UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM SD

 

Specialized Disclosure Report

CRYOLIFE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

1655 Roberts Boulevard, N.W., Kennesaw, Georgia 30144

(Address of principal executive office) (zip code)

 

Roger T. Weitkamp

Legal Counsel, Corporate & Securities

(770) 419-3355

(Name and telephone number, including area code, of person to contact in connection with this report) 

 

 

Check the appropriate box to indicate the rule pursuant to which this form is being filed, and provide the period to which the information in this form applies:

 

__X__ Rule 13p-1 under the Securities Exchange Act (17 CFR 240.13p-1) for the reporting period from January 1 to December 31, 2013.

 

 

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Section 1 -- Conflict Minerals Disclosure

Item 1.01  Conflict Minerals Disclosure and Report

Conflict Minerals Disclosure

This Form SD of CryoLife, Inc. (the “Company”) is filed pursuant to Rule 13p-1 promulgated under the Securities Exchange Act of 1934, as amended, for the reporting period January 1, 2013 to December 31, 2013.    

Company Products Covered

This Item relates to Company products (i) for which “Conflict Minerals” (i.e., gold, columbite-tantalite (coltan), cassiterite, and wolframite, including their derivatives, which are limited to tantalum, tin, and tungsten) are (or in the case of the Console, as defined below, may be) necessary to the functionality or production of that product, (ii) that were manufactured or contracted to be manufactured by the Company; and (iii) for which the manufacture was completed during calendar year 2013.  These products, which are referred to in this Item collectively as the “Covered Products,” are the following:

 

The SoloGrip III is a minimally invasive transmyocardial revascularization fiber-optic handpiece that contains multiple, fine fiber-optic strands in a one millimeter diameter bundle.  The flexible fiber-optic delivery system combined with the ergonomic handpiece provides access for treating all regions of the left ventricle.  The SoloGrip III has an easy to install connector that screws into the laser base unit, and the device is pre-calibrated in the factory so it requires no special preparation.  The SoloGrip III handpiece received FDA approval in 1999 and received a CE Mark in 1997.  The minimally invasive Port Enabled Angina Relief with Laser (“PEARL”) 5.0 handpiece is compatible for use with Intuitive Surgical’s da Vinci® Surgical System.  The PEARL 5.0 handpiece received FDA approval in 2007 and received a CE Mark in 2005.  The PEARL 8.0 handpiece has been designed for use in a minimally invasive thoracoscopic procedure.  The PEARL 8.0 received FDA approval in 2012 and a CE Mark in 2005.  The “marker bands” and “pigtail assemblies” that are components of all of these Handpieces contain tantalum.    

 

The Console is a Class III PMA cardiovascular therapeutic device that uses the solid state technology of the Holmium:YAG laser system to provide a stable and reliable energy platform that is designed to deliver precise energy output for the desired tissue effect.  The Console is compatible with the Handpieces and implements an advanced electronic and cooling system technology to greatly reduce the size and weight of the unit, while providing 115V power capability.  The Console was approved by the FDA in 2004 and received a CE Mark in 2005.  The Console is manufactured by the Company’s supplier according to Company-provided specifications and contains over 800 components purchased from over 200 of the supplier’s upstream suppliers.  Some of those components may contain Conflict Minerals, but, as set forth in further detail below, the Company has been unable to conclusively determine whether that is the case.

 

 

The HeRO Graft (Hemodialysis Reliable Outflow) is the only fully subcutaneous arterio-venous access solution clinically proven to maintain long-term access for hemodialysis patients with central venous stenosis. HeRO Graft is classified by the FDA as a graft, but it differs from a conventional arterio-venous graft because it has no venous anastomosis.  It consists of two primary components: (i) a proprietary ePTFE (polytetrafluoroethylele) arterial graft component and (ii) a proprietary venous outflow component. A titanium connector attaches the arterial graft component to the venous outflow component. The venous outflow component consists of radiopaque silicone with braided nitinol reinforcement (for kink and crush resistance) and a radiopaque marker band at the distal tip.  The HeRO Graft’s marker band contains tantalum.

 

The Company’s Reasonable Country of Origin Inquiry

 

The Company conducted a good-faith reasonable country-of-origin inquiry (“RCOI”) with respect to the Conflict Minerals contained in the Handpieces and HeRO Graft.  This inquiry was reasonably designed to determine whether any of the Conflict Minerals originated in the “Covered Countries” (i.e., the Democratic Republic of the Congo, the Republic of the Congo, the Central African Republic, South Sudan, Uganda, Rwanda, Burundi, Tanzania, Zambia, and Angola), and whether any of the Conflict Minerals were from recycled or scrap sources.

With respect to each of the Handpieces’ and HeRO Graft’s components that contain Conflict Minerals (marker bands and pigtail assemblies), the Company identified its suppliers of such components and contacted them to obtain information and documentation regarding their upstream supply chain for such components.  The Company’s suppliers identified their upstream suppliers for the components, and the Company contacted those suppliers.  Those upstream suppliers provided clear information and documentation confirming, to the Company’s reasonable satisfaction, that the Conflict Minerals in the

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Handpieces and HeRO Graft did not originate in the Covered Countries.  Accordingly, the Company did not perform further due diligence or analysis with respect to the Conflict Minerals contained in the Handpieces and HeRO Graft.   A description of our RCOI and the determination reached with respect to the Handpieces and HeRO Graft are publicly available on our Company Internet website at http://phx.corporate-ir.net/phoenix.zhtml?c=80253&p=irol-govHighlights.

Conflict Minerals Report

Due to the large number of suppliers upstream of the Console supplier, as well as the relatively small percentage of the supplier’s business that the Company’s business represents, the Company was unable to obtain sufficient information regarding the Console’s components and the supplier’s upstream supply chain with respect to those components.  As a result, the Company was unable to determine whether the Console contains Conflict Minerals and if so, whether they originated from Covered Countries or were from recycled or scrap sources.  Accordingly, with respect to the Console, the Company undertook the due diligence process described in the Conflict Minerals Report, which is provided as Exhibit 1.02 to this Form SD and which is publicly available on the Company’s Internet website at http://phx.corporate-ir.net/phoenix.zhtml?c=80253&p=irol-govHighlights.

Item 1.02    Exhibit

As specified in Section 2, Item 2.01 of this Form SD, the Company is hereby filing its Conflict Minerals Report as Exhibit 1.02 to this Form SD.

Section 2 -- Exhibits

Item 2.01  Exhibits

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, CryoLife, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

 

 

Exhibit Index

 

 

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Exhibit 1.02

 

CryoLife, Inc.

Conflict Minerals Report

For the reporting period January 1, 2013 to December 31, 2013

 

This Conflict Minerals Report (the “Report”) of CryoLife, Inc. (the “Company”) has been prepared pursuant to Rule 13p-1 and Form SD (the “Rule”) promulgated under the Securities Exchange Act of 1934, as amended, for the reporting period January 1, 2013 to December 31, 2013.

The Rule requires disclosure of certain information when a company manufactures or contracts to manufacture products, and the minerals specified in the Rule are necessary to the functionality or production of those products.  The specified minerals, which we collectively refer to in this Report as the “Conflict Minerals,” are gold, columbite-tantalite (coltan), cassiterite, and wolframite (including their derivatives, which are limited to tantalum, tin, and tungsten).  The “Covered Countries,” for purposes of the Rule and this Report, are the Democratic Republic of the Congo, the Republic of the Congo, the Central African Republic, South Sudan, Uganda, Rwanda, Burundi, Tanzania, Zambia, and Angola.

Company Products Covered by This Report

This Report relates to the Company’s Cardiogenesis SolarGen 2100 Holmium Laser Console (“Console”), which was contracted to be manufactured by the Company; for which the manufacture was completed during the reporting period;  but for which the Company was unable to determine that its components did not contain Conflict Minerals that originated from the Covered Countries or from recycled or scrap sources.  The Console is a Class III PMA cardiovascular therapeutic device that uses the solid state technology of the Holmium: YAG laser system to provide a stable and reliable energy platform that is designed to deliver precise energy output for the desired tissue effect. The Console is compatible with the Company’s SoloGrip III, PEARL 5.0, and PEARL 8.0 handpieces and implements an advanced electronic and cooling system technology to greatly reduce the size and weight of the unit, while providing 115V power capability.  The Console was approved by the FDA in 2004 and received a CE Mark in 2005.  The Console is manufactured by the Company’s supplier according to Company-provided specifications and contains over 800 components purchased from over 200 of the supplier’s upstream suppliers.  Some of those components may contain Conflict Minerals, but, as set forth in further detail below, the Company has been unable to conclusively determine whether that is the case or whether any such Conflict Minerals that might be included in the Console originated in the Covered Countries.

Reasonable Country of Origin Inquiry

Due to the large number of suppliers upstream of the Console supplier, as well as the relatively small percentage of the Console supplier’s business that the Company’s business represents,  the Company was unable to obtain complete information regarding the Console’s components and the supplier’s upstream supply chain with respect to those components.  As a result, the Company was unable to determine whether the Console’s components contain Conflict Minerals.  Accordingly, with respect to the Console,  the Company undertook the due diligence process described below.

The Company’s Due Diligence Process

Overview

Having concluded that the Console may contain Conflict Minerals and that any such Conflict Minerals may have originated in the Covered Countries, the Company exercised reasonable due diligence with respect to the source and chain of custody of the Conflict Minerals that might be contained in the Console.  The Company’s due diligence measures have been designed to conform, to the extent applicable and feasible, to the framework set forth in the Organisation for Economic Co-operation and Development Due Diligence Guidance for Responsible Supply Chain of Minerals from Conflict-Affected and High Risk Areas: Second Edition, including the related supplements on gold, tin, tantalum, and tungsten (the “Guidance”).

The Company’s supply chain with respect to the Console is complex, and the Company understands that there are many third parties in the supply chain between the ultimate manufacture of the Console by the Company’s supplier and the original sources of Conflict Minerals.  In this regard, the Company does not purchase Conflict Minerals directly from mines, smelters, or refiners.  It must therefore rely on its suppliers and their upstream suppliers to provide information regarding the origin of any Conflict Minerals that are included in the Console, including information regarding the applicable smelters and refiners.

The Company’s objective in developing and following its due diligence process was to determine which, if any, components of the Console contains Conflict Minerals, the origin and chain of custody of any such Conflict Minerals, and whether such Conflict Minerals financed or benefitted armed groups in the Covered Countries.

Company Management Systems

As part of its due diligence efforts, the Company adopted a policy relating to Conflict Minerals (the “Policy”), incorporating the standards set forth in the Guidance. The Policy was reviewed and approved by the Company’s senior management and presented to the Audit Committee of the Company’s Board of Directors (the “Audit Committee”).  In addition, the Company’s Purchasing, Regulatory Affairs and Quality Assurance (“RAQA”), Research and

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Development (“R&D”),  and Legal departments were directed by management to communicate the Policy to all Company employees who may have responsibilities for applying, enforcing, or communicating it internally or to outside parties.  In summary, the Policy provides for the following:

 

The Policy has been posted to the Company’s Internet website and will be distributed to all current and future suppliers of materials that do or could in the future contain Conflict Minerals. 

In addition to adoption of the Policy, the Company developed and implemented a number of measures to enhance its Conflict Minerals due diligence process:

 

As with the Policy adoption, the Company’s approach with suppliers was endorsed by its senior management, which directed the Company’s Purchasing, RAQA, R&D, and Legal departments to implement and continue to monitor it going forward.  The Company’s management reviewed with the Audit Committee its approach to Conflict Minerals, and Conflict Minerals Policy compliance has been included as a component in the Company’s annual enterprise risk assessment and evaluation process.

The Company engaged directly with the senior management of the Console supplier on a number of occasions over a period of more than one year to determine which, if any, of the Console’s components contain Conflict Minerals and to obtain information about the upstream supply of those components and ultimately, the origin of the Conflict Minerals and whether they financed or benefitted armed groups in the Covered Countries.  A number of conversations

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took place between the Company’s Legal and Purchasing departments and the supplier’s senior management,  and included input from the Company’s senior Operations and Legal leadership.  The supplier, a relatively small, private company with limited financial resources and staff, was unable to devote significant resources during the reporting period to determining which, if any, of the Console’s components contained Conflict Minerals and the origin of those minerals.  The supplier also therefore declined to incorporate the Company’s form of Conflict Minerals language (or an acceptable variation thereof) into the supply agreement between Company and the supplier.  The Company has discussed with the supplier possible ways for the supplier to solicit information about the Console’s components from its upstream suppliers, but to date, the supplier has performed only limited inquiries of its suppliers.  Unfortunately, the Company’s level of spend with the supplier for the purchase of Consoles  represents a relatively small percentage of the supplier’s business, and the Company currently has limited alternative sources from which it might obtain its custom-made Consoles.    

The Company has assessed and continues to assess the possibility of changing suppliers in the future if the supplier continues to be unable to provide the support necessary for the Company to adhere to its Conflict Minerals Policy and perform its Conflict Minerals due diligence.  Any imminent change in supplier, however, could be prohibitively expensive, involve costly and time-consuming validations and regulatory filings, and include the uncertainties regarding quality, performance, and reliability inherent in any change of a critical supplier.

The current Console supplier was acquired by a public company in 2014.  Accordingly, the Company is cautiously optimistic that, as a result of this acquisition, the supplier will, in the near future, have visibility to its upstream supply chain and the origin of any Conflict Minerals used in its products.  The Company will continue to engage in dialog with the supplier during 2014 to ensure that it is making progress in understanding and documenting its upstream supply chain and the origin of its Conflict Minerals. Should the supplier not demonstrate sufficient progress in this effort, the Company will reevaluate its relationship with the supplier.

Supply Chain Risks

As noted above, the Company was unable to obtain sufficient information from the Console supplier to determine the scope and magnitude of possible risks regarding Conflict Minerals in the Consoles supplied to the Company.  The Company will continue to engage in dialog with the Console supplier to determine the content of the Console’s components and the identity of the supplier’s upstream suppliers for any components containing Conflict Minerals, in an effort to determine the ultimate source of any Conflict Minerals.  The Company will also, to the extent necessary, evaluate the due diligence of any identified smelters/refiners to be comfortable that the sourcing identified is accurate.

Response to Identified Risks

As noted above, during 2013, the Company determined that its Console may contain Conflict Minerals, and it engaged with its supplier to conduct due diligence on the origin of any such Conflict Minerals.  Despite a lack of definitive information during 2013 and to date in 2014, the Company has, for the reasons noted above, continued to trade with its Console supplier and reasonably believes that the supplier will, as part of a publicly traded company, now have to assess and understand its Conflict Minerals supply chain.    Company senior management was informed of these risks and supported the decision to continue to trade with the supplier pending further engagement with the supplier.    As also noted above, the Company intends to continue to engage in dialog with the Console supplier in earnest to encourage rapid completion of its Conflict Minerals assessment, offering assistance to the extent reasonable and feasible, while, in parallel, exploring alternative sourcing options.

The following paragraphs describe how the Company intends to address any risks that are ultimately identified as a result of due diligence efforts with respect to Conflict Minerals in the Console’s upstream supply chain, as well as any similar risks with respect to future suppliers and/or products:

 

Audits of Smelter and Refiner Due Diligence

Through its due diligence efforts, the Company will seek to confirm (through industry validation schemes, etc.) that any smelters or refiners in its supply chain have had their due diligence processes audited by independent third parties and that the results of such audits were satisfactory.

Annual Reporting

The Company will continue to report on its Conflict Minerals due diligence efforts annually, as required, as part of its annual Securities and Exchange Commission filing on Form SD.  The Company’s reports will include information regarding its supply chain due diligence policy, the management structure

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responsible for its due diligence, steps taken to identify smelters and refiners in its supply chain and assess their due diligence practices, and steps taken to manage and mitigate risks.  The Company will also publish the audit reports, if any, associated with its due diligence practices.

Due Diligence Conclusions and Next Steps

 

After exercising the due diligence described above, the Company was unable to determine the extent to which the Console contains Conflict Minerals and whether any Conflict Minerals that might be contained in the Console originated from the Covered Countries and/or directly or indirectly financed or benefitted armed groups in the Covered Countries.  As noted above, the Company expects to take the following steps, among others, to improve its due diligence measures and to further mitigate the risk that necessary Conflict Minerals contained in the Company’s products finance or benefit armed groups in the Covered Countries: 

 

 

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