLife recorded the total amounts of the reasonably estimable
probable losses as a liability and recorded an asset for the estimated amount
recoverable from the insurance carrier, the impact on the financial statements
as of December 31, 2003 would not have been material. CryoLife's product
3
liability insurance policies do not include coverage for any punitive damages,
which may be assessed at trial. CryoLife is currently unable to reasonably
estimate the maximum amount of the possible loss related to these claims, as
many of the claims do not specify the damages sought and CryoLife does not have
a reasonable method for estimating the amount of compensatory or punitive
damages that could be assessed by a trial jury.
The Company maintains claims-made insurance policies to mitigate its
financial exposure to product liability claims. Claims-made insurance policies
generally cover only those asserted claims and incidents that are reported to
the insurance carrier while the policy is in effect. Thus, a claims-made policy
does not generally represent a transfer of risk for claims and incidents that
have been incurred but not reported to the insurance carrier during the policy
period. The Company periodically evaluates its exposure to unreported product
liability claims and records accruals as necessary for the estimated cost of
unreported claims related to services performed and products sold. In July 2004,
the Company retained an independent actuarial firm to perform revised estimates
of the unreported claims as of June 30, 2004 and December 31, 2004. Based on an
actuarial valuation performed in July 2004 as of June 30, 2004 and December 31,
2004, the Company estimated that its liability for unreported product liability
claims was $8.0 million as of June 30, 2004 and would be $8.7 million as of
December 31, 2004. In accordance with EITF 03-8, the Company has accrued a
prorated amount of $8.4 million, representing the Company's best estimate of the
total liability for unreported product liability claims related to services
performed and products sold prior to September 30, 2004. The $8.4 million
balance is included as a component of accrued expenses and other current
liabilities of $4.3 million and other long-term liabilities of $4.1 million on
the September 30, 2004 Summary Consolidated Balance Sheet. Further analysis
indicated that the liability could be estimated to be as high as $14.6 million,
after including a reasonable margin for statistical fluctuations calculated
based on actuarial simulation techniques. Based on the actuarial valuation, the
Company estimated that as of September 30, 2004, $1.8 million of the accrual for
unreported liability claims would be recoverable under the Company's insurance
policies. The $1.8 million insurance recoverable is included as a component of
other receivables of $700,000 and other assets of $1.1 million on the September
30, 2004 Summary Consolidated Balance Sheet. These amounts represent
management's estimate of the probable losses and anticipated recoveries related
to unreported product liability claims related to services performed and
products sold prior to September 30, 2004. Actual results may differ from this
estimate.
If CryoLife is unable to settle the claims for amounts within its ability
to pay or one or more of the product liability claims in which CryoLife is a
defendant should be tried with a substantial verdict rendered in favor of the
plaintiff(s), there can be no assurance that such verdict(s) would not exceed
CryoLife's available insurance coverage and liquid assets. Failure by CryoLife
to meet required future cash payments to resolve the outstanding product
liability claims would have a material adverse effect on the financial position,
results of operations, and cash flows of CryoLife.
RECENT DEVELOPMENTS
CryoLife is a nominal defendant in a purported shareholder derivative
action against the individuals who were directors of the Company at the time of
the FDA Order as detailed in our prior SEC filings. In early December, the court
denied the defendant's motion to dismiss. See "Risk Factors-CryoLife's Insurance
Coverage May Be Insufficient-Shareholder Derivative Action" for more details.
On December 14, 2004, CryoLife announced that Albert E. Heacox, Ph.D. has
assumed the position of Senior Vice President of Research and Development of
CryoLife, Inc. He replaces Kirby S. Black, Ph.D. Reporting to Dr. Heacox will be
CryoLife's Research and Development Laboratory, Product and Process Engineering
and Aurazyme Pharmaceuticals' Research Department. In his new position he will
continue to report to Steven G. Anderson, President and CEO of CryoLife.
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CryoLife, Inc. was incorporated January 19, 1984 in Florida. All references
to "CryoLife," the "Company," "we," "us" or "our" in this prospectus mean
CryoLife, Inc., a Florida corporation, and all entities owned or controlled by
CryoLife, Inc., except where it is made clear that the term means only the
parent company.
Our principal executive offices are located at 1655 Roberts Boulevard, NW,
Kennesaw, Georgia 30144. Our telephone number is (770) 419-3355 and our Web site
is located at www.cryolife.com. Information contained on our Web site is not
part of this prospectus.
5
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before you make any investment
decisions with respect to our securities.
If any of the adverse events described in the following factors actually
occur, or if we do not accomplish those events or objectives described in the
risk factors as necessary to meet our expectations, our business, financial
condition and operating results could be materially and adversely affected, the
value of your securities could decline and you could lose all or part of your
investment.
RISKS RELATING TO OUR BUSINESS
OVERVIEW
CryoLife has faced extraordinary challenges since it received, on August
13, 2002, an FDA order calling for the retention, recall, and/or destruction of
all non-valved cardiac, vascular, and orthopaedic tissue processed by CryoLife
since October 3, 2001 (the "FDA Order"). The recall resulted in the destruction
of much of CryoLife's tissue, required that it adjust revenue for tissue recall
returns, curtailed its processing activities, subjected it to intense FDA
scrutiny and additional regulatory requirements that increased cost while
CryoLife suffered decreased revenues due to lack of processing ability and
decreased market demand for its services. During the same year, CryoLife was the
subject of intense adverse media attention in connection with allegations that
tissue processed by CryoLife had infected a man in Minnesota and caused his
death. CryoLife also became the subject of shareholders' class action and
derivative shareholder suits, both of which remain pending. Products liability
cases and claims increased to unprecedented numbers for CryoLife, using all of
its related 2002/2003 insurance policy year insurance coverage and taxing its
other resources. While many cases and claims have been settled, several remain
unresolved. Since 2002, a U.S. Senate committee has inquired into safety in the
tissue processing industry, making inquiries of CryoLife. The SEC has initiated
and continues to pursue a formal investigation of CryoLife. The combined effect
of these challenges has been to reduce Company revenues, increase its costs to
process tissues and its operating expenses and strain management resources.
Although CryoLife has now resumed processing and distribution of the tissues
subject to the FDA recall and resolved many of the products liability suits
pending against it, the foregoing factors will continue to challenge CryoLife in
its efforts to increase sales and return to profitability. No assurances can be
made that CryoLife will succeed in those efforts in a timely fashion.
THE COMPANY HAS EXPERIENCED OPERATING ISSUES AND NEGATIVE CASH FLOW. THE COMPANY
MUST ADDRESS THE UNDERLYING CAUSES.
The Company expects that its operations will continue to generate negative
cash flows throughout the remainder of 2004 and at least the first half of 2005
due to:
o The anticipated lower preservation services revenues as compared to
preservation revenues prior to the FDA Order, subsequent FDA activity,
and related events,
o The high cost of human tissue preservation services as a percent of
revenue, as compared to the period prior to the FDA Order, as a result
of lower tissue processing volumes and changes in processing methods,
which have increased the cost of processing human tissue and have
decreased yields of implantable tissue per donor,
o An expected use of cash related to the defense and resolution of
lawsuits and claims, and
o The legal and professional costs related to ongoing FDA compliance.
Although the impact of these factors has been offset in part by the success
of BioGlue, the Company's long term liquidity and capital requirements will
depend upon numerous factors, including:
o The success of BioGlue and other products using related technology,
o The Company's ability to increase the level of tissue procurement and
demand for its tissue preservation services,
o The Company's ability to reestablish sufficient margins on its tissue
preservation services in the face of increased processing costs by
improving yields and increasing prices,
6
o The Company's spending levels on its research and development
activities, including research studies, to develop and support its
service and product pipeline, and
o The amount and the timing of the resolution of the remaining
outstanding product liability claims and other claims against the
Company.
IF THE COMPANY IS UNABLE TO ADDRESS THE CAUSES OF ITS OPERATING LOSSES AND
NEGATIVE CASH FLOWS, IT WILL NEED TO RAISE ADDITIONAL CAPITAL WHICH MAY NOT BE
AVAILABLE.
If the Company is unable to address these issues and continues to
experience negative cash flows, the Company anticipates that it will 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. The Company may elect to obtain financing prior to that
time depending on the availability and terms of the financing agreement.
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 challenges are
addressed in greater detail elsewhere in this prospectus.
THE FDA ORDER AND SUBSEQUENT FDA ACTIVITY CONTINUE TO ADVERSELY IMPACT
CRYOLIFE'S BUSINESS, INCLUDING REDUCING DEMAND FOR ITS SERVICES AND INCREASING
PROCESSING COSTS
On August 13, 2002 CryoLife 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 CryoLife at its headquarters since October 3,
2001 based upon allegations that CryoLife violated FDA regulations in its
handling of such tissue and alleged contamination through CryoLife's processing
of such tissue that resulted in 14 post-transplant infections including one
death. A significant portion of CryoLife's current revenues is derived from the
preservation of human tissues. Revenues from human tissue preservation services
for the six months ended June 30, 2002, the last period ending prior to the
issuance of the FDA Order, were 78% of CryoLife's revenues, or approximately
$37.8 million. During the third quarter of 2004, these revenues were
approximately $7.0 million or 43% of third quarter revenues.
The FDA Order, subsequent FDA activity and resulting adverse publicity have
had a material adverse effect on CryoLife's business, financial condition,
results of operations and cash flows. CryoLife has experienced decreases in
revenues and incurred losses and there is a possibility that CryoLife may not
generate sufficient cash from operations to fund its operations over the
long-term.
CryoLife has continued to experience a reduced demand for its tissues due
to the adverse publicity generated from the recall and from decisions by
implanting physicians' or risk managers at implanting institutions to use human
tissue services provided by CryoLife's competitors. In addition, as a result of
the FDA Order, subsequent FDA activity, and changes in CryoLife's processing,
the costs of such processing have increased and are likely to remain high as
compared to cost levels prior to the FDA Order. Although they have decreased
somewhat beginning the second quarter of 2004, these high costs could have a
material adverse effect on CryoLife's business, results of operations and
financial position and may continue to do so.
The success of CryoLife's tissue preservation services 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 CryoLife's growth. CryoLife 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 FDA Order and subsequent
FDA activity and uncertainty regarding future tissue processing, some
procurement agencies stopped sending tissue to CryoLife for processing. If
CryoLife's relationships with procurement agencies continue to be adversely
affected or CryoLife is unable to obtain tissues from procurement agencies that
have ceased sending tissue to CryoLife for processing, CryoLife may be unable to
obtain adequate supplies of donated tissues to operate profitably.
REVENUE FROM ORTHOPAEDIC TISSUE PRESERVATION SERVICES IS MINIMAL AND MAY NOT
RETURN
We have received only minimal revenue from the preservation of orthopaedic
tissue since August 14, 2002. For the year ended December 31, 2001, human tissue
preservation services revenues for orthopaedic tissue were $22.5 million, which
7
represented 26% of CryoLife's revenues. For the six months ended June 30, 2002,
(the last period ending prior to the FDA Order) revenues for preservation
services for orthopaedic tissue were $11.5 million which represented 24% of
CryoLife's revenues. For the year ended December 31, 2003, revenues from
preservation services for orthopaedic tissue were $1.1 million, which
represented 2% of CryoLife's revenues. For the nine months ended September 30,
2004, they were $1.7 million, or 4% of revenues.
The demand for orthopaedic tissue from CryoLife may not return to the
levels in existence before the FDA Order, even though CryoLife has resumed
processing. As a result, this portion of CryoLife's business may be discontinued
or may only continue at substantially reduced levels. Either of these results
would result in a continued significant decrease in CryoLife's preservation
services revenues and have an adverse impact on its ability to return to
profitability.
PHYSICIANS MAY BE RELUCTANT TO IMPLANT CRYOLIFE'S PRESERVED TISSUES
Some physicians or implanting institutions have been reluctant to choose
CryoLife'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 CryoLife's tissues are used. In
addition, for similar reasons, hospital risk managers may forbid implanting
surgeons to utilize CryoLife's tissues where alternatives are available. Several
risk managers and physicians have refused to use our products due to these
concerns. If additional implanting hospitals or physicians representing
significant revenues refuse to use tissues preserved by us, and we are unable to
replace the revenues lost, our preservation services revenues and profits would
be materially adversely affected.
PRODUCTS AND SERVICES NOT INCLUDED IN THE FDA RECALL MAY COME UNDER INCREASED
FDA SCRUTINY
Although CryoLife's heart valve tissues, BioGlue Surgical Adhesive and
bioprosthetic devices were not included in the FDA recall, the processing and
manufacturing facilities for these products may come under increased scrutiny
from the FDA. A negative review from the FDA of these processing and
manufacturing facilities could have a material adverse effect on CryoLife's
business, results of operations and financial position.
ADVERSE PUBLICITY MAY REDUCE DEMAND FOR PRODUCTS AND SERVICES NOT AFFECTED BY
THE FDA RECALL
Even though CryoLife's heart valve tissues, BioGlue Surgical Adhesive and
bioprosthetic devices were 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 CryoLife's business, results of operations and
financial position.
WE MAY BE UNABLE TO ADDRESS THE CONCERNS RAISED BY THE FDA IN ITS FORM 483
NOTICES OF OBSERVATIONS
The FDA issued new Form 483 Notices of Observations in February and October
2003, and another in February 2004. If CryoLife's responses to the FDA's
observations contained in these notices, or any future notices, are deemed
unsatisfactory, the FDA could take further action, which could have a material
adverse effect on the Company's business, results of operations, financial
position or cashflows. Further action by the FDA could include additional
recalls of products, requiring us to do additional testing, beginning to require
prescriptions for products where they are not currently required, halting the
shipping or processing of products, or requiring additional approvals for
marketing our products or services.
THE FDA HAS NOTIFIED CRYOLIFE OF ITS BELIEF THAT MARKETING OF CRYOVALVE SG AND
CRYOVEIN SG REQUIRE ADDITIONAL REGULATORY SUBMISSIONS AND/OR APPROVALS
During 2003, FDA notified CryoLife that the application of the SynerGraft
technology to allograft heart valves (CryoValve SG), currently regulated as
Class II medical devices, was considered to be a major manufacturing change
requiring a 510(k) submission. CryoLife submitted a 510(k) for CryoValve SG and
has received two requests for additional information from FDA. While most of the
requested information has been provided, CryoLife is seeking to resolve certain
8
other requests, involving bench-testing and additional clinical trials, through
administrative procedures at the FDA. There can be no assurance that the FDA
will agree with CryoLife or that CryoValve SG 510(k) will be cleared in the
foreseeable future.
FDA has also determined that non-valved cardiovascular tissues processed
using CryoLife's SynerGraft technology should be regulated as medical devices
and will require additional premarket approval authorization for continued
distribution of these tissues. CryoLife appealed the designation of
SynerGraft-processed cardiovascular tissue as medical devices. Discussions with
the FDA to resolve this issue are ongoing. There can be no assurance that the
designation of SynerGraft cardiovascular tissue will be resolved favorably.
REGULATORY ACTION OUTSIDE OF THE U.S. MAY ALSO AFFECT CRYOLIFE'S BUSINESS
After the issuance of the FDA Order, 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 these inquiries are now, to CryoLife's
knowledge, complete. In the event additional regulatory concerns are raised by
other countries, CryoLife may be unable to export tissues to those countries.
Revenue from international human tissue preservation services was $721,000 for
the year ended December 31, 2003 and $363,000 for the nine months ended
September 30, 2004.
CRYOLIFE IS THE SUBJECT OF AN ONGOING SEC INVESTIGATION
As previously disclosed, there is an ongoing SEC investigation. CryoLife
has cooperated with this investigation both before and after issuance of the
formal order of investigation in June 2003, and intends to continue doing so.
CryoLife voluntarily reported the names of six employees and former employees to
the SEC in December 2002 after discovering they had apparently sold CryoLife
shares on August 14, 2002, before trading was halted pending CryoLife's press
release reporting the FDA Order. These individuals were not and are not
executive officers of CryoLife. The formal order of investigation indicates that
the SEC's scope includes whether, during 2002, among other things, CryoLife or
others may have traded while in possession of material nonpublic information,
made (or caused to be made) false or misleading statements or omissions in press
releases and SEC filings, and failed to maintain accurate records and adequate
controls. The investigation could also encompass matters not specifically
identified in the formal order. As of the date hereof, the SEC has had no
discussions with CryoLife representatives as to whether or against whom it will
seek relief, or the nature of any relief that may be sought. At present,
CryoLife is unable to predict the ultimate focus or outcome of the
investigation, or when it will be completed. An unfavorable outcome could have a
material adverse effect on CryoLife's reputation, business, financial position,
results of operations, and cash flows.
CRYOLIFE'S INSURANCE COVERAGE MAY BE INSUFFICIENT
Product Liability Claims
In the normal course of business as a medical device and services company,
CryoLife has product liability complaints filed against it. Following the FDA
Order, products liability lawsuits increased to unprecedented numbers for
CryoLife. CryoLife maintains claims-made insurance policies to mitigate its
financial exposure to product liability claims. Claims-made insurance policies
generally cover only those asserted claims and incidents that are reported to
the insurance carrier while the policy is in effect. Thus, a claims-made policy
does not generally represent a transfer of risk for claims and incidents that
have been incurred but not reported to the insurance carrier during the policy
period.
For the 2000/2001 and 2001/2002 insurance policy years, CryoLife maintained
claims-made insurance policies, which CryoLife believes to be adequate to defend
against the suits filed during this period. For the 2002/2003 insurance policy
year, CryoLife maintained claims-made insurance policies with three carriers.
CryoLife used all of its insurance coverage, aggregating $25.0 million, for the
2002/2003 insurance policy year, as well as funds of its own, to resolve claims
outstanding in the relevant policy period. CryoLife continues to attempt to
resolve the remaining litigation.
9
CryoLife's September 30, 2004, consolidated balance sheet reflects a
liability for the estimated cost of resolving these claims. The amounts recorded
were estimates, and do not reflect actual settlement arrangements or final
judgments, the latter of which could include punitive damages, nor do they
represent cash set aside for the purpose of making payments. CryoLife's
September 30, 2004 consolidated balance sheet also reflects an $8.4 million
liability, included as a component of accrued expenses and other current
liabilities, for the estimated cost of resolving unreported product liability
claims. CryoLife's product liability insurance policies do not include coverage
for any punitive damages.
If CryoLife is unsuccessful in arranging acceptable settlements of product
liability claims, there may not be sufficient insurance coverage and liquid
assets to meet these obligations. Additionally, if one or more of the product
liability claims in which CryoLife is a defendant should be tried with a
substantial verdict rendered in favor of the plaintiff(s), such verdict(s) could
exceed CryoLife's available insurance coverage and liquid assets. If CryoLife is
unable to meet required future cash payments to resolve the outstanding product
liability claims, it will have a material adverse effect on the financial
position, results of operations, and cash flows of CryoLife.
Class Action Lawsuit
Several putative class action lawsuits were filed in July through September
2002 against CryoLife and certain officers of CryoLife, alleging violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on a
series of purportedly materially false and misleading statements to the market.
The suits were consolidated, and a consolidated amended complaint filed, which
principally alleges that CryoLife made misrepresentations and omissions relating
to product safety and CryoLife's alleged lack of compliance with certain FDA
regulations regarding the handling and processing of certain tissues and other
product safety matters. The consolidated complaint seeks certification of a
class of purchasers between April 2, 2001 and August 14, 2002, compensatory
damages, and other expenses of litigation. CryoLife and the other defendants
filed a motion to dismiss the consolidated complaint on February 28, 2003, which
motion the United States District Court for the Northern District of Georgia
denied in part and granted in part on May 27, 2003. The discovery phase of the
case commenced on July 16, 2003. On December 16, 2003, the Court certified a
class of individuals and entities who purchased or otherwise acquired CryoLife
stock from April 2, 2001 through August 14, 2002. At present, the case remains
in the expert discovery phase. Although CryoLife carries directors' and
officers' liability insurance policies, the directors' and officers' liability
insurance carriers have issued reservation of rights letters reserving their
rights to deny or rescind coverage under the policies. An adverse judgment in
excess of CryoLife's available insurance coverage could have a material adverse
effect on CryoLife's financial position, results of operations, and cash flows.
At this time, CryoLife is unable to predict the outcome of this litigation.
Shareholder Derivative Action
On August 30, 2002 a purported shareholder derivative action was filed by
Rosemary Lichtenberger against 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 in the Superior Court of Gwinnett County,
Georgia. The suit, which names CryoLife as a nominal defendant, alleges that the
individual defendants breached their fiduciary duties to CryoLife by causing or
allowing CryoLife to engage in certain inappropriate practices that caused
CryoLife to suffer damages. The complaint was preceded by one day by a letter
written on behalf of Ms. Lichtenberger demanding that CryoLife's Board of
Directors take certain actions in response to her allegations. On January 16,
2003 another purported derivative suit alleging claims similar to those of the
Lichtenberger suit was filed in the Superior Court of Fulton County by
complainant Robert F. Frailey. As in the Lichtenberger suit, the filing of the
complaint in the Frailey action was preceded by a demand letter sent on
Frailey's behalf to CryoLife's Board of Directors. Both complaints seek
undisclosed damages, costs and attorney's fees, punitive damages, and
prejudgment interest against the individual defendants derivatively on behalf of
CryoLife. As previously disclosed, CryoLife's Board of Directors has established
an independent committee to investigate the allegations of Ms. Lichtenberger and
Mr. Frailey. The independent committee engaged independent legal counsel to
assist in the investigation, which culminated in a report by the committee
concluding that no officer or director breached any fiduciary duty. In October
2003 the two derivative suits were consolidated into one action in the Superior
Court of Fulton County, and a consolidated amended complaint was filed. The
independent committee, along with its independent legal counsel evaluated the
consolidated amended complaint, and concluded that its prior report and
10
determination addressed the material allegations contained in the consolidated
amended complaint. Based on the report of the independent committee, the Company
moved to dismiss the derivative action in May 2004. In an order dated December
1, 2004, the Court denied the motion to dismiss. The case will proceed into the
discovery phase. The committee reiterated its previous conclusions and
determinations, including that maintaining the derivative litigation is not in
the best interests of CryoLife. At this time, CryoLife is unable to predict the
outcome of this litigation.
INSURANCE COVERAGE MAY BE DIFFICULT OR IMPOSSIBLE TO OBTAIN IN THE FUTURE AND IF
OBTAINED, THE COST OF INSURANCE COVERAGE IS LIKELY TO BE MUCH MORE EXPENSIVE
THAN IN THE PAST
Due in part to the current litigation, the FDA Order and subsequent FDA
activity, CryoLife may be unable to obtain satisfactory insurance coverage in
the future, causing CryoLife to be subject to additional future exposure from
product liability claims. Additionally, if insurance coverage is obtained, the
insurance rates may be significantly higher than in the past, and may provide
less coverage, which may adversely impact CryoLife's profitability. For example,
CryoLife paid a higher fee for its 2003/2004 policy year products liability
insurance coverage, which also had a higher retention level and a lower overall
limit. Unlike the prior year's policy, the 2003/2004 policy did not cover any
claims which arose prior to the insurance policy year. The 2004/2005 policy is a
two-year claims-made policy, covering claims arising since the commencement of
the 2003/2004 policy year.
INTENSE COMPETITION MAY AFFECT CRYOLIFE'S ABILITY TO RECOVER FROM THE FDA ORDER
CryoLife faces competition from other companies that process human tissue,
as well as companies that market mechanical valves and synthetic and animal
tissue for implantation and companies that market surgical adhesives and
surgical sealants. 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, porcine and bovine heart valve markets,
including St. Jude Medical, Inc., Medtronic, Inc. and Edwards Life Sciences.
CryoLife is aware that a few 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
CryoLife's competitors have greater financial, technical, manufacturing and
marketing resources than CryoLife and are well established in their markets.
CryoLife plans to increase fees and prices on a number of its services and
products during the first quarter of 2005. The increase may provide an
opportunity for CryoLife's competitors to gain market share. If the Company is
unable to increase prices as planned and retain or improve its market share, its
revenue and return to profitability may be adversely affected.
We believe that our cryopreserved tissues compete favorably with other
entities that cryopreserve human tissue on the basis of technology, customer
service, and quality assurance. As a result of the decrease in CryoLife's
procurement and processing yields of human tissue since the FDA Order in 2002,
the decrease in cardiovascular, vascular, and orthopaedic tissue shipments, and
the lack of orthopaedic tissue shipments for a period of time, our competitors
have been favorably impacted and CryoLife believes it has lost some market
share. As compared to mechanical, porcine, and bovine heart valves, we believe
that the human heart valves cryopreserved by CryoLife compete on the factors set
forth above, as well as by providing a tissue that is the preferred replacement
alternative with respect to certain medical conditions, such as pediatric
cardiac reconstruction, valve replacements for women in their child-bearing
years, and valve replacements for patients with endocarditis. Additionally,
although fees charged for human tissue cryopreserved by CryoLife are initially
higher than fees charged for mechanical alternatives, these alternatives
typically require that the patient take anti-coagulation drug therapy for the
lifetime of the implant. As a result of the costs associated with
anti-coagulants, mechanical valves are generally, over the life of the implant,
more expensive than tissue cryopreserved by CryoLife. However, management
believes that, to date, price has not been a significant competitive factor.
CryoLife's BioGlue product competes with other surgical adhesives and
surgical sealants, including Baxter Healthcare's Tisseel, FloSeal and CoSeal
products. Competitive products may also be under development by other large
medical device, pharmaceutical, and biopharmaceutical companies. CryoLife
believes its BioGlue product competes favorably because of its inherent sealing
capabilities, high tensile strength and ease of use.
There can be no assurance that CryoLife's products and services will be
able to compete successfully with the products of these or other companies. Any
products developed by CryoLife that gain regulatory clearance or approval would
have to compete for market acceptance and market share. Failure of CryoLife to
11
compete effectively could have a material adverse effect on CryoLife's business,
financial condition, results of operations and cash flows. The FDA Order and
related adverse publicity had an adverse effect on CryoLife's competitive
position, which had a material adverse effect on CryoLife's results of
operations. The FDA Order and subsequent FDA activity may continue to have an
adverse effect on CryoLife's competitive position, which may continue to have a
material adverse effect on CryoLife's results of operations. As a result,
CryoLife's competitors may gain competitive advantages that may be difficult to
overcome.
CRYOLIFE MAY NOT BE SUCCESSFUL IN OBTAINING NECESSARY CLINICAL RESULTS AND
REGULATORY APPROVALS FOR PRODUCTS AND SERVICES IN DEVELOPMENT, AND SUCH PRODUCTS
AND SERVICES MAY NOT ACHIEVE MARKET ACCEPTANCE
CryoLife's growth and profitability will depend, in part, upon its ability
to complete development of and successfully introduce new products and services,
including new applications of its BioGlue and related technology and
applications applying its SynerGraft technology. Developing new products and
services to a commercially acceptable form is uncertain, and obtaining required
regulatory approval is time consuming and costly.
Although CryoLife has conducted pre-clinical studies on 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 CryoLife to obtain any required regulatory approvals or clearances. There
can be no assurance that CryoLife 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 CryoLife'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, CryoLife'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.
The inability to successfully complete the development of a product,
application or service, or a determination by CryoLife, for financial, technical
or other reasons, not to complete development of any product, application or
service, particularly in instances in which CryoLife has made significant
capital expenditures, could have a material adverse effect on CryoLife's
business, financial condition, results of operations, and cash flows. CryoLife'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 services or 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.
INVESTMENTS IN NEW TECHNOLOGIES OR DISTRIBUTION RIGHTS MAY NOT BE SUCCESSFUL
CryoLife may invest in new technology licenses or distribution rights that
may not succeed in the marketplace. In such cases, CryoLife may be unable to
recover its initial investment in the license, distribution right or purchase of
initial inventory, which may adversely impact CryoLife's profitability.
FUNDING FOR THE ACT TECHNOLOGY MAY NOT BE AVAILABLE
The ACT (Activation Control Technology) is a reversible linker technology
that has potential uses in the areas of cancer therapy, fibrinolysis (blood clot
dissolving) and other drug delivery applications. The reversible linker
technology joins a drug to another molecule. This link can be reversed by normal
hydrolysis or the application of an energy source. If the molecule to which the
drug is linked concentrates at the site of a tumor, or if an energy source is
12
applied at that site, then a drug can be concentrated at the site of a tumor and
the link reversed. By concentrating active drug at the site rather than
throughout the body there could be a greater opportunity to kill the tumor and
minimize harm to the patient. In February 2001 CryoLife 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. CryoLife has been seeking such
funding since 1998. This strategy is designed to allow CryoLife to continue
development of this technology without incurring additional research and
development expenditures, other than through AuraZyme. There can be no guarantee
that such funding can be obtained on acceptable terms, if at all. If such
funding is not obtained, CryoLife 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. In addition, any new financing
may cause dilution to the ownership interests of current CryoLife shareholders,
or may include restrictive covenants that could adversely affect CryoLife or its
business.
SYNERGRAFT-TREATED TISSUES MAY NOT DEMONSTRATE EXPECTED BENEFITS
CryoLife processes bovine tissues with the SynerGraft technology and
processed human tissues with that technology until February 2003, following the
receipt of the informal FDA letter. The process involves antigen reduction,
which is the depopulation of the cells of the tissue to be implanted, leaving a
matrix of protein fibers that has the potential to be repopulated with the
recipient's cells. If successful, we believe that such repopulation may increase
graft longevity and improve the biocompatibility and functionality of such
tissue, resulting in the implanted tissue behaving more like the recipient's own
tissue. In animal studies, explanted SynerGraft treated allograft heart valves
have been shown to repopulate with the hosts' cells. However, should such
tissues implanted in humans not consistently and adequately repopulate with the
human host cells, the higher priced SynerGraft-treated tissues may not
demonstrate benefits over the CryoLife standard processing technology. This
could have a material adverse effect on future expansion plans and could limit
future growth.
CRYOLIFE IS DEPENDENT ON ITS KEY PERSONNEL
CryoLife'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. CryoLife'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 operations. Competition for such personnel is
intense and there can be no assurance that CryoLife will be successful in
attracting and retaining such personnel. CryoLife's key employees include its
management team, consisting of Steven G. Anderson, President, Chief Executive
Officer, and Chairman; D. Ashley Lee, CPA, Executive Vice President, Chief
Operating Officer and Chief Financial Officer; Sidney B. Ashmore, Vice
President, Marketing; David M. Fronk, Vice President, Clinical Research; Albert
E. Heacox, PhD, Senior Vice President, Research and Development; and Thomas J.
Lynch, JD, PhD, Vice President, Regulatory Affairs and Quality Assurance.
CryoLife has employment agreements with these key personnel. Mr. Anderson's
employment agreement contains a provision providing an evergreen two year term,
and provides for payment of $900,000 if his employment is terminated other than
for cause, death, disability or by him for good reason. The others expire in
August 2005 or September 2005, except for Mr. Lynch's which expires in august
2006. They provide for payments ranging from $240,000 to $360,000 if employment
is terminated other than for cause, death, disability or by the employee for
good reason. Other than a $1.5 million life insurance policy on Mr. Anderson,
CryoLife does not have key life insurance on these individuals. The loss of key
employees, the failure of any key employee to perform adequately or CryoLife's
inability to attract and retain skilled employees as needed could have a
material adverse effect on CryoLife's business, financial condition, results of
operations and cash flows.
OUR CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31,
2001 AND INCLUDED IN CRYOLIFE'S 10-K WERE AUDITED BY ARTHUR ANDERSEN LLP, WHICH
WAS FOUND GUILTY OF OBSTRUCTION OF JUSTICE AND THE SUBJECT OF ADDITIONAL
LITIGATION
Arthur Andersen LLP has been found guilty of obstruction of justice with
respect to its activities in connection with Enron Corp. and may be the subject
of additional litigation. Arthur Andersen LLP has also ceased practicing before
the SEC. Arthur Andersen LLP or any successor in interest may have insufficient
assets to satisfy any claims that may be made by investors with respect to the
financial statements as of and for the year ending December 31, 2001 included in
13
CryoLife's Form 10-K for the year ending December 31, 2003 and incorporated into
this prospectus.
In addition, Arthur Andersen LLP has not consented to the inclusion of
their report dated March 27, 2002 in CryoLife's Form 10-K for the year ending
December 31, 2003, and as a result, only a copy of such report has been
included. Because Arthur Andersen LLP has not consented to the inclusion of
their report in our Form 10-K for the year ending December 31, 2003 which is
incorporated into this prospectus, claimants may not be able to recover against
Arthur Andersen LLP for any untrue statements of a material fact contained in
the financial statements audited by Arthur Andersen LLP or any omissions to
state a material fact required to be stated therein.
RISKS RELATED TO CRYOLIFE AND OUR INDUSTRY
EXTENSIVE GOVERNMENT REGULATION MAY ADVERSELY AFFECT THE ABILITY TO DEVELOP AND
SELL PRODUCTS AND SERVICES
Government regulation in the U.S., the EEA and other jurisdictions can
determine the success of CryoLife's efforts to market and develop its services
and products and those of its competitors. Allograft heart valves such as those
processed by CryoLife 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 CryoLife 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 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
finalized a regulation that will implement 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 made
effective will enhance regulatory oversight of CryoLife and other processors of
human tissue.
BioGlue Surgical Adhesive is regulated as a Class III medical device and
CryoLife 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 U.S. or
elsewhere. Fixed porcine heart valve products are classified as Class III
medical devices. CryoLife may not obtain the FDA approval required to distribute
its porcine heart valve products in the U.S. Distribution of these products
within the EC is dependent upon CryoLife maintaining the CE Mark for this
product and its ISO 13485 certifications, of which there can be no assurance.
Most of CryoLife's products and services in development and those of
CryoLife's competitors 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 CryoLife or its competitors, independently or in
collaboration with others, will receive the required approvals for manufacturing
and marketing.
Delays in obtaining U.S. or foreign approvals could result in substantial
additional cost and adversely affect a 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 a company such
as CryoLife 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,
14
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 or any other components required for clinical trials, changes
in development focus and disclosure of trial results by competitors.
Even if regulatory approval is obtained for any products or services
offered by CryoLife or one of its competitors, the scope of the approval may
significantly limit the indicated usage for which such products or services may
be marketed. Products or services marketed pursuant to FDA or foreign oversight
or approvals are subject to continuing regulation. In the U.S., devices and
biologics must be manufactured in registered establishments (and, in the case of
biologics, licensed establishments) and must be produced in accordance with
Quality System Regulations. Manufacturing facilities and processes are subject
to periodic FDA inspection. Labeling and promotional activities are also subject
to scrutiny by the FDA and, in certain instances, by the Federal Trade
Commission. The export of devices and biologics is also subject to regulation
and may require FDA approval. From time to time, the FDA may modify such
regulations, imposing additional or different requirements. Failure to comply
with 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
CryoLife's business, financial condition, results of operations, and cash flows.
As noted above, the FDA Order and subsequent FDA activity had, and may continue
to have such an effect.
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 industry methods of charging for preservation services.
Laboratory operations of CryoLife and its competitors are subject to the U.S.
Department of Labor, Occupational Safety and Health Administration and
Environmental Protection Agency requirements for prevention of occupational
exposure to infectious agents and hazardous chemicals and protection of the
environment. Some states have enacted statutes and regulations governing the
processing, transportation and storage of human organs and tissue.
More restrictive state laws or regulations may be adopted in the future and
they could have a material adverse effect on CryoLife's business, financial
condition, results of operations and cash flows.
UNCERTAINTIES RELATED TO PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY MAY
ADVERSELY AFFECT THE VALUE OF INTELLECTUAL PROPERTY
CryoLife owns several patents, patent applications and licenses relating to
its technologies, which it believes provide important competitive advantages.
There can be no assurance that CryoLife'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 CryoLife, 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 CryoLife's technologies or design around the patented
aspects of CryoLife's technologies. There can be no assurance that CryoLife's
proposed technologies will not infringe patents or other rights owned by others.
In addition, under certain of CryoLife's license agreements, if CryoLife
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 CryoLife's business,
financial condition, results of operations, and cash flows. Additionally,
CryoLife 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 CryoLife will have adequate remedies for any breach or that
CryoLife's trade secrets will not otherwise become known or independently
discovered by competitors, any of which could have a material adverse effect on
CryoLife's business, financial condition, results of operations, and cash flows.
15
UNCERTAINTIES REGARDING FUTURE HEALTH CARE REIMBURSEMENT MAY AFFECT THE AMOUNT
AND TIMING OF REVENUES
Even though CryoLife does not receive payments directly from third-party
health care payors, their reimbursement methods and policies impact demand for
CryoLife's cryopreserved tissue and other services and products. CryoLife'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.
CryoLife 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 CryoLife.
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 CryoLife and other Company services and products, could
have a material adverse effect on CryoLife. 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 CryoLife 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
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 CryoLife's new products and services, market
acceptance of these products would be adversely affected, which could have a
material adverse effect on CryoLife's business, financial condition, results of
operations and cash flows.
RAPID TECHNOLOGICAL CHANGE COULD CAUSE SERVICES AND PRODUCTS TO BECOME OBSOLETE
The technologies underlying products and services offered by CryoLife and
its competitors are subject to rapid and profound technological change.
Competition intensifies 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 CryoLife or a competitor offers or is seeking to develop. Any
such occurrence could have a material adverse effect on the business, financial
condition, results of operations, and cash flows of CryoLife or its competitors.
RISKS RELATED TO CRYOLIFE'S CAPITAL STOCK
SECURITIES PRICES FOR CRYOLIFE SHARES HAVE BEEN, AND MAY CONTINUE TO BE,
VOLATILE
The trading price of CryoLife's common stock has been subject to wide
fluctuations and may continue to be volatile in the future. Trading price
fluctuations can be caused by a variety of factors, including regulatory actions
such as the FDA Order, recent product liability claims, variations in operating
results, announcement of technological innovations or new products by CryoLife
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 CryoLife's control. If CryoLife's revenues or operating results in future
quarters fall below the expectations of securities analysts and investors, the
price of CryoLife's common stock would likely decline further, perhaps
substantially. Changes in the trading price of CryoLife's common stock may bear
no relation to CryoLife's actual operational or financial results. If CryoLife's
share prices do not meet the requirements of the New York Stock Exchange,
CryoLife's shares may be delisted. CryoLife's closing stock price in the period
January 1, 2002 to December 16, 2004 has ranged from a high of $31.31 to a low
of $1.89.
16
ANTI-TAKEOVER PROVISIONS MAY DISCOURAGE OR MAKE MORE DIFFICULT AN ATTEMPT TO
OBTAIN CONTROL OF CRYOLIFE
CryoLife'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 CryoLife, 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, CryoLife is subject to certain
provisions of Florida law that may discourage or make more difficult takeover
attempts or acquisitions of substantial amounts of CryoLife'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 CryoLife on terms not approved by the Board of Directors and may have
the effect of deterring hostile takeover attempts. These provisions could
potentially deprive our stockholders of opportunities to sell shares of our
stock at above-market prices. Please read "Description of Capital
Stock-Anti-Takeover Provisions."
COMMON STOCK DIVIDENDS ARE NOT LIKELY TO BE PAID IN THE FORESEEABLE FUTURE
CryoLife has not paid, and does not presently intend to pay, cash dividends
on our common stock. 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
CryoLife may pay on its common stock. It is not likely that any cash dividends
on its common stock will be paid in the foreseeable future.
WE MAY NOT BE ABLE TO PAY CASH DIVIDENDS ON OUR CAPITAL STOCK
Under Florida law, no distibutions may be paid on capital stock, if after
giving it effect: (a) the corporation would not be able to pay its debts as they
become due in the usual course of business; or (b) the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise) the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of shareholders whose preferential
rights are superior to those receiving the distribution. Unless we return to
profitably, our ability to pay cash dividends on our capital stock requires the
availability of adequate net assets. Further, even if adequate net assets are
available to pay cash dividends on the common stock (if declared) and preferred
stock, we may not have sufficient liquidity to pay dividends on our preferred
stock or common stock, as the case may be.
17
FORWARD LOOKING STATEMENTS
This prospectus includes and incorporates by reference "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Forward-looking statements give our current
expectations or forecasts of future events. The words "could," "may," "might,"
"will," "would," "shall," "should," "pro forma," "potential," "pending,"
"intend," "believe," "expect," "anticipate," "estimate," "plan," "future" and
other similar expressions generally identify forward-looking statements,
including, in particular, statements regarding future services, market
expansion, revenues, cost savings, regulatory activity, available funds and
capital resources, and pending litigation. These forward-looking statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned not to place undue reliance on these
forward-looking statements, which are as of their respective dates. Such
forward-looking statements reflect the views of our management at the time such
statements are made and are subject to a number of risks, uncertainties,
estimates and assumptions, including, without limitation, in addition to those
identified in the text surrounding such statements, those identified under "Risk
Factors" and elsewhere in this prospectus.
All statements, other than statements of historical facts, included herein
that address activities, events or developments that the Company expects or
anticipates will or may occur in the future, are forward-looking statements,
including statements regarding:
o adequacy of product liability insurance to defend against lawsuits;
o the outcome of lawsuits filed against the Company, and of the SEC
investigation;
o the impact of the FDA Order and subsequent FDA activity, including the
FDA's letters regarding the SynerGraft process and measures taken by
the Company as a result, on future revenues, profits and business
operations;
o the effect of the FDA Order and subsequent FDA activity on sales of
BioGlue;
o the impact of the FDA's Form 483 Notices of Observation;
o the estimates of the amounts accrued for the retention levels under
the Company's product liability and directors' and officers' insurance
policies, as well as the estimates of the amounts accrued for product
loss claims incurred but not reported;
o future costs of human tissue preservation services, including the
Company's ability to reduce its costs of tissue preservation services;
o the Company's competitive position, including the impact of price
increases;
o product demand and market growth;
o the potential of the ACT for use in cancer therapies, fibrinolysis
(blood clot dissolving), and other drug delivery applications;
o the impact on the Company of adverse results of surgery utilizing
tissue processed by it; and
o other statements regarding future plans and strategies, anticipated
events or trends.
These statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions, and expected future developments as well as other factors it
believes are appropriate in the circumstances. However, whether actual results
and developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties which could cause actual results
to differ materially from the Company's expectations, including the risk factors
discussed in this prospectus and other factors, many of which are beyond the
18
control of CryoLife. Consequently, all of the forward-looking statements made in
this prospectus 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.
USE OF PROCEEDS
Except as may otherwise be described in an accompanying prospectus
supplement, the net proceeds from the sale of the securities offered pursuant to
this prospectus and any accompanying prospectus supplement will be used for
general corporate purposes. Any specific allocation of the net proceeds of an
offering of securities to a specific purpose will be determined at the time of
the offering and will be described in an accompanying prospectus supplement.
RATIO OF EARNINGS TO FIXED CHARGES
For purposes of determining the ratio of earnings to combined fixed charges
and preferred dividends, earnings are defined as net income (loss) before income
taxes, extraordinary items, amortization of capitalized interest and fixed
charges, less capitalized interest. Fixed charges consist of interest (whether
expensed or capitalized), amortization of debt expenses and discount or premium
relating to any indebtedness and the portion of rental expense determined to be
representative of the interest factor. For this purpose, we assumed one-third of
rental expense should be included in fixed charges.
NINE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPT. 30,
-------- ------- ------- --------- -------- ----------
1999 2000 2001 2002 2003 2004
-------- ------- ------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
Ratio of earnings to fixed charges.......... 8.53 16.53 8.81 (a) (a) (a)
Deficiency of earnings to fixed charges and
preferred stock dividends................ $ N/A $ N/A $ N/A $(41,376) (29,168) $ (17,714)
_________________________________
(a) Earnings for this period were insufficient to cover fixed charges.
19
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 75,000,000 shares of Common Stock,
$.01 par value, and 5,000,000 shares of Preferred Stock, $.01 par value. As of
December 17, 2004, there were 23,415,175 shares of Common Stock outstanding net
of 1,388,432 treasury shares. They were held by approximately 572 shareholders
of record and no shares of Preferred Stock outstanding.
The following summary is qualified in its entirety by reference to the
Company's Amended and Restated Articles of Incorporation, the Company's Bylaws,
as amended, and the Florida Business Corporation Act (the "FBCA").
COMMON STOCK
Holders of Common Stock are entitled to one vote per share of Common Stock
held of record on all matters to be voted upon by the Company's shareholders
generally. Holders of Common Stock are not entitled to cumulative voting rights.
As a result, the holders of a majority of the shares of Common Stock voting for
the election of directors may elect all of the Company's directors if they
choose to do so, and, in such event, the holders of the remaining shares of
Common Stock will not be able to elect any person or persons to the Board of
Directors. See "Selling Shareholders."
Holders of Common Stock are entitled to receive, on a pro rata basis, such
dividends and distributions, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend right of any issued and outstanding shares of Preferred
Stock. In the event of liquidation, dissolution or winding up of the Company,
after payment of creditors, holders of Common Stock are entitled to share
ratably in all assets, subject to the payment of any liquidation preference of
any issued and outstanding shares of Preferred Stock. The shares of Common Stock
currently outstanding are validly issued, fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors of the Company is empowered, without approval of the
Company's shareholders, to cause shares of Preferred Stock (the "Preferred
Stock") to be issued in one or more series and to fix and determine the relative
rights and preferences of the shares of any such series, subject to the limits
of Florida law. Because the Board of Directors has the power to establish the
preferences and rights of each series, it may afford the holders of any series
of Preferred Stock preferences, powers and rights, voting or otherwise, senior
to the rights of holders of Common Stock. The issuance of Preferred Stock could
have the effect of delaying or preventing a change in control of CryoLife.
While providing desirable flexibility for possible acquisitions and other
corporate purposes, and eliminating delays associated with a shareholder vote on
specific issuances, the issuance of preferred stock could adversely affect the
voting power of holders of common stock, as well as dividend and liquidation
payments on both common and preferred stock. It also could have the effect of
delaying, deferring or preventing a change in control.
The prospectus supplement relating to an offering of preferred stock will
specify the terms of any series of preferred stock offered by it including:
o the series, the number of shares offered and the liquidation value of
the preferred stock;
o the price at which the preferred stock will be issued;
o the dividend rate, the dates on which the dividends will be payable
and other terms relating to the payment of dividends on the preferred
stock;
o the liquidation preference of the preferred stock;
20
o whether the preferred stock is redeemable or subject to a sinking
fund, and the terms of any such redemption or sinking fund;
o whether the preferred stock is convertible into or exchangeable for
any other securities, and the terms of any such conversion or
exchange; and
o any additional rights, preferences, qualifications, limitations or
restrictions of the preferred stock.
The description of the terms of the preferred stock to be set forth in an
applicable prospectus supplement will not be complete and will be subject to and
qualified in its entirety by reference to the statement of resolution relating
to the applicable series of preferred stock. The registration statement of which
this prospectus forms a part will include the statement of resolution as an
exhibit or incorporate it by reference.
STOCK OPTIONS AND RESTRICTED STOCK AWARDS
As of December 17, 2004, the Company had issued and outstanding options to
purchase an aggregate of 2,308,755 shares of Common Stock (net of forfeitures,
expirations and cancellations) pursuant to its Stock Option Plans, at exercise
prices between $2.20 and $31.99. Of such options, approximately 1,269,837 were
exercisable as of December 17, 2004.
On November 2, 2004, the Compensation Committee granted 55,000 shares of
restricted stock to senior management. Of these, 20,000 shares vested
immediately. The remainder vest 1/12 each month, commencing December 1, 2004. If
a recipient of an award leaves the employ of the Company before an award is
fully vested, the unvested shares are forfeited.
ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of the Articles of Incorporation and Bylaws of the
Company, which are summarized below, could have the effect of making it more
difficult to change the composition of the Company's Board of Directors or for
any person or entity to acquire control of the Company.
SPECIAL MEETINGS
Pursuant to the Company's Articles of Incorporation and Bylaws, special
meetings of the shareholders may be called only by the President or Secretary at
the request in writing of a majority of the Board of Directors then in office or
at the request in writing of shareholders owning not less than 50% of all votes
entitled to be cast at the special meeting.
PROHIBITION OF SHAREHOLDER ACTION WITHOUT MEETING
Under the Company's Articles of Incorporation, the shareholders may not
take action by written consent. Any and all action by the shareholders is
required to be taken at the annual shareholders' meeting or at a special
shareholders' meeting. See "Risk Factors--Anti-Takeover Provisions."
ANTI-TAKEOVER STATUTES
The Company is subject to several anti-takeover provisions of the FBCA that
apply to a public corporation organized under Florida law unless the corporation
has elected to opt out of such provision in its Articles of Incorporation or
(depending on the provision in question) its Bylaws. The Company has not elected
to opt out of these provisions. The Common Stock of the Company is subject to
the "affiliated transaction" and "control-share acquisition" provisions of the
FBCA, which are Sections 607.0901 and 607.0902, respectively. These provisions
provide that, subject to certain exceptions, an "affiliated transaction" must be
approved by the holders of two-thirds of the voting shares other than those
beneficially owned by an "interested shareholder" and that "control shares"
acquired in specified shareholders, excluding holders of shares defined as
"interested shares." These provisions of the FBCA may have the effect of making
it more difficult for any person or group to acquire the Company or substantial
amounts of the Company's Common Stock. See "Risk Factors--Anti-Takeover
Provisions."
21
ABILITY TO CONSIDER OTHER CONSTITUENCIES
The Directors of the Company are subject to the "general standards for
Directors" provisions set forth in Section 607.0830 of the FBCA. These
provisions provide that, among other things, in discharging his or her duties
and determining what is in the best interests of the Company, a Director may
consider such factors as the Director deems relevant, including the long-term
prospects and interests of the Company and its shareholders, and the social,
economic, legal or other effects of any proposed action on the employees,
suppliers or customers of the Company, the communities in which the Company
operates and the economy in general. Consequently, in connection with any
proposed corporate action, the Board of Directors is empowered to consider
interests of other constituencies in addition to the interests of the Company's
shareholders. Shareholders should be aware that Directors who take into account
these other factors may make decisions which are less beneficial to the
shareholders than if the law did not permit consideration of such other factors.
SHAREHOLDER RIGHTS PLAN
In November 1995, the Board of Directors of the Company established a
rights plan, pursuant to which one preferred share purchase right (a "Right") is
attached to each outstanding share of Common Stock. The description and terms of
the Rights are set forth in a Rights Agreement dated as of November 27, 1995,
between the Company and Chemical Mellon Shareholder Services, the original
"Rights Agent." The agreement was amended effective June 1, 1997, when the
Company's Board appointed American Stock Transfer and Trust Company successor
Rights Agent.
Each Right currently entitles the registered holder, upon a "Distribution
Date" (defined below), to purchase from the Company .0333 of a share of Series A
Junior Participating Preferred Stock, par value $.01 per share (the "Preferred
Stock") for $100.00, subject to adjustment as described below. In addition, if
any person or group of affiliated or associated persons becomes an Acquiring
Person (defined below), each Right, other than Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter entitle its
holder to receive upon exercise (in lieu of Preferred Stock) a number of shares
of Company Common Stock having a market value of two times the exercise price of
the Right. After accounting for the Company's 1996 and 2000 stock splits, the
exercise price would be $33.33, subject to further adjustment upon certain
events.
Currently, each Right is non-exercisable and is evidenced only by the
certificate of Common Stock to which it is attached. The Rights will not be
exercisable and will not be evidenced by separate certificates ("Right
Certificates") until the Distribution Date. Certificates will be issued upon the
"Distribution Date," which will occur on the earlier of:
o 10 days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired
beneficial ownership of 15% or more of the outstanding Common Stock;
or
o 10 business days following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation
of which would cause the offeror to become an Acquiring Person (except
that the Board of Directors may extend the 10-business-day period
before a person or group becomes an Acquiring Person).
Until the Distribution Date (or earlier redemption or expiration of the Rights),
the Rights are transferable only with the Common Stock. During this period,
newly issued Common Stock certificates contain a legend that evidences the
Right, and transfer of any certificate for Common Stock also constitutes the
transfer of the Rights associated with the Common Stock represented by such
certificate.
Upon the Distribution Date, Right Certificates will be mailed to holders of
record of the Common Stock as of the close of business on the Distribution Date.
From that date, all Rights will be evidenced by Right Certificates and generally
exercisable. The Rights will expire on November 27, 2005 (the "Expiration
Date"), unless the Expiration Date is extended or unless the Rights are earlier
redeemed or exchanged by the Company.
22
The Purchase Price payable and the number of shares of Preferred Stock or
other securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time (to prevent dilution) upon any of the following
events:
o a stock dividend on, or a subdivision, combination or reclassification
of, the Preferred Stock;
o the grant to holders of the Preferred Stock of certain rights or
warrants to subscribe for or purchase Preferred Stock at a price, or
securities convertible into Preferred Stock with a conversion price
less than the then-current market price of the Preferred Stock; or
o upon the distribution to holders of the Preferred Stock of evidences
of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than
those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price.
The number of outstanding Rights and the number of shares of Preferred
Stock issuable upon exercise of each Right (presently .0333 of a share) are also
subject to adjustment in the event of:
o a stock split of the Common Stock;
o a stock dividend on the Common Stock payable in Common Stock; or
o subdivision, consolidation or combination of the Common Stock.
Such adjustments are made only if the triggering event occurs before the
Distribution Date. Such an adjustment was made following the Company's 1996 and
2000 stock splits. Currently, there is one Right attached to each share of
Common Stock, and each Right entitles its holder, after the Rights become
exercisable, to purchase .0333 of a share of Preferred Stock. The exercise price
payable to acquire Common Stock is also subject to adjustment. Currently, each
Right entitles its holder to purchase, after the Rights become exercisable,
$66.66 worth of Common Stock for $33.33.
Shares of Preferred Stock will not be redeemable. The Preferred Stock will
be entitled to a preferential quarterly dividend equal to the greater of $.10
per share and (after adjustment for the stock splits) approximately 3.33 times
the dividend declared per share of Common Stock. In the event of liquidation,
any holders of the Preferred Stock will be entitled to a preferential
liquidation payment equal to the greater of $10.00 per share and approximately
3.33 times the payment made per share of Common Stock. Each share of Preferred
Stock will be entitled to one vote, voting together with the Common Stock. In
the event of any merger, consolidation or other transaction in which Common
Stock is exchanged, Preferred Stock will be entitled to receive approximately
3.33 times the amount received per share of Common Stock.
Based on the terms of the Preferred Stock, including its dividend,
liquidation and voting rights, the value of .0333 of a share of Preferred Stock
(before stock splits or other adjustments) purchasable upon exercise of each
Right should approximate the value of one share of Common Stock.
If the Company is acquired in a merger or other business combination
transaction, or if 50% or more of its consolidated assets or earning power is
sold after a person or group has become an "Acquiring Person," proper provision
will be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Stock of the Company, the Board of Directors of the Company may exchange
23
the Rights (other than Rights owned by such person or group which will have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock per Right.
The Company is not obligated to issue fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-tenth of a
Preferred Share). If the Company issues fractional shares of Preferred Stock, it
may issue depositary receipts to represent such fractional shares. The Company
may also provide in lieu of fractional shares an amount of cash based on the
market price of the Preferred Stock on the last trading day prior to the date of
exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Stock, the Board of Directors of the Company may redeem the Rights in
whole, but not in part. The "Redemption Price," after adjustment for the
Company's stock splits, is approximately $.00033 per Right, subject to further
adjustment for future stock splits, stock dividends and similar transactions.
The redemption of the Rights may be made effective at such time, on such basis,
and with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights, with
respect to the Rights, will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower certain beneficial ownership thresholds described above to not less
than the sum of .001% and the largest percentage of the outstanding Common
Shares then known to the Company to be beneficially owned by any person or group
of affiliated or associated persons, except that from and after such time as any
person or group of affiliated or associated persons becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of the
Rights. Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The description of the Rights contained herein is qualified in its entirety
by reference to the Rights Agreement, which is incorporated by reference into
the registration statement of which this Prospectus forms a part.
SHAREHOLDER ACTION
Except as otherwise provided by law or in our articles of incorporation or
bylaws, the approval by holders of a majority of the shares of common stock
present in person or represented by proxy at a meeting and entitled to vote is
sufficient to authorize, affirm, ratify or consent to a matter voted on by
shareholders. The FBCA General Corporation Act requires the approval of the
holders of a majority of the outstanding stock entitled to vote for certain
extraordinary corporate transactions, such as a merger, sale of substantially
all assets, dissolution or amendment of the articles of incorporation.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company. It is located at 40 Wall Street, 46th Floor, New York,
NY 10005, and its telephone number is (718) 921-8200.
24
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
We may offer fractional shares of preferred stock, rather than full shares
of preferred stock. If we decide to offer fractional shares of preferred stock,
we will issue receipts for depositary shares. Each depositary share will
represent a fraction of a share of a particular series of preferred stock. The
prospectus supplement will indicate that fraction. The shares of preferred stock
represented by depositary shares will be deposited under a depositary agreement
between us and a bank or trust company that meets certain requirements and is
selected by us (the "Bank Depositary"). Each owner of a depositary share will be
entitled to all the rights and preferences of the preferred stock represented by
the depositary share. The depositary shares will be evidenced by depositary
receipts issued pursuant to the depositary agreement. Depositary receipts will
be distributed to those persons purchasing the fractional shares of preferred
stock in accordance with the terms of the offering.
We have summarized selected provisions of a depositary agreement and the
related depositary receipts. The summary is not complete. The forms of the
deposit agreement and the depositary receipts relating to any particular issue
of depositary shares will be filed with the SEC on a Current Report on Form 8-K
prior to our offering of the depositary shares, and you should read such
documents for provisions that may be important to you.
DIVIDENDS AND OTHER DISTRIBUTIONS
If we pay a cash distribution or dividend on a series of preferred stock
represented by depositary shares, the Bank Depositary will distribute such
dividends to the record holders of such depositary shares. If the distributions
are in property other than cash, the Bank Depositary will distribute the
property to the record holders of the depositary shares. If the Bank Depositary,
however, determines that it is not feasible to make the distribution of
property, the Bank Depositary may, with our approval, sell such property and
distribute the net proceeds from such sale to the record holders of the
depositary shares.
REDEMPTION OF DEPOSITARY SHARES
If we redeem a series of preferred stock represented by depositary shares,
the Bank Depositary will redeem the depositary shares from the proceeds received
by the Bank Depositary in connection with the redemption. The redemption price
per depositary share will equal the applicable fraction of the redemption price
per share of the preferred stock. If fewer than all the depositary shares are
redeemed, the depositary shares to be redeemed will be selected by lot or pro
rata as the Bank Depositary may determine.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the preferred
stock represented by depositary shares are entitled to vote, the Bank Depositary
will mail the notice to the record holders of the depositary shares relating to
such preferred stock. Each record holder of these depositary shares on the
record date (which will be the same date as the record date for the preferred
stock) may instruct the Bank Depositary as to how to vote the preferred stock
represented by such holder's depositary shares. The Bank Depositary will
endeavor, insofar as practicable, to vote the amount of the preferred stock
represented by such depositary shares in accordance with such instructions, and
we will take all action which the Bank Depositary deems necessary in order to
enable the Bank Depositary to do so. The Bank Depositary will abstain from
voting shares of the preferred stock to the extent it does not receive specific
instructions from the holders of depositary shares representing such preferred
stock.
25
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the depositary agreement may be amended by agreement between the
Bank Depositary and us. However, any amendment that materially and adversely
alters the rights of the holders of depositary shares will not be effective
unless such amendment has been approved by the holders of at least a majority of
the depositary shares then outstanding. The depositary agreement may be
terminated by the Bank Depositary or us only if (i) all outstanding depositary
shares have been redeemed or (ii) there has been a final distribution in respect
of the preferred stock in connection with any liquidation, dissolution or
winding up of our company and such distribution has been distributed to the
holders of depositary receipts.
CHARGES OF BANK DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will pay charges of
the Bank Depositary in connection with the initial deposit of the preferred
stock and any redemption of the preferred stock. Holders of depositary receipts
will pay other transfer and other taxes and governmental charges and any other
charges, including a fee for the withdrawal of shares of preferred stock upon
surrender of depositary receipts, as are expressly provided in the depositary
agreement to be for their accounts.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of depositary receipts at the principal office of the Bank
Depositary, subject to the terms of the depositary agreement, the owner of the
depositary shares may demand delivery of the number of whole shares of preferred
stock and all money and other property, if any, represented by those depositary
shares. Partial shares of preferred stock will not be issued. If the depositary
receipts delivered by the holder evidence a number of depositary shares in
excess of the number of depositary shares representing the number of whole
shares of preferred stock to be withdrawn, the Bank Depositary will deliver to
such holder at the same time a new depositary receipt evidencing the excess
number of depositary shares. Holders of preferred stock thus withdrawn may not
thereafter deposit those shares under the depositary agreement or receive
depositary receipts evidencing depositary shares therefor.
RESIGNATION AND REMOVAL OF BANK DEPOSITARY
The Bank Depositary may resign at any time by delivering to us notice of
its election to do so, and we may at any time remove the Bank Depositary. Any
such resignation or removal will take effect upon the appointment of a successor
Bank Depositary and its acceptance of such appointment. Such successor Bank
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company meeting the
requirements of the depositary agreement.
PLAN OF DISTRIBUTION
Any of the securities being offered hereby may be sold in any one or more
of the following ways from time to time:
o through agents;
o to or through underwriters;
o through dealers; or
o directly by us.
The distribution of the securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Offers to purchase securities may be solicited by agents designated by us
from time to time. Any such agent involved in the offer or sale of the
securities in respect of which this prospectus is delivered will be named, and
any commissions payable by us to such agent will be set forth, in the applicable
26
prospectus supplement. Unless otherwise indicated in such prospectus supplement,
any such agent will be acting on a reasonable best efforts basis for the period
of its appointment. Any such agent may be deemed to be an underwriter, as that
term is defined in the Securities Act, of the securities so offered and sold. We
may periodically engage agents or underwriters in connection with at-the-market
offerings or negotiated transactions involving our common stock.
If securities are sold by means of an underwritten offering, we will
execute an underwriting agreement with an underwriter or underwriters at the
time an agreement for such sale is reached, and the names of the specific
managing underwriter or underwriters, as well as any other underwriters, the
respective amounts underwritten and the terms of the transaction, including
commissions, discounts and any other compensation of the underwriters and
dealers, if any, will be set forth in the applicable prospectus supplement which
will be used by the underwriters to make resales of the securities in respect of
which this prospectus is being delivered to the public. If underwriters are
utilized in the sale of any securities in respect of which this prospectus is
being delivered, such securities will be acquired by the underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at fixed public offering prices or at varying
prices determined by the underwriters at the time of sale. Securities may be
offered to the public either through underwriting syndicates represented by
managing underwriters or directly by one or more underwriters. If any
underwriter or underwriters are utilized in the sale of securities, unless
otherwise indicated in the applicable prospectus supplement, the underwriting
agreement will provide that the obligations of the underwriters are subject to
certain conditions precedent and that the underwriters with respect to a sale of
such securities will be obligated to purchase all such securities if any are
purchased.
We may grant to the underwriters options to purchase additional securities,
to cover over-allotments, if any, at the price at which securities are first
offered to the public (with additional underwriting commissions or discounts),
as may be set forth in the prospectus supplement relating thereto. If we grant
any over-allotment option, the terms of such over-allotment option will be set
forth in the prospectus supplement for such securities.
If a dealer is utilized in the sale of the securities in respect of which
this prospectus is delivered, we will sell such securities to the dealer as
principal. The dealer may then resell such securities to the public at varying
prices to be determined by such dealer at the time of resale. Any such dealer
may be deemed to be an underwriter, as such term is defined in the Securities
Act, of the securities so offered and sold. The name of the dealer and their
terms of the transaction will be set forth in the prospectus supplement relating
thereto.
Offers to purchase securities may be solicited directly by us and the sale
thereof may be made by us directly to institutional investors or others, who may
be deemed to be underwriters within the meaning of the Securities Act with
respect to any resale thereof. The terms of any such sales will be described in
the prospectus supplement relating thereto.
If so indicated in the applicable prospectus supplement, we may authorize
agents and underwriters to solicit offers by certain institutions to purchase
securities from us at the public offering price set forth in the applicable
prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on the date or dates stated in the applicable prospectus
supplement. Such delayed delivery contracts will be subject to only those
conditions set forth in the applicable prospectus supplement. A commission
indicated in the applicable prospectus supplement will be paid to underwriters
and agents soliciting purchases of securities pursuant to delayed delivery
contracts accepted by us.
Agents, underwriters and dealers may be entitled under relevant agreements
with us to indemnification by us against certain liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments which such agents, underwriters and dealers may be required to make in
respect thereof.
Each series of securities will be a new issue and, other than our common
stock, which is listed on The New York Stock Exchange, will have no established
trading market. We may elect to list any series of securities on an exchange,
and in the case of common stock, on any additional exchange, but, unless
otherwise specified in the applicable prospectus supplement, we shall not be
obligated to do so. No assurance can be given as to the liquidity of the trading
market for any of the securities.
Agents, underwriters and dealers may be customers of, engage in
transactions with, or perform services for, us and our subsidiaries in the
ordinary course of business.
27
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy and information
statements and other information with the Securities and Exchange Commission. We
have filed a registration statement on Form S-3 with the SEC to register under
the Securities Act the common stock offered hereby. This prospectus constitutes
a part of that registration statement. As allowed by the SEC's rules, this
prospectus does not contain all the information set forth in the registration
statement, certain parts of which have been omitted in accordance with the rules
and regulations of the SEC. Please refer to the registration statement and
related exhibits and schedules filed therewith for further information with
respect to us and the common stock offered hereby. Although the prospectus
describes the material provisions of documents referenced herein and filed as
exhibits, statements contained herein concerning the provisions of any such
document are not necessarily complete. In each instance, reference is made to
the copy of such document filed as an exhibit to the registration statement or
otherwise filed by us with the SEC and each such statement is qualified in its
entirety by such reference.
The following documents, which we have filed with the SEC (file number
001-13165), are incorporated by reference in and made a part of this prospectus:
o The Registrant's Annual Report on Form 10-K filed with respect to the
Registrant's fiscal year ended December 31, 2003.
o The Registrant's Current Reports on Forms 8-K filed on January 7,
January 26, February 9, February 26, May 10, August 5, October 29,
November 4, November 8, November 22, and December 10, 2004.
o The Registrant's Quarterly Reports on Form 10-Q filed with respect to
the three month periods ended March 31, 2004, June 30, 2004, and
September 30, 2004.
We are also incorporating by reference any future filings we make with the
SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering. We also are incorporating any filings under these
sections filed after the date of the initial filing of this registration
statement and prior to the effectiveness of the registration statement. These
documents will be deemed to be incorporated by reference in this prospectus and
to be a part of it from the date they are filed with the SEC. You may read and
copy any document we file at the SEC's public reference room located at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public from commercial document retrieval
services and at the Web site maintained by the SEC at http://www.sec.gov. This
information is also available without charge upon written or oral request to:
CryoLife, Inc.
Attn: Secretary
1655 Roberts Boulevard, NW
Kennesaw, Georgia 30144
(770) 419-3355
You should rely only on the information provided or incorporated by
reference in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We may not
make an offer of the common stock in any state where the offer is not permitted.
The delivery of this prospectus does not, under any circumstances, mean that
there has not been a change in our affairs since the date of this prospectus. It
also does not mean that the information in this prospectus is correct after this
date.
LEGAL MATTERS
The validity of the common stock (including any common stock issuable upon
the conversion of any preferred stock), preferred stock (including any preferred
stock underlying any depositary shares) and the depositary shares offered by
this prospectus have been passed upon for us by Arnall Golden Gregory LLP. Legal
counsel to any underwriters may pass upon legal matters for such underwriters.
28
EXPERTS
The consolidated financial statements and the related financial statement
schedules as of December 31, 2003 and 2002 and for the years then ended
incorporated in this prospectus by reference from the Annual Report on Form 10-K
of CryoLife, Inc. for the year ended December 31, 2003 have been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, as
stated in their report (which report expresses an unqualified opinion and
includes an explanatory paragraph relating to the Company's change in its method
of accounting for goodwill and other intangible assets to conform with Statement
of Financial Accounting Standards No. 142), which is incorporated herein by
reference and have been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated statements of income, changes in shareholders' equity, and
cash flows of CryoLife, Inc. for the year ended December 31, 2001 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report dated March 27, 2002.
We could not obtain, after reasonable efforts, the written consent of
Arthur Andersen LLP to its being named in this Form S-3 as having audited our
financial statements for the year ended December 31, 2001, as required by
Section 7 of the Securities Act. Accordingly, Arthur Andersen LLP may not have
any liability under Section 11 of the Securities Act for false or misleading
statements or omissions contained in this prospectus, including the financial
statements, and any claims against Arthur Andersen LLP related to such false or
misleading statements or omissions may be limited.
29
CRYOLIFE, INC.
$50,000,000
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
------------------------------
PROSPECTUS
------------------------------
DECEMBER __, 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses, other than fees and expenses of legal or other advisors to
the selling shareholders, will be paid by CryoLife. Such expenses are as
follows:*
SEC registration fee................... $ 5,885
NYSE listing fee....................... 25,000
Printing expenses...................... 10,000
Accounting fees and expenses........... 25,000
Legal fees and expenses................ 50,000
Miscellaneous.......................... 15,115
--------------------
Total......................... $ 131,000
====================
_____________________________________
*The amounts set forth, except for the filing fees for the SEC, are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is a Florida corporation. The following summary is qualified
in its entirety by reference to the complete text of the Florida Business
Corporation Act (the "FBCA"), the Registrant's Restated Articles of
Incorporation, and the Registrant's Bylaws.
Under Section 607.0850(1) of the FBCA, a corporation may indemnify any of
its directors and officers against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding (including any
appeal thereof) (i) if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and (ii) with respect to any criminal action or proceeding, he or
she had no reasonable cause to believe his or her conduct was unlawful. In
actions brought by or in the right of the corporation, however, Section
607.0850(2) provides that no indemnification shall be made in respect of any
claim, issue or matter as to which the director or officer shall have been
adjudged to be liable unless, and only to the extent that, the court in which
such proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Article X of the Registrant's Restated Articles of Incorporation and Article VI
of the Registrant's Bylaws require that, if in the judgment of the majority of
the Board of Directors (excluding from such majority any director under
consideration for indemnification) the criteria set forth under Section 607.0850
have been met, then the Registrant shall indemnify its directors and officers
for certain liabilities incurred in the performance of their duties on behalf of
the Registrant to the maximum extent allowed by Section 607.0850 of the FBCA
(formerly Section 607.014 of the Florida General Corporation Act).
The Registrant has purchased insurance to insure (i) the Registrant's
directors and officers against damages from actions and claims incurred in the
course of their duties, and (ii) the Registrant against expenses incurred in
defending lawsuits arising from certain alleged acts of its directors and
officers.
II-1
ITEM 16. EXHIBITS
Exhibit No. Exhibit
- ---------- -------
3.1 Restated Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
2003.)
3.2 ByLaws of the Company, as amended. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Report on Form 8-K filed November
8, 2004.)
3.3 Articles of Amendment to the Articles of Incorporation of
CryoLife. (Incorporated by reference to Exhibit 3.3 to the
Registrant's Annual Report on Form 10-K for the 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 (Commission File No. 33-56388). )
4.2 Form of Certificate for the Company's Common Stock. (Incorporated
by reference to Exhibit 4.2 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.)
4.3 Rights Agreement between the Company and Chemical Mellon
Shareholder Services, L.L.C., as Rights Agent, dated as of
November 27, 1995. (Incorporated by reference to Exhibit 10.36 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.)
4.4 First Amendment to Rights Agreement, effective June 1, 1997,
executed by the Company and American Stock Transfer & Trust
Company, as successor Rights Agent. (Incorporated by reference to
the Registrant's Registration Statement on Form S-3 (Commission
File No. 333-112673.))
4.5+ Form of Depositary Agreement.
4.6+ Form of Depositary Receipt.
5.1* Opinion of Arnall Golden Gregory LLP regarding legality of the
common stock and preferred stock.
5.2* Opinion of Arnall Golden Gregory LLP regarding legality of the
depositary shares.
12.1* Computation of Ratio of Earnings to Fixed Charges
23.1* Consent of Arnall Golden Gregory LLP (included as part of Exhibit
5 hereto).
23.2* Consent of Deloitte & Touche LLP.
23.3* Notice regarding consent of Arthur Andersen LLP.
24.1* Power of Attorney (included in the signature pages of this
registration statement.)
- --------
* Filed with this Form S-3
+ To be filed by amendment or as an exhibit to a current report on Form 8-K of
the Registrant.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
II-2
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by registrants pursuant to
section 13 or section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Kennesaw, State of Georgia on December 17, 2004.
CRYOLIFE, INC.
By: /s/ Steven G. Anderson
------------------------------------------
Steven G. Anderson
President, Chief Executive Officer and
Chairman of the Board of Directors
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven G. Anderson and D. Ashley Lee and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
PRINCIPAL EXECUTIVE, FINANCIAL & ACCOUNTING OFFICERS AND DIRECTORS:
- ------------------------------------------------------------------
Name Title Date
---- ------ ----
/s/ Steven G. Anderson President, Chief Executive Officer and December 17, 2004
- ------------------------------------------ Chairman of the Board of Directors
Steven G. Anderson (Principal Executive Officer)
/s/ D. Ashley Lee December 17, 2004
- ------------------------------------------ Executive Vice President, Chief
D. Ashley Lee Operating Officer and Chief Financial
Officer (Principal Financial and
Accounting Officer)
/s/ Thomas F. Ackerman Director December 16, 2004
- ------------------------------------------
Thomas F. Ackerman
/s/ Dan Bevevino Director December 17, 2004
- ------------------------------------------
Dan Bevevino
/s/ John M. Cook Director December 17, 2004
- ------------------------------------------
John M. Cook
/s/ Ronald Charles Elkins, M.D. Director December 17, 2004
- ------------------------------------------
Ronald Charles Elkins, M.D.
/s/ Virginia C. Lacy Director December 17, 2004
- ------------------------------------------
Virginia C. Lacy
/s/ Ronald D. McCall Director December 17, 2004
- ------------------------------------------
Ronald D. McCall
/s/ Bruce J. Van Dyne, M.D. Director December 17, 2004
- ------------------------------------------
Bruce J. Van Dyne, M.D.
II-4
EXHIBIT INDEX
Exhibit No. Exhibit
- ---------- -------
3.1 Restated Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
2003.)
3.2 ByLaws of the Company, as amended. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Report on Form 8-K filed November
8, 2004.)
3.3 Articles of Amendment to the Articles of Incorporation of
CryoLife. (Incorporated by reference to Exhibit 3.3 to the
Registrant's Annual Report on Form 10-K for the 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 (Commission File No. 33-56388). )
4.2 Form of Certificate for the Company's Common Stock. (Incorporated
by reference to Exhibit 4.2 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.)
4.3 Rights Agreement between the Company and Chemical Mellon
Shareholder Services, L.L.C., as Rights Agent, dated as of
November 27, 1995. (Incorporated by reference to Exhibit 10.36 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.)
4.4 First Amendment to Rights Agreement, effective June 1, 1997,
executed by the Company and American Stock Transfer & Trust
Company, as successor Rights Agent. (Incorporated by reference to
the Registrant's Registration Statement on Form S-3 (Commission
File No. 333-112673.))
4.5+ Form of Depositary Agreement.
4.6+ Form of Depositary Receipt.
5.1* Opinion of Arnall Golden Gregory LLP regarding legality of the
common stock and preferred stock.
5.2* Opinion of Arnall Golden Gregory LLP regarding legality of the
depositary shares.
12.1* Computation of Ratio of Earnings to Fixed Charges
23.1* Consent of Arnall Golden Gregory LLP (included as part of Exhibit
5 hereto).
23.2* Consent of Deloitte & Touche LLP.
23.3* Notice regarding consent of Arthur Andersen LLP.
24.1* Power of Attorney (included in the signature pages of this
registration statement.)
- --------
* Filed with this Form S-3
+ To be filed by amendment or as an exhibit to a current report on Form 8-K of
the Registrant.
II-5
EXHIBIT 5.1
ARNALL GOLDEN GREGORY LLP
171 17TH STREET
SUITE 2100
ATLANTA, GA 30309-3450
Direct phone: 404-873-8500
Direct fax: 404-873-8501
www.agg.com
December 17, 2004
CryoLife, Inc.
1655 Roberts Boulevard, N.W.
Kennesaw, Georgia 30144
Re: Form S-3 Registration Statement
Dear Ladies and Gentlemen:
We have acted as counsel to CryoLife, Inc., a Florida corporation (the
"Company"), in connection with the preparation of a Registration Statement on
Form S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the offer and sale, from time to time, pursuant
to Rule 415 under the Securities Act, of (i) shares of common stock, par value
$0.01, of the Company (including attached preferred share purchase rights) (the
"Common Stock") and (ii) shares of preferred stock, par value $0.01, of the
Company (the "Preferred Stock") which may be issued in the form of depositary
shares evidenced by depositary receipts (the "Depositary Shares" and together
with the Common Stock and the Preferred Stock, the "Securities").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of (a) the Registration Statement, (b) the Company's Articles
of Incorporation, as amended to date, (c) the Company's By-Laws, as amended to
date, (d) certificates of officers or other representatives of the Company, and
(d) such other certificates, statutes and other instruments and documents as we
considered appropriate for purposes of the opinions hereafter expressed. As to
any facts material to the opinions contained herein, we have made no independent
investigation of such facts and have relied, to the extent that we deem such
reliance proper, upon certificates of public officials and officers or other
representatives of the Company.
In connection with rendering the opinions set forth below, we have assumed
that (i) all information contained in all documents reviewed by us is true and
correct; (ii) all signatures on all documents examined by us are genuine; (iii)
all documents submitted to us as originals are authentic and all documents
submitted to us as copies conform to the originals of those documents; (iv) the
Registration Statement, and any amendments thereto (including post-effective
amendments), will have become effective and comply with all applicable laws; (v)
one or more prospectus supplements to the prospectus contained in the
Registration Statement will have been prepared and filed with the Commission
describing the Securities offered thereby; and (vi) a definitive purchase,
underwriting or similar agreement with respect to any Securities offered will
have been duly authorized and validly executed and delivered by the Company and
the other parties thereto.
CryoLife, Inc.
December 17, 2004
Page 2
Based on the foregoing, and subject to the assumptions, qualifications,
limitations, and exceptions set forth herein, we are of the opinion that:
1. When (a) the board of directors of the Company (the "Board") has taken
all necessary corporate action to approve the issuance and terms of
the offering of the Common Stock and related matters, and (b)
certificates representing the shares of Common Stock have been duly
executed, countersigned, registered and delivered in accordance with
(i) the applicable definitive purchase, underwriting or similar
agreement approved by the Board upon payment of the consideration
therefor (not less than the par value of the Common Stock) provided
for therein, or (ii) upon conversion, exchange or exercise of
Preferred Stock in accordance with the terms of such series of
Preferred Stock providing for the conversion, exchange or exercise as
approved by the Board, for the consideration approved by the Board,
such shares of Common Stock will be legally issued, fully paid and
non-assessable;
2. When (a) the Board has taken all necessary corporate action to approve
the issuance and terms of the offering of the Preferred Stock and
related matters, including the adoption of articles of amendment
relating to the Preferred Stock, and (b) certificates representing the
shares of Preferred Stock have been duly executed, countersigned,
registered and delivered in accordance with the applicable definitive
purchase, underwriting or similar agreement approved by the Board upon
payment of the consideration therefor (not less than the par value of
the Preferred Stock) provided for therein, such shares of Preferred
Stock will be legally issued, fully paid and non-assessable;
We express no opinions concerning the enforceability of indemnification
provisions to the extent they purport to relate to liabilities resulting from or
based upon negligence or any violation of federal or state securities or blue
sky laws.
The foregoing opinions are limited to the laws of the State of Florida and
the federal laws of the United States of America and we are expressing no
opinion as to the effect of the laws of any other jurisdiction, domestic or
foreign.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and the reference to this firm under the caption "Legal Matters"
contained therein and elsewhere in the Registration Statement. This consent is
not to be construed as an admission that we are a party whose consent is
required to be filed with the Registration Statement under the provisions of the
Securities Act of 1933, as amended.
Sincerely,
/s/ ARNALL GOLDEN GREGORY LLP
ARNALL GOLDEN GREGORY LLP
EXHIBIT 5.2
ARNALL GOLDEN GREGORY LLP
171 17TH STREET
SUITE 2100
ATLANTA, GA 30309-3450
Direct phone: 404-873-8500
Direct fax: 404-873-8501
www.agg.com
December 17, 200
CryoLife, Inc.
1655 Roberts Boulevard, N.W.
Kennesaw, Georgia 30144
Re: Form S-3 Registration Statement
Dear Ladies and Gentlemen:
We have acted as counsel to CryoLife, Inc., a Florida corporation (the
"Company"), in connection with the preparation of a Registration Statement on
Form S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the offer and sale, from time to time, pursuant
to Rule 415 under the Securities Act, of (i) shares of common stock, par value
$0.01, of the Company (including attached preferred share purchase rights) (the
"Common Stock") and (ii) shares of preferred stock, par value $0.01, of the
Company (the "Preferred Stock") which may be issued in the form of depositary
shares evidenced by depositary receipts (the "Depositary Shares" and together
with the Common Stock and the Preferred Stock, the "Securities").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of (a) the Registration Statement, (b) the Company's Articles
of Incorporation, as amended to date, (c) the Company's By-Laws, as amended to
date, (d) certificates of officers or other representatives of the Company, and
(d) such other certificates, statutes and other instruments and documents as we
considered appropriate for purposes of the opinions hereafter expressed. As to
any facts material to the opinions contained herein, we have made no independent
investigation of such facts and have relied, to the extent that we deem such
reliance proper, upon certificates of public officials and officers or other
representatives of the Company.
In connection with rendering the opinions set forth below, we have assumed
that (i) all information contained in all documents reviewed by us is true and
correct; (ii) all signatures on all documents examined by us are genuine; (iii)
all documents submitted to us as originals are authentic and all documents
submitted to us as copies conform to the originals of those documents; (iv) the
Registration Statement, and any amendments thereto (including post-effective
amendments), will have become effective and comply with all applicable laws; (v)
one or more prospectus supplements to the prospectus contained in the
Registration Statement will have been prepared and filed with the Commission
describing the Securities offered thereby; and (vi) a definitive purchase,
underwriting or similar agreement with respect to any Securities offered will
have been duly authorized and validly executed and delivered by the Company and
the other parties thereto.
CryoLife, Inc.
December 17, 2004
Page 2
Based on the foregoing, and subject to the assumptions, qualifications,
limitations, and exceptions set forth herein, we are of the opinion that:
When (i) the Company has taken all necessary corporate action to approve
the issuance and terms of the Depositary Shares, the terms of the offering
thereof and related matters, including the adoption of articles of
amendment relating to the Preferred Stock underlying the Depositary Shares
and the filing of the articles of amendment with the Secretary of State of
the State of Florida; (ii) the depositary agreement or agreements relating
to the Depositary Shares and the related depositary receipts have been duly
authorized and validly executed and delivered by the Company and the
depositary appointed by the Company; (iii) the shares of Preferred Stock
underlying the Depositary Shares have been deposited with the depositary
under the applicable depositary agreement; and (iv) the depositary receipts
representing the Depositary Shares have been duly executed, countersigned,
registered and delivered in accordance with the appropriate depositary
agreement approved by the Company, upon payment of the consideration
therefor provided for in the applicable definitive purchase, underwriting
or similar agreement, the Depositary Shares will be legally issued.
We express no opinions concerning the enforceability of indemnification
provisions to the extent they purport to relate to liabilities resulting from or
based upon negligence or any violation of federal or state securities or blue
sky laws.
The foregoing opinions are limited to the laws of the State of Florida and
the federal laws of the United States of America and we are expressing no
opinion as to the effect of the laws of any other jurisdiction, domestic or
foreign.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and the reference to this firm under the caption "Legal Matters"
contained therein and elsewhere in the Registration Statement. This consent is
not to be construed as an admission that we are a party whose consent is
required to be filed with the Registration Statement under the provisions of the
Securities Act of 1933, as amended.
Sincerely,
/s/ ARNALL GOLDEN GREGORY LLP
ARNALL GOLDEN GREGORY LLP
1999 2000 2001 2002 2003 9/30/04
----------- ----------- ----------- ------------ ----------- ------------
"Earnings" per Item 503(d) Reg S-K
Pretax Income (loss) 6,501 11,633 13,480 (41,434) (29,226) (17,757)
Fixed Charges:
Interest Expense 387 299 96 692 415 156
Capitalized Interest - - 818 - - -
Interest within Rental Expense 476 450 708 823 861 633
----------- ----------- ----------- ------------ ----------- -------------
Total Fixed Charges 863 749 1,622 1,515 1,276 789
Amort.of Capitalized Interest - - 12 58 58 43
----------- ----------- ----------- ------------ ----------- -------------
Total "Earnings" 7,364 12,382 15,114 (39,861) (27,892) (16,925)
Less Capitalized Interest - - (818) - - -
----------- ----------- ----------- ------------ ----------- -------------
Adjusted "Earnings" 7,364 12,382 14,296 (39,861) (27,892) (16,925)
----------- ----------- ----------- ------------ ----------- -------------
Ratio of Earnings to Fixed Charges 8.53 16.53 8.81 NM NM NM
Deficiency N/A N/A N/A (41,376) (29,168) (17,714)
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement of
CryoLife, Inc. of our report dated March 1, 2004, (which report expresses an
unqualified opinion and includes an explanatory paragraph relating to the
Company's change in its method of accounting for goodwill and other intangible
assets to conform with Statement of Financial Accounting Standards No. 142),
appearing in the Annual Report on Form 10-K of CryoLife, Inc. for the year ended
December 31, 2003, and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
Deloitte & Touche LLP
/s/ Deloitte & Touche LLP
Atlanta, Georgia
December 17, 2004
EXHIBIT 23.3
NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP
Section 11(a) of the Securities Act of 1933, as amended (the "Securities Act"),
provides that if any part of a registration statement, at the time such part
becomes effective, contains an untrue statement of a material fact or an
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, any person acquiring a security
pursuant to such registration statement (unless it is proved that at the time of
such acquisition such person knew of such untruth or omission) may sue, among
others, every accountant who has consented to be named as having prepared or
certified any part of the registration statement, or as having prepared or
certified any report or valuation which is used in connection with the
registration statement, with respect to the statement in such registration
statement, report or valuation which purports to have been prepared or certified
by the accountant.
As recommended by CryoLife's Audit Committee, CryoLife's Board of Directors
dismissed Arthur Andersen LLP ("Andersen") on April 8, 2002, effective April 9,
2002, as CryoLife's independent accountants. See CryoLife's Current Report on
Form 8-K filed April 11, 2002 for more information. After reasonable efforts,
CryoLife has been unable to obtain Andersen's written consent to the
incorporation by reference into this Registration Statement of its audit reports
with respect to CryoLife's financial statements as of and for the fiscal year
ended December 31, 2001.
Under these circumstances, Rule 437a under the Securities Act permits CryoLife
to file this Form S-3 without a written consent from Andersen. However, as a
result, with respect to transactions in CryoLife securities pursuant to the
Registration Statements that occur subsequent to the date this Registration
Statement on Form S-3 is filed with the Securities and Exchange Commission,
Andersen may not have any liability under Section 11(a) of the Securities Act
for any untrue statements of a material fact contained in the financial
statements audited by Andersen or any omissions of a material fact required to
be stated therein. Accordingly, you might be unable to assert a claim against
Andersen under Section 11(a) of the Securities Act because it has not consented
to the incorporation by reference into the Registration Statements of the copies
of its audit reports for the period ending December 31, 2001. To the extent
provided in Section 11(b)(3)(C) of the Securities Act, however, other persons
who are potentially subject to liability under Section 11(a) of the Securities
Act, including CryoLife's officers and directors, may still rely on Andersen's
original audit reports as being made by an expert for purposes of establishing a
due diligence defense under Section 11(b) of the Securities Act. These facts may
have the effect of limiting the ability of CryoLife investors to recover any
losses suffered in connection with the purchase or sale of CryoLife securities
due to material inaccuracies or omissions contained in the financial statements
reproduced herein for the periods ending December 31, 2001.