1217270v3
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13165
CRYOLIFE, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2417093
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1655 Roberts Boulevard N.W., Kennesaw, GA 30144
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (770) 419-3355
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- - ------------------------------- ---------------------------
Common Stock, $.01 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
__X__ Yes _____ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was approximately $231,500,000 at March 24, 2000 (10,522,762 shares).
The number of common shares outstanding at March 24, 2000 was 12,286,196
(exclusive of treasury shares).
Documents Incorporated By Reference
Part III: Portions of Registrant's Proxy Statement relating to the Annual
Meeting of Shareholders to be filed not later than April 29, 2000.
<PAGE>
PART I
Item 1. Business.
Overview
CryoLife is the leader in the cryopreservation of viable human tissues for
cardiovascular, vascular and orthopaedic transplant applications, and develops
and commercializes additional implantable products, including bioprosthetic
cardiovascular products and surgical bioadhesives, and single- use medical
devices. The Company estimates that it provided approximately 70% of the
cryopreserved human tissue implanted in the U.S. in 1998. The Company uses its
expertise in biochemistry and cell biology, and its understanding of the needs
of the cardiovascular, vascular and orthopaedic surgery medical specialties, to
continue expansion of its core cryopreservation business and to develop or
acquire complementary implantable products and technologies for these fields.
The Company develops bioprosthetic cardiovascular devices including two novel
design stentless porcine heart valves currently marketed in the European
Community. The Company also develops proprietary implantable surgical
bioadhesives, including BioGlue surgical adhesive, which it began
commercializing for vascular applications within the European Community in April
1998. In addition, the Company serves as an Original Equipment Manufacturer
("OEM") manufacturer, through its Ideas For Medicine, Inc. ("IFM") subsidiary,
of single-use medical devices for use in vascular surgical procedures.
CryoLife processes and distributes for transplantation cryopreserved human heart
valves and conduits, human vascular tissue and human connective tissue for the
knee. Management believes that cryopreserved human heart valves and conduits
offer certain advantages over mechanical, synthetic and animal-derived
alternatives. Depending on the alternative, these advantages include more
natural functionality, elimination of a chronic need for anti-coagulation drug
therapy, reduced incidence of reoperation and reduced risk of catastrophic
failure, thromboembolism (stroke) or calcification. The Company seeks to expand
the availability of human tissue through its established relationships with over
250 tissue banks and organ procurement agencies nationwide.
CryoLife has developed and markets outside of the U.S. bioprosthetic
cardiovascular devices for implantation, currently consisting of fixed stentless
porcine heart valves. Fixed porcine heart valves are often preferred by surgeons
for procedures involving elderly patients because they eliminate the risk of
patient non-compliance with long-term anti-coagulation drug therapy associated
with mechanical valves, are less expensive than human heart valves or mechanical
valves and their shorter longevity is more appropriately matched with these
patients' life expectancies. Unlike most other available porcine heart valves,
the Company's stentless porcine heart valves do not contain synthetic stents
which increase the risk of endocarditis, a debilitating and potentially fatal
bacterial infection. The Company's CryoLife-O'Brien aortic heart valve,
currently marketed in the European Community and certain other countries outside
the U.S., is a stentless porcine heart valve which contains a matched composite
leaflet design that approximates human heart valve blood flow characteristics
and requires only a single suture line which simplifies surgical implantation.
The Company's CryoLife-Ross pulmonary heart valve, another of the Company's
fixed stentless porcine valves, is also marketed in the European Community and
certain countries outside the U.S. The Company has applied its proprietary
SynerGraft technology to its human heart valves and conduits and to some of its
stentless porcine heart valves. SynerGraft involves the depopulation of living
cells from the structure of heart tissues to allow the potential for
repopulation of such tissue with recipient cells. In animal studies, porcine
valves which were depopulated by the SynerGraft process were repopulated with
cells from the valve recipient. This process is designed to reduce calcification
of heart valves, thereby increasing longevity, and more generally to improve the
biocompatibility and functionality of such tissue. The Company believes that its
porcine heart valves, when treated with SynerGraft technology, will expand its
opportunity to address the broader international and U.S. heart valve markets.
CryoLife is developing implantable biomaterials for use as surgical adhesives
and sealants. The Company's patent protected BioGlue surgical adhesive, designed
for cardiovascular, peripheral vascular and pulmonary applications, is a polymer
based on a derivative of a blood protein and a cross linking agent. The
Company's patent protected FibRx surgical sealant, designed for tissue
hemostasis and suture line sealing, is a light activated, biodegradable surgical
sealant under development which is based on a derivative of the human blood
factors fibrinogen and thrombin. Both of these products may offer advantages
over sutures and staples, including more effective sealing and easier
application. The Company estimates that the annual worldwide market for surgical
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sutures and staples in 1999 was in excess of $2 billion. The Company received CE
Mark Certification in 1998 for use of its BioGlue surgical adhesive in vascular
applications and began marketing this product in April 1998 in the European
Community. Following the approval of the Food and Drug Administration to conduct
human clinical studies for BioGlue surgical adhesive as an adjunct in the
surgical repair of acute thoracic aortic dissections, the Company filed an
application with FDA to market the product for this use under a Humanitarian
Service Exemption. In December, 1999, the Company received US FDA approval of
the HDE and immediately began marketing this product for use in the repair of
acute thoracic aortic dissections in the U.S. pursuant to the HDE. Beginning in
1998, the Company began seeking to complete a potential private placement of
equity or equity-oriented securities to form a minority-owned subsidary company,
AuraZyme Pharmaceuticals, LLC (AuraZyme), for the commercial development of its
photo-activated reversible inhibitor technology (FibRx), including the FibRx
adhesive. Such strategy is designed to allow the Company to continue development
of this technology without incurring additional research and development
expenditures, other than through Aurazyme, and allow the Company to focus its
resources on the commercial development of its BioGlue surgical adhesive and
other products under development. As of December 31, 1999 a portion of the
Company's assets relating to the development of FibRx have been classified as
available for sale pending the identification of a corporate partner to fund
future development.
Prior to October 1, 1998 CryoLife manufactured and distributed, through its IFM
subsidiary, single-use medical devices, including endarterectomy surgical
instruments, intravascular shunts, infusion ports, accessories utilized in
laparoscopic procedures and a wide range of single and dual lumen balloon
catheters. On September 30, 1998, the Company sold substantially all of its IFM
product line to Horizon Medical Products, Inc. ("Horizon") pursuant to an asset
purchase agreement. As part of this agreement, the Company committed to continue
manufacturing the IFM product line as an OEM manufacturer of such products for
Horizon for four years. Thereafter, responsibility for such manufacturing is to
be assumed by Horizon. On June 22, 1999, IFM notified Horizon that it was in
default of certain provisions of its OEM Manufacturing Agreement with the
Company. The Company has been negotiating with Horizon in order to reach a
mutually agreeable solution to the default; however, due to the significant
uncertainties related to the Company's ability to realize its investment in IFM,
the Company determined in the fourth quarter of 1999 that it had incurred an
impairment loss on its IFM assets. See "Management's Discussions and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this
Annual Report on Form 10-K .
In the U.S., the Company markets its cryopreservation services for human heart
valves and conduits, human vascular tissue and its BioGlue surgical adhesive for
use in the repair of acute thoracic aortic dissections through its direct
technical service representatives and relies on independent orthopaedic sales
representatives to market its cryopreservation services for human connective
tissue for the knee. Internationally, cryopreserved human tissues, bioprosthetic
cardiovascular devices and BioGlue surgical adhesive are distributed through
independent representatives located in several countries in Europe, Canada,
South America and Asia.
Growth Strategy
The Company's primary objective is to continue its consistent revenue growth and
its profitability. The Company's strategy to generate continued growth is based
on increasing the use of cryopreserved tissues as an alternative to mechanical
and synthetic implantable products, developing new markets for existing products
and technologies and developing new products and technologies for new and
existing markets. The Company also selectively considers strategic acquisitions
of complementary technologies and businesses to supplement its internal growth.
The key elements of the Company's business and growth strategy are to:
Continue Leadership in Cryopreservation of Human Heart Valves and Conduits. The
Company intends to increase the market penetration of its cryopreserved human
heart valves and conduits by (i) expanding awareness of clinical advantages of
cryopreserved human tissues through continuing educational efforts directed to
physicians, prospective heart valve and conduit recipients and tissue
procurement agencies, (ii) expanding its relationships with the more than 250
tissue banks and procurement agencies across the U.S. which direct tissue to the
Company for cryopreservation, (iii) expanding its physician training activities,
and (iv) expanding its product offerings by utilizing the first of its
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SynerGraft technology applications to develop depopulated human heart valves and
conduits with antigen reduction properties and the potential for recipient
cell repopulation.
- Expand Distribution of Cryopreserved Human Vascular Tissue and
Connective Tissue for the Knee. Using the same strategy it has
successfully employed to expand its distribution of cryopreserved
human heart valves and conduits, the Company intends to increase its
cryopreservation revenues from human vascular tissue and connective
tissue for the knee through continuing educational efforts directed to
vascular and orthopaedic surgeons about the clinical advantages of
cryopreserved vascular and orthopaedic tissue, expanding its
relationships with tissue banks and procurement agencies and expanding
its programs for training physicians in the use of tissue
cryopreserved by the Company.
- Broaden Application of Cryopreservation Services. The Company will
continue to collect, monitor and evaluate implant data to (i) develop
expanded uses for the human tissues currently cryopreserved by the
Company and (ii) identify new human tissues as candidates for
cryopreservation. In 1997, the Company began providing cryopreserved
human vascular tissue to be used as dialysis access replacement grafts
for patients undergoing long-term dialysis, and separately, as venous
valve replacements for patients suffering from diseases of the venous
system. In 1998, in addition to patellar and achilles tendons, the
Company began providing cryopreserved posterior tibialis, anterior
tibialis and semi t/gracilis tendons for use in knee repairs, and in
1999 began providing preserved human osteoarticular grafts to repair
articular defects and aortoiliac grafts to repair infected abdominal
aortic aneurysms. The Company is also investigating the use of
cryopreserved human endothelial cells, peripheral nerves and spinal
disks in various surgical applications.
- Develop and Commercialize Biomaterials for Surgical Adhesive and
Sealant Applications. In the second quarter of 1998, the Company began
commercializing its patent protected BioGlue surgical adhesive in the
European Community through its existing independent representatives.
In April 1998 the Company received approval under an Investigational
Device Exemption (IDE) to conduct clinical trials for BioGlue surgical
adhesive in the U.S., and in December 1999 received US FDA approval to
distribute BioGlue surgical adhesive under a Humanitarian Device
Exemption ("HDE") for use as an adjunct in the repair of acute
thoracic aortic dissections. The Company has received U.S. FDA
approval to and will commence clinical trials under a supplemental IDE
for use in general vascular and selected cardiac repairs. The Company
has formed a subsidiary to raise equity or equity-related capital in
order to continue development of its patent protected FibRx surgical
sealant. In addition to the adhesive and sealant applications of these
biomaterials, the Company intends to pursue, either directly or
through strategic alliances, certain potential drug delivery
applications of BioGlue surgical adhesive and FibRx surgical sealant,
such as administering antibiotics, attaching chemotherapy drugs to
tumors, delivering growth agents or delivering bone chips for
orthopaedic bone repair.
- Develop and Commercialize Bioprosthetic Cardiovascular Devices. The
Company intends to leverage its expertise with stentless human heart
valves to expand commercialization of its stentless porcine heart
valves and to use its stentless porcine heart valves as a platform for
the development and commercialization of the Company's SynerGraft
technology. The Company has expanded its production capacity for its
bioprosthetic cardiovascular devices to address the increased demand
it is currently experiencing. Separately, the Company's patent
protected SynerGraft technology is being developed to expand the
target market for the stentless porcine heart valves by minimizing
calcification often associated with porcine tissues and thereby
increasing their longevity.
- Leverage Existing Capability across Product Lines. The Company intends
to apply its expertise with stentless human heart valves to expand
commercialization of its stentless porcine heart valves and to use its
human heart valves and conduits and its stentless porcine heart valves
as a platform for the development and commercialization of the
Company's SynerGraft technology. New complementary products under
development include modified single and double lumen balloon catheters
for use in delivering the Company's implantable bioadhesives.
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Services and Products
Cryopreservation of Human Tissue for Transplant/Living Biologic Devices
The Company's proprietary and patent protected cryopreservation process
involves the timely and controlled delivery of tissue procured from deceased
human donors to the Company, the screening, disinfection, dissection and
cryopreservation of the tissue by the Company, the storage and shipment of the
cryopreserved tissue and the controlled thawing of the tissue. Thereafter, the
tissue is surgically implanted into a human recipient.
The transplant of human tissue that has not been preserved must be accomplished
within extremely short time limits (not to exceed eight hours for transplants of
the human heart). Prior to the advent of human tissue cryopreservation, these
time constraints resulted in the inability to use much of the tissue donated for
transplantation. The application by the Company of its cryopreservation
technologies to donated tissue expands the amount of human tissue available to
physicians for transplantation. Cryopreservation also expands the treatment
options available to physicians and their patients by offering alternatives to
implantable mechanical, synthetic and animal-derived devices. The tissues
presently cryopreserved by the Company include human heart valves and conduits,
vascular tissue and connective tissue for the knee.
CryoLife maintains and collects extensive clinical data on the use and
effectiveness of implanted human tissues that it has cryopreserved, and shares
this data with implanting physicians. The Company also uses this data to help
direct its continuing efforts to improve its cryopreservation services through
ongoing research and development. Its research staff and technical
representatives assist physicians by providing educational materials, seminars
and clinics on methods for handling and implanting the tissue cryopreserved by
the Company and the clinical advantages, indications and applications for those
tissues. The Company has ongoing efforts to train and educate physicians on the
indications for and uses of its cryopreserved tissues, as well as its programs
whereby surgeons train other surgeons in necessary techniques. The Company also
assists organ procurement agencies through training and development of protocols
and provides necessary materials to improve their internal tissue processing
techniques and to increase efficiency and the yield of usable tissue.
Human Heart Valves and Conduits. The Company's revenues have been primarily
derived from the cryopreservation of human heart valves and conduits for use in
reconstructive heart valve replacement surgery. CryoLife shipped approximately
41,100 cryopreserved human heart valves and conduits from 1984 through 1999.
Based on CryoLife's records of documented implants, management believes that the
Company's success in the allograft heart valve market is due in part to
physicians' recognition of the longevity and natural functionality of the
Company's cryopreserved human tissues as compared to mechanical and porcine
heart valve alternatives in certain applications. The Company currently applies
its cryopreservation services to human aortic, pulmonary and mitral heart valves
for implantation by cardiac surgeons. In addition, the Company provides
cryopreserved conduit tissue, which is the only source of tissue available to
surgeons who wish to perform certain specialized cardiac repair procedures. Each
of these human heart valves and conduits maintains a viable tissue structure
which more closely resembles and performs like the patient's own tissue than
non-human tissue alternatives. In February 2000, the Company began distributing
in the U.S. human heart valves processed by using the first of its SynerGraft
technology applications, which involves depopulating the donor cells from the
valve to produce antigen reduction properties and the potential for repopulation
with the implant recipient's cells.
Management believes cryopreserved human heart valves and conduits have
characteristics that make them the preferred replacement for most patients.
Specifically, human heart valves, such as those cryopreserved by the Company,
allow for more normal blood flow and provide higher cardiac output than porcine
and mechanical heart valves. Human heart valves are not as susceptible to
progressive calcification, or hardening, as are porcine heart valves, and do not
require anti-coagulation drug therapy, as do mechanical valves. The synthetic
sewing rings contained in mechanical and stented porcine valves are difficult to
treat with antibiotics after they have become infected, a condition which
usually necessitates the surgical removal of these valves at considerable cost,
morbidity and risk of mortality. Consequently, for many physicians human heart
valves are the preferred alternative to mechanical and stented porcine valves
for patients who have, or are at risk to contract, endocarditis. The following
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table sets forth the characteristics of alternative heart valve implants that
management believes make cryopreserved human heart valves the preferred
replacement for most patients:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Porcine Bovine
Cryopreserved -------------------------------- Mechanical Pericardium
Human ---------------- ----------------
-------------
Stented Stentless(1)
--------------- ---------------
Materials: human glutaraldehyde- glutaraldehyde- pyrolitic carbon glutaraldehyde-
tissue fixed pig fixed pig bi- fixed cow
tissue and tissue leaflet and tissue
synthetic sewing synthetic and synthetic
ring sewing ring sewing ring
Blood Flow Dynamics: normal moderate nearly normal high elevation high
elevation elevation
(Required Pressure) (2) (0-5) (10-20) (5-15) (10-25) (10-30)
Mode of Failure: gradual gradual expected to be catastrophic gradual
gradual
Longevity: 20 years 7-10 years expected to 20 years 10-15 years
exceed
stented porcine
valves
Increased Risk of
Thromboembolic Events
(strokes or other no occasional expected to be yes occasional
clotting): rare
Anti-Coagulation Drug
Therapy Required: none short-term short-term chronic short-term
Responsiveness to
Antibiotic
Treatment of
Endocarditis: high low low low low
Average Valve Cost in U.S.: $7,000 $4,228 $5,500 $4,100(3) $4,500
</TABLE>
(1) Limited long-term clinical data is available since stentless porcine heart
valves only recently became commercially available.
(2) Pressure measured in mm/Hg.
(3) Mechanical valves also require chronic anti-coagulation drug therapy at a
cost of approximately $450 per year.
While the clinical benefits of cryopreserved human heart valves discussed above
are relevant to all patients, they are particularly important for (i) pediatric
patients (newborn to 14 years) who are prone to calcification of porcine tissue,
(ii) young or otherwise active patients who face an increased risk of severe
blood loss or even death due to side effects associated with the
anti-coagulation drug therapy required with mechanical valves and (iii) women in
their childbearing years for whom anti-coagulation drug therapy would interfere
with normal pregnancy.
Human Vascular Tissues. The Company cryopreserves human saphenous and
superficial femoral veins for use in vascular surgeries that require small
diameter conduits (3mm to 6mm), such as coronary bypass surgery and peripheral
vascular reconstructions. Failure to bypass or revascularize an obstruction in
such cases may result in death or the loss of a limb. The Company believes it
offers the only available small diameter conduit product for below-the-knee
vascular reconstruction and shipped approximately 17,600 human vascular tissues
from 1986 through 1999.
A surgeon's first choice for replacing diseased or damaged vascular tissue is
generally the patient's own tissue. However, in cases of advanced vascular
disease, the patient's own tissue is often unusable and the surgeon may consider
using synthetic grafts or transplanted human vascular tissue. Synthetic small
diameter vascular grafts are not available for below-the-knee surgeries and, in
other procedures, have a tendency to shut down due to occlusion because the
synthetic materials in these products attract cellular material from the blood
stream which in turn closes off the vessel to normal blood flow. Cryopreserved
vascular tissues tend not to occlude as quickly because of the presence of an
endothelial cell lining in the donor vein which remains intact following the
cryopreservation process. The Company's cryopreserved human vascular tissues are
used for coronary artery bypass surgeries, peripheral vascular reconstruction,
dialysis access graft replacement and venous valve transplantation.
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In 1986, the Company began a program to cryopreserve saphenous veins for use in
coronary artery bypass surgeries. Although the Company's cryopreserved human
tissue was used in only a small percentage of the coronary artery bypass
procedures performed in 1999, the Company believes it is the only commercially
available alternative to the patient's own tissue.
In 1989, the Company began a program to cryopreserve long segment saphenous
veins for use in peripheral vascular reconstruction. In cases of peripheral
arteriosclerosis, a cryopreserved saphenous vein can be implanted as a bypass
graft for the diseased artery in order to improve blood flow and maintain a
functional limb. Analysis of clinical data has shown that 80% of patients
receiving CryoLife's preserved vascular tissues in this type of surgical
procedure still have the use of the affected leg three years after surgery. The
alternative for many of these patients was amputation.
In 1996, the Company began a program for the cryopreservation of human
superficial femoral veins for use in dialysis access graft replacement as an
alternative for synthetic grafts which have a higher risk of infection than
human tissue.
In 1997, the Company began a program for the cryopreservation of human
superficial femoral veins for venous valve transplant. The cryopreservation of
these human tissues is designed for patients suffering from chronic venous
insufficiency, a condition in which the blood flow returning to the heart from
the legs is compromised due to absent, improperly functioning or destroyed
venous valves. Prior to the introduction of CryoLife's cryopreserved venous
valves, treatment for patients suffering from this ailment generally was limited
to drug therapy or compression stockings.
Human Connective Tissue for the Knee. The Company provides cryopreserved
surgical replacements for the meniscus and the anterior and posterior cruciate
ligaments, which are connective tissues critical to the proper operation of the
human knee. CryoLife has shipped approximately 11,300 human connective tissues
for the knee through 1999.
Human menisci cryopreserved by the Company provide orthopaedic surgeons with an
alternative treatment in cases where a patient's meniscus has been completely
removed. When a patient has a damaged meniscus, the current surgical
alternatives are to repair, partially remove or completely remove the patient's
meniscus, with partial removal being the most common procedure. Meniscal removal
increases the risk of premature knee degeneration and arthritis and typically
results in the need for knee replacement surgery at some point during the
patient's life. Management believes that there are no synthetic menisci on the
market.
Tendons cryopreserved by the Company are used for the reconstruction of anterior
cruciate ligaments in cases where the patient's ligaments are irreparably
damaged. Surgeons have traditionally removed a portion of the patient's patellar
tendon from the patient's undamaged knee for use in repairing a damaged anterior
cruciate ligament. Tendons cryopreserved by the Company provide an alternative
to this procedure. Because surgeries using cryopreserved tissue do not involve
the removal of any of the patient's own patellar tendon, the patient recovery
period is typically shorter.
Other Allograft Tissues Under Development. The Company has other projects for
the use of cryopreserved human endothelial cells, peripheral nerves and spinal
discs, in various surgical applications.
Bioprosthetic Cardiovascular Devices
The Company is developing bioprosthetic cardiovascular devices based on its
experience with cryopreserved human tissue implants. Like human heart valves,
the Company's porcine heart valves are stentless with the valve opening, or
annulus, retaining a more natural flexibility. Stented porcine and mechanical
heart valves are typically fitted with synthetic sewing rings which are rigid
and can impede normal blood flow. Unlike most other available porcine heart
valves, the Company's stentless porcine heart valves do not contain synthetic
materials which increase the risk of endocarditis, a debilitating and
potentially deadly bacterial infection.
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Fixed porcine heart valves are often preferred by surgeons for procedures
involving elderly patients because they eliminate the risk of patient
non-compliance with anti-coagulation drug therapy associated with mechanical
valves, are less expensive than allograft valves and their shorter longevity is
more appropriately matched with these patients' life expectancies.
The Company's SynerGraft technology applies to its porcine heart valves and
involves the removal of living cells from the structure of non-viable animal
tissue to allow the potential repopulation of such tissue with the implant
recipient's own cells. In animal studies, porcine valves that were depopulated
by the SynerGraft process were repopulated with cells from the valve recipient.
This process is designed to reduce calcification of porcine heart valves,
thereby increasing their longevity, and more generally to improve the
biocompatibility and functionality of such tissue. The Company believes that its
porcine heart valves, when treated with SynerGraft technology, will expand its
opportunity to address the broader international and U.S. heart valve markets.
Potential future SynerGraft technology applications may involve developing
stentless porcine heart valves repopulated with viable human cells prior to
implantation. This technology will use porcine tissues that have been
depopulated of viable animal cells using the SynerGraft process.
The following table sets forth the bioprosthetic cardiovascular devices
currently marketed by the Company, along with the product features and market
status for each.
<TABLE>
<CAPTION>
<S> <C> <C>
Fixed Stentless Porcine Valves Features Regulatory/Market Status
------------------------------ ------------ -------------------------
CryoLife-O'Brien aortic valve of matched currently marketed in Europe with
composite leaflet design; regulatory approval under CE Mark
single suture line
CryoLife-Ross pulmonary valve with currently marketed in Europe with
attached conduit regulatory approval under CE Mark
</TABLE>
The CryoLife-O'Brien aortic valve is a stentless porcine valve with design
features which management believes provide significant advantages over other
stentless porcine heart valves. CryoLife began exclusive worldwide distribution
of this valve in 1992 and acquired all rights to the underlying technology in
1995. The Company's CryoLife-O'Brien aortic heart valve, currently marketed in
the European Community and certain other territories outside the U.S., contains
a matched composite leaflet design that approximates human heart valve blood
flow characteristics and requires only a single suture line thereby simplifying
surgical implantation. Most other stentless porcine valves require a more
complicated implant procedure.
The CryoLife-Ross pulmonary valve, the patent for which the Company acquired in
October 1996, is an advanced design stentless porcine heart valve within an
attached conduit of porcine tissue, which mimics the structure of a human heart
valve. The Company began manufacturing and distributing the Cryolife-Ross
pulmonary heart valve, another of the Company's fixed stentless porcine valves,
in the European Community in September 1998.
The Company plans to apply its proprietary SynerGraft technology to stentless
porcine heart valves. The first of the SynerGraft technology applications
involves developing depopulated stentless porcine heart valves with antigen
reduction properties. This technology removes viable cells from animal tissues,
thereby reducing the transplant recipient's immune response to the remaining
depopulated tissues. The auto-immune response typically deposits calcium which
attaches to and hardens implanted porcine heart valve tissue, a process known as
calcification, which reduces the useful life of the implant. By removing viable
animal cells from the tissue while maintaining the underlying structural
strength of the porcine heart valve, this SynerGraft application is designed to
provide a platform for a patient's own cells with the potential to naturally
populate the implant.
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The second of the SynerGraft technology applications involves an attempt to
develop stentless porcine heart valves repopulated with viable human cells prior
to implantation. This technology uses porcine tissues that have been depopulated
of viable animal cells using the SynerGraft process.
Implantable Biomaterials for Use as Surgical Adhesives and Sealants
The effective closure of internal wounds following surgical procedures is
critical to the restoration of the function of tissue and to the ultimate
success of the surgical procedure. Failure to effectively seal surgical wounds
can result in leakage of air in lung surgeries, cerebral spinal fluids in
neurosurgeries, blood in cardiovascular surgeries and gastrointestinal contents
in abdominal surgeries. Air and fluid leaks resulting from surgical procedures
can lead to significant post-surgical morbidity resulting in prolonged
hospitalization, higher levels of post-operative pain and a higher mortality
rate.
Sutures and staples facilitate healing by joining wound edges and allowing the
body to heal naturally. However, because sutures and staples do not have
inherent sealing capabilities, they cannot consistently eliminate air and fluid
leakage at the wound site. This is particularly the case when sutures and
staples are used to close tissues containing air or fluids under pressure, such
as the lobes of the lung, the dural membrane surrounding the brain and spinal
cord, blood vessels and the gastrointestinal tract. In addition, in minimally
invasive surgical procedures, where the physician must operate through small
access devices, it can be difficult and time consuming for the physician to
apply sutures and staples. The Company believes that the use of surgical
adhesives and sealants with or without sutures and staples could enhance the
efficacy of these procedures through more effective and rapid wound closure.
In order to address the inherent limitations of sutures and staples, the Company
has developed and begun commercializing its BioGlue surgical adhesive and is
developing its FibRx surgical sealant. The BioGlue surgical adhesive is a
polymeric surgical bioadhesive based on a derivative of a blood protein and a
cross-linking agent. BioGlue surgical adhesive is nonbiodegradable and has a
tensile strength that is four to five times that of FibRx surgical sealant.
Clinical applications for BioGlue surgical adhesive include cardiovascular,
vascular, and pulmonary repair. A derivative of the BioGlue technology is
BioLastic(TM), an implantable biomaterial under development which is capable of
exchanging oxygen and carbon dioxide. BioLastic is being developed for use in
reinforcing or patching vascular tissue, repairing air leaks in lungs, and
replacing or sealing holes in dura mater. FibRx surgical sealant is a light
activated surgical sealant based on a derivative of the human blood factors
fibrinogen and thrombin. The Company believes that FibRx is the only surgical
sealant under development offering ease of use to the surgeon through either
single-syringe or spray applicators. The Company is currently seeking funding
for FibRx and other photo-activated reversible inhibitors through AuraZyme, its
wholly owned subsidiary. In March 2000, the Company announced that it had
entered into an agreement with Viragen, Inc. to conduct a project to research
the feasibility of site-specifc delivery and activation of Viragen's anti-cancer
proteins using the Company's light activation technology.
The following table summarizes certain important features, targeted applications
and regulatory and market status of BioGlue surgical adhesive and FibRx surgical
sealant:
<TABLE>
<CAPTION>
<S> <C> <C>
BioGlue Surgical Adhesive FibRx Surgical
Sealant
------------------------------------ -----------------------------------------
Composition: animal albumin and glutaraldehyde thrombin, fibrinogen and a thrombin
inhibitor
Method of Application: double syringe; mixing device light activated single syringe; or
provided light
activated spray applicator
Targeted Clinical vascular repair; anastomotic hemostasis in cardiovascular
Applications: sealing; aortic procedures; modified tPA, drug delivery
dissection repair; carotid
endarterectomy
patching; tissue bonding; pulmonary
repair
Performance high tensile strength; strength of normal human blood clot;
Characteristics: non-biodegradable biodegradable; flexible, easily
manipulated
Regulatory/Market
Status
Europe, Canada and Approved for cardiovascular, regulatory pathway to be determined
certain other vascular and pulmonary repair pending AuraZyme funding
countries: applications
United States: FDA approved as a Humanitarian Use regulatory pathway to be determined
Device for use as an adjunct in pending AuraZyme funding
repair of acute thoracic aortic
dissections; clinical trials for
general vascular and selected
cardiac repairs will begin in second
quarter of 2000
</TABLE>
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The Company estimates that the worldwide market for surgical sutures and
staples in 1999 was in excess of $2 billion. The Company began shipping BioGlue
surgical adhesive for distribution in the European Community in the second
quarter of 1998 for use in vascular applications, and in the U.S. in December
1999 pursuant to an HDE for use in repair of thoracic aortic dissections. The
regulatory pathway for FibRx surgical sealant will be determined upon the
funding of Aurazyme.
Single-Use Medical Devices
The Company serves as an OEM manufacturer, through its IFM subsidiary, of
single-use medical devices including endarterectomy surgical instruments,
intravascular shunts, infusion ports, accessories utilized in laparoscopic
procedures and a wide range of single and dual lumen balloon catheters. The
Company is benefiting from, and intends to utilize, its design and manufacturing
expertise in developing single-use medical devices for use in conjunction with
its human tissue and biomaterial products. An example of such a single-use
medical device under development includes families of balloon catheters and
applicator tips designed to assist in applying the BioGlue surgical adhesive.
HMP has defaulted on its OEM manufacturing agreement with IFM. See "Management's
Discussions and Analysis of Financial Condition and Results of Operations"
contained elsewhere in this Annual Report on Form 10-K.
Sales, Distribution and Marketing
Cryopreservation Services
CryoLife markets its cryopreservation services to tissue procurement agencies,
implanting physicians and prospective tissue recipients. The Company works with
tissue banks and organ procurement agencies to ensure consistent and continued
availability of donated human tissue for transplant and educates physicians and
prospective tissue recipients with respect to the benefits of cryopreserved
human tissues.
Procurement of Tissue. Donated human tissue is procured from deceased human
donors by organ procurement agencies, tissue banks and subject to required
testing and donor screening procedures. After procurement, the tissue is packed
and shipped, together with certain information about the tissue and its donor,
to the Company in accordance with the Company's protocols. The tissue is
transported to the Company's laboratory facilities via commercial airlines
pursuant to arrangements with qualified courier services. Timely receipt of
procured tissue is important, as tissue that is not received promptly cannot be
cryopreserved successfully. The procurement agency receives a fee for its
services, which is paid by the Company. The procurement fee and related shipping
costs are ultimately reimbursed to the Company by the hospital with which the
implanting physician is associated. The Company has developed relationships with
over 250 tissue banks and organ procurement agencies throughout the U.S.
Management believes the establishment of these relationships is critical for a
growing business in the cryopreservation services industry and that the breadth
of these existing relationships provides the Company a significant advantage
over potential new entrants to this market. As a result of its maintaining and
developing these relationships, the Company has consistently increased its
annual human heart valve procurement since its inception. The Company employs
approximately 18 individuals in the area of tissue procurement, five of whom are
employed as procurement relations managers and are stationed throughout the
country. The Company's central procurement office is staffed 24 hours per day,
365 days per year.
Preservation of Tissue. Upon receiving tissue, a Company technician completes
the documentation control for the tissue prepared by the procurement agency and
gives it a control number. The documentation identifies, among other things,
donor age and cause of death. A trained technician then removes the portion or
portions of the delivered tissue that will be cryopreserved. These procedures
are conducted under aseptic conditions in clean rooms. At the same time,
additional samples are taken from the donated tissue and subjected to the
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Company's comprehensive quality assurance program that includes review of donor
screening information and further testing of the tissue to determine if it is
free of infectuous diseases. This program may identify characteristics which
would disqualify the tissue for cryopreservation.
Human heart valves and conduits, vascular tissue and connective tissue for the
knee are cryopreserved in a proprietary freezing process conducted according to
strict Company protocols. After the cryopreservation process, the specimens are
transferred to liquid nitrogen freezers for long-term storage at temperatures
below -135(Degree)C. The entire cryopreservation process is rigidly controlled
by guidelines established by the Company. The tissue is not released for
distribution until all quality assurance procedures have been satisfied and the
tissue has been determined to be suitable for transplant.
Distribution of Tissue to Implanting Physicians. After cryopreservation, tissue
is stored by the Company or is delivered directly to hospitals at the implanting
physician's request. Cryopreserved tissue must be transported under stringent
handling conditions and maintained within specific temperature tolerances at all
times. Cryopreserved tissue is packaged for shipment using the Company's
proprietary processes. At the hospital, the tissue is held in a liquid nitrogen
freezer according to Company protocols pending implantation. The Company
provides a detailed protocol for thawing the cryopreserved tissue. The Company
also makes its technical personnel available by phone or in person to answer
questions. After the Company transports the tissue to the hospital, the Company
invoices the institution for its services, the procurement fee and
transportation costs.
The Company encourages hospitals to accept the cryopreserved tissue quickly by
providing Company-owned liquid nitrogen freezers to client hospitals without
charge. The Company has currently installed more than 300 of these freezers.
Participating hospitals pay the cost of liquid nitrogen and regular maintenance.
The availability of on-site freezers makes it easier for a hospital's physicians
to utilize the Company's cryopreservation services by making the cryopreserved
tissue more readily available. Because fees for the Company's cryopreservation
services become due upon the delivery of tissue to the hospital, the use of such
on-site freezers also reduces the Company's working capital needs.
Marketing, Educational and Technical Support. The Company maintains active
relationships with approximately 2,000 cardiovascular, vascular and orthopaedic
surgeons who have active practices implanting cryopreserved human tissues and
markets to a broader group of physicians within these medical specialties.
Because the Company markets its cryopreservation services directly to
physicians, an important aspect of increasing the distribution of the Company's
cryopreservation services is educating physicians on the use of cryopreserved
human tissue and on proper implantation techniques. Trained field support
personnel provide back-up and support to implanting institutions and surgeons.
The Company currently has over 100 independent technical service representatives
and sub-representatives (who deal primarily with orthopaedic surgeons and who
are paid on a commission basis) as well as 41 persons employed as technical
service representatives (who deal primarily with cardiovascular and vascular
surgeons and receive a base salary with a performance bonus) all of whom provide
field support.
The Company sponsors physician training seminars where physicians teach other
physicians the proper technique for handling and implanting cryopreserved human
tissue. Physicians pay their own expenses to attend these seminars in addition
to paying the Company a fee for attendance. The Company also produces
educational videotapes for physicians. The Company coordinates live surgery
demonstrations at various medical schools. The Company also coordinates
laboratory sessions that utilize animal tissue to demonstrate the respective
surgical techniques. Members of the Company's Medical Advisory Board often lead
the surgery demonstrations and laboratory sessions. Management believes that
these activities improve the medical community's acceptance of the cryopreserved
human tissue processed by the Company.
In order to increase the Company's supply of human tissue for cryopreservation,
the Company educates and trains procurement agency personnel in procurement,
dissection, packaging and shipping techniques. The Company also produces
educational videotapes and coordinates laboratory sessions on procurement
techniques for procurement agency personnel. To supplement its educational
activities, the Company employs in-house technical specialists that provide
technical information and assistance and maintains a staff 24 hours per day, 365
days per year for customer support.
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Bioprosthetic Cardiovascular Devices
In September 1999 the Company established its European subsidiary, CryoLife
Europa Ltd ("Europa"), to provide distribution and technical services to the
Company's network of European representatives, institutional customers and
surgeons. In February 2000 Europa officially opened its headquarters located
near London, England.
The Company markets the CryoLife-O'Brien and CryoLife-Ross stentless porcine
heart valves in the European Community and Australia. The Company's European
sales, distribution and marketing force consists of 21 independent
representatives, representing each of the Benelux countries, France, Germany,
Greece, Denmark, Norway, Finland, Sweden, Italy, Turkey and the United Kingdom.
Marketing efforts are directed almost exclusively toward cardiovascular and
vascular surgeons, and the Company conducts educational seminars and conferences
to train these surgeons and educate them with respect to the uses and benefits
of its porcine stentless heart valves.
BioGlue Surgical Adhesive
The Company markets and distributes its BioGlue surgical adhesive in the U.S.
under the HDE for use in the repair of acute thoracic aortic dissections through
its existing direct technical representatives. The Company markets and
distributes its BioGlue surgical adhesive in the European Community through
Europa and its existing independent representatives, and in other international
markets, excluding Japan, through its existing independent representatives.
During 1998, the Company signed a five-year exclusive agreement with Century
Medical, Inc. for the introduction and distribution of BioGlue in Japan. Under
the terms of the agreement, Century Medical will be responsible for the
applications and clearances through the Japanese Ministry of Health and Welfare.
Marketing efforts are directed almost exclusively toward cardiovascular,
vascular and thoracic surgeons, and the Company conducts training sessions for
doctors with respect to the application and administration of BioGlue surgical
adhesive.
Single-Use Medical Devices
The Company serves as an OEM manufacturer for single-use medical devices for
Horizon Medical Products, Inc. The Company plans to expand sales of its own
single-use medical devices, which include BioGlue extender tips and aortic
balloon catheters, by continuing new product development and leveraging its
established cryopreservation services and product marketing and sales staff to
market the products.
Research and Development
The Company uses its expertise in biochemistry and cell biology, and its
understanding of the needs of the cardiovascular, vascular and orthopaedic
surgery medical specialties, to continue to expand its core cryopreservation
business in the U.S. and to develop or acquire implantable products and
technologies for these fields. The Company seeks to identify market areas that
can benefit from preserved living tissues and other related technologies, to
develop innovative techniques and products within these areas, to secure their
commercial protection, to establish their efficacy and then to market these
techniques and products. The Company employs approximately 22 people in its
research and development department. There are 10 PhDs with specialties in the
fields of immunology, molecular biology, protein chemistry, organic chemistry
and vascular biology.
In order to expand the Company's service and product offerings, the Company is
currently in the process of developing or investigating several technologies and
products, including FibRx surgical sealant, additional applications of
SynerGraft and additional applications of BioGlue surgical adhesive. The Company
is currently investigating certain drug delivery applications for BioGlue
surgical adhesive and FibRx surgical sealant, such as administering antibiotics,
attaching chemotherapy drugs to tumors, delivering growth agents or delivering
bone chips for orthopaedic bone repair. To the extent the Company identifies
additional applications for these products, the Company may attempt to license
these products to corporate partners for further development of such
applications or seek funding from outside sources to continue the commercial
develoment of such technologies. The Company's research and development strategy
is to allocate available resources among the Company's four core market areas of
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<PAGE>
cryopreservation services, bioprosthetic cardiovascular devices, implantable
biomaterials and single-use medical devices, based on the size of the potential
market for any specific product candidate and the estimated development time and
cost required to bring the product to market.
Research on these and other projects is conducted in the Company's research and
development laboratory or at universities or clinics where the Company sponsors
research projects. In 1997, 1998 and 1999, the Company spent approximately $3.9
million, $4.7 million and $4.4 million, respectively, on research and
development activities on new and existing products. These amounts represented
approximately 8%, 8% and 7% of the Company's revenues for those respective
years. The Company's research and development program is overseen by its medical
and scientific advisory boards. The Company's pre-clinical studies are conducted
at universities and other locations outside the Company's facilities by third
parties under contract with the Company. In addition to these efforts, the
Company may, as situations develop, pursue other research and development
activities.
Manufacturing and Operations
The Company's facilities (other than its single-use medical device manufacturing
plant) are located in suburban Atlanta, Georgia, and consist of three separate
locations totaling approximately 130,000 square feet of leased office,
laboratory and warehouse space. In February 2000 the Company began construction
of a 100,000 square foot expansion of its corporate headquarters and
manufacturing facilities. Approximately 17,500 square feet are dedicated to
laboratory work areas. The primary facility, which does not include the FibRx
laboratory and the bioprosthetic manufacturing operation, has four main
laboratory facilities: human tissue processing, BioGlue manufacturing, research
and development and microbiology. Each of these areas consists of a general
technician work area and adjoining "clean rooms" for work with human tissue or
Bioglue manufacturing, and for aseptic processing. The clean rooms are supplied
with highly filtered air which provides a near-sterile environment.
Human Tissue Processing
The human tissue processing laboratory is responsible for the processing and
cryopreservation of human tissue for transplant, including human heart valves
and conduits processed by applying SyneGraft technology. This includes all
processing of heart valves and conduits, vascular tissue and connective tissue
for the knee supplied by CryoLife. This laboratory contains approximately 7,700
square feet with a suite of seven clean rooms. Currently there are 53
technicians employed in this area, and the laboratory is staffed for two shifts,
365 days per year. In 1999, the laboratory processed approximately 27,300 human
tissues for distribution and transplant. The current staffing level is estimated
to be at about half of total capacity. Increasing this capacity could be
accomplished by increasing employees and expanding to three shifts.
Implantable Biomaterials for Use as Surgical Adhesives and Sealants
BioGlue surgical adhesive is presently manufactured at the Company's
headquarters facility, which has an annual capacity of approximately 300,000
units. This laboratory contains approximately 12,900 square feet, including a
suite of 2 cleanrooms. The Company conducts research on its FibRx surgical
sealant in the biomedical products laboratory, which is located in Marietta,
Georgia and employs 2 technicians. This laboratory contains approximately 11,000
square feet, including 4,000 square feet of laboratory space and a suite of
eight clean rooms.
Bioprosthetic Cardiovascular Devices
The bioprosthesis laboratory is responsible for the manufacturing of the
CryoLife-O'Brien and CryoLife-Ross stentless porcine heart valves, as well as
for the manufacturing of SynerGraft porcine valves. This laboratory is located
in Marietta, Georgia and contains approximately 13,000 square feet, with about
3,500 square feet of laboratory space and a suite of four clean rooms for tissue
processing. Currently, this laboratory employs 25 technicians and is scheduled
to manufacture approximately 1,200 CryoLife-O'Brien and CryoLife-Ross valves in
2000. The recently renovated facility's capacity is over 6,000 valves.
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Single-Use Medical Devices
The manufacturing of single-use medical devices is conducted at the Company's
IFM subsidiary located in St. Petersburg, Florida. IFM moved to a renovated
30,000 square foot facility in January 1998. The Company has approximately 105
employees at this facility. In the new facility, a single shift can produce
approximately 300,000 units annually with full capacity expected to be nearly
800,000 units annually.
Quality Assurance
The Company's operations encompass the provision of cryopreservation services
and the manufacturing of bioprosthetics, bioadhesives and single-use medical
devices. In all of its facilities, the Company is subject to regulatory
standards for good manufacturing practices, including current Quality System
Regulations, which are U.S. Food and Drug Administration ("FDA") regulatory
requirements for medical device manufacturers. The FDA periodically inspects
Company facilities to ensure Company compliance with these regulations. The
Company also operates according to ISO 9001 Quality System Requirements, an
internationally recognized voluntary system of quality management for companies
that design, develop, manufacture, distribute and service products. The Company
maintains a Certification of Approval to the ISO 9001, as well as EN46001 and
ANSI/ISO/ASQC/Q9001, the European and U.S. versions of the international
standard, respectively. This approval is issued by Lloyd's Register Quality
Assurance Limited ("LRQA"). LRQA is a Notified Body officially recognized by
the European Community to perform assessments of compliance with ISO 9001 and
its derivative standards. LRQA performs semi-annual on-site inspections of the
Company's quality systems.
The Company's quality assurance staff is comprised primarily of experienced
professionals from the medical device and pharmaceutical manufacturing
industries. The quality assurance department, in conjunction with the Company's
research and development and select university research staffs, routinely
evaluates the Company's processes and procedures.
Cryopreservation Services
The Company employs a comprehensive quality assurance program in all of its
tissue processing activities. The Company is subject to Quality System
Regulations, additional FDA regulations and ISO 9001. The Company's quality
assurance program begins with the development and implementation of training
courses for the employees of procurement agencies. To assure uniformity of
procurement practices among the tissue recovery teams, the Company provides
procurement protocols, transport packages and tissue transport liquids to the
donor sites.
Upon receipt by the Company, each tissue is assigned a unique control number
that provides traceability of tissue from procurement through the processing and
preservation processes, and ultimately to the tissue recipient. Blood samples
from each tissue donor are subjected to a variety of tests to screen for
infectious diseases. Samples of certain tissues are also sent to independent
laboratories for pathology testing. Following dissection of the tissue to be
cryopreserved, a separate disinfection procedure is begun during which the
dissected tissue is treated with proprietary antibiotic solutions. A trained
technician then removes samples from the disinfected tissue upon which serial
cultures are performed to identify bacterial or fungal growth.
The materials and solutions used by the Company in processing tissue are
pre-screened to determine if they are of desired quality as defined by Company
protocols. Only materials and solutions that meet the Company's requirements are
approved by quality assurance personnel for use in processing. Throughout tissue
processing, detailed records are maintained and reviewed by quality assurance
personnel.
The Company's tissue processing facilities are annually licensed by the States
of Georgia, New York, Florida and California as facilities that process, store
and distribute human tissue for implantation. The regulatory bodies of these
states perform appropriate inspections of the facilities to ensure compliance
with state law and regulations. In addition, the Company's human heart valve
operations are additionally regulated by the FDA and periodically inspected for
compliance with Quality System Regulations. Other human tissue processed by the
Company is periodically inspected for compliance with the Code of Federal
Regulation ("CFR") Part 1270. CFR 1270 is an FDA regulation which sets forth the
requirements with which the Company must comply in determining the suitability
of human tissue for implantation.
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<PAGE>
Bioprosthetic, Bioadhesive and Single-Use Medical Device Manufacturing
The Company employs a comprehensive quality assurance program in all of its
manufacturing activities. The Company is subject to Quality System Regulations,
additional FDA regulations and ISO 9001.
All materials and components utilized in the production of the Company's
products are received and thoroughly inspected by trained quality control
personnel, according to written specifications and standard operating
procedures. Only materials and components found to comply with Company
procedures are accepted by quality control and utilized in production.
All materials, components and resulting sub-assemblies are traced throughout the
manufacturing process to assure that appropriate corrective actions can be
implemented if necessary. Each process is documented along with all inspection
results, including final finished product inspection and acceptance. Records are
maintained as to the consignee of product to facilitate product removals or
corrections, if necessary. All processes in manufacturing are validated by
quality engineers to assure that they are capable of consistently producing
product meeting specifications. The Company maintains a rigorous quality
assurance program of measuring devices used for manufacturing and inspection to
ensure appropriate accuracy and precision.
Each manufacturing facility is subject to periodic inspection by the FDA and
LRQA to independently assure the Company's compliance with its systems and
regulatory requirements.
Patents, Licenses and Other Proprietary Rights
The Company relies on a combination of patents, trade secrets, trademarks and
confidentiality agreements to protect its proprietary products, processing
technology, rights and know-how. The Company believes that its patents, trade
secrets, trademarks and technology licensing rights provide it with important
competitive advantages. The Company owns or has licensed rights to 30 U.S.
patents and 26 foreign patents, including patents relating to its technology for
human heart valve and conduit, vascular tissue and connective tissue for the
knee preservation; tissue revitalization prior to freezing; tissue transport;
fibrin adhesive; organ storage solution; and packaging. Certain of the above
patents relate to the Company's BioGlue surgical adhesive and FibRx surgical
sealant. The Company has 15 pending U.S. patent applications and in excess of 43
pending foreign applications that relate to areas including heart valve and
tissue processing technology and delivery of bioadhesives for anastomosis and
other uses. In connection with the sale of the IFM product line to Horizon, the
Company sold all patents related to such product line. There can be no assurance
that any patents pending will result in issued patents. The Company also has
exclusive licensing rights for technology relating to light-sensitive enzyme
inhibitors. The remaining duration of the Company's issued patents ranges from 2
to 17 years. The Company has licensed from third parties certain technologies
used in the development of its FibRx surgical sealant and SynerGraft technology.
These licenses call for the payment of both development milestones and royalties
based on product sales, when and if such products are approved for marketing.
The loss of these licenses could adversely affect the Company's ability to
successfully develop its FibRx surgical sealant and SynerGraft technologies.
There can be no assurance that the claims allowed in any of the Company's
existing or future patents will provide competitive advantages for the Company's
products, processes and technologies or will not be successfully challenged or
circumvented by competitors. To the extent that any of the Company's products
are not patent protected, the Company's business, financial condition and
results of operations could be materially adversely affected. Under current law,
patent applications in the U.S. are maintained in secrecy until patents are
issued and patent applications in foreign countries are maintained in secrecy
for a period after filing. The right to a patent in the U.S. is attributable to
the first to invent, not the first to file a patent application. The Company
cannot be sure that its products or technologies do not infringe patents that
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<PAGE>
may be granted in the future pursuant to pending patent applications or that its
products do not infringe any patents or proprietary rights of third parties. The
Company may incur substantial legal fees in defending against a patent
infringement claim or in asserting claims against third parties. In the event
that any relevant claims of third-party patents are upheld as valid and
enforceable, the Company could be prevented from selling certain of its products
or could be required to obtain licenses from the owners of such patents or be
required to redesign its products to avoid infringement. There can be no
assurance that such licenses would be available or, if available, would be on
terms acceptable to the Company or that the Company would be successful in any
attempt to redesign its products or processes to avoid infringement. The
Company's failure to obtain these licenses or to redesign its products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company has entered into confidentiality agreements with all of its
employees and several of its consultants and third-party vendors to maintain the
confidentiality of trade secrets and proprietary information. There can be no
assurance that the obligations of employees of the Company and third parties
with whom the Company has entered into confidentiality agreements will
effectively prevent disclosure of the Company's confidential information or
provide meaningful protection for the Company's confidential information if
there is unauthorized use or disclosure, or that the Company's trade secrets or
proprietary information will not be independently developed by the Company's
competitors. Litigation may be necessary to defend against claims of
infringement, to enforce patents and trademarks of the Company, or to protect
trade secrets and could result in substantial cost to, and diversion of effort
by, the Company. There can be no assurance that the Company would prevail in any
such litigation. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as do the laws of the U.S.
Competition
Cryopreserved Human Tissues and Bioprosthetic Cardiovascular Devices
The Company faces competition from non-profit tissue banks that cryopreserve and
distribute human tissue, as well as from companies that market mechanical,
porcine and bovine heart valves for implantation. Many established companies,
some with resources greater than those of the Company, are engaged in
manufacturing, marketing and selling alternatives to cryopreserved human tissue.
Management believes that it competes favorably with other entities that
cryopreserve human tissue on the basis of technology, customer service and
quality assurance. As compared to mechanical, porcine and bovine heart valves,
management believes that the human heart valves cryopreserved by the Company
compete on the factors set forth above, as well as by providing a tissue that is
the preferred replacement alternative with respect to certain medical
conditions, such as pediatric cardiac reconstruction, valve replacements for
women in their child-bearing years and valve replacements for patients with
endocarditis. Although human tissue cryopreserved by the Company is initially
higher priced than are mechanical alternatives, these alternatives typically
require that the patient take anti-coagulation drug therapy for the lifetime of
the implant. As a result of the costs associated with anti-coagulants,
mechanical valves are generally, over the life of the implant, more expensive
than tissue cryopreserved by the Company. Notwithstanding the foregoing,
management believes that, to date, price has not been a significant competitive
factor.
Generally, for each procedure that may utilize other human tissue that the
Company cryopreserves, there are alternative treatments. Often, as in the case
of veins and ligaments, these alternatives include the repair, partial removal
or complete removal of the damaged tissue and may utilize other tissues from the
patients themselves or synthetic products. The selection of treatment choices is
made by the attending physician in consultation with the patient. Any newly
developed treatments will also compete with the use of tissue cryopreserved by
the Company.
Human and Stentless Porcine Heart Valves. Alternatives to human heart valves
cryopreserved by the Company include mechanical valves, porcine valves and
valves constructed from bovine pericardium. St. Jude Medical, Inc. is the
leading supplier of mechanical heart valves, and has a marketing and
distribution arrangement with a tissue bank for supplies of cryopreserved human
heart valves and St. Jude Medical, Inc., Baxter International Inc. and
Medtronics, Inc. are the leading suppliers of porcine heart valves. In addition,
management believes that at least three tissue banks offer cryopreservation
services for human heart valves in competition with the Company. The Company
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presently distributes its stentless porcine heart valves only outside the U.S.
These stentless porcine heart valves compete with mechanical valves, human heart
valves and processed bovine pericardium. The Company is aware of at least two
other companies that offer stentless porcine heart valves.
Human Vascular Tissue. Synthetic alternatives to veins cryopreserved by the
Company are available primarily in medium and large diameters. Currently,
management believes that there are no other providers of cryopreserved human
vascular tissue in competition with the Company. Companies offering either
synthetic or allograft products may enter this market in the future.
Human Connective Tissue for the Knee. The Company's competition in the area of
connective tissue for the knee varies according to the tissue involved. When
transplant is indicated, the principal competition for human tissues
cryopreserved by the Company are freeze-dried and fresh frozen human connective
tissues. These alternative allografts are distributed by distributors of
Osteotech, Inc. and various tissue banks, among others. Ligaments and tendons
cryopreserved by the Company constitute the principal treatment options for
injuries which require anterior cruciate ligament repair. To management's
knowledge, there are presently no processed or synthetic alternatives to menisci
cryopreserved by the Company or preserved osteochondral grafts.
Implantable Biomedical Devices
The Company competes with many domestic and foreign medical device,
pharmaceutical and biopharmaceutical companies. In the surgical adhesive and
surgical sealant area, the Company will compete with existing methodologies,
including traditional wound closure products such as sutures and staples,
marketed by companies such as Johnson & Johnson, United States Surgical
Corporation, Sherwood, Davis & Geck and others. Other products currently being
marketed include fibrin glue sold by Immuno AG, a subsidiary of Baxter
Healthcare Company, Chemo-Sero Therapeutic Research Institute, Hoechst AG and
others, and management believes other products are under development by Baxter
Healthcare Corporation, Bristol-Myers Squibb Company, V.I. Technologies, Inc.
and others. Other competitors in the surgical sealant market include Closure
Medical Corporation, B. Braun GmbH and Focal, Inc. Competitive products may also
be under development by other large medical device, pharmaceutical and
biopharmaceutical companies. Many of the Company's current and potential
competitors have substantially greater financial, technological, research and
development, regulatory and clinical, manufacturing, marketing and sales, and
personnel resources than the Company.
These competitors may also have greater experience in developing products,
conducting clinical trials, obtaining regulatory approvals, and manufacturing
and marketing such products. Certain of these competitors may obtain patent
protection, approval or clearance by the FDA or foreign countries or product
commercialization earlier than the Company, any of which could materially
adversely affect the Company. Furthermore, if the Company commences significant
commercial sales of its products, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it currently
has limited experience.
Other recently developed technologies or procedures are, or may in the future
be, the basis of competitive products. There can be no assurance that the
Company's current competitors or other parties will not succeed in developing
alternative technologies and products that are more effective, easier to use or
more economical than those which have or are being developed by the Company or
that would render the Company's technology and products obsolete and
non-competitive in these fields. In such event, the Company's business,
financial condition and results of operations could be materially adversely
affected. See "Risk Factors-Rapid Technological Change."
Government Regulation
U.S. Federal Regulation
Because human heart valves are, and other Company products may be regulated in
the future as, medical devices, the Company and these products are subject to
the provisions of the Federal Food, Drug and Cosmetic Act ("FDCA") and
implementing regulations. Pursuant to the FDCA, the FDA regulates the
manufacture, distribution, labeling and promotion of medical devices in the U.S.
In addition, various foreign countries in which the Company's products are or
may be distributed impose additional regulatory requirements.
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The FDCA provides that, unless exempted by regulation, medical devices may not
be distributed in the U.S. unless they have been approved or cleared for
marketing by the FDA. There are two review procedures by which medical devices
can receive such approval or clearance. Some products may qualify for clearance
to be marketed under a Section 510(k) ("510(k)") procedure, in which the
manufacturer provides a premarket notification that it intends to begin
marketing the product, and shows that the product is substantially equivalent to
another legally marketed product (i.e., that it has the same intended use and
that it is as safe and effective as a legally marketed device and does not raise
different questions of safety and effectiveness than does a legally marketed
device). In some cases, the submission must include data from clinical studies.
Marketing may commence when the FDA issues a clearance letter finding such
substantial equivalence.
If the product does not qualify for the 510(k) procedure (either because it is
not substantially equivalent to a legally marketed device or because it is a
Class III device required by the FDCA and implementing regulations to have an
approved application for premarket approval ("PMA")), the FDA must approve a
PMA application before marketing can begin. PMA applications must demonstrate,
among other matters, that the medical device is safe and effective. A PMA
application is typically a complex submission, usually including the results of
human clinical studies, and preparing an application is a detailed and
time-consuming process. Once a PMA application has been submitted, the FDA's
review may be lengthy and may include requests for additional data. By statute
and regulation, the FDA may take 180 days to review a PMA application although
such time may be extended. Furthermore, there can be no assurance that a PMA
application will be reviewed within 180 days or that a PMA application will be
approved by the FDA.
The FDCA also provides for an investigational device exemption ("IDE") which
authorizes distribution for clinical evaluation of devices that lack a PMA or
510(k). Devices subject to an IDE are subject to various restrictions imposed by
the FDA. The number of patients that may be treated with the device is limited,
as are the number of institutions at which the device may be used. The device
may not be used until the Institutional Review Boiard for the clinical site has
given its approval for the clinical study and patients have given informed
consent to be treated with the investigational device. The device must be
labeled that it is for investigational use and may not be advertised, or
otherwise promoted, and the price charged for the device may be limited.
Unexpected adverse experiences must be reported to the FDA.
Under certain circumstances, where human clinical studies have established the
safety of a device, the FDA may grant a Humanitarian Device Exemption. HDE's are
granted by the FDA in an attempt to encourage the development of medical devices
for use in the treatement of rare conditions that affect small populations. If a
device is determined to be for humanitarian use by the FDA, the manufacturer is
required to show only that the device is safe and has a probable benefit to
patients, but not a demonstration of safety. An approval by the FDA allows such
devices to be distributed before completion of clinical studies to establish the
effectiveness of the device.
The FDCA requires all medical device manufacturers and distributors to register
with the FDA annually and to provide the FDA with a list of those medical
devices which they distribute commercially. The FDCA also requires manufacturers
of medical devices to comply with labeling requirements and to manufacture
devices in accordance with Quality System Regulations, which require that
companies manufacture their products and maintain their documents in a
prescribed manner with respect to good manufacturing practices, design, process,
labeling and packaging controls, process validation, record keeping, and other
quality control activities. The FDA's medical device tracking regulation
requires that a device manufacturer provide information to the FDA on death or
serious injuries alleged to have been associated with the use of its products,
as well as product malfunctions that would likely cause or contribute to death
or serious injury if the malfunction were to recur. The FDA's medical device
tracking regulation requires the adoption of a method of device tracking by
manufacturers of certain life-sustaining or implantable products, the failure of
which would be reasonably likely to have serious adverse health consequences.
The manufacturer must adopt methods to ensure that such devices can be traced
from the manufacturing facility to the ultimate user, the patient. The FDA
further requires that certain medical devices not cleared for marketing in the
U.S. follow certain procedures before they are exported.
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The FDA inspects medical device manufacturers and distributors and has authority
to seize noncomplying medical devices, to enjoin and/or to impose civil
penalties on manufacturers and distributors marketing non-complying medical
devices, to criminally prosecute violators and to order recalls in certain
instances.
Human Heart Valves. The Company's human heart valves became subject to
regulation by the FDA in June 1991, when the FDA published a notice stating that
human heart valves are Class III medical devices under the FDCA. The June 1991
notice provided that distribution of human heart valves for transplantation
would violate the FDCA unless they were the subject of an approved PMA or IDE on
or before August 26, 1991.
On October 14, 1994, the FDA announced in the Federal Register that neither an
approved application for PMA nor an IDE is required for processors and
distributors who had marketed heart valve allografts before June 26, 1991. This
action by the FDA has resulted in the allograft heart valves being classified as
Class II Medical Devices and has removed them from clinical trial status. It
also allows the Company to distribute such valves to cardiovascular surgeons
throughout the U.S.
Other Tissue. Other than human and porcine heart valves, none of the Company's
other tissue services or products are currently subject to regulation as medical
devices under the FDCA or FDA regulation. Heart valves are one of a small number
of processed human tissues over which the FDA has asserted medical device
jurisdiction. In July 1997, the FDA published a final rule, which became
effective in January 1998, regulating "human tissue." The rule clarifies and
modifies an earlier interim rule and defines human tissue as any tissue derived
from a human body which is (i) intended for administration to another human for
the diagnosis, cure, mitigation, treatment or prevention of any condition or
disease and (ii) recovered, processed, stored or distributed by methods not
intended to change tissue function or characteristics. The FDA definition
excludes, among other things, tissue that currently is regulated as a human
drug, biological product or medical device and excludes kidney, liver, heart,
lung, pancreas or any other vascularized human organ. Human tissue is regulated
by the FDA in a manner the agency has deemed necessary to protect the public
health from the transmission of HIV infection and hepatitis infection through
transplantation of tissue from donors with or at risk for these diseases. Unlike
certain drugs, biologicals and medical devices, human tissue is not subject to
premarket notification or approval by the FDA. It is likely, moreover, that the
FDA will expand its regulation of processed human tissue in the future. For
example, the FDA may determine that the veins and connective tissue that are
currently processed by the Company are medical devices, or the FDA may determine
to regulate human heart valves as "human tissue" or biological products rather
than medical devices, but the FDA has not done so at this time. Complying with
FDA regulatory requirements or obtaining required FDA approvals or clearances
may entail significant time delays and expenses or may not be possible, any of
which may have a material adverse effect on the Company. In addition, the U.S.
Congress has considered legislation that would regulate human tissue for
transplant or the FDA could impose a separate regulatory scheme for human
tissue. Such legislation or regulation could have a material adverse effect on
the Company.
Porcine Heart Valves. Porcine heart valves are Class III medical devices, and
FDA approval of a PMA is required prior to commercial distribution of such
valves in the U.S. The porcine heart valves currently marketed by the Company
have not been approved by the FDA for commercial distribution in the U.S. but
may be manufactured in the U.S. and exported to foreign countries if the valves
meet the specifications of the foreign purchaser, do not conflict with the laws
of and are approved by the country to which they will be exported and the FDA
determines that their exportation is not contrary to the public health and
safety.
Single-Use Medical Devices. The products manufactured by the Company through IFM
are regulated as Class I and Class II medical devices by the FDA. These products
require clearance under a 510(k) procedure. All products currently manufactured
by IFM have received a 510(k) clearance from the FDA. In addition, the IFM
facilities are subject to period inspection by the FDA, as are certain of the
Company's records, including reports on returned products and problems
associated with use of its products.
BioGlue Surgical Adhesive. BioGlue surgical adhesive is regulated as a Class III
medical device by the FDA. The Company is currently conducting clinical trials
for BioGlue surgical adhesive in the U.S. There can be no assurance that BioGlue
will receive FDA approval.
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The Company received a Humanitarian Device Exemption (HDE) in December 1999 for
BioGlue surgical adhesive for use in repair of acute thoracic aortic
dissections. The Company commercially distributes BioGlue in the US for this
indication, subject to the limitations imposed by the FDA under an HDE, and will
likely discontinue clinical trials of BioGlue under its current IDE. The Company
has received U.S. FDA approval to and will commence clinical trials under a
supplemental IDE for BioGlue surgical adhesive for use in general vascular and
selected cardiac repairs. If successful, the Company would be able to
commercially distribute BioGlue in the US for these indications. However, there
can be no assurance that the Company will be successful in gaining approval for
the IDE.
Possible Other FDA Regulation. Other products and processes under development by
the Company are likely to be subject to regulation by the FDA (e.g., SynerGraft
heart valves and FibRx surgical sealant). Some may be classified as medical
devices; others may be classified as drugs or biological products or subject to
a regulatory scheme for human tissue that the FDA may adopt in the future.
Regulation of drugs and biological products is substantially similar to
regulation of medical devices. Obtaining FDA approval to market these products
is likely to be a time consuming and expensive process, and there can be no
assurance that any of these products will ever receive FDA approval, if
required, to be marketed.
NOTA Regulation. The Company's activities in processing and transporting human
hearts and certain other organs are also subject to federal regulation under the
National Organ Transplant Act ("NOTA"), which makes it unlawful for any person
to knowingly acquire, receive or otherwise transfer any human organ for valuable
consideration for use in human transplantation if the transfer affects
interstate commerce. NOTA excludes from the definition of "valuable
consideration" reasonable payments associated with the removal, transportation,
implantation, processing, preservation, quality control and storage of a human
organ. The purpose of this statutory provision is to allow for compensation for
legitimate services. The Company believes that to the extent its activities are
subject to NOTA, it meets this statutory provision relating to the
reasonableness of its charges. There can be no assurance, however, that
restrictive interpretations of NOTA will not be adopted in the future that would
call into question one or more aspects of the Company's methods of charging for
its preservation services.
State Licensing Requirements
Some states have enacted statutes and regulations governing the processing,
transportation and storage of human organs and tissue. The activities engaged in
by the Company require it to be licensed as a clinical laboratory and tissue
bank under Georgia, New York, California and Florida law. The Company has such
licenses, and the Company believes it is in compliance with applicable state
laws and regulations relating to clinical laboratories and tissue banks which
store, process and distribute human tissue designed to be used for medical
purposes in human beings. There can be no assurance, however, that more
restrictive state laws or regulations will not be adopted in the future that
could adversely affect the Company's operations. Certain employees of the
Company have obtained other required licenses.
Foreign Approval Requirements
Sales of medical devices and biological products outside the U.S. are subject to
foreign regulatory requirements that vary widely from country to country.
Approval of a product by comparable regulatory authorities of foreign countries
must be obtained prior to commercialization of the product in those countries.
The time required to obtain foreign approvals may be longer or shorter than that
required for FDA approval. The European Community recognizes a single approval,
called a CE Mark, which allows for distribution of an approved product
throughout the European Community (15 countries) without additional applications
to each country. The CE Mark is awarded by third parties called Notified Bodies.
These Notified Bodies are approved and subject to review by the Competent
Authorities of their respective countries. A number of countries outside of the
European Community accept the CE Mark in lieu of clinical data submission as an
addendum to that country's application process. The Company has been issued CE
Marks issued by LRQA for the distribution of its CyroLife-O'Brien and
CryoLife-Ross porcine heart valves, BioGlue surgical adhesive and IFM single-use
medical devices in the European Community. The Company's porcine heart valves
may be exported to specified developed nations, including countries in the
European Community, Australia, Canada,
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Israel, Japan, New Zealand, South Africa and Switzerland if they comply with the
laws of that country and have valid marketing authorization by the appropriate
authority in that country.
Environmental Matters
The Company's tissue processing activities generate some biomedical wastes
consisting primarily of human pathological and biological wastes, including
human tissue and body fluids removed during laboratory procedures. The
biomedical wastes generated by the Company are placed in appropriately
constructed and labeled containers and are segregated from other wastes
generated by the Company. The Company contracts with third parties for
transport, treatment and disposal of biomedical waste. Although the Company
believes it is in compliance with applicable laws and regulations promulgated by
the U.S. Environmental Protection Agency and the Georgia Department of Natural
Resources, Environmental Protection Division, the failure by the Company to
comply fully with any such regulations could result in an imposition of
penalties, fines or sanctions, which could have a material adverse effect on the
Company's business.
Employees
At March 20, 2000 the Company had approximately 410 employees. These employees
included 13 persons with PhD degrees. None of the Company's employees is
represented by a labor organization or covered by a collective bargaining
agreement, and the Company has never experienced a work stoppage or interruption
due to labor disputes. Management believes its relations with its employees are
good.
RISK FACTORS
Dependence on Cryopreservation of Human Tissue
A significant portion of the Company's current revenues is derived from the
cryopreservation of human. The success of this business depends upon, among
other factors, the availability of sufficient quantities of tissue from human
donors. Any material reduction in the supply of donated human tissue could
restrict the Company's growth. The Company relies primarily upon the efforts of
third party procurement agencies (all of which are not-for-profit) and others to
educate the public and foster a willingness to donate tissue. Based on the
Company's experience with human heart valves, management believes that once the
use by physicians of a particular transplantable tissue gains acceptance, demand
for that tissue will exceed the amount of tissue available from human donors.
Failure of the Company to maintain its supply of tissue for cryopreservation
could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, a reduction in the demand for
the Company's cryopreserved human tissue could also have a material adverse
effect on the Company's business, financial condition and results of operations.
Such reduction could occur if competitors' products were perceived as either
functionally superior or more cost effective, if the number of procedures in
which cryopreserved tissues are used declines or if hospitals acquire sufficient
inventories of cryopreserved tissue to allow a reduction in new orders. See
"-Intense Competition" and "-Uncertainties Regarding Future Health Care
Reimbursement."
Intense Competition
The Company faces competition from other companies that cryopreserve human
tissue, as well as companies that market mechanical valves and synthetic and
animal tissue for implantation. Management believes that at least three tissue
banks offer cryopreservation services for human heart valves and many companies
offer processed porcine heart valves and mechanical heart valves. A few
companies dominate portions of the mechanical and porcine heart valve markets,
including St. Jude Medical, Inc., Medtronic, Inc. and Baxter International Inc.
The Company is aware that several companies have surgical adhesive products
under development. Competitive products may also be under development by other
large medical device, pharmaceutical and biopharmaceutical companies. Many of
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the Company's competitors have greater financial, technical, manufacturing and
marketing resources than the Company and are well established in their markets.
There can be no assurance that the Company's products and services will be able
to compete successfully with the products of these or other companies. Any
products developed by the Company that gain regulatory clearance or approval
will have to compete for market acceptance and market share. Failure of the
Company to compete effectively could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business-Competition."
Rapid Technological Change
The technologies underlying the Company's products and services are subject to
rapid and profound technological change. The Company expects competition to
intensify as technical advances in each field are made and become more widely
known. There can be no assurance that others will not develop products or
processes with significant advantages over the products and processes that the
Company offers or is seeking to develop. Any such occurrence could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Uncertainties Regarding Products in Development
The Company's growth and profitability will depend, in part, upon its ability to
complete development of and successfully introduce new products, including
additional applications of its SynerGraft technology and its FibRx technology
The Company may be required to undertake time consuming and costly development
activities and seek regulatory clearance or approval for new products. See
"-Extensive Government Regulation." Although the Company has conducted
pre-clinical studies on many of its products under development which indicate
that such products may be effective in a particular application, there can be no
assurance that the results obtained from human clinical studies will be
consistent with earlier pre-clinical results or be sufficient for the Company to
obtain any required regulatory approvals or clearances. There can be no
assurance that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of new products,
that regulatory clearance or approval of these or any new products will be
granted on a timely basis, if ever, or that the new products will adequately
meet the requirements of the applicable market or achieve market acceptance. The
completion of the development of any of the Company's products remains subject
to all of the risks associated with the commercialization of new products based
on innovative technologies, including unanticipated technical or other problems,
manufacturing difficulties and the possible insufficiency of the funds allocated
for the completion of such development. Consequently, there can be no assurance
that any of the Company's products under development will be successfully
developed or manufactured or, if developed and manufactured, that such products
will meet price or performance objectives, be developed on a timely basis or
prove to be as effective as competing products. The inability to complete
successfully the development of a product or application, or a determination by
the Company, for financial, technical or other reasons, not to complete
development of any product or application, particularly in instances in which
the Company has made significant capital expenditures, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's BioGlue surgical adhesive is currently offered for sale in the
U.S. pursuant to an HDE approval, which provides for limited distribution for
use only as an adjunct in the repair of acute thoracic aortic dissections. There
can be no assurance that the Company will obtain the necessary approvals to
allow for general distribution of its BioGlue surgical adhesive in the U.S.
The Company's porcine heart valve products are currently only offered for sale
outside of the U.S. The Company's porcine heart valves are subject to the risk
that the Company may be unable to obtain regulatory approval necessary to permit
commercial distribution of these products in the U.S.
The Company's research and development efforts are time consuming and expensive
and there can be no assurance that these efforts will lead to commercially
successful products or services. Even the successful commercialization of a new
service or product in the medical industry can be characterized by slow growth
and high costs associated with marketing, under-utilized production capacity and
continuing research, and development and education costs. Generally, the
introduction of new human tissue products requires significant physician
training and years of clinical evidence derived from follow-up studies on human
implant recipients in order to gain acceptance in the medical community.
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Extensive Government Regulation
Government regulation in the U.S., the European Community and other
jurisdictions represents a potentially determinative factor in the success of
the Company's efforts to market and develop its products. See
"Business-Government Regulation." The human heart valves to which the Company
applies its cryopreservation services are currently regulated as Class II
medical devices by the FDA and are subject to significant regulatory
requirements, including Quality System Regulations and recordkeeping
requirements. There can be no assurance that changes in regulatory treatment or
the adoption of new statutory or regulatory requirements will not occur, which
could adversely impact the marketing or development of these products or could
adversely affect market demand for these products.
Other allograft tissues processed and distributed by the Company are currently
regulated as "human tissue" under a rule promulgated by the FDA pursuant to the
Public Health Services Act. This rule establishes requirements for donor testing
and screening of human tissue and recordkeeping relating to these activities.
Although the Company's other human tissue allografts are not currently regulated
as medical devices, such tissue may in the future become subject to more
extensive FDA regulation, which could include PMA or product licensing
requirements.
BioGlue surgical adhesive is regulated as a Class III medical device and the
Company believes that FibRx surgical sealant will be regulated as a biologic by
the FDA. BioGlue surgical adhesive has been approved for limited distribution in
the U.S. under a Humanitarian Device Exemption while FibRx surgical sealant has
not been approved for commercial distribution in the U.S. or elsewhere. Fixed
porcine heart valve products are classified as Class III medical devices. There
can be no assurance that the Company will be able to obtain the FDA approval
required to distribute its surgical sealants or porcine heart valve products in
the U.S., or the approval for unlimited distribution of its BioGlue surgical
adhesive in the U.S. Distribution of these products within the European
Community is dependent upon the Company maintaining its CE Mark and ISO 9001
certifications, of which there can be no assurance.
Most of the Company's products in development, if successfully developed, will
require regulatory approvals from the FDA and perhaps other regulatory
authorities before they may be commercially distributed. The process of
obtaining required regulatory approvals from the FDA normally involves clinical
trials and the preparation of an extensive PMA application and often takes many
years. The process is expensive and can vary significantly based on the type,
complexity and novelty of the product. There can be no assurance that any
products developed by the Company, independently or in collaboration with
others, will receive the required approvals for manufacturing and marketing.
Delays in obtaining U.S. or foreign approvals could result in substantial
additional cost to the Company and adversely affect the Company's competitive
position. The FDA may also place conditions on product approvals that could
restrict commercial applications of such products. Product marketing approvals
or clearances may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing. Delays imposed by
the governmental clearance process may materially reduce the period during which
the Company has the exclusive right to commercialize patented products. Also,
delays or rejections may be encountered during any stage of the regulatory
approval process based upon the failure of the clinical or other data to
demonstrate compliance with, or upon the failure of the product to meet, the
regulatory agency's requirements for safety, efficacy and quality, and those
requirements may become more stringent due to changes in applicable law,
regulatory agency policy or the adoption of new regulations. Clinical trials may
also be delayed due to unanticipated side effects, inability to locate, recruit
and qualify sufficient numbers of patients, lack of funding, the inability to
locate or recruit clinical investigation, the redesign of clinical trial
programs, the inability to manufacture or acquire sufficient quantities of the
particular product candidate or any other components required for clinical
trials, changes in the Company's or its collaborative partners' development
focus and disclosure of trial results by competitors. Even if regulatory
approval is obtained for any of the Company's products or services, the scope of
the approval may significantly limit the indicated usage for which such products
or services may be marketed.
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Products marketed by the Company pursuant to FDA or foreign oversight or
approval are subject to pervasive and continuing regulation. In the U.S.,
devices and biologics must be manufactured in registered and, in the case of
biologics, licensed establishments and must be produced in accordance with
Quality System Regulations. Manufacturing facilities and processes are subject
to periodic FDA inspection. Labeling and promotional activities are also subject
to scrutiny by the FDA and, in certain instances, by the Federal Trade
Commission. The export of devices and biologics is also subject to regulation
and may require FDA approval. From time to time, the FDA may modify such
regulations, imposing additional or different requirements. Failure to comply
with any applicable FDA requirements, which may be ambiguous, could result in
civil and criminal enforcement actions, product recalls or detentions and other
penalties and could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, NOTA prohibits the
acquisition or transfer of human organs for "valuable consideration" for use in
human transplantation. NOTA permits the payment of reasonable expenses
associated with the removal, transportation, processing, preservation, quality
control and storage of human organs. There can be no assurance that restrictive
interpretations of NOTA will not be adopted in the future that will challenge
one or more aspects of the Company's methods of charging for its
cryopreservation services. The Company's laboratory operations are subject to
the U.S. Department of Labor, Occupational Safety and Health Administration and
Environmental Protection Agency requirements for prevention of occupational
exposure to infectious agents and hazardous chemicals and protection of the
environment. Some states have enacted statutes and regulations governing the
processing, transportation and storage of human organs and tissue. While
management believes that the Company is presently in compliance in all material
respects with all such applicable statutes and regulations, there can be no
assurance that more restrictive state laws or regulations will not be adopted in
the future that could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business-Government
Regulation."
Uncertainties Related to Patents and Protection of Proprietary Technology
The Company owns several patents, patent applications and licenses relating to
its technologies, which it believes provide important competitive advantages.
There can be no assurance that the Company's pending patent applications will
issue as patents or that challenges will not be instituted concerning the
validity or enforceability of any patent owned by the Company, or, if
instituted, that such challenges will not be successful. The cost of litigation
to uphold the validity and prevent infringement of a patent could be
substantial. Furthermore, there can be no assurance that competitors will not
independently develop similar technologies or duplicate the Company's
technologies or design around the patented aspects of the Company's
technologies. There can be no assurance that the Company's proposed technologies
will not infringe patents or other rights owned by others. In addition, under
certain of the Company's license agreements, if the Company fails to meet
certain contractual obligations, including the payment of minimum royalty
amounts, such licenses may become nonexclusive or terminable by the licensor,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Additionally, the Company protects its
proprietary technologies and processes in part by confidentiality agreements
with its collaborative partners, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known or independently discovered by competitors, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Uncertainties Regarding Future Health Care Reimbursement
Even though the Company does not receive payments directly from third-party
health care payors, their reimbursement methods and policies impact demand for
the Company's cryopreserved tissue and other services and products. The
Company's cryopreservation services may be particularly susceptible to
third-party cost containment measures. In particular, the initial cost of a
cryopreserved human heart valve generally exceeds the cost of a mechanical,
synthetic or animal-derived valve. The Company is unable to predict what changes
will be made in the reimbursement methods and policies utilized by third-party
health care payors or their effect on the Company. Changes in the reimbursement
methods and policies utilized by third-party health care payors, including
Medicare, with respect to cryopreserved tissues provided for implant by the
Company and other Company services and products, could have a material adverse
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effect on the Company. Significant uncertainty exists as to the reimbursement
status of newly approved health care products and services and there can be no
assurance that adequate third-party coverage will be available for the Company
to maintain price levels sufficient for realization of an appropriate return on
its investment in developing new products. Government and other third-party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new products approved for marketing
by the FDA and by refusing in some cases to provide any coverage for uses of
approved products for indications for which the FDA has not granted marketing
approval. If adequate coverage and reimbursement levels are not provided by
government and other third-party payors for uses of the Company's new products
and services, market acceptance of these products would be adversely affected,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Key Personnel
The Company's business and future operating results depend in significant part
upon the continued contributions of its key technical personnel and senior
management, many of whom would be difficult to replace. The Company's business
and future operating results also depend in significant part upon its ability to
attract and retain qualified management, processing, technical, marketing, sales
and support personnel for its operation. Competition for such personnel is
intense and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. The loss of key employees, the failure
of any key employee to perform adequately or the Company's inability to attract
and retain skilled employees as needed could have a material adverse effect on
the Company's business, financial condition and results of operations.
Product Liability and Insurance
The use of the Company's products involves the possibility of adverse effects
that could expose the Company to product liability claims. A recent U.S. Supreme
Court decision held that prior FDA approval or clearance of the product did not
preempt product liability actions involving the product. FDA and future court
decisions may also increase the Company's risk of product liability. From time
to time, the Company is involved in legal proceedings based on product liability
claims of a nature considered normal to its business. The Company's products are
used by health care providers in connection with the treatment of patients, who
will, on occasion, sustain injury or die as a result of their condition or
medical treatment. If a lawsuit is filed because of such an occurrence, the
Company, along with physicians and nurses, hospitals and other medical
suppliers, may be named as a defendant, and whether or not the Company is
ultimately determined to be liable, the Company may incur significant legal
expenses. In addition, such litigation could damage the Company's reputation and
therefore impair its ability to market its products or obtain product liability
insurance and could cause the premiums for such insurance to increase. Although
the Company has incurred minimal losses due to product liability claims to date,
there can be no assurance that it will not incur significant losses in the
future. The Company currently maintains product liability insurance in the
aggregate amount of $14 million per year. There can be no assurance that such
coverage will continue to be available on terms acceptable to the Company or
will be adequate to cover any losses due to product claims if actually incurred.
Furthermore, if any such claim is successful, it could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business-Legal Proceedings."
Use and Disposal of Hazardous Material
The Company's research, development and processing activities involve the
controlled use of small quantities of radioactive compounds, chemical solvents
and other hazardous materials. The Company's activities also include the
preservation and growth of human cells and the processing of human tissue.
Although the Company believes that its safety procedures for handling,
processing and disposing of hazardous materials and human tissue comply with the
standards prescribed by federal, state and local regulations, the risk of
accidental contamination, injury or disease transmission from these materials
cannot be completely eliminated. In the event of such an accident or
transmission, the Company could be held liable for resulting damages and any
liability could have a material adverse effect on the Company's business,
25
<PAGE>
financial condition and results of operations. Also, any failure to comply with
applicable regulations could result in the imposition of penalties, fines and
sanctions, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Volatility of Securities Prices
The trading price of the Company's Common Stock has been subject to wide
fluctuations from time to time and may continue to be subject to such volatility
in the future. Trading price fluctuations can be caused by a variety of factors,
including quarter to quarter variations in operating results, announcement of
technological innovations or new products by the Company or its competitors,
governmental regulatory acts, developments with respect to patents or
proprietary rights, general conditions in the medical device or service
industries, actions taken by government regulators, changes in earnings
estimates by securities analysts or other events or factors, many of which are
beyond the Company's control. If the Company's revenues or operating results in
future quarters fall below the expectations of securities analysts and
investors, the price of the Company's Common Stock would likely decline, perhaps
substantially. Changes in the trading price of the Company's Common Stock may
bear no relation to the Company's actual operational or financial results.
Anti-Takeover Provisions
The Company's Articles of Incorporation and Bylaws contain provisions that may
discourage or make more difficult any attempt by a person or group to obtain
control of the Company, including provisions authorizing the issuance of
preferred stock without shareholder approval, restricting the persons who may
call a special meeting of the shareholders and prohibiting shareholders from
taking action by written consent. In addition, the Company is subject to certain
provisions of Florida law that may discourage or make more difficult takeover
attempts or acquisitions of substantial amounts of the Company's Common Stock.
Further, pursuant to the terms of a shareholder rights plan adopted in 1995,
each outstanding share of Common Stock has one attached right. The rights will
cause substantial dilution of the ownership of a person or group that attempts
to acquire the Company on terms not approved by the Board and may have the
effect of deterring hostile takeover attempts.
Absence of Dividends
The Company has not paid, and does not presently intend to pay, cash dividends.
The Company's major credit agreement contains, and future credit agreements may
contain, financial covenants, including covenants to maintain certain levels of
net worth and certain leverage ratios, which could have the effect of
restricting the amount of dividends that the Company may pay. It is not likely
that any cash dividends will be paid in the foreseeable future.
Forward-Looking Statements
This Form 10-K includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the Private Securities Litigation Reform Act of 1995. All statements,
other than statements of historical facts, included or incorporated by reference
in this Form 10-K which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including
statements regarding the Company's competitive position, the successful
development of its SynerGraft porcine valves, the funding to continue
development of FibRx surgical sealant, other estimated dates relating to the
Company's proposed regulatory submissions, the timing of the Company's clinical
trials for the approval of BioGlue surgical adhesive for general vascular
repair, the timing of the completion of the expansion of the Company's corporate
headquaters and manufacturing facilities, the Company's expectations regarding
the adequacy of current financing arrangements, product demand and market
growth, the impact of the introduction of BioGlue in the U.S. or marketing
opportunities for the Company's single-use medical devices and other statements
regarding future plans and strategies, anticipated events or trends and similar
26
<PAGE>
expressions concerning matters that are not historical facts are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results and developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties which could cause
actual results to differ materially from the Company's expectations, including
the risk factors discussed in this Form 10-K and other factors, many of which
are beyond the control of the Company. Consequently, all of the forward-looking
statements made in this Form 10-K are qualified by these cautionary statements
and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on the Company or
its business or operations. The Company assumes no obligation to update publicly
any such forward-looking statements, whether as a result of new information,
future events or otherwise.
Item 2. Properties.
The Company's facilities (other than its single use medical device manufacturing
plant) are located in suburban Atlanta, Georgia, and consist of three separate
locations totaling approximately 130,000 square feet of leased office,
laboratory and warehouse space. Approximately 30,000 square feet are dedicated
to laboratory work areas. The primary facility, which does not include the FibRx
laboratory and the bioprosthetic manufacturing operation, has four main
laboratory facilities: human tissue processing, BioGlue manufacturing, research
and development, and microbiology. Each of these areas consists of a general
technician work area and adjoining "clean rooms" for work with human tissue and
for aseptic processing. The clean rooms are supplied with highly filtered air
which provides a near-sterile environment. The human tissue processing
laboratory contains approximately 7,700 square feet with a suite of seven clean
rooms. The BioGlue manufacturing laboratory contains approximately 12,900 square
feet with a suite of 2 clean rooms. The research and development laboratory is
approximately 5,500 square feet with a suite of five clean rooms. The
microbiology laboratory is approximately 3,200 square feet with a suite of three
clean rooms. The FibRx laboratory facility contains approximately 11,000 square
feet, including approximately 4,000 square feet of laboratory space with a suite
of eight clean rooms. The Company's porcine heart valves are manufactured in the
Company's bioprosthesis laboratory, which contains approximately 13,000 square
feet, with about 3,500 square feet of laboratory space and a suite of four clean
rooms for tissue processing. The Company manufactures single-use medical devices
at the Company's IFM subsidiary located in St. Petersburg, Florida. This
facility is approximately 30,000 square feet and is leased from the former
principal shareholder of IFM. The Company's lease on its IFM facility expires in
2007.
In February 2000, the Company began construction of a major new addition to its
corporate headquarters and manufacturing facilities located in suburban Atlanta,
Georgia. The new addition will consist of a two-story 100,000 square foot
manufacturing facility for BioGlue surgical adhesive and SynerGraft heart
valves, as well as physician training laboratories and additional corporate
office space. The Company anticipates completion of the project in mid 2001.
Item 3. Legal Proceedings.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. Management
believes that no currently ongoing litigation, if determined adversely to the
Company, will have a material adverse effect on the Company's business,
financial condition or results of operations.
Item 4. Submission of Matters to Vote of Security Holders.
Inapplicable.
27
<PAGE>
Item 4A. Executive Officers of the Registrant.
Each of the executive officers of the Registrant was elected by the Board of
Directors to serve until the Board of Directors' meeting immediately following
the next annual meeting of shareholders or until his earlier removal by the
Board of Directors or his resignation. The following table lists the executive
officers of the Registrant and their ages, positions with the Registrant, and
the dates from which they have continually served in their present positions
with the Registrant.
<TABLE>
<CAPTION>
<S> <C> <C>
Date First Elected to
Name Age Position Present Office
- - ------- --- --------- ---------------------
Steven G. Anderson 61 President, Chief Executive Officer and Chairman February, 1984
Kirby S. Black, PhD 45 Vice President, Research and Development July, 1995
Edwin B. Cordell, Jr., CPA 41 Vice President and Chief Financial Officer December, 1994
David M. Fronk 36 Vice President, Clinical Research December, 1998
Albert E. Heacox, PhD 49 Vice President, Laboratory Operations June, 1995
Gerald B. Seery 43 Vice President, Marketing August, 1995
James C. Vander Wyk, PhD 55 Vice President, Regulatory Affairs and Quality February, 1996
Assurance
Ronald D. McCall, Esq. 63 Director, Secretary and Treasurer January, 1984
</TABLE>
Steven G. Anderson, a founder of the Company, has served as the Company's
President, Chief Executive Officer and Chairman since its inception. Mr.
Anderson has more than 30 years of experience in the implantable medical device
industry. Prior to joining the Company, Mr. Anderson was Senior Executive Vice
President and Vice President, Marketing, from 1976 until 1983 of Intermedics,
Inc. (now Guidant, Inc.), a manufacturer and distributor of pacemakers and other
medical devices. Mr. Anderson received his BA from the University of Minnesota.
Kirby S. Black, PhD, has served as Vice President of Research and Development
since July 1995. Dr. Black is responsible for the continued development of the
Company's current products as well as the evaluation of new technologies. Dr.
Black is listed on three patents and has authored over 125 publications. Prior
to joining the Company, Dr. Black was Director, Medical Information and Project
Leader from July 1993 until July 1994 at Advanced Tissue Sciences, LaJolla,
California. Dr. Black has also held a number of positions at the University of
California at Irvine, including Director, Transplantation and Immunology
Laboratories, Department of Surgery. Dr. Black received his BS degree from the
University of California, Los Angeles, and his PhD degree from the University of
California at Irvine.
Edwin B. Cordell, Jr., CPA, has served as Vice President and Chief Financial
Officer of the Company since November 1994. From August 1987 to November 1994,
Mr. Cordell served as Controller and Chief Financial Officer of Video Display
Corporation, a publically held consumer electronics manufacturing and
distribution company. Mr. Cordell received his BS in Accounting from the
University of Tennessee.
David M. Fronk was appointed to the position of Vice President of Clinical
Research in December 1998 and has been with the Company since 1992. Mr. Fronk is
responsible for managing the preclinical and clinical investigations for all
products, as well as monitoring product performance. Prior to joining the
Company, Mr. Fronk held engineering positions with Zimmer Inc. from 1986 until
1988 and Baxter Healthcare Corporation from 1988 until 1991. Mr Fronk served as
a market manager with Baxter Healthcare Corporation from 1991 until 1992. Mr.
Fronk received his BS in Mechanical Engineering at The Ohio State University in
1985 and his MS in Biomedical Engineering at The Ohio State University in 1986.
Albert E. Heacox, PhD, has served as Vice President, Laboratory Operations since
June 1988 and has been with the Company since June of 1985. Dr. Heacox has been
responsible for developing protocols and procedures for both cardiovascular and
connective tissues, implementing upgrades in procedures in conjunction with the
Company's quality assurance programs, and overseeing all production activities
of the Company's laboratories. Prior to joining the Company, Dr. Heacox worked
as a researcher with the U.S. Department of Agriculture and North Dakota State
University, developing methods for the cryopreservation of cells and animal germ
plasm storage. Dr. Heacox received a BA and an MS in Biology from Adelphi
University, and received his PhD in Biology from Washington State University and
completed his post-doctorate training in cell biology at the University of
Cologne, West Germany.
Gerald B. Seery has served as Vice President of Marketing since August 1995 and
has been with the Company since July 1993. Mr. Seery is responsible for
developing and implementing the Company's sales and marketing plans and
supervising all tissue procurement activities. Prior to joining the Company, Mr.
Seery held senior marketing management positions with Meadox Medicals from 1982
until 1985, Electro Catheter Corporation from 1985 until 1989 and Daig
Corporation from 1992 until 1993, accumulating fifteen years of specialized
marketing experience in cardiovascular medical devices. Mr. Seery received his
BA in International Economics at The Catholic University of America in
Washington, D.C. in 1978 and completed his MBA at Columbia University in New
York in 1980.
28
<PAGE>
James C. Vander Wyk, PhD, has served as Vice President, Regulatory Affairs and
Quality Assurance of the Company since February 1996. Prior to joining the
Company, Dr. Vander Wyk held senior management positions at Schneider (USA),
Inc. from 1993 until 1996, Pharmacia Deltec, Inc. from 1985 until 1993, Delmed,
Inc. from 1980 until 1985 and Pharmaco, Inc. from 1975 to 1979, gaining 20 years
of experience in Regulatory Affairs and Quality Assurance. Dr. Vander Wyk
received his BS in Pharmacy from the Massachusetts College of Pharmacy and his
PhD in Microbiology from the University of Massachusetts. Dr. Vander Wyk
performed his NIH Postdoctoral Fellowship at the University of Illinois.
Ronald D. McCall has served as a director of the Company and as the Secretary
and Treasurer of the Company since January 1984. From 1985 to the present, Mr.
McCall has been the proprietor of the law firm of Ronald D. McCall, Attorney At
Law, Tampa, Florida. Mr. McCall was admitted to the practice of law in Florida
in 1961. Mr. McCall received his BA and JD degrees from the University of
Florida.
29
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The response to Item 5 is incorporated herein by reference to the information
set forth under the caption "Market Price of Common Stock" on page 35 of the
annual shareholders report for the year ended December 31, 1999.
Item 6. Selected Financial Data.
The response to Item 6 is incorporated herein by reference to the information
set forth under the caption "Selected Financial Information" on page 36 of the
annual shareholders report for the year ended December 31, 1999.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The response to Item 7 is incorporated herein by reference to the information
set forth under the caption "Management's Discussion and Analysis" on pages 16
though 21 of the annual shareholders report for the year ended December 31,
1999.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The response to Item 7A is incorporated herein by reference to the information
set forth under the caption "Quantitative and Qualitative Disclosures About
Market Risk" appearing on page 20 of the annual shareholders report for the year
ending December 31, 1999.
Item 8. Financial Statements and Supplementary Data.
The report of independent auditors and consolidated financial statements
included on pages 22 through 35 of the annual shareholders report for the year
ended December 31, 1999 are incorporated herein by reference. Quarterly Results
of Operations on page 37 of the annual shareholders report for the year ended
December 31, 1999 is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None required to be reported in this Form 10-K.
30
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The response to Item 10, applicable to the Directors of the Company, is
incorporated herein by reference to the information set forth under the caption
"Election of Directors" in the Proxy Statement for the Annual Meeting of
Shareholders to be filed with the Commission not later than April 29, 2000.
Information concerning executive officers is included in Part I, Item 4A of this
Form 10-K.
The response to Item 10, applicable to Section 16(a) of the Securities Exchange
Act of 1934, as amended, is incorporated herein by reference to the information
set forth under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement for the Annual Meeting of Shareholders to be
filed with the Commission not later than April 29, 2000.
Item 11. Executive Compensation.
The response to Item 11 is incorporated herein by reference to the information
set forth under the caption "Executive Compensation" in the Proxy Statement for
the Annual Meeting of Shareholders to be filed with the Commission not later
than April 30, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The response to Item 12 is incorporated herein by reference to the information
set forth under the captions "Ownership of Principal Shareholders and Certain
Executive Officers" and "Election of Directors" in the Proxy Statement for the
Annual Meeting of Shareholders to be filed with the Commission not later than
April 29, 2000.
Item 13. Certain Relationships and Related Transactions.
The response to Item 13 is incorporated herein by reference to the information
set forth under the caption "Executive Compensation" in the Proxy Statement for
the Annual Meeting of Stockholders to be filed with the Commission not later
than April 29, 2000.
31
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The following are filed as part of this report:
(a) 1. Financial Statements
The report of independent auditors and consolidated financial
statements included on pages 22 through 35 of the annual
shareholders report for the year ended December 31, 1999 are
incorporated herein by reference and the report of independent
auditors for each of the two years in the period ended December 31,
1998 is set forth below.
Report of Independent Auditors
The Board of Directors and Shareholders
CryoLife, Inc.
We have audited the accompanying consolidated balance sheet of CryoLife, Inc. as
of December 31, 1998, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
CryoLife, Inc. at December 31, 1998, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1998 in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 2, 1999
2. Financial Statement Schedule
Independent Auditors' Report on Schedule
Schedule II-Valuation and Qualifying Accounts
All other financial statement schedules not listed above are omitted, as the
required information is not applicable or the information is presented in the
consolidated financial statements or related notes.
32
<PAGE>
3. A. Exhibits
The following exhibits are filed herewith or incorporated herein by reference:
Exhibit
Number Description
- - ----- -------------
2.1 Asset Purchase Agreement among the Company and United
Cryopreservation Foundation, Inc., United Transplant Foundation,
Inc. and QV, Inc. dated September 11, 1996. (Incorporated by
reference to Exhibit 2.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.)
2.2 Agreement and Plan of Merger dated as of March 5, 1997 among Ideas
for Medicine, Inc., J. Crayton Pruitt, Sr., M.D., Thomas Benham,
Thomas Alexandris, Tom Judge, Natalie Judge, Helen Wallace, J.
Crayton Pruitt, Jr., M.D., and Johanna Pruitt, and CryoLife, Inc.
and CryoLife Acquisition Corporation. (Incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on
March 19, 1997.)
2.3 Asset Purchase Agreement by and between Horizon Medical Products,
Inc. and Ideas for Medicine, Inc. dated September 30, 1998.
(Incorporated by reference to Exhibit 2 to Horizon Medical Products,
Inc.'s Current Report on Form 8K-filed with the Securities and
Exchange Commission on October 14, 1998.)
3.1 Restated Certificate of Incorporation of the Company.
3.2 ByLaws of the Company, as amended. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
4.1 Form of Certificate for the Company's Common Stock. (Incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
4.2 Form of Certificate for the Company's Common Stock. (Incorporated by
reference to Exhibit 4.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.)
33
<PAGE>
Exhibit
Number Description
- - ------ ---------------
10.1 Lease, by and between New Market Partners III, Laing Properties,
Inc., General Partner, as Landlord, and the Company, as Tenant,
dated February 13, 1986, as amended by that Amendment to Lease, by
and between the parties, dated April 7, 1986, as amended by that
Amendment to Lease, by and between the parties, dated May 15, 1987,
as amended by that Second Amendment to Lease, by and between the
parties, dated June 22, 1988, as amended by that Third Amendment to
Lease, by and between the parties, dated April 4, 1989, as amended
by that Fourth Amendment to Lease, by and between the parties, dated
April 4, 1989 as amended by that Fifth Amendment to Lease, by and
between the parties, dated October 15, 1990. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.1(a) Seventh Amendment to Lease dated February 13, 1986, by and between
New Market Partners III, Laing Properties, Inc., General Partner, as
Landlord, and the Company as tenant, dated May 15, 1996.
(Incorporated by reference to Exhibit 10.1(a) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
10.2 Lease by and between Newmarket Partners I, Laing Properties, Inc.
and Laing Management Company, General Partner, as Landlord, and the
Company as Tenant, dated July 23, 1993. (Incorporated by reference
to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.)
10.3 1993 Employee Stock Incentive Plan adopted on July 6, 1993.
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993.)
10.4 1989 Incentive Stock Option Plan for the Company, adopted on March
23, 1989. (Incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
10.5 Incentive Stock Option Plan, dated as of April 5, 1984.
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1 (No. 33-56388).)
10.6 Form of Stock Option Agreement and Grant under the Incentive Stock
Option and Employee Stock Incentive Plans. (Incorporated by
reference to Exhibit 10.4 to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.7 CryoLife, Inc. Profit Sharing 401(k) Plan, as adopted on December
17, 1991. (Incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
10.8 Form of Supplemental Retirement Plan, by and between the Company and
its Officers -- Parties to Supplemental Retirement Plans: Steven G.
Anderson, David M. Fronk, Gerald B. Seery, James C. Vander Wyk,
Albert E. Heacox, Kirby S. Black, and Edwin B. Cordell, Jr.
(Incorporated by reference to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1 (No. 33-56388).)
10.9(a) Employment Agreement, by and between the Company and Steven G.
Anderson. (Incorporated by reference to Exhibit 10.9(a) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
34
<PAGE>
Exhibit
Number Description
- - ------- -------------
10.9(b) Employment Agreement, by and between the Company and Albert E.
Heacox. (Incorporated by reference to Exhibit 10.7(c) to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
10.9(c) Employment Agreement, by and between the Company and Edwin B.
Cordell, Jr. (Incorporated by reference to Exhibit 10.9(f) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)
10.9(d) Employment Agreement, by and between the Company and Gerald B.
Seery. (Incorporated by reference to Exhibit 10.9(e) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
10.9(e) Employment Agreement, by and between the Company and James C. Vander
Wyk, Ph.D. (Incorporated by reference to Exhibit 10.9(f) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
10.9(f) Employment Agreement, by and between the Company and Kirby S. Black,
Ph.D. (Incorporated by reference to Exhibit 10.9(g) to the
Registrant's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996.)
10.9(g) Employment Agreement, by and between the Company and David M. Fronk.
(Incorporated by reference to Exhibit 10.9(g) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.)
10.10 Form of Secrecy and Noncompete Agreement, by and between the Company
and its Officers. (Incorporated by reference to Exhibit 10.9 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
10.11* Terms of Agreement Between Bruce J. Van Dyne, M.D. and CryoLife,
Inc. dated November 1, 1999.
10.12 Technology Acquisition Agreement between the Company and Nicholas
Kowanko, Ph.D., dated March 14, 1996. (Incorporated by reference to
Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
10.13 Option Agreement, by and between the Company and Duke University,
dated July 9, 1990, as amended by that Option Agreement Extension,
by and between the parties, dated July 9, 1991. (Incorporated by
reference to Exhibit 10.20 to the Registrant's Registration
Statement on Form S-1 (No. 33-56388).)
10.14 Research and License Agreement by and between Medical University of
South Carolina and CryoLife dated November 15, 1985, as amended by
Amendment to the Research and License Agreement dated February 25,
1986 by and between the parties and an Addendum to Research and
License Agreement by and between the parties, dated March 4, 1986.
(Incorporated by reference to Exhibit 10.23 to the Registrant's
Registration Statement on Form S-1 (No. 33-56388).)
35
<PAGE>
Exhibit
Number Description
- - ------ --------------
10.15 CryoLife, Inc. Non-Employee Directors Stock Option Plan, as amended.
(Incorporated by reference to Appendix 2 to the Registrant's
Definitive Proxy Statement filed with the Securities and Exchange
Commission on April 17, 1998.)
10.16 Lease Agreement between the Company and Amli Land Development-I
Limited Partnership, dated April 18, 1995. (Incorporated by
reference to Exhibit 10.26 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)
10.16(a)* First Amendment to Lease Agreement Agreement, dated April 18, 1995,
between the Company and Amli Land Development-I Limited Partnership
dated August 6, 1999.
10.17 Funding Agreement between the Company and Amli Land Development-I
Limited Partnership dated April 18, 1995. (Incorporated by reference
to Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.)
10.18 CryoLife, Inc. Employee Stock Purchase Plan (Incorporated by
reference to Exhibit "A" of the Registrant's Definitive Proxy
Statement filed with the Securities and Exchange Commission on April
10, 1996.)
10.19 Noncompetition Agreement between the Company and United
Cryopreservation Foundation, Inc. dated September 11,1996.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.)
10.2 Noncompetition Agreement between the Company and QV, Inc. dated
September 11, 1996. (Incorporated by reference to Exhibit 10.3 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.)
10.21 RevolvingTerm Loan Facility between the Company and NationsBank
N.A., dated August 30, 1996. (Incorporated by reference to Exhibit
10.4 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.22 Technology License Agreement between the Company and Colorado State
University Research Foundation dated March 28, 1996. (Incorporated
by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.)
10.23 Noncompetition Agreement between the Company and United Transplant
Foundation, Inc. dated September 11, 1996. (Incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.)
10.24(a)* Third Amended and Restated Loan Agreement between CryoLife, Inc, as
Borrower and NationsBank, N.A., as Lender, dated August 30, 1996.
10.24(b) First Amendment of Third Amended and Restated Loan Agreement between
CryoLife, Inc., as Borrower and NationsBank, N.A. (South), as
Lender, dated April 14, 1997. (Incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.)
10.24(c) Second Modification of Third Amended and Restated Loan Agreement
dated December 16, 1997 by and between the Registrant and
NationsBank, N.A. . (Incorporated by reference to Exhibit 10.32(b)
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.)
36
<PAGE>
Exhibit
Number Description
- - -------- -----------------
10.24(d)* Third Modification of Third Amended and Restated Loan Agreement
dated June 12, 1998 by and between the Registrant and NationsBank,
N.A.
10.24(e)* Fourth Modification of Third Amended and Restated Loan Agreement
dated December 16, 1997 by and between the Company and Bank of
America, N.A. and First Modification of Revolving Note dated
December 31, 1999.
10.25 Reserved.
10.26 CryoLife, Inc. 1998 Long-Term Incentive Plan. (Incorporated by
reference to Appendix 2 to the Registrant's Definitive Proxy
Statement filed with the Securities and Exchange Commission on April
17, 1998.)
10.27 Consulting Agreement dated March 5, 1997 between CryoLife
Acquisition Corporation and J. Crayton Pruitt, Sr., M.D.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.)
10.28 Subordinated Convertible Debenture dated March 5, 1997 between the
Company and J. Crayton Pruitt, Sr., M.D. (Incorporated by reference
to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997.)
10.29 Lease Agreement dated March 5, 1997 between the Company and J.
Crayton Pruitt, Sr., M.D. (Incorporated by reference to Exhibit 10.4
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.)
10.30 Lease Guaranty dated March 5, 1997 between J. Crayton Pruitt Family
Trust U/T/A and CryoLife, Inc., as Guarantor for CryoLife
Acquisition Corporation. (Incorporated by reference to Exhibit 10.5
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.)
10.3 Form of Non-Competition Agreement dated March 5, 1997 between the
Company and J. Crayton Pruitt, Sr., M.D., Thomas Benham, Thomas
Alexandris, Tom Judge, Natalie Judge, Helen Wallace, J. Crayton
Pruitt, Jr., M.D., and Johanna Pruitt. (Incorporated by reference to
Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.)
10.32* Standard Form of Agreements Between Owner and Design/Builder by and
between the Company and Choate Design and Build Company dated
January 19, 2000.
13.1* Portions of the Registrant's Annual Report to Shareholders for the
year ended December 31, 1999 which are incorporated by reference
herein.
21.1* Subsidiaries of CryoLife, Inc.
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Ernst & Young LLP
27.1* Financial Data Schedule
________________________________
* Filed herewith.
37
<PAGE>
3.B. Executive Compensation Plans and Arrangements.
1. 1993 Employee Stock Incentive Plan adopted on July 6, 1993. (Exhibit 10.2
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)
2. 1989 Incentive Stock Option Plan for the Company, adopted on March 23, 1989
(Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (No.
33-56388).)
3. Incentive Stock Option Plan, dated as of April 5, 1984 (Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
4. Form of Stock Option Agreement and Grant under the Incentive Stock Option
and Employee Stock Incentive Plans (Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1 (No. 33-56388).)
5. CryoLife, Inc. Profit Sharing 401(k) Plan, as adopted on December 17, 1991
(Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (No.
33-56388).)
6. Form of Supplemental Retirement Plan, by and between the Company and its
Officers -- Parties to Supplemental Retirement Plans: Steven G. Anderson,
Robert T. McNally, Gerald B. Seery, James C. Vander Wyk, Albert E. Heacox,
Kirby S. Black and Edwin B. Cordell, Jr. (Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1 (No. 33-56388).)
7. Employment Agreement, by and between the Company and Steven G. Anderson.
(Incorporated by reference to Exhibit 10.9(a) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998.)
8. Employment Agreement, by and between the Company and David M. Fronk.
(Incorporated by reference to Exhibit 10.9(g) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998.)
9. Employment Agreement, by and between the Company and Albert E. Heacox.
(Exhibit 10.7(c) to the Registrant's Registration Statement on Form S-1
(No. 33-56388).)
10. Employment Agreement, by and between the Company and Gerald B. Seery.
(Incorporated by reference to Exhibit 10.9(e) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995.)
11. Employment Agreement, by and between the Company and James C. Vander Wyk,
Ph.D. (Incorporated by reference to Exhibit 10.9(f) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.)
12. Employment Agreement, by and between the Company and Edwin B. Cordell, Jr.
(Incorporated by reference to Exhibit 10.9(f) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.)
13. CryoLife, Inc. Non-Employee Directors Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.15 to this form 10-K.)
14. CryoLife, Inc. Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit "A" of the Registrant's Definitive Proxy Statement filed with the
Securities and Exchange Commission on April 10, 1996.)
15. Employment Agreement by and between the Company and Kirby S. Black
(Incorporated by reference to Exhibit 10.9(g) to the Registrant's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1996.)
16. CryoLife, Inc. 1998 Long-Term Incentive Plan. (Exhibit 10.34 to this Form
10-K).
17. Terms of Agreement Between Bruce J. Van Dyne, M.D. and CryoLife, Inc. dated
November 1, 1999.
38
<PAGE>
(b) Reports on Form 8-K
1. The Registrant filed a Current Report on Form 8-K with respect to the
change in its Independent Auditors with the Securities and Exchange
Commission on June 4, 1999.
2. The Registrant filed a Current Report on Form 8-K/A with respect to the
change in its Independent Auditors with the Securities and Exchange
Commission on June 9, 1999.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CRYOLIFE, INC.
March 27, 2000
By /s/ Steven G. Anderson
-----------------------------------------
Steven G. Anderson,
President, Chief Executive
Officer and Chairman of
the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
------------- ---------- -------
/s/ Steven G. Anderson President, Chief Executive Officer March 27, 2000
- - ----------------------- and Chairman of the Board of Directors
Steven G. Anderson (Principal Executive Officer)
/s/ Edwin B. Cordell, Jr. Vice President and Chief Financial March 27, 2000
- - ------------------------ Officer (Principal Financial and
Edwin B. Cordell, Jr. Accounting Officer)
/s/ Ronald D. McCall Director March 27, 2000
- - ------------------------
Ronald D. McCall
/s/ Benjamin H. GRAY Director March 27, 2000
- - ------------------------
Benjamin H. Gray
/s/ Virginia C. Lacy Director March 27, 2000
- - ------------------------
Virginia C. Lacy
/s/ Ronald Charles Elkins, M.D. Director March 27, 2000
- - --------------------------------
Ronald Charles Elkins, M.D.
/s/ Bruce j. Van dyne, M.D. Director March 27, 2000
- - --------------------------------
Bruce J. Van Dyne, M.D.
/s/ John M. Cook Director March 27, 2000
- - --------------------------
John M. Cook
/s/ Alexander C. Schwartz, jr. Director March 27, 2000
- - ------------------------
Alexander C. Schwartz, Jr.
</TABLE>
40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CryoLife, Inc.
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in CryoLife,
Inc.'s 1999 annual report to stockholders and this Form 10-K and have issued our
report thereon dated February 7, 2000. Our audit was made for the purpose of
forming an opinion on those financial statements taken as a whole. The schedule
listed in Item 14(a) of this Form 10-K is the responsibility of the Company's
management, is presented for purposes of complying with the Securities and
Exchange Commission's rules, and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN, LLP
Atlanta, Georgia
February 7, 2000
S-1
1216257v1
<PAGE>
1217270v3
SCHEDULE II
CRYOLIFE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Balance beginning Balance end of
Description of period Additions Deductions period
- - --------------------------------------------- ----------------- --------- ---------- ---------------
Year ended December 31, 1999
Allowance for doubtful accounts........... $ 256,000 $521,000 $249,000 $528,000
Deferred preservation costs............... 53,000 235,000 137,000 151,000
Year ended December 31, 1998
Allowance for doubtful accounts........... $ 103,000 $171,000 $ 18,000 $256,000
Deferred preservation costs............... 152,000 -- 99,000 53,000
Year ended December 31, 1997
Allowance for doubtful accounts........... $ 94,000 $ 46,000 $ 37,000 $103,000
Deferred preservation costs............... 278,000 -- 126,000 152,000
</TABLE>
S-2
EXHIBIT 10.11
Terms of Agreement
Between
Bruce J. Van Dyne, M.D. and CryoLife, Inc.
Effective Date:
November 1, 1999 - November 30, 2002
Focus of Services:
Dr. Van Dyne agrees to provide consulting services to CryoLife as needed.
Consulting Services provided will address:
* Research into the clinical use of preserved spinal discs, nerve tissue
and/or vertebral bodies either for open surgery or minimally invasive
surgery.
* Facilitate the development and use of CryoLife products in clinical
applications.
* The presentation of clinical information at surgical congresses, education
and training.
Compensation
* Daily consulting fee of $1,500 paid upon receipt of an invoice for
services.
All travel and related expenses, incurred under this Agreement and in compliance
with corporate travel and expense guidelines and policies, will be reimbursed to
Dr. Van Dyne by CryoLife, Inc. Such expenses are to be submitted along with an
invoice for services as outlined above.
The undersigned agree to the terms of the Agreement between Bruce J. Van Dyne,
M.D. and CryoLife, Inc.
CryoLife, Inc. Bruce J. Van Dyne, M.D.
/s/ STEVEN G. ANDERSON /s/ BRUCE J. VAN DYNE, M.D.
- - --------------------------- ---------------------------
Steven G. Anderson, President and CEO Bruce J. Van Dyne, M.D.
10/26/99 11/1/99
- - --------------------------- ---------------------------
Date Date
1218386v1
EXHIBIT 10.16(a)
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this "First Amendment") is entered
into this ______ day of _____________, 1999, by and between AMLI LAND
DEVELOPMENT - I LIMITED PARTNERSHIP, an Illinois limited partnership, whose
address is in care of AMLI REALTY CO., 1945 Vaughn Road, Kennesaw, Georgia
30144, (together with its successors and assigns "Amli") and CRYOLIFE, INC., a
Florida corporation, whose address is 1655 Roberts Boulevard, Kennesaw, Georgia
30144 (together with its permitted assigns "Tenant").
W I T N E S S E T H :
WHEREAS, Amli and Tenant entered into that certain Lease Agreement dated as
of April 14, 1995, ("Lease") dealing with and surrounding the leasing of a
certain building and other improvements and appurtenances thereto as described
in the Lease ("Cryolife Phase I");
WHEREAS, Amli has agreed to the construction of an additional two-story
office/R&D/warehouse/light manufacturing building and other improvements and
appurtenances, including an interconnection between Cryolife Phase I and
Cryolife Phase II (as that term is hereinafter defined) thereby adjoining
Cryolife Phase I and Cryolife Phase II;
WHEREAS, for the purposes herein, the new additional two-story office/R&D
building, other improvements and appurtenances, including the interconnection,
shall hereinafter be referred to as "Cryolife Phase II".
WHEREAS, Amli and Cryolife desire to enter into this First Amendment to
amend the Lease.
NOW, THEREFORE, in consideration of TEN and NO/100 ($10.00) DOLLARS, the
premises, and other good and valuable consideration and the mutual benefits that
will be derived by the parties hereto, Amli and Tenant hereby agree as follows:
The recitals hereinabove set forth are incorporated
herein by reference as if totally set forth herein.
The Cryolife Phase II shall be and is hereby covered
and governed by the Lease as hereinafter amended.
The Lease is hereby amended whereby any and all
references to the Pre-Occupancy and Construction Agreement in
the Lease shall only refer to and apply to Cryolife Phase II.
The Lease is hereby amended whereby any and all
reference to the address of Amli shall mean 1945 Vaughn Road,
Kennesaw, Georgia 30144, and any and all reference to the
address of the Tenant shall mean 1655 Roberts Boulevard,
Kennesaw, Georgia 30144.
1
1215727v1
<PAGE>
The Lease is further hereby amended as follows:
1. In Paragraph 1, styled Architect, on Page 1 strike "Masterson, Fowler
Associates, Ltd." and substitute in lieu therefor: "An architect
selected by Tenant ("Tenant Architect"), subject to Landlord's
reasonable approval, and an architect selected by Landlord, i.e.
Fowler & Associates, Inc. The Tenant Architect and Landlord Architect
shall cooperate and work in conjunction with each other in their
respective designs and preparations of the respective plans and
specifications ".
2. In Paragraph 1, styled Gross Building Area, on Page 3, is hereby
deleted in its entirety and the following substitute in lieu therefor:
"Gross Building Area: The entire area within the exterior
base walls on each floor of Cryolife Phase I. Unless otherwise
expressly stated to the contrary, all reference in this Lease in
"square feet" shall mean the square feet of the Gross Building
Area of Cryolife Phase I and Cryolife Phase II. Landlord and
Tenant hereby agree that the Gross Building Area of Cryolife
Phase I, as shown on the Plans, is 98,268 sq. ft, and such total
shall be deemed to Gross Building Area of Cryolife Phase I for
all purposes under this Lease.
The Landlord and Tenant hereby agree that the Gross Building
Area of Cryolife Phase II, as shown on the Plans, is 98,268
sq.ft. (plus an area to be determined and agreed to by Landlord
and Tenant for the interconnection between Cryolife Phase I and
Cryolife Phase II once the plans and specifications for the
interconnection are agreed to and approved by Landlord and
Tenant) and such total shall be deemed the Gross Building Area of
Cryolife Phase II for all purposes under this Lease."
3. In Paragraph 1, styled Land, on Page 4, is hereby deleted in its
entirety and the following substitute in lieu therefor:
"Land: An approximately eleven (11) acre parcel of real estate
located in the Park, and legally described in Exhibit A attached
hereto and made a part hereof ("Cryolife Phase I"). An
approximately nine and one-half (9.5) acre parcel of real estate
located in the Park, and legally described in Exhibit A-1
attached hereto and made a part hereof ("Cryolife Phase II")".
a. In Paragraph 1, styled, Net Rentable Area, on Page 5, is hereby
deleted in its entirety and substitute in lieu therefor the following:
"Net Rentable Area: The Gross Building Area of Cryolife Phase I,
less the area of the vertical penetrations for the elevators and
any designated stairwells within the perimeter of the Facility of
Cryolife Phase I (e.g. there being two (2) stairwells in the
initial Facility of Cryolife Phase I). Landlord and Tenant hereby
agree that the Net Rentable Area of the initial Facility of
Cryolife Phase I, as shown on the Plans, is Ninety-Five Thousand
Two Hundred Ten (95,210) sq. ft. and such total shall be deemed
the net rentable area of the Facility of Cryolife Phase I for all
purposes under this Lease.
2
<PAGE>
Landlord and Tenant hereby agree that the Net Rentable Area
of Cryolife Phase II, as shown on the Plans, is Ninety-Five
Thousand Two Hundred Ten (95,210) sq.ft and such total shall be
deemed the Net Rentable Area of the facility of Cryolife Phase
II, for all purposes under this Lease, and excludes a freight
elevator that may be installed by Tenant at Tenant's sole
expense."
In Paragraph 1, styled Premises, on Page 6 is hereby deleted
in its entirety and substitute in lieu therefor the following:
"Premises: collectively, the Land, the Facility of Cryolife Phase
I and the Facility of Cryolife Phase II, the interconnection
between Cryolife Phase I and Cryolife Phase II (which
interconnection shall be deemed a part of Cryolife Phase II) and
other improvements located on the Land."
b. In Paragraph 2, on Page 7, is hereby deleted in its entirety and the
following is substituted in lieu therefor:
"2. Agreement to Lease. Landlord hereby Leases to Tenant and
Tenant hereby accepts the Land of Cryolife Phase I, located in
Cobb County, Georgia, together with all improvements now and
hereafter located on the Land of Cryolife Phase I, including
without limitation a building of Ninety-Eight Thousand Two
Hundred Sixty-Eight (98,268) sq. ft. of Gross Building Area
constructed thereon in accordance with the Plans (such building
referred to hereinafter as the "Facility of Cryolife Phase I"),
for a term (the "Term") commencing on the Commencement Date and
ending ______________ months after the Commencement Date (the
"Termination Date"); provided, however, that if the Commencement
Date is not the first (1st) day of the calendar month, the Term
shall end ____________ calendar months after the first (1st) day
of the calendar month immediately succeeding the calendar month
in which the Commencement Date occurs, unless sooner terminated
as provided herein, subject to the agreements herein contained.
The parties agree and acknowledge that the Commencement Date for
the Facility of Cryolife Phase I is _____________ and the
Termination Date for Cryolife Phase I will be the termination
date for Cryolife Phase II.
Landlord hereby Leases to Tenant, and Tenant hereby accepts,
the Land of Cryolife Phase II, located in Cobb County, Georgia,
together with all improvements now or hereafter located on the
Land Cryolife Phase II, including without limitation a building
of Ninety-Eight Thousand Two Hundred Sixty-Eight (98,268) sq. ft.
of Gross Building Area to be constructed thereon in accordance
with the Plans pursuant to the Pre-Occupancy Agreement (such
building being referred to herein as the "Facility of Cryolife
Phase II") for a term (the "Term") commencing on the Commencement
Date and ending One Hundred Eighty (180) calendar months from the
Commencement Date (the "Termination Date"); provided, however,
that if the Commencement Date is not the first (1st) date of a
calendar month, the Term shall end One Hundred Eighty (180)
calendar months after the first 1st day of the calendar month
immediately succeeding the calendar month in which the
Commencement Date occurs unless sooner terminated as provided
herein, subject to the agreements herein contained."
3
<PAGE>
In Paragraph 3, on Page 8 the paragraph is hereby deleted in
its entirety and the following is substituted in lieu
therefor:
" 3. Commencement Date: Except as otherwise expressly provided
for in this Lease or the Pre-Occupancy Agreement, the
"Commencement Date " for Cryolife Phase II shall be One Hundred
Twenty-Two (122) days after the later to occur of (i) the
Substantial Completion Date or (ii) October 31, 2000
("Anticipated Commencement Date"). The parties shall confirm the
date of the Commencement Date of Cryolife Phase II in writing as
provided in Section 17 of the Pre-Occupancy Agreement."
In Paragraph 6.2, add the following as a new paragraph at
the end of the paragraph:
"Landlord represents that the amount of the assessments for the
1999 calendar year is estimated to equal approximately Three
Hundred and no/100 Dollars ($300.00) per acre".
c. In Paragraph 23, Page 41, add the following as a new paragraph at the
end of the paragraph:
"23.8 Casualty Affecting Cryolife Phase I - Crolife Phase II.
Amli and Tenant hereby acknowledge and agree that any Casualty as
described in this Paragraph 24, which only affects either
Cryolife Phase I or Cryolife Phase II and not both Cryolife Phase
I and Cryolife Phase II, Tenant can only exercise its right of
termination of the Lease as it relates only to the phase which is
affected, i.e. either Cryolife Phase I or Cryolife Phase I,
unless both phases, i.e. Cryolife Phase I and Cryolife Phase II,
are effected by such Casualty."
d. In Paragraph 24, Page 46, add the following as a new paragraph at the
end of the paragraph:
"24.7 Condemnation Affecting Cryolife Phase I - Crolife Phase II.
Amli and Tenant hereby acknowledge and agree that any
Condemnation as described in this Paragraph 24, which only
affects Cryolife Phase I or Cryolife Phase II and not both
Cryolife Phase I or Cryolife Phase II, Tenant can only exercise
its right of termination of the Lease as it relates only to the
phase which is affected, i.e. Cryolife Phase I or Cryolife Phase
I, unless both phases, i.e. Cryolife Phase I or Cryolife Phase
II, are effected by such condemnation"
4
<PAGE>
e. In Paragraph 37(a)(i), Page 57, the first sentence of the subparagraph
is striken in its entirety and the following is substituted in lieu
therefor:
"The initial Base Rent payable during the first year of the
Renewal Term shall be at a rate equal to one hundred two (102%)
percent of the Base Rent applicable to the Nineteenth (19th)
Lease Year for Cryolife Phase I and to the fifteenth (15th) Lease
Year applicable to Cryolife Phase II".
f. In Paragraph 39, Page 59, is hereby deleted in its entirety.
g. In Paragraph 41, Page 60, is hereby deleted in its entirety.
h. In Paragraph 43, Page 61, add the following at the end of the
paragraph:
"The Moving Allowance and Design Allowance described in this
paragraph are applicable to Cryolife Phase I".
Further add at the end of the paragraph the following new
paragraph"
"The Landlord shall pay the Tenant (i) a moving allowance of
Ninety-Five Thousand Two Hundred Ten and no/100 Dollars
($95,210.00) (the "Moving Allowance Cryolife Phase II") and (ii)
a space planning and design allowance of Ninety-Five Thousand Two
Hundred Ten and no/100 Dollars ($95,210.00) (the "Design
Allowance Cryolife Phase II"). The Moving Allowance Cryolife
Phase II and the Design Allowance Cryolife Phase II shall be due
and payable on the date on which Tenant takes occupancy of
Cryolife Phase II. Tenant shall not be required to provide
verification of Tenant's actual moving expenses or space planning
or design expenses in order to be entitled to payment of the
Moving Allowance of Cryolife Phase II and the Design Allowance of
Cryolife Phase II."
The following shall be added as a new paragraph 44:
"44. Tenant Allowance. Landlord shall provide Tenant with a
Tenant Improvement Allowance ("TIA") in accordance with the
Pre-Occupancy Agreement which TIA shall be fully amortized over
the initial fifteen (15) year Term of Cryolife Phase II".
5
<PAGE>
i. Exhibit B is hereby deleted in its entirety and Exhibit B attached
hereto and incorporated herein by reference is substituted in lieu
therefor.
j. Attached hereto as Exhibit B-1 is a Schedule of Base Rent payments for
Cryolife Phase II, which Exhibit B1 is incorporated herein by
reference.
k. In Exhibit C, the form of estoppel letter for Cryolife Phase II shall
refer to the year 2000 and the Premises shall refer to the nine and
one half (9.5) acres together with the Ninety-Eight Thousand Two
Hundred Sixty-Eight (98,268) sq. ft. building (plus the
interconnection) known as Cryolife Phase II Building in Barrett, Cobb
County, Georgia.
l. Exhibit E, the form of Memorandum of Lease for Cryolife Phase II,
shall refer to the year 2000, the First Amendment to Lease as of the
date of __________, 1999, the sq. footage of the Cryolife Phase II
Building shall be Ninety-Eight Thousand Two Hundred Sixty-Eight
(98,268) sq. ft. (plus the square footage within the interconnection)
and the term of the Lease shall be from the Substantial Completion
date or October 31, 2000.
m. The following shall be added as a new paragraph 45:
"45. Base Building and Leasehold Improvements Cryolife Phase II:
Landlord shall design and build the base building shell, which
shall include but is not necessarily limited to the following
features: a two-story block building over a steel frame, with
mirrored glass; sprinklers to meet code (heads turned up);
floor-to-ceiling glass on five-foot centers on four sides of the
building (adjusted for loading area); paving, striping, leased
pole lighting, curb and gutter in the parking lot; parking
commensurate with Cryolife Phase I; landscaping commensurate with
Cryolife Phase I; design specifications for Tenant Improvements;
two (2) hydraulic elevators and entry lobby stairs and
docking/receiving area similar to Cryolife Phase I.
As part of the construction of the base building shell for
Cryolife Phase II, Landlord shall construct an interconnection
between Cryolife Phase I building and Cryolife Phase II building
of approximately seven thousand (7,000) square feet. Landlord
shall be responsible for the cost of the interconnection not to
exceed One Hundred Thousand and no/100 Dollars ($100,000.00) and
any cost over and above the first One Hundred Thousand and no/100
Dollars ($100,000.00) for the construction of the interconnection
shall be borne by the Tenant. Tenant may, at its election, use
Tenant Improvement Allowance up to but not to exceed One Hundred
Seventy-Five Thousand and no/100 Dollars ($175,000.00) for the
payment of the construction cost of the interconnection over and
above the first One Hundred Thousand and no/100 Dollars
($100,000.00).
6
<PAGE>
The leasehold improvements to be constructed by the Tenant
and for which the Tenant Improvement Allowance has been allocated
and established in the Pre-Occupancy Agreement shall be used for
the construction of Tenant Improvements over and above the base
building shell, including but not limited to: lobby finishes;
tenant build-out; mechanical, electrical, plumbing design cost
beyond the base building; interior design fees including the
preparation of construction drawings for Tenant Improvements;
moving allowance; space planning; restrooms beyond stub-in;
tenant identification signage; installation of all HVAC, plumbing
and electrical systems (beyond minimum required by code in
compliance with mutually accrued locations, specifications and
capacity; construction management by Tenant; and bonding and
insurance for the construction of the Tenant Improvements.
The Tenant shall be responsible for the designing and
constructing all Tenant Improvements, over and above the base
building, and for providing its own construction management
services for the Tenant Improvements to be made by Tenant."
The parties hereto hereby ratify, affirm and confirm the Lease, as amended
hereby, and that the Lease is in full force and effect and that the parties
are bound by the terms and conditions of the Lease as hereby amended.
TENANT:
CRYOLIFE, INC.
a Florida corporation
By:________________________________
Steven G. Anderson
Its Chairman, President & CEO
[CORPORATE SEAL]
Date of Signature _________________, 1999
LANDLORD:
AMLI LAND DEVELOPMENT -
I LIMITED PARTNERSHIP
an Illinois limited partnership
By: AMLI REALTY CO.,
a Delaware corporation, its sole general partner
By: _______________________________
Philip N. Tague
Executive Vice President
[CORPORATE SEAL]
Date of Signature _____________________, 1999
EXHIBIT 10.24(a)
THIRD AMENDED AND RESTATED LOAN AGREEMENT
THIS AGREEMENT made and entered into as of the 30th day of August,
1996, by and between NATIONSBANK, N.A. (SOUTH) ("Lender"), a national banking
association which is the successor by merger to Bank South, a Georgia banking
corporation formerly known as Bank South, N.A., and CRYOLIFE, INC. ("Borrower"),
a Florida corporation.
W I T N E S S E T H:
Pursuant to a Loan Agreement, dated as of July 12, 1989, between
Lender and Borrower, as amended and restated by an Amended and Restated Loan
Agreement, dated as of February 20, 1992, between Lender and Borrower, and as
further amended and restated by a Second Amended and Restated Loan Agreement,
dated as of August 4, 1994, between Lender and Borrower (collectively, the
"Prior Loan Agreements"), Lender has agreed to make certain loans available to
Borrower. Borrower and Lender desire to again amend and restate the Prior Loan
Agreements and are entering into this Agreement for such purpose.
NOW, THEREFORE, for and in consideration of the premises and the
mutual agreements, warranties and representations herein made, Lender and
Borrower agree to amend and restate the Prior Loan Agreements as follows:
ARTICLE I - DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 101. Specific Definitions. As used herein, the following terms
shall have the following meanings:
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with Borrower. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"This Agreement" means this agreement as originally executed or as it
may from time to time be amended by one or more written amendments or
modification agreements entered into pursuant to the applicable provisions
hereof.
"Borrower" shall have the meaning given that term in the preamble to
this Agreement, and such term also shall include Borrower's successors and
assigns.
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"Capital Expenditures" shall mean expenditures of over $10,000 each
made or liabilities incurred by Borrower for the acquisition of any fixed assets
or improvements (and any replacements, substitutions or additions thereto) which
have a useful life of more than one (1) year, including the direct or indirect
acquisition of such assets by way of increased product or service changes,
off-set items or otherwise, and payments made during the relevant fiscal period
with respect to Capitalized Lease Obligations, all as determined on a
consolidated basis; provided, however, that for purposes of determining
compliance with Section 507(b), capital expenditures for leasehold improvements
and equipment made by Borrower for its new corporate headquarters building shall
be excluded.
"Capitalized Lease Obligations" shall mean any indebtedness of
Borrower represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with generally
accepted accounting principles in effect from time to time, and the amount of
such indebtedness shall be the capitalized amount of such obligations determined
on a consolidated basis in accordance with generally accepted accounting
principles consistently applied.
"Collateral" means and includes all property assigned or pledged to
Lender or in which Lender has been granted a security interest or to which
Lender has been granted security title under this Agreement or the other
Financing Documents and the proceeds thereof.
"Contractual Obligation" of any Person shall mean any provision of any
agreement, instrument, security, or undertaking to which such Person is a party
or by which it or any of the property owned by it is bound.
"Credit Expiration Date" shall mean September 1, 1998, as such date
may be extended, accelerated or amended pursuant to this Agreement.
"Credit Parties" shall mean, collectively, Borrower and its
Subsidiaries.
"CryoLife International" shall mean CryoLife International, Inc., a
Florida corporation which is a Subsidiary of Borrower, and its successors and
assigns.
"Current Assets" shall mean, at any date, the amount which all of the
current assets of Borrower would be shown on a consolidated balance sheet of
Borrower at such date prepared in accordance with generally accepted accounting
principles consistently applied.
"Current Liabilities" shall mean, at any date, the amount at which all
of the current liabilities of Borrower would be shown on a consolidated balance
sheet of Borrower at such date prepared in accordance with generally accepted
accounting principles consistently applied.
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"Current Maturities of Funded Debt" shall mean, with respect to any
particular period, the sum of all principal payments scheduled to be made during
such period in respect of the Funded Debt of Borrower (which for purposes hereof
shall include the allocated principal portion of payments due on Capitalized
Lease Obligations, and also shall include the current portion of any other
Funded Debt).
"Current Ratio" shall mean, at any date, the ratio of Borrower's
Current Assets to its Current Liabilities at such time.
"Debt Coverage Ratio" shall mean, with respect to any particular
fiscal period of Borrower, the ratio of (a) Borrower's EBITDAR for the
consecutive 4-quarter period ending therewith to (b) the sum (without
duplication) of (i) Borrower's Current Maturities of Funded Debt for the
immediately succeeding consecutive 4-quarter period plus (ii) Borrower's
Interest Expense for the consecutive 4-quarter period ending therewith plus
(iii) Borrower's Rental Expense for the immediately succeeding consecutive
4-quarter period, all as determined on a consolidated basis.
"Default" shall mean any event which, with the giving of notice or
lapse of time (or both), would become an Event of Default.
"EBIT" shall mean, for any fiscal period of Borrower, an amount equal
to the sum of Borrower's Net Income (Loss) for such period plus, to the extent
subtracted in determining such Net Income (Loss), (i) Borrower's taxes based on
income and (ii) Borrower's Interest Expense, all as determined on a consolidated
basis.
"EBITDAR" shall mean, for any fiscal period of Borrower, an amount
equal to Borrower's EBIT for such period plus, to the extent deducted in
determining such EBIT, Borrower's depreciation and amortization expenses and
Rental Expense, all as determined on a consolidated basis.
"Environmental Laws" shall mean all federal, state, local and foreign
laws relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including without limitation ambient
air, surface water, ground water, or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes, and any and all regulations, codes,
plans, orders, decrees, judgments, injunctions, notices or demand letters
issued, entered, promulgated or approved thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, P.L. 93-406, as amended.
"Event of Default" shall mean any of the events specified in Article
VII of this Agreement, provided that any express requirement therein for notice
or lapse of time shall have been satisfied.
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"Final Maturity Date" shall mean September 1, 2003, as such date may
be extended, accelerated or amended pursuant to this Agreement.
"Financing Documents" means and includes this Agreement, the Note, the
Security Agreement, each Stock Pledge Agreement, each Subsidiary Guaranty, each
Subsidiary Security Agreement, and any extensions, renewals, modifications or
substitutions thereof or therefor, and all other associated loan and collateral
documents including, without limitation, all guaranties, suretyship agreements,
security agreements, pledge agreements, security deeds, subordination
agreements, exhibits, schedules, attachments, financing statements, notices,
consents, waivers, opinions, letters, reports, records, title certificates and
applications therefor, assignments, stock powers or transfers, documents,
instruments, information and other writings related thereto, or furnished by any
Credit Party to Lender in connection therewith or in connection with any of the
Collateral, including without limitation any such documents executed and
delivered pursuant to Section 202 hereof; provided, however, that this term
shall not include the Prior Loan Agreements or the Prior Security Agreements.
"Funded Debt" shall mean, for any particular Person, all Indebtedness
for money borrowed, Indebtedness secured by purchase money liens, Capitalized
Lease Obligations, conditional sales contracts and similar title retention debt
instruments, all as determined for such Person on a consolidated basis. The
calculation of Funded Debt for any particular Person shall include all Funded
Debt of such Person plus all Funded Debt of other Persons to the extent
guaranteed by such Person, to the extent secured by any assets of such Person,
or to the extent supported by a letter of credit issued for the account of such
Person.
"Governmental Authority" means any applicable nation or government,
any state, local or other political subdivision thereof, any court, and any
other entity exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government.
"Guaranty" shall mean any contractual obligation, contingent or
otherwise, of a Person with respect to any Indebtedness or other obligation or
liability of another Person, including without limitation, any such
Indebtedness, obligation or liability directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable,
including Contractual Obligations (contingent or otherwise) arising through any
agreement to purchase, repurchase, or otherwise acquire such Indebtedness,
obligation or liability or any security therefor, or any agreement to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition, or to make any
payment other than for value received.
"Herein", "hereof", and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular article, paragraph,
section or other subdivision.
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"Indebtedness" of any Person shall mean, without duplication: (i) all
obligations of such Person which in accordance with generally accepted
accounting principles consistently applied would be shown on a consolidated
balance sheet of such Person as a liability (including, without limitation,
obligations for borrowed money and for the deferred purchase price of property
or services, and obligations evidenced by bonds, debentures, notes or other
similar instruments); (ii) all rental obligations under leases required to be
capitalized under generally accepted accounting principles consistently applied;
(iii) all Guaranties of such Person (including contingent reimbursement
obligations under undrawn letters of credit); and (iv) Indebtedness of others
secured by any Lien upon property owned by such Person, whether or not assumed.
"Intellectual Property Rights" shall mean, with respect to any
particular Person, all patents, patent applications, continuation, refile and
reissue patent applications, trademarks, service marks, trademark and service
mark applications, trade names, copyrights, copyright registrations, copyright
applications, trade secrets and other similar proprietary information
(including, but not by way of limitation, inventions, technical information,
processes, algorithms, procedures, specifications, designs, knowledge, know-how,
data and databases) now owned or hereafter acquired by such Person.
"Interest Expense" shall mean, for any fiscal period of Borrower, the
total interest expense of Borrower, as determined on a consolidated basis in
accordance with generally accepted accounting principles consistently applied.
"Lender" shall have the meaning given that term in the preamble to
this Agreement, and such term also shall include Lender's successors and
assigns.
"Leverage Ratio" shall mean, at any date, the ratio of Borrower's
Total Liabilities to its Net Worth at such time.
"Liabilities" means all indebtedness, liabilities, and obligations of
Borrower of any nature whatsoever which Lender may now or hereafter have, own or
hold, and which now or hereafter arise under or on account of this Agreement,
the Note or any of the other Financing Documents and any extensions, renewals,
modifications or substitutions thereof or therefor.
"Lien" shall mean any mortgage, pledge, collateral assignment,
security interest, security deposit, encumbrance, lien or charge of any kind
(including any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof, and the filing
of or agreement to give any financing statement under the Uniform Commercial
Code of any jurisdiction, but excluding licenses granted in the ordinary course
of the grantor's business).
"Loans" shall mean any and all Loans made by Lender to Borrower
pursuant to Section 201 hereof.
"Maximum Availability" shall mean $10,000,000, as such amount may be
reduced or amended pursuant to this Agreement.
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"Net Income (Loss)" shall mean, for any fiscal period of Borrower, the
net income (or loss) of Borrower on a consolidated basis for such period (taken
as a single accounting period) determined in conformity with generally accepted
accounting principles consistently applied, but excluding therefrom (to the
extent otherwise included therein and without duplication) (i) any gains or
losses, together with any related provisions for taxes, realized by Borrower
upon any sale of its assets other than in the ordinary course of business, (ii)
any other non-recurring gains or losses, and (iii) any income or loss of any
other Person acquired prior to the date such other Person becomes a Subsidiary
of Borrower or is merged into or consolidated with Borrower or all or
substantially all of such other Person's assets are acquired by Borrower.
"Net Worth" shall mean, as of any particular date, Borrower's total
shareholder"s equity (including capital stock, additional paid-in capital, and
retained earnings after deducting treasury stock) which would appear as such on
a consolidated balance sheet of Borrower prepared in accordance with generally
accepted accounting principles as then in effect.
"Note" shall mean the Promissory Note substantially in the form of
Exhibit A attached hereto to be executed by Borrower in favor of Lender to
evidence the Loans, and all renewals, extensions, modifications or replacements
thereof.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Prior Loan Agreements" shall have the meaning given such term in the
preamble to this Agreement.
"Prior Security Agreements" shall mean the Security Agreement
(Equipment) and the Security Agreement (Receivables/Inventory), both dated
December 31, 1986, executed by Borrower in favor of Lender, as amended, and the
Equipment Security Agreement, dated as of August 4, 1994, executed by Borrower
in favor of Lender.
"Purchase Money Indebtedness" shall mean (i) Indebtedness for the
payment of all or any part of the purchase price of any fixed assets, (ii) any
Indebtedness incurred for the sole purpose of financing or refinancing all or
any part of the purchase price of any fixed assets, (iii) Capitalized Lease
Obligations, and (iv) any renewals, extensions or refinancings thereof (but not
any increases in the principal amounts thereof outstanding at that time).
"Purchase Money Lien" shall mean a Lien upon fixed assets which
secures the Purchase Money Indebtedness relating thereto but only if such Lien
shall at all times be confined solely to the fixed assets the purchase price of
which was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures solely such
Purchase Money Indebtedness.
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"Rental Expense" shall mean, for any fiscal period of Borrower, the
total rental expense of Borrower for such period, as determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied, and which shall include without limitation rental expense
under operating leases.
"Revolving Loan Period" shall mean the period which runs from the date
of this Agreement until the Credit Expiration Date.
"Security Agreement" shall mean the Amended and Restated Security
Agreement, substantially in the form of Exhibit B attached hereto, executed or
to be executed by Borrower in favor of Lender pursuant to this Agreement and any
modification or replacement thereof or therefor.
"Stock Pledge Agreement" shall mean any and all Stock Pledge and
Security Agreements, substantially in the form of Exhibit C-1 attached hereto,
executed or to be executed by Borrower in favor of Lender pursuant to this
Agreement and any modification or replacement thereof or therefor.
"Subsidiary" means, as applied to Borrower, (i) any corporation of
which 50% or more of the outstanding stock (other than directors' qualifying
shares) having ordinary voting power to elect a majority of its board of
directors (or other governing body), regardless of the existence at the time of
a right of the holders of any class or classes (however designated) of
securities of such corporation to exercise such voting power by reason of the
happening of any contingency, or any partnership of which 50% or more of the
outstanding partnership interests is, at the time, directly or indirectly owned
by Borrower or by one or more Subsidiaries of Borrower, and (ii) any other
entity which is directly or indirectly controlled or capable of being controlled
by Borrower or by one or more Subsidiaries of Borrower.
"Subsidiary Guaranty" shall mean any and all Guaranty Agreements,
substantially in the form of Exhibit D attached hereto, executed or to be
executed by a Subsidiary of Borrower in favor of Lender and any modifications or
replacements thereof or therefor.
"Subsidiary Security Agreement" shall mean any and all Security
Agreements, substantially in the form of Exhibit E attached hereto, executed or
to be executed by a Subsidiary of Borrower in favor of Lender and any
modifications or replacements thereof or therefor.
"Term Loan Period" shall mean the period which runs from the Credit
Expiration Date through the Final Maturity Date.
"Tissue Freezers" shall mean, collectively, the tissue freezers leased
or loaned by Borrower to third parties in the ordinary course of Borrower's
business.
"Total Liabilities" shall mean, as of any particular date, the amount
which all liabilities of Borrower would be shown on a consolidated balance sheet
of Borrower at such date prepared in accordance with generally accepted
accounting principles consistently applied.
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"Voting Stock" shall mean the securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors of such
corporation (or Persons performing similar functions).
SECTION 102. Accounting Terms. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with generally
accepted accounting principles consistently applied.
SECTION 103. Titles. The titles of the Articles and Sections herein
appear as a matter of convenience only and shall not affect the interpretation
hereof.
SECTION 104. Number and Gender. Words importing the singular number
hereunder shall include the plural number and vice versa, and any pronoun used
herein shall be deemed to cover all genders.
ARTICLE II - THE LOANS
SECTION 201. The Loans. (a) From time to time upon Borrower's request,
and subject to the terms and conditions of this Agreement, Lender agrees to
advance to Borrower prior to the Credit Expiration Date amounts which do not
exceed the Maximum Availability in aggregate outstanding principal amount at any
one time. Advances made by Lender to Borrower under this Section 201 are
hereinafter collectively called the "Loans". Notwithstanding anything in this
Agreement to the contrary, the Lender shall not be obligated hereunder to make
any Loans on or after the earlier of (i) the Credit Expiration Date or such
later date to which such expiration date may be extended by Lender in its
discretion or (ii) the date Lender pursuant to Section 801(a) hereof terminates
its obligation to make any further Loans to Borrower hereunder. Subject to the
terms and conditions hereof, prior to the Credit Expiration Date, Borrower, at
its option, from time to time may borrow, repay and reborrow all or any portion
of the Loans, except that Borrower's right to prepay Loans bearing interest
based on the Adjusted LIBOR (as such term is defined in the Note) shall be
subject to the breakage provisions of the Note and any such prepayment shall be
applied as provided in the Note.
(b) The proceeds of the Loans may be used by Borrower only to finance
acquisitions by the Borrower and to finance Borrower's and its Subsidiaries'
working capital and other general corporate needs (including without limitation
to finance the cost of the leasehold improvements and equipment purchases made
or to be made by Borrower for its new corporate headquarters building in
Marietta, Georgia).
(c) The Loans are to be evidenced by the Note. Interest on the Loans
will accrue at the rate or rates per annum set forth in the Note, and principal
and interest on the Loans will be payable in the manner prescribed in the Note.
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(d) Borrower shall pay to Lender an origination fee for the Loan
facility provided by Lender to Borrower under this Section 201, which fee shall
be in the amount of $5,000 (and Lender shall credit against such sum the $5,000
commitment letter fee previously paid by Borrower to Lender in connection with
such facility) and such fee shall be deemed fully earned by Lender upon the
parties' execution and delivery of this Agreement from the Borrower and shall be
non-refundable.
(e) Borrower shall pay to Lender unused facility fees for Borrower's
Loan facility hereunder during the Revolving Loan Period computed on the daily
average unused portion of the Maximum Availability at a rate per annum of
three-eighths of one percent (.375%). Such unused facility fees shall be payable
by Borrower to Lender quarterly in arrears, commencing on November 30, 1996, and
continuing to be due on the last day of each February, May, August and November
thereafter during the Revolving Loan Period as well as on the Credit Expiration
Date. Notwithstanding anything in this Section to the contrary, however, the
total unused facility fees payable by Borrower to Lender under clauses (x) and
(y) above shall not exceed the sum of $6,250 and $25,000, respectively, during
each of the following two periods: the period from the date of this Agreement
though August 31, 1997, and the period from September 1, 1997 through the Credit
Expiration Date.
(f) All of the Loans shall constitute one loan by Lender to Borrower.
Lender shall maintain a loan account on its books in which shall be recorded all
Loans, all payments made by Borrower on the Loans and all other appropriate
debits and credits as provided in this Agreement and the Note with respect
thereto, including without limitation all charges, expenses and interests. All
entries in such account shall be made in accordance with the Lender's customary
accounting practices as in effect from time to time. Lender shall render to
Borrower a monthly statement setting forth the balance of such account,
including principal, interest, expenses and fees, and each such statement shall,
absence manifest error or omissions, be presumed correct and binding upon
Borrower and shall constitute an account stated unless, within thirty (30) days
after receipt of any such statement from Lender, Borrower shall deliver to
Lender a written objection thereto specifying the error or errors or omission or
omissions, if any, contained in such statement.
(g) All interest and fees owing by Borrower to Lender hereunder or
under the other Financing Documents shall be computed on the basis of a 360-day
year and the actual days elapsed
SECTION 202. Collateral and Guaranties. (a) All of the Loans and the
other Liabilities shall be secured pursuant to the Security Agreement which
shall be duly executed and delivered by Borrower to Lender in connection with
this Agreement and pursuant to which Lender shall be granted a first-priority
security interest in all of Borrower's present or future accounts, contract
rights, chattel paper, general intangibles (excluding its Intellectual Property
Rights but including the proceeds thereof), instruments, documents, inventory,
equipment, fixtures, leasehold improvements, and other assets and all proceeds
thereof (excluding its Intellectual Property Rights but including the proceeds
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thereof). In addition, all of the Loans and the other Liabilities shall also be
secured pursuant to a Stock Pledge Agreement which (together with an irrevocable
stock power in the form of Exhibit C-2 attached hereto) shall be duly executed
and delivered by Borrower to Lender in connection with this Agreement and
pursuant to which Lender shall be granted a first-priority security interest in
all of the capital stock of CryoLife International and all proceeds thereof.
(b) All of the Loans and the other Liabilities shall be fully
guaranteed by CryoLife International pursuant to a Subsidiary Guaranty which
shall be duly executed and delivered by CryoLife International to Lender in
connection with this Agreement. In addition, the obligations of CryoLife
International under such Subsidiary Guaranty shall be secured pursuant to a
Subsidiary Security Agreement which shall be duly executed and delivered by
CryoLife International to Lender in connection with this Agreement, and pursuant
to which Lender shall be granted a first-priority security interest in all of
CryoLife International's present or future accounts, contract rights, chattel
paper, general intangibles (excluding its Intellectual Property Rights but
including the proceeds thereof), instruments, documents, inventory, equipment,
fixtures, leasehold improvements, and other assets and all proceed thereof.
(c) Within ten (10) days after Borrower's creation or acquisition of
any Subsidiary, Borrower shall pledge all of the capital stock of such
Subsidiary to the Lender as additional collateral for the Liabilities, Borrower
shall cause such Subsidiary to guaranty the repayment of the Liabilities to
Lender, and Borrower shall cause such Subsidiary to grant to the Lender a
first-priority perfected security interest in and lien on all of its assets
(excluding its Intellectual Property Rights, but including the proceeds thereof)
as additional collateral for the Liabilities, all pursuant to such Subsidiary
Guaranties, Subsidiary Security Agreements, Stock Pledge Agreements and other
collateral documents as are acceptable in all respects to the Lender. Borrower
also shall provide Lender with any and all closing certificates, financing
statement filings, opinions of counsel and other closing documents of the types
described in Section 605 hereof as the Lender may request with respect to such
pledge, guaranty and collateral documents.
(d) Borrower shall execute (or cause to be executed) any and all
financing statements, fixture filings, certificate of title applications,
collateral assignments, stock powers or transfers, or other documents as Lender
may reasonably request from time to time in order to perfect or maintain the
perfection and priority of Lender's security interest in the Collateral now or
hereafter covered by the Security Agreement, any Stock Pledge Agreement or any
Subsidiary Security Agreement or any additional collateral documents executed by
Borrower or any Subsidiary pursuant to this Section 202.
(e) If any of the Collateral will be located on any premises which are
leased by Borrower or any of its Subsidiaries from a third party or, if such
premises are owned by Borrower or one of its Subsidiaries, on which any creditor
(other than Lender) holds a security deed, mortgage, or deed of trust granted by
Borrower or one of its Subsidiaries, Borrower shall cause each such third party
lessor or creditor to execute in favor of Lender a Waiver and Consent in
substantially the form of Exhibit I attached hereto (or in such other form as
may be acceptable to Lender).
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SECTION 203. Agreements Regarding Interest and Other Charges. Pursuant
to the Official Code of Georgia Annotated Section 7-4-2, Lender and Borrower
hereby agree that the only charge imposed or to be imposed by Lender upon
Borrower for the use of money in connection with the Loans is and will be the
interest required under the Note, which interest will be at the rates which are
or will be expressed in simple interest terms in the Note as of the date of such
Note. Borrower hereby acknowledges and agrees that Lender has not imposed on it
any minimum borrowing requirements, reserve or escrow balances, or compensating
balances related in any way to this Agreement. In no event shall the amount of
interest due and payable under this Agreement, the Note or any of the other
Financing Documents exceed the maximum rate of interest allowed by applicable
law (including, without limitation, Official Code of Georgia Annotated Section
7-4-18) and, in the event any such payment is inadvertently made by Borrower or
inadvertently received by Lender, such excess sum shall be credited as a payment
of principal. It is the express intent hereof that Borrower not pay and Lender
not receive, directly or indirectly or in any manner, interest in excess of that
which may be lawfully paid under applicable law.
SECTION 204. Indemnity. Borrower agrees to indemnify and hold harmless
the Lender from and against any and all claims, liabilities, losses, damages,
actions and demands by any party against the Lender arising out of the making,
holding or administration of the Loans or the Collateral, allegations of any
participation by the Lender in the affairs of any or all of the Credit Parties
or allegations that the Lender has any joint liability with any or all of the
Credit Parties for any reason, or any claims against the Lender by any
shareholder of the Borrower, unless, with respect to the above, the Lender is
finally and judicially determined to have acted or failed to act with gross
negligence or to have engaged in willful misconduct.
SECTION 205. Capital Adequacy. Without limiting any other provisions
of this Agreement, in the event that the Lender determines after the date hereof
that the introduction or change after the date of this Agreement of any law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order regarding capital adequacy, or any change therein or in the interpretation
or application thereof after the date of this Agreement, or compliance by the
Lender with any request or directive regarding capital adequacy (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) from a central bank or governmental authority or body having
jurisdiction which is introduced or changed after the date of this Agreement,
does or shall have the effect of reducing the rate of return on the Lender's
capital as a consequence of its obligations hereunder to a level below that
which the Lender could have achieved but for such law, treaty, rule, regulation,
guideline or order or such change or compliance (taking into consideration the
Lender's policies with respect to capital adequacy and assuming the full
utilization of the Lender's capital immediately before such adoption, change or
compliance) by an amount reasonably deemed by the Lender to be material, then
the Lender shall promptly after its determination of such occurrence notify the
Borrower thereof. The Borrower agrees to pay to the Lender as an additional fee
from time to time, within ten (10) days after written notice and demand by the
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Lender, such amount as the Lender certifies to be the amount that will
compensate it for such reduction in connection with its obligations hereunder. A
certificate of the Lender claiming compensation under this Section shall be
conclusive in the absence of manifest error or fraud and shall set forth the
nature of the occurrence giving rise to such compensation, the additional amount
or amounts to be paid to it hereunder and the method by which such amounts were
determined. In determining such amount, the Lender may use reasonable averaging
and attribution methods.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that each of the following
is true, correct, complete and accurate in all respects:
SECTION 301. Organization and Existence; Subsidiaries. (a) Borrower is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Florida, and is qualified to do business as a foreign
corporation in the State of Georgia. CryoLife International is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida, and is qualified to do business as a foreign corporation in
the State of Georgia.
(b) Borrower has no Subsidiaries as of the date of this Agreement,
except for the Subsidiaries identified on Schedule 301 attached hereto, and
Borrower agrees that it will not hereafter acquire or form any Subsidiaries
without giving Lender at least thirty (30) days' prior written notice thereof
and complying with any applicable requirements of Sections 202 and 503 hereof.
In the event Borrower so acquires or forms any Subsidiaries, each Subsidiary of
Borrower will be a corporation duly organized, validly existing and in good
standing with the laws of the state of its incorporation.
SECTION 302. Financial Statements. Each financial statement of any
Credit Party which has been delivered to Lender presents fairly the financial
condition of such Credit Party as of the date indicated therein and the results
of its operations for the period(s) shown therein. There has been no material
adverse change in the financial condition or operations of the Credit Parties
taken as a whole since the date of said financial statement, nor has any Credit
Party mortgaged, pledged or granted a security interest in or encumbered any of
its assets since such date.
SECTION 303. Borrower Authority and Power. Each Credit Party has full
power and authority to make, execute and perform in accordance with the
respective terms thereof each of the Financing Documents executed by it. The
execution and performance by each Credit Party of each and every of the
Financing Documents executed by it have been duly authorized by all requisite
action, and each and every one of them constitutes the legal, valid and binding
obligation of such Credit Party enforceable in accordance with its respective
terms.
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SECTION 304. No Defaults. Except as set forth on Schedule 304 attached
hereto, none of the Credit Parties is in default under any contracts,
agreements, licenses, franchises, leases, security agreements, deeds, mortgages,
promissory notes, documents, instruments or chattel paper to which it is a party
or by which it or any of its properties or assets is bound or affected.
Execution, delivery and performance by any Credit Party of each and every of the
Financing Documents executed by it do not violate any provision of law or
regulations and does not result in a breach of or constitute a default under any
agreement, indenture or other instrument to which any Credit Party is a party or
by which any Credit Party is bound.
SECTION 305. No Pending Claims. Except as disclosed on Schedule 305
attached hereto, there is no claim, action, suit, arbitration, investigation,
condemnation or other proceeding at law or in equity, or by or before any
federal, state, local or other governmental agency, or by or before any other
agency or arbitrator, nor is there any judgment, order, writ, injunction or
decree of any court pending, anticipated or (to Borrower's knowledge) threatened
against any Credit Party or against any of its properties or assets which might
have a material adverse effect on the Credit Parties taken as a whole or their
respective properties or assets, or which might call into question the validity
or enforceability of any of the Financing Documents, or which might involve the
alleged violation by any Credit Party of any federal, state, local or other law,
rule or regulation; provided, however, that no representation is made in this
Section 305 with respect to Environmental Laws.
SECTION 306. No Outstanding Judgments. There are no outstanding or
unpaid judgments against any Credit Party.
SECTION 307. Outstanding Securities. All of Borrower's and each
Subsidiary's outstanding capital stock has been validly issued, fully paid and
is non-assessable. Borrower is not in violation of any applicable federal,
state, local, or other securities laws and regulations with respect to the
issuance of any of its capital stock or any other of its securities.
SECTION 308. Tax Returns. Each Credit Party has filed or caused to be
filed all required federal, state, local, or other tax returns when due and has
paid (except as otherwise permitted by Section 406 hereof) all governmental
taxes and other charges imposed upon it or on any of its properties or assets.
Borrower does not know of any proposed additional tax assessment against any
Credit Party.
SECTION 309. Franchises, Licenses, Permits, Etc. Each Credit Party has
all material franchises, licenses, permits, patents, copyrights, trademarks,
trade names, and other authority necessary to enable it to conduct its business
as presently conducted; provided, however, that no representation is made in
this Section 309 with respect to Environmental Laws.
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SECTION 310. No Governmental Consents Required. No consent, approval,
order, authorization, designation, registration, declaration, or filing (except
the filing of financing statements or notations of liens on certificates of
title) with or of any federal, state, local, or other governmental authority or
public body on the part of any Credit Party is required in connection with any
Credit Party's execution, delivery or performance of any of the Financing
Documents; or if required, all such prerequisites have been fully satisfied.
SECTION 311. ERISA Matters. None of the Credit Parties has incurred
any material accumulated funding deficiency within the meaning of the ERISA, and
none of the Credit Parties has incurred any material liability to the Pension
Benefit Guaranty Corporation established under ERISA (or any successor thereto
under such Act) in connection with any employee benefit plan established or
maintained by any of the Credit Parties.
SECTION 312. Regulation U and Other Securities Law Matters. None of
the transactions contemplated in this Agreement (including, without limitation,
the use of the proceeds from the Loans) will violate or result in a violation of
Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations
issued pursuant thereto, including, without limitation, Regulations U and X of
the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II.
Borrower does not own or intend to carry or purchase any "margin stock" within
the meaning of said Regulation U, including margin stock originally issued by
it. None of the proceeds of the Loans will be used to purchase or carry (or
refinance any borrowing the proceeds of which were used to purchase or carry)
any "security" within the meaning of the Securities Exchange Act of 1934, as
amended.
SECTION 313. Environmental Representations. (a) Each Credit Party has
obtained all permits, licenses and other authorizations which are required under
Environmental Laws, and each Credit Party is in compliance in all material
respects with all terms and conditions of the required permits, licenses and
authorizations and is also in compliance in all material respects with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable Environmental
Laws;
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
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practices, incidents, actions or plans which, with respect to any Credit Party,
may interfere with or prevent such Credit Party's compliance or continued
compliance in any material respect with Environmental Laws, or may give rise to
any material common law or legal liability, or otherwise form the basis of any
material claim, action, demand, suit, proceeding, hearing, study or
investigation against such Credit Party, based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge, release or threatened release into the
environment, of any pollutant, contaminant, chemical, or industrial, toxic or
hazardous substance or waste; and
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or threatened against any Credit Party
relating in any way to Environmental Laws.
SECTION 314. Reaffirmation. Each request for a Loan made by Borrower
pursuant to this Agreement shall constitute an automatic representation and
warranty by Borrower to Lender that there does not then exist any Default or
Event of Default as well as a reaffirmation as of the date of such request of
all of the representations and warranties of the Credit Parties contained in
this Agreement and the other Financing Documents (except as to those changes
otherwise consented to by Lender or contemplated herein).
ARTICLE IV - AFFIRMATIVE COVENANTS
For so long as this Agreement is in effect, and unless Lender
expressly consents in writing otherwise or to the contrary (which consent shall
not be unreasonably withheld), Borrower hereby expressly covenants and agrees as
follows:
SECTION 401. Inspection and Examination. Upon reasonable request of
Lender, each Credit Party shall permit during regular business hours any person
designated by Lender to inspect and examine such Credit Party's financial books
and records, its minute books and other business memoranda and writings;
provided, however, that so long as no Event of Default has occurred and is then
continuing Borrower may condition Lender's (or its designee's) access to any
Credit Party's business memoranda and writings (other than its financial books
and records) on Lender's (or such designee's) entering into a suitable written
confidentiality agreement. Each Credit Party shall make available its officers
and employees to Lender to discuss the financial affairs of such Credit Party at
such reasonable times and intervals as Lender may request, and each Credit Party
shall promptly confirm or furnish in reasonable detail whatever information
relative to such Credit Party as Lender's authorized representative, auditor or
counsel may reasonably request.
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SECTION 402. Books and Records. Each Credit Party shall keep its
books, records and accounts in accordance with generally accepted accounting
principles and practices applied on a basis consistent with preceding years.
SECTION 403. Financial Statements and Other Information. Borrower
shall promptly furnish to Lender: (1) Not later than 120 days after the end of
each subsequent fiscal year, consolidated and consolidating financial statements
of the Borrower, to include balance sheets and statements of income and
stockholders' equity, all in reasonable detail, prepared in accordance with
generally accepted accounting principles and certified by an independent
accounting firm acceptable to Lender and accompanied by a duly completed
Compliance Certificate in the form of Exhibit J attached hereto executed on
behalf of Borrower by its chief financial officer; (2) Not later than 30 days
after and as of the end of each month (other than the final month of each fiscal
year), consolidated financial statements of Borrower, to include balance sheets
and statements of income and stockholders' equity, all in reasonable detail,
prepared in accordance with generally accepted accounting principles (subject to
changes resulting from year-end adjustments), and certified by the chief
financial officer of Borrower and accompanied by a duly completed Compliance
Certificate in the form of Exhibit J attached hereto executed on behalf of
Borrower by its chief financial officer; (3) Promptly upon becoming aware of the
existence of any Default or Event of Default, a written notice specifying the
nature and period of existence thereof and what action Borrower is taking or
proposes to take with respect thereto; (4)Promptly upon becoming aware that the
holder of any other evidence of indebtedness or security of any Credit Party has
given notice or taken any other action with respect to a claimed default or
event of default or event which, with the giving of notice or passage of time,
or both, would constitute a default, a written notice specifying the notice
given or action taken by such holder and the nature of the claimed default or
event and what action Borrower is taking or proposes to take with respect
thereto; (5) Promptly upon transmission thereof, copies of all financial
statements, proxy statements, notices and reports as Borrower shall send to its
public shareholders, if any, and copies of all registration statements and all
other reports which Borrower may file from time to time with the Securities and
Exchange Commission or any comparable state securities regulatory agency; and
(6) From time to time upon request of Lender, such other information relating to
the operations, business, and financial condition of any Credit Party as Lender
may reasonably request.
SECTION 404. Maintenance of Assets. Each Credit Party shall maintain
and keep all of its property and assets (other than Tissue Freezers) in good
repair, working order and condition and shall from time to time make all needful
and proper repairs, renewals and replacements thereto subject to reasonable wear
and tear.
SECTION 405. Maintenance of Insurance. Each Credit Party shall
maintain with financially sound and reputable insurers acceptable to Lender (i)
with reference to its property other than the Collateral, insurance against such
risks and in such amounts as is customary in the case of Persons of established
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reputations engaged in the same or similar business and similarly situated, and
(ii) liability and worker's compensation insurance in such amounts as is
customary in the case of Persons of established reputations engaged in the same
or similar business and similarly situated (except that the dollar amount of
each Credit Party's liability insurance coverage must be acceptable to Lender),
and, upon request by Lender, shall furnish Lender copies of the policies under
which such insurance is carried. The Credit Parties' obligations concerning
insurance of the Collateral are governed by the applicable Financing Documents.
The Credit Parties shall not be required to maintain property insurance on
Tissue Freezers.
SECTION 406. Payment of Taxes. Each Credit Party shall punctually pay
and discharge all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or upon any of its property, as well as all claims of
any kind which, if unpaid, might by law become a Lien upon its property, except
taxes, assessments, charges, levies or claims which are in good faith being
timely litigated or otherwise properly contested by such Credit Party and which
cannot become a Lien upon any of the Collateral with priority over the security
interest of Lender or as to which such Credit Party has established reserves
satisfactory to Lender. Upon any Credit Party's failure to make prompt payment
of any such obligation of such Credit Party not excepted above, Lender may, but
is under no obligation to, pay all or any part of the same or effect a
settlement or compromise thereof in the name of such Credit Party; and all
amounts so paid by Lender as well as the expenses incurred in negotiating or
attempting to negotiate a compromise or settlement will automatically become a
part of the Liabilities of Borrower under this Agreement and will bear interest
from the date of such payment at the lower of (i) the highest rate of interest
which Borrower has contracted to pay on any of the Liabilities or (ii) the
highest rate permissible under applicable law.
SECTION 407. Environmental Matters. Borrower shall notify Lender in
writing, promptly upon learning thereof, of:
(i) any notice that any Credit Party is not in compliance in any
material respect with all terms and conditions of all permits, licenses and
authorizations which are required under Environmental Laws, or that any Credit
Party is not in compliance in any material respect with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Laws;
(ii) any notice of any past, present or future events, conditions,
circumstances, activities, practices, incidents, actions or plans which, with
respect to any Credit Party, may interfere with or prevent its compliance or
continued compliance in any material respect with Environmental Laws, or may
give rise to any material common law or legal liability on its part, or
otherwise form the basis of any material claim, action, demand, suit,
proceeding, hearing, study or investigation against it, based on or related to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, chemical, or
industrial, toxic or hazardous substance or waste; and
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(iii) any notice or claim of any civil, criminal or administrative
action, suit, demand, claim, hearing, notice or demand letter, notice of
violation, investigation, or proceeding pending or threatened against any Credit
Party relating in any way to Environmental Laws.
SECTION 408. Primary Depository Relationships. To the maximum extent
permitted by applicable law, the Credit Parties shall maintain their primary
depository relationships with Lender.
ARTICLE V - NEGATIVE COVENANTS
For so long as this Agreement is in effect, and unless Lender
expressly consents in writing otherwise or to the contrary (which consent shall
not be unreasonably withheld), Borrower hereby expressly covenants and agrees to
the following negative covenants:
SECTION 501. Type of Business. Borrower and its Subsidiaries shall not
engage in any type of business other than the development, sale, licensing or
use of medical products, bio-technology or tissue engineering or any activity
reasonably incidental thereto.
SECTION 502. Transactions with Affiliates. None of the Credit Parties
shall engage in any transactions with an Affiliate, except on terms no less
favorable to such Credit Party than could be obtained in arms-length
transactions with others.
SECTION 503. Merger, Consolidation, Acquisitions, Etc. None of the
Credit Parties shall: (i) transfer all or substantially all of its assets to,
consolidate with or merge with any other Person; (ii) acquire all or
substantially all of the properties or capital stock of any other Person; or
(iii) create or acquire any Subsidiary or enter into any partnership or joint
venture; provided, however, that (a) any Subsidiary of Borrower may merge or
consolidate with, or convey all or substantially all of its assets to, Borrower
or another Subsidiary of Borrower (but Borrower must be the surviving
corporation for any such merger or consolidation involving Borrower), (b)
Borrower may acquire all or substantially all of the properties or capital stock
of another Person (or Borrower may form a Subsidiary to make such acquisition)
so long as such transaction does not cause a violation of Section 501 above or
503(iii)(e) below, Borrower complies with any and all requirements of Section
202(c) applicable thereto and no other Default or Event of Default would be
caused thereby, (c) Borrower may form a new Subsidiary so long as such
transaction does not cause a violation of Section 501 above or Section
503(iii)(e) below and Borrower complies with any and all requirements of Section
202(c) applicable thereto and no other Default or Event of Default would be
caused thereby, (d) any Credit Party may enter into a merger or consolidation in
connection with any acquisition transaction permitted under clause (b) above so
long as such Credit Party is the surviving corporation therefrom and no other
Default or Event of Default would be caused thereby, and (e) Borrower may
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acquire all or substantially all of the properties or capital stock of another
Person or create or acquire Subsidiaries or enter into partnerships or joint
ventures so long as Borrower's total investment in all such acquisitions,
Subsidiaries, partnerships or joint ventures (whether in the form of cash, loans
or other property but exclusive of contributions or transfers of Intellectual
Property Rights) does not exceed $7,000,000 in the aggregate and no other
Default or Event of Default would be caused thereby. Lender agrees that, upon
request of Borrower from time to time (but not more frequently than once per
fiscal year), Lender may in its sole discretion increase the aforesaid
limitation on investment set forth in clause (e) above, which increase shall
become effective upon Lender's written notice to Borrower thereof.
SECTION 504. ERISA Matters. None of the Credit Parties shall incur or
suffer to exist any material accumulated funding deficiency within the meaning
of ERISA or incur any material liability to the Pension Benefit Guaranty
Corporation established under ERISA (or any successor thereto under ERISA).
SECTION 505. Liens. None of the Credit Parties shall create, incur,
assume or suffer to exist any Lien of any kind upon any of its property or
assets now owned or hereafter acquired, excluding, however, from the operation
of this covenant: (1) liens in connection with worker's compensation; (2)
deposits or pledges to secure the performance of bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds, and other obligations of a like nature arising in the normal
and ordinary course of business; (3) mechanics', workmen's, materialmen's, and
other like liens arising in the normal and ordinary course of business in
respect of obligations which are not overdue or which are being contested in
good faith by such Credit Party and as to which such Credit Party has
established reserves satisfactory to the Lender; (4) tax or other nonconsensual
liens, encumbrances or charges which are being litigated or otherwise properly
contested in good faith by such Credit Party and as to which such Credit Party
has established reserves satisfactory to the Lender; (5) the security interests,
security titles and liens conveyed to Lender under any of the Financing
Documents; (6) Purchase Money Liens securing Purchase Money Indebtedness to the
extent permitted under Section 508; and (7) any other Liens disclosed on
Schedule 505 attached hereto.
SECTION 506. Guaranties. None of the Credit Parties shall in any
manner, directly or indirectly, become a guarantor of any obligation of, or an
endorser of, or otherwise assume or become liable upon any obligations or other
indebtedness of any other Person except (i) pursuant to the Financing Documents
or (ii) in connection with the depositing of checks in the normal and ordinary
course of business.
SECTION 507. Financial Covenants. Borrower shall not violate any of
the following financial covenants.
(a) Borrower shall not change its fiscal year without Lender's
consent;
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(b) Borrower shall not make Capital Expenditures in any one fiscal
year ending on or after December 31, 1996, which exceed $2,000,000 in total
amount for such fiscal year;
(c) Borrower shall not permit its Current Ratio at any time on or
after the date of this Agreement to be less than 2.0 to 1.0;
(d) Borrower shall not permit its Leverage Ratio to exceed 1.0 to 1.0
at any time on or after the date of this Agreement;
(e) Borrower shall not permit its Net Worth to be less than
$18,000,000 at any time during the period from the date of this Agreement
through December 31, 1996, and Borrower shall not permit its Net Worth at any
time during each fiscal year of Borrower ending thereafter to be less than its
minimum required Net Worth hereunder for its immediately preceding fiscal year
plus $500,000; and
(f) Borrower shall not permit its Debt Coverage Ratio for any fiscal
quarter or year to be less than 1.3 to 1.0.
SECTION 508. Funded Debt. None of the Credit Parties shall incur,
assume, or suffer to exist any Funded Debt of such Credit Party, except (i)
Funded Debt arising under this Agreement or any of the other Financing
Documents, (ii) Purchase Money Indebtedness not to exceed $250,000 in total
amount for all the Credit Parties incurred in any fiscal year, and (iii) any
other Funded Debt described on Schedule 508 attached hereto.
ARTICLE VI - CONDITIONS TO LENDING
All of Lender's obligations under this Agreement, including without
limitation any obligation to lend or advance moneys to Borrower, are subject to
the fulfillment of each of the following conditions at or before the date hereof
as well as at the time each Loan is requested or made hereunder:
SECTION 601. Representations and Warranties. All representations and
warranties of the Credit Parties contained in this Agreement and in each and
every of the other Financing Documents are true, correct, complete and accurate
in all material respects.
SECTION 602. Performance of Covenants. The Credit Parties shall have
duly and properly performed in all respects all covenants, agreements, and
obligations required by the terms of this Agreement or any of the other
Financing Documents to be performed by them.
SECTION 603. No Violation of Negative Covenants. None of the Credit
Parties has taken or permitted to be taken any actions which would conflict with
any of the provisions of Article V of this Agreement.
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SECTION 604. No Material Adverse Changes. Since the date of this
Agreement, no material adverse change shall have occurred in the business,
operations, financial condition or assets of the Credit Parties taken as a
whole.
SECTION 605. Delivery of Loan Documents. Borrower has delivered to
Lender, or caused to be delivered to the Lender, duly executed counterparts of
this Agreement, the Note, and the other Financing Documents required under
Sections 202(a) and 202(b), together with the following described additional
documents:
(a) Certificates from the Secretaries of State of Florida and Georgia
issued as of the date of this Agreement (or within 45 days thereof) stating that
each of the Borrower and CryoLife International is a corporation duly organized
(or, in the case of Georgia, is a foreign corporation qualified to do business)
and is in good standing under the laws of such states;
(b) A copy (certified by the Secretary of State of Florida within 45
days of the date of this Agreement) of each of Borrower's and CryoLife
International's certificate of incorporation;
(c) A Certificate of the Borrower in the form of Exhibit F attached
hereto, duly completed and executed;
(d) A Certificate of CryoLife International in the form of Exhibit G
attached hereto;
(e) An opinion of counsel for Borrower in the form of Exhibit H
attached hereto;
(f) Satisfactory evidence of the recording of such Uniform Commercial
Code financing statements and other documents in such filing offices as Lender
may deem necessary or appropriate to perfect or maintain the perfection of the
Lender's security interests under the Security Agreement and the Subsidiary
Security Agreement, as well as written reports of examinations of the public
records of such filing office as the Lender may deem necessary or appropriate
indicating that there are no other Liens of record covering any of the
Collateral covered by the Security Agreement or the Subsidiary Security
Agreement (except Liens permitted under Section 505 hereof);
(g) Any Waivers and Consents required from any landlord or creditor
under Section 202 hereof.
(h) Such other documents, instruments and agreements as may be
reasonably required by Lender or Lender's counsel in connection with any loan or
advance hereunder.
SECTION 606. No Default or Event of Default. No Default or Event of
Default shall have occurred.
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SECTION 607. Incidental Matters. All matters incidental to each
advance hereunder shall be reasonably satisfactory to Lender.
ARTICLE VII - EVENTS OF DEFAULT
The occurrence of any one or more of the following events will
constitute an event of default (herein called an "Event of Default") by Borrower
under this Agreement.
SECTION 701. Failure to Pay Liabilities. Failure of Borrower
punctually to make payment of any amount payable to Lender, whether principal or
interest, on any of the Liabilities within five (5) days of the date the same
becomes due and payable, whether at maturity, or at a date fixed for any
prepayment or partial prepayment, or by acceleration or otherwise.
SECTION 702. Representations and Warranties. If any statement,
representation, or warranty of any Credit Party made in this Agreement or in any
of the other Financing Documents at any time furnished by or on behalf of any
Credit Party to Lender proves to have been untrue, incorrect, misleading, or
incomplete in any material respect as of the date made.
SECTION 703. Negative Covenant Breach. Failure of any Credit Party
punctually and fully to perform, observe, discharge or comply with any of the
covenants set forth in Article V of this Agreement.
SECTION 704. Other Covenant Breach. Failure of any Credit Party
punctually and fully to perform, observe, discharge or comply with any of the
covenants set forth in this Agreement (other than Article V), which failure is
not cured within thirty (30) days after notice from Lender to Borrower.
SECTION 705. Other Agreements with Lender. The occurrence of a
default, an event of default or an Event of Default under any of the other
Financing Documents or under any other agreement to which any Credit Party and
Lender are parties or under any other instrument executed by any Credit Party in
favor of Lender, including any loan agreements, notes, leases, deeds or other
documents.
SECTION 706. Voluntary Bankruptcy. If any Credit Party becomes
insolvent as defined in the Georgia Uniform Commercial Code or makes an
assignment for the benefit of creditors; or if any action is brought by any
Credit Party seeking dissolution of such Credit Party or liquidation of its
assets or seeking the appointment of a trustee, interim trustee, receiver, or
other custodian for any of its property; or if any Credit Party commences a
voluntary case under the Federal Bankruptcy Code; or if any reorganization or
arrangement proceeding is instituted by any Credit Party for the settlement,
readjustment, composition or extension of any of its debts upon any terms; or if
any action or petition is otherwise brought by any Credit Party seeking similar
relief or alleging that it is insolvent or unable to pay its debts as they
mature.
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SECTION 707. Involuntary Bankruptcy. If any action is brought against
any Credit Party seeking dissolution of such Credit Party or liquidation of any
of its assets or seeking the appointment of a trustee, interim trustee, receiver
or other custodian for any of its property, and such action is consented to or
acquiesced in by such Credit Party or is not dismissed within sixty (60) days of
the date upon which it was instituted; or if any proceeding under the Federal
Bankruptcy Code is instituted against such Credit Party and (i) an order for
relief is entered in such proceeding or (ii) such proceeding is consented to or
acquiesced in by such Credit Party or is not dismissed within sixty (60) days of
the date upon which it was instituted; or if any reorganization or arrangement
proceeding is instituted against any Credit Party for the settlement,
readjustment, composition, or extension of any of its debts upon any terms, and
such proceeding is consented to or acquiesced in by such Credit Party or is not
dismissed within sixty (60) days of the date upon which it was instituted; or if
any action or petition is otherwise brought against any Credit Party seeking
similar relief or alleging that it is insolvent, unable to pay its debts as they
mature, or generally not paying its debts as they become due, and such action or
petition is consented to or acquiesced in by such Credit Party or is not
dismissed within sixty (60) days of the date upon which it was brought.
SECTION 708. Other Indebtedness. If any Credit Party is in default on
indebtedness to another Person having any outstanding balance of $100,000 or
more or an event has occurred which, with the giving of notice or passage of
time, or both, will cause such Credit Party to be in default on any such
indebtedness to another Person.
SECTION 709. Material Adverse Change. Any material adverse change in
the Credit Parties' financial condition or means or ability to pay the
Liabilities.
SECTION 710. Change in Control. The acquisition after the date of this
Agreement by any Person (or by any two or more Persons acting in concert) except
Steven G. Anderson of beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission) of either (i) a sufficient number of the
Voting Stock of Borrower so that the total number of such shares beneficially
owned by such Person (or group of Persons acting in concert) equals or exceeds
twenty-five percent (25%) of the outstanding Voting Stock of Borrower or (ii)
the power to direct or cause the direction of the management and policies of
Borrower (whether through ownership of voting securities, by contract or
otherwise).
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ARTICLE VIII - REMEDIES UPON DEFAULT
SECTION 801. Acceleration and Other Remedies. Upon the occurrence of
an Event of Default:
(a) Lender may, at its option and without prior notice to Borrower,
terminate its remaining obligations hereunder to make any further Loans to
Borrower;
(b) Any of the Liabilities may (notwithstanding any provisions
contained therein or herein to the contrary), at the option of Lender and
without presentment, demand, notice or protest of any kind (all of which are
expressly waived by Borrower in this Agreement), be declared due and payable,
whereupon they immediately will become due and payable;
(c) Lender may also, at its option, and without notice or demand of
any kind, exercise from time to time any and all rights and remedies available
to it under this Agreement or under any of the other Financing Documents, as
well as exercise from time to time any and all rights and remedies available to
a secured party when a debtor is in default under a security agreement as
provided in the Uniform Commercial Code of Georgia, or available to Lender under
any other applicable law or in equity, including without limitation the right to
any deficiency remaining after disposition of the Collateral; and
(d) Borrower shall pay all of the reasonable costs and expenses
actually incurred by Lender in enforcing its rights under this Agreement and the
other Financing Documents. In the event any claim under this Agreement or under
any of the other Financing Documents is referred to an attorney for collection,
or collected by or through an attorney at law, Borrower will be liable to Lender
for all reasonable expenses actually incurred by it in seeking to collect the
Liabilities or to enforce its rights hereunder, in the other Financing Documents
or in the Collateral, including without limitation actual and reasonable
attorneys' fees.
SECTION 802. Application of Proceeds; Collection Costs. Any proceeds
from disposition of any of the Collateral may be applied by Lender first to the
payment of all reasonable expenses and costs actually incurred by Lender in
collecting such Liabilities, in enforcing the rights of Lender under each and
every of the Financing Documents and in collecting, retaking, holding and
preparing the Collateral for and advertising the sale or other disposition of
and realizing upon the Collateral, including without limitation the reasonable
expenses of liquidating any liens or claims upon the Collateral and reasonable
attorneys' fees (but not to exceed actual fees incurred) as well as all other
legal expenses and court costs. Any balance of such proceeds may be applied by
Lender toward the payment of such of the Liabilities and in such order of
application as the Lender may from time to time elect. Lender shall pay the
surplus, if any, to Borrower. Borrower shall pay the deficiency, if any, to
Lender.
24
<PAGE>
ARTICLE IX - MISCELLANEOUS
SECTION 901. Time of Essence. Time is of the essence of this
Agreement.
SECTION 902. Entire Agreement. This Agreement, together with the Note
and all of the other Financing Documents, supersedes and replaces the Prior Loan
Agreements, the Prior Security Agreements, and all other prior discussions and
agreements by and between any of the Credit Parties and Lender with respect to
the Loans or the Collateral, and together they constitute the sole and entire
agreement between the parties with respect thereto. No promises, covenants,
representations, or agreements other than as expressly set forth in the
Financing Documents have been made to or with any Credit Party, and Borrower
represents and warrants that it is not relying on any promises, covenants,
representations or agreements, other than as expressly set forth in such
documents in entering into this Agreement.
SECTION 903. Several Counterparts. This Agreement may be executed in
any number of counterparts each of which shall be deemed an original, and all of
such counterparts together shall constitute one and the same instrument.
SECTION 904. Survival of Warranties. All representations, covenants,
and warranties made in this Agreement, or in any of the other Financing
Documents are cumulative and in addition to those imposed by law or equity, and
are to survive the execution hereof, the making of the Loans, and the delivery
hereof and of all the other Financing Documents.
SECTION 905. Rights Cumulative. All rights and remedies of Lender,
whether provided for herein or in any of the other Financing Documents or
conferred by law or in equity or by statute or otherwise, are cumulative and not
alternative, and may be enforced successively or concurrently. The collection,
repossession, sale or retention of any of the Collateral by Lender will not bar
an action by Lender for the recovery of any of the Liabilities of Borrower to
Lender (Borrower having expressly agreed herein to remain fully liable for any
deficiency), nor will Lender's bringing of an action against Borrower to recover
moneys owing under any of the Liabilities bar Lender's right to collect or
repossess any of the Collateral.
SECTION 906. No Release; Term of Agreement. No sale, assignment,
transfer, renewal, addition, extension, consolidation, subdivision,
modification, or substitution of any of the Liabilities, or of any of the
Financing Documents, or of any interest thereunder, nor any loss, damage,
injury, theft, or destruction of any of the Collateral will release Borrower
from its obligations hereunder. The Liabilities may from time to time be paid
and Liabilities thereafter incurred, and neither this Agreement nor the security
interests and security titles conveyed under the Financing Documents shall lapse
or terminate because no Liabilities are outstanding. This Agreement shall remain
in full force and effect until such time as (i) no Liabilities are outstanding
and (ii) Lender is under no obligation to make any Loans hereunder to Borrower.
25
<PAGE>
SECTION 907. Waivers and Modifications. Lender will not be deemed as a
consequence of any act, delay, failure, omission, or forbearance (including
without limitation failure to exercise its right of accelerating the maturity of
any of the Liabilities or other indulgences granted from time to time by Lender)
or for any other reason: (1) to have waived, or to be estopped from exercising,
any of its rights or remedies under this Agreement or under any of the other
Financing Documents, or (2) to have modified, changed, amended, terminated,
rescinded, or superseded any of the terms of this Agreement or of any of the
other Financing Documents, unless such waiver, modification, amendment, change,
termination, rescission, or supersession is express, in writing and signed by a
duly authorized officer of Lender. No single or partial exercise by Lender of
any right or remedy will preclude other or further exercise thereof or preclude
the exercise of any other right or remedy, and a waiver expressly made in
writing on one occasion will be effective only in that specific instance and
only for the precise purpose for which given, and will not be construed as a
consent to or a waiver of any right or remedy on any future occasion. No notice
to or demand on Borrower in any instance will entitle Borrower to any other or
future notice or demand in similar or other circumstances.
SECTION 908. Waiver of Presentment, Etc. Borrower hereby expressly
waives presentment, demand, dishonor, protest, notice for payment, notice of
non-payment, notice of dishonor, notice of default, notice of compromises or
surrender and any other demand or notice whatsoever in connection with the
Financing Documents.
SECTION 909. Notices. Except as provided otherwise in this Agreement,
all notices and other communications under this Agreement are to be in writing
and are to be deemed to have been duly given and to be effective upon delivery
to the party to whom they are directed. If sent by U.S. mail, first class,
certified, return receipt requested, postage prepaid, and addressed to Lender or
to Borrower at their respective addresses set forth beneath their respective
signatures below, such notices, demands and other communications are to be
deemed to have been delivered on the second business day after being so posted.
Either Lender or Borrower may by written notice to the other designate a
different address for receiving notices under this Agreement; provided, however,
that no such change of address will be effective until written notice thereof is
actually received by the party to whom such change of address is sent.
SECTION 910. No Assignment by Borrower. Borrower may not, without the
consent of Lender, assign any of its rights or duties hereunder or under any of
the other Financing Documents.
SECTION 911. Lender's Expenses. All statements, reports, certificates,
opinions, and other documents or information furnished to Lender under the
Financing Documents shall be supplied by Borrower without cost to Lender.
Further, Borrower shall reimburse Lender on demand for all reasonable
out-of-pocket costs and expenses (including actual and reasonable legal fees)
incurred by the Lender or its participants in connection with the preparation,
establishment, operation, enforcement, and termination of the Financing
26
<PAGE>
Documents or the protection or preservation of any right or claim of the Lender
with respect to the Financing Documents; provided, however, that Borrower's
obligation to reimburse Lender for its attorney's fees and expenses relating to
the initial preparation and establishment of this Agreement and the other
Financing Documents shall not exceed $10,000.
SECTION 912. Payment of Taxes. Borrower will pay all taxes (if any) in
connection with this Agreement, any of the other Financing Documents, any loans
made in connection with this Agreement, or the issuance or ownership of any of
the Financing Documents and in connection with any modification of said loans,
this Agreement, or any of the other Financing Documents (excluding, however, any
taxes imposed upon or measured by the net income of the Lender), and will save
the Lender harmless without limitation as to time against any and all
liabilities with respect to all such taxes. The obligations of Borrower under
this section shall survive the payment of the Liabilities and the termination of
this Agreement.
SECTION 913. Demand Liabilities. If any of the Liabilities are by
their terms demand obligations, nothing contained herein shall affect, impair or
modify the demand nature of such obligations, and the occurrence of a Default or
an Event of Default shall not be a prerequisite for Lender's requiring payment
of such obligations.
SECTION 914. Set-Offs Against Deposits. Upon the occurrence of an
Event of Default hereunder, Lender, without notice or demand of any kind, may
hold and set off against such of the Liabilities (whether matured or unmatured)
as Lender may elect, any balance or amount to the credit of Borrower in any
deposit, agency, reserve, holdback or other account of any nature whatsoever
maintained by or on behalf of Borrower with Lender at any of its offices,
regardless of whether such accounts are general or special and regardless of
whether such accounts are individual or joint.
SECTION 915. Participant Set-Off. Any Person purchasing an interest in
debt obligations under this Agreement held by Lender may exercise all rights of
offset with respect to such interest as fully as if such Person were a holder of
debt obligations hereunder in the amount of such interest.
SECTION 916. Confidentiality. Each of the parties to this Agreement
shall use reasonable, good faith efforts to maintain as confidential, in
accordance with such Person's normal practices and policies for protecting its
own confidential information, this Agreement and the other Financing Documents
and the terms and conditions thereof, and all other information delivered to
such party in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in nature and that was clearly
marked or labeled or otherwise identified as being confidential information;
provided, however, that each such Person may disclose information concerning the
aforesaid Financing Documents or their terms and conditions or such other
confidential information described above (i) as required in its counsel's
opinion pursuant to the lawful requirements or requests of any Governmental
27
<PAGE>
Authority, (ii) as required in its counsel's opinion by any governmental or
administrative rule, judicial process or subpoena, (iii) to their respective
attorneys, accountants, advisers or consultants (but only on a confidential
basis as provided below), (iv) to the extent necessary in its counsel's opinion
to enforce such Person's rights or remedies or perform such Person's obligations
under any of the Financing Documents or applicable law, (v) to the extent
necessary or appropriate in the opinion of its counsel in connection with any
litigation or other proceeding having it or any of its Affiliates as a party
thereto, and (vi) Lender may disclose such information to any actual or
prospective assignee or participant of Lender. If Lender or any Credit Party
discloses any information covered by this subsection to any of its attorneys,
accountants, advisers or consultants, such Person shall advise such attorneys,
accountants, advisers or consultants of the provisions of this Section but such
Person shall not be liable for any misappropriation or misuse of such
information by such attorneys, accountants, consultants or advisers other than
occasioned by such Person's own gross negligence or willful misconduct. The
obligations of the parties under this Section 916 shall survive until one year
after the date of any termination of this Agreement. Lender agrees, upon request
of Borrower following any termination of this Agreement, to use reasonable
efforts to return to Borrower any confidential or proprietary information of
Borrower delivered to Lender pursuant to this Agreement and in Lender's
possession.
SECTION 917. Governing Law; Severability. This Agreement and all of
the other Financing Documents have been made and delivered in the State of
Georgia, and the terms, provisions and performance thereof are in all respects,
including without limitation all matters of construction, interpretation,
validity, enforcement, and performance, to be construed in accordance with and
governed by the internal laws of that State, including without limitation the
Uniform Commercial Code of Georgia, as amended and in effect on the date of this
Agreement. Wherever possible, each provision of this Agreement and of each and
every of the other Financing Documents is to be interpreted in such manner as to
be effective and valid under applicable law, but if any provision thereof is
prohibited or invalid under such law, such provision is to be ineffective only
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement or of
any of the other Financing Documents.
SECTION 918. Successors and Assigns. All rights of Lender under the
Financing Documents shall inure to the benefit of its successors and assigns.
All obligations of Borrower under the Financing Documents shall bind its
successors and permitted assigns.
28
<PAGE>
SECTION 919. Jury Trial Waiver and Consent to Jurisdiction and Venue.
EACH PARTY TO THIS AGREEMENT HEREBY WAIVES ANY RIGHT SUCH PARTY MAY HAVE UNDER
ANY APPLICABLE LAW TO A TRIAL BY JURY WITH RESPECT TO ANY SUIT OR LEGAL ACTION
WHICH MAY BE COMMENCED BY OR AGAINST SUCH PERSON OR THE OTHER PARTIES CONCERNING
THE INTERPRETATION, CONSTRUCTION, VALIDITY, ENFORCEMENT OR PERFORMANCE OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING DOCUMENTS. EACH PARTY TO THIS AGREEMENT
FURTHER AGREES AND CONSENTS TO THE JURISDICTION OF ANY FEDERAL COURT SITTING IN
FULTON COUNTY, GEORGIA WITH RESPECT TO ANY SUCH SUIT OR LEGAL ACTION, AND EACH
PARTY TO THIS AGREEMENT FURTHER AGREES AND CONSENTS TO VENUE OF ANY FEDERAL
COURT SITTING IN FULTON COUNTY, GEORGIA WITH REGARD TO ANY SUCH SUIT OR LEGAL
ACTION.
IN WITNESS WHEREOF, Lender has executed this Agreement, and Borrower
has executed this Agreement and placed its seal hereon, all as of the day and
year first above written.
BORROWER:
CRYOLIFE, INC.
By:
----------------------------------------
President
Address: 2211 New Market Parkway
Suite 142
Marietta, Georgia 30067
(CORPORATE SEAL)
LENDER:
NATIONSBANK, N.A. (SOUTH)
By:
----------------------------------------
Senior Vice President
Address: 600 Peachtree Street, N.E.
18th Floor
Atlanta, Georgia 30308
Attn: Christopher L. Jones
Senior Vice President
29
EXHIBIT 10.24(d)
THIRD MODIFICATION OF
THIRD AMENDED AND RESTATED LOAN AGREEMENT
THIS MODIFICATION is made and entered into as of the 12th day of June,
1998, by and between CRYOLIFE, INC., a Florida corporation ("Borrower"), and
NATIONSBANK, N.A., a national banking association which is the successor by
merger to NationsBank, N.A. (South), the successor by merger to Bank South,
formerly known as Bank South, N.A. ("Lender").
Statement of Facts
Borrower and Lender are parties to that certain Third Amended and Restated
Loan Agreement, dated as of August 30, 1996, as amended by First Modification of
Third Amended and Restated Loan Agreement, dated as of April 14, 1997, and as
further amended by Second Modification of Third Amended and Restated Loan
Agreement, dated as of December 16, 1997 (the "Loan Agreement").
Borrower and Lender desire to further amend the Loan Agreement as
hereinafter provided.
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements, warranties and representations herein made, as well as $10.00 in
hand paid by each party hereto to the other, and other good and valuable
consideration, the receipt and sufficiency which are hereby acknowledged,
Borrower and Lender agree that all capitalized terms used herein (and not
otherwise defined herein) shall have the meanings given them in the Loan
Agreement as herein amended and Borrower and Lender further agree as follows:
Statement of Terms
1. The Loan Agreement is hereby amended effective as of the date hereof by
deleting from Section 101 thereof the definition of the term "Maximum
Availability" and substituting in lieu thereof the following replacement
definition:
"Maximum Availability" shall mean $2,000,000, as such amount may be
reduced or amended pursuant to this Agreement.
2. The Loan Agreement is hereby further amended effective as of the date
hereof by deleting the first sentence of Section 201(e) thereof in its entirety
and substituting in lieu thereof the following:
Borrower shall pay to Lender unused facility fees for Borrower's Loan
facility hereunder during the Revolving Loan Period computed on the daily
average unused portion of the Maximum Availability at a rate per annum of
one-quarter of one percent (.25%).
3. The Loan Agreement is hereby further amended by deleting Exhibit A-1
attached to the Loan Agreement and substituting in lieu thereof the new Exhibit
A-1 attached hereto.
4. The effectiveness of this Modification is subject to:
(a) the prior or concurrent receipt by Lender of this Modification, duly
executed by Borrower;
(b) the prior or concurrent receipt by Lender of a replacement Revolving
Note in the principal face amount of the reduced Maximum Availability;
(c) any and all guarantors of the Loans shall have consented to the
execution, delivery and performance of this Modification and the new
Note and all of the transactions contemplated hereby by signing one or
more counterparts of this Modification in the appropriate space
indicated below and returning same to Lender;
(d) the prior or concurrent receipt by Lender of a certificate of Borrower
in the form of Exhibit B attached hereto, and a certificate of each
Guarantor in the form of Exhibit C attached hereto;
(e) the payment of all fees and expenses due from Borrower hereunder as
set forth in Section 7 below; and
(f) the truth and accuracy in all material respects of Borrower's
representations and warranties in Section 6 below.
5. Except as expressly modified herein, the Loan Agreement shall remain in
full force and effect. Nothing contained herein shall be deemed to be or operate
as a novation or an accord and satisfaction of the Loan Agreement or of any
indebtedness arising thereunder.
6. Borrower hereby represents and warrants to Lender that (a) this
Modification and the supplemental Financing Documents executed in connection
herewith have been duly authorized, executed and delivered by Borrower, (b)
after giving effect to this Modification, no Default or Event of Default has
occurred and is continuing as of this date and (c) all of the representations
and warranties made by Borrower in the Loan Agreement are true and correct in
all material respects on and as of the date of this Modification (except to the
extent that any such representations or warranties expressly referred to a
specific prior date). Any breach by Borrower of its representations and
warranties contained in this Section shall be an Event of Default for all
purposes of the Loan Agreement.
7. Borrower further agrees to reimburse Lender for all reasonable expenses
(including without limitation attorney's fees) incurred by Lender in the
negotiation, documentation or consummation of this Modification and the
transactions contemplated hereby.
8. This Modification shall be governed and construed in accordance with the
laws of the State of Georgia and this Modification shall inure to the benefit of
and shall be binding upon the parties hereto and their respective successors and
permitted assigns.
9. This Modification may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which when taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, Lender has executed this Modification, and Borrower has
executed this Modification and placed its seal hereon, all as of the day and
year first above set forth.
LENDER:
NATIONSBANK, N.A.
By: _____________________________________
Vice President
BORROWER:
CRYOLIFE, INC.
By:_____________________________________
Title:
(CORPORATE SEAL)
<PAGE>
CONSENT OF GUARANTOR
All capitalized terms used herein and not otherwise defined herein shall
have the meanings given such terms in the Third Amended and Restated Loan
Agreement, dated as of August 30, 1996, between CryoLife, Inc. ("Borrower") and
NationsBank, N.A., successor by merger to NationsBank, N.A. (South) ("Lender"),
as amended (the "Loan Agreement").
The undersigned acknowledges that it is indebted to Lender under the terms
of the Guaranty Agreement, dated as of August 30, 1996, executed by the
undersigned in favor of Lender (the "Guaranty"), and that the Guaranty is in
full force and effect as of the date hereof, has not been amended, rescinded,
revoked or terminated by such party through the date hereof, and continues to
constitute the legal, valid and binding obligation of the undersigned
enforceable against the undersigned in accordance with its terms. The
undersigned hereby confirms and reaffirms all of its obligations and liabilities
to Lender under the Guaranty and further confirms and agrees that pursuant to
the Guaranty, the undersigned has guaranteed the payment and performance of the
Revolving Note, the Additional Term Note and each Hedge Agreement now or
hereafter in effect, and all obligations, liabilities and indebtedness of
Borrower arising thereunder or evidenced thereby.
The undersigned also consents to and approves the execution, delivery and
performance of the Third Modification of Third Amended and Restated Loan
Agreement, dated as of the date hereof, between Lender and Borrower (the "Third
Modification"), the new Revolving Note executed and delivered in connection
therewith, and all the transactions contemplated thereby. The undersigned also
agrees that all indebtedness, obligations and liabilities of Borrower to Lender
which may now or hereafter arise under or by reason of the Loan Agreement,
including without limitation Borrower's obligations in respect of Loans advanced
pursuant to the Loan Agreement, and all obligations arising under any Hedge
Agreement, constitute part of the obligations of Borrower to Lender which are
guaranteed by the undersigned under the terms and conditions of the Guaranty.
SIGNED, SEALED AND DELIVERED as of the 12th day of June, 1998.
CRYOLIFE INTERNATIONAL, INC.
By:_____________________________________
Title:__________________________________
(CORPORATE SEAL)
<PAGE>
CONSENT OF GUARANTOR
All capitalized terms used herein and not otherwise defined herein shall
have the meanings given such terms in the Third Amended and Restated Loan
Agreement, dated as of August 30, 1996, between CryoLife, Inc. ("Borrower") and
NationsBank, N.A., successor by merger to NationsBank, N.A. (South) ("Lender"),
as amended (the "Loan Agreement").
The undersigned acknowledges that it is indebted to Lender under the terms
of the Guaranty Agreement, dated as of April 14, 1997, executed by the
undersigned in favor of Lender (the "Guaranty"), and that the Guaranty is in
full force and effect as of the date hereof, has not been amended, rescinded,
revoked or terminated by such party through the date hereof, and continues to
constitute the legal, valid and binding obligation of the undersigned
enforceable against the undersigned in accordance with its terms. The
undersigned hereby confirms and reaffirms all of its obligations and liabilities
to Lender under the Guaranty and further confirms and agrees that pursuant to
the Guaranty, the undersigned has guaranteed the payment and performance of the
Revolving Note, the Additional Term Note and each Hedge Agreement now or
hereafter in effect, and all obligations, liabilities and indebtedness of
Borrower arising thereunder or evidenced thereby.
The undersigned also consents to and approves the execution, delivery and
performance of the Third Modification of Third Amended and Restated Loan
Agreement, dated as of the date hereof, between Lender and Borrower (the "Third
Modification"), the new Revolving Note executed and delivered in connection
therewith, and all the transactions contemplated thereby. The undersigned also
agrees that all indebtedness, obligations and liabilities of Borrower to Lender
which may now or hereafter arise under or by reason of the Loan Agreement,
including without limitation Borrower's obligations in respect of Loans advanced
pursuant to the Loan Agreement, and all obligations arising under any Hedge
Agreement, constitute part of the obligations of Borrower to Lender which are
guaranteed by the undersigned under the terms and conditions of the Guaranty.
SIGNED, SEALED AND DELIVERED as of the 12th day of June, 1998.
IDEAS FOR MEDICINE, INC.
By:_____________________________________
Title:__________________________________
(CORPORATE SEAL)
EXHIBIT 10.24(e)
FOURTH MODIFICATION OF
THIRD AMENDED AND RESTATED LOAN AGREEMENT
AND
FIRST MODIFICATION OF REVOLVING NOTE
THIS MODIFICATION (this "Modification") is made and entered into as of the
31st day of December, 1999, by and between CRYOLIFE, INC., a Florida corporation
("Borrower"), and BANK OF AMERICA, N.A., a national banking association which is
the successor by merger to NationsBank, N.A., formerly known as NationsBank,
N.A. (South), formerly known as Bank South, formerly known as Bank South, N.A.
("Lender").
Statement of Facts
Borrower and Lender are parties to that certain Third Amended and Restated
Loan Agreement, dated as of August 30, 1996, as amended by First Modification of
Third Amended and Restated Loan Agreement, dated as of April 14, 1997, as
further amended by Second Modification of Third Amended and Restated Loan
Agreement, dated as of December 16, 1997, and as further amended by Third
Modification of Third Amended and Restated Loan Agreement, dated as of June 12,
1998 (the "Loan Agreement").
Pursuant to the Loan Agreement, the Borrower has issued in favor of the
Lender a $2,000,000 Revolving Note, dated June 12, 1998 (the "Revolving Note").
Borrower and Lender desire to further amend the Loan Agreement and to amend
the Revolving Note as hereinafter provided.
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements, warranties and representations herein made, as well as $10.00 in
hand paid by each party hereto to the other, and other good and valuable
consideration, the receipt and sufficiency which are hereby acknowledged,
Borrower and Lender agree that all capitalized terms used herein (and not
otherwise defined herein) shall have the meanings given them in the Loan
Agreement as herein amended and Borrower and Lender further agree as follows:
Statement of Terms
1. Section 101 of the Loan Agreement is hereby amended effective as of the
date hereof as follows:
(a) the date "December 31, 1999" in the definition of the term "Credit
Expiration Date" is hereby deleted, and the date "December 31, 2001" is
substituted in lieu thereof; and
(b) the date "December 31, 2004" in the definition of the term "Final
Maturity Date" is hereby deleted, and the date "December 31, 2001" is
substituted in lieu thereof.
2. Section 403 of the Loan Agreement is hereby amended effective as of the
date hereof by deleting from subpart (2) thereof the phrase "Not later than 30
days after and as of the end of each month (other than the final month of each
fiscal year)" and inserting in lieu thereof the following:
"Not later than 45 days after and as of the end of each quarter (other than
the final quarter of each fiscal year)"
3. Section 507 of the Loan Agreement is hereby amended effective as of the
date hereof by deleting subpart (b) thereof in its entirety and by substituting
in lieu thereof the following:
"Borrower shall not make Capital Expenditures in any fiscal year, with the
exception of fiscal year 2000, which exceeds $5,000,000.00 in total amount
for such year."
4. Section 507 of the Loan Agreement is hereby amended effective as of the
date hereof by deleting subpart (e) thereof in its entirety and by substituting
in lieu thereof the following:
"Borrower shall not permit its Net Worth at any time after the date hereof
to be less than $80,000,000 plus (i) 80% of the positive amount of net
income of Borrower for each fiscal quarter ending after such date and (ii)
the amount of any increase in Net Worth resulting from the issuance of
stock, corporate reorganizations, recapitalizations or any similar event."
5. The Revolving Note is hereby amended by deleting in its entirety
paragraph (b) on page 3 thereof and by substituting in lieu thereof the
following new paragraph (b):
"(b) The principal balance of this Note shall be repayable in full on the
Final Maturity Date (as defined in the Loan Agreement referred to below)."
6. The effectiveness of this Modification is subject to:
(a) the prior or concurrent receipt by Lender of this Modification, duly
executed by Borrower;
(b) any and all guarantors of the Loans shall have consented to the
execution, delivery and performance of this Modification and all of the
transactions contemplated hereby by signing one or more counterparts of
this Modification in the appropriate space indicated below and returning
same to Lender;
(c) the prior or concurrent receipt by Lender of a certificate of Borrower
in the form of Exhibit A attached hereto;
(d) the payment of all fees and expenses due from Borrower hereunder as set
forth in Section 9 below; and
(e) the truth and accuracy in all material respects of Borrower's
representations and warranties in Section 8 below.
7. Except as expressly modified herein, each of the Loan Agreement and the
Revolving Note shall remain in full force and effect. Nothing contained herein
shall be deemed to be or operate as a novation or an accord and satisfaction of
either the Loan Agreement or the Revolving Note or of any indebtedness arising
thereunder.
8. Borrower hereby represents and warrants to Lender that (a) this
Modification and the supplemental Financing Documents executed in connection
herewith have been duly authorized, executed and delivered by Borrower, (b)
after giving effect to this Modification, no Default or Event of Default has
occurred and is continuing as of this date and (c) all of the representations
and warranties made by Borrower in the Loan Agreement are true and correct in
all material respects on and as of the date of this Modification (except to the
extent that any such representations or warranties expressly referred to a
specific prior date). Any breach by Borrower of its representations and
warranties contained in this Section shall be an Event of Default for all
purposes of the Loan Agreement.
9. Borrower further agrees to reimburse Lender for all reasonable expenses
(including without limitation attorney's fees) incurred by Lender in the
negotiation, documentation or consummation of this Modification and the
transactions contemplated hereby.
10. This Modification shall be governed and construed in accordance with
the laws of the State of Georgia and this Modification shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
successors and permitted assigns.
11. This Modification may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which when taken together
shall constitute one and the same instrument.
[remainder of this page intentionally left blank]
IN WITNESS WHEREOF, Lender has executed this Modification, and Borrower has
executed this Modification and placed its seal hereon, all as of the day and
year first above set forth.
LENDER:
BANK OF AMERICA, N.A.,
By:_____________________________________
Vice President
BORROWER:
CRYOLIFE, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
(CORPORATE SEAL)
<PAGE>
CONSENT OF GUARANTOR
All capitalized terms used herein and not otherwise defined herein shall
have the meanings given such terms in the Third Amended and Restated Loan
Agreement, dated as of August 30, 1996, between CryoLife, Inc. ("Borrower") and
Bank of America, N.A., successor by merger to NationsBank, N.A., formerly known
as NationsBank, N.A. (South) ("Lender"), as amended (the "Loan Agreement").
The undersigned acknowledges that it is indebted to Lender under the terms
of the Guaranty Agreement, dated as of August 30, 1996, executed by the
undersigned in favor of Lender (the "Guaranty"), and that the Guaranty is in
full force and effect as of the date hereof, has not been amended, rescinded,
revoked or terminated by such party through the date hereof, and continues to
constitute the legal, valid and binding obligation of the undersigned
enforceable against the undersigned in accordance with its terms. The
undersigned hereby confirms and reaffirms all of its obligations and liabilities
to Lender under the Guaranty and further confirms and agrees that pursuant to
the Guaranty, the undersigned has guaranteed the payment and performance of the
Revolving Note, the Additional Term Note and each Hedge Agreement now or
hereafter in effect, and all obligations, liabilities and indebtedness of
Borrower arising thereunder or evidenced thereby.
The undersigned also consents to and approves the execution, delivery and
performance of the Fourth Modification of Third Amended and Restated Loan
Agreement and First Modification of Revolving Note, dated as of the date hereof,
between Lender and Borrower (the "Fourth Modification") and all the transactions
contemplated thereby. The undersigned also agrees that all indebtedness,
obligations and liabilities of Borrower to Lender which may now or hereafter
arise under or by reason of the Loan Agreement, including without limitation
Borrower's obligations in respect of Loans advanced pursuant to the Loan
Agreement, and all obligations arising under any Hedge Agreement, constitute
part of the obligations of Borrower to Lender which are guaranteed by the
undersigned under the terms and conditions of the Guaranty.
SIGNED, SEALED AND DELIVERED as of the 31st day of December, 1999.
CRYOLIFE INTERNATIONAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
(CORPORATE SEAL)
<PAGE>
CONSENT OF GUARANTOR
All capitalized terms used herein and not otherwise defined herein shall
have the meanings given such terms in the Third Amended and Restated Loan
Agreement, dated as of August 30, 1996, between CryoLife, Inc. ("Borrower") and
Bank of America, N.A., successor by merger to NationsBank, N.A., formerly known
as NationsBank, N.A. (South) ("Lender"), as amended (the "Loan Agreement").
The undersigned acknowledges that it is indebted to Lender under the terms
of the Guaranty Agreement, dated as of April 14, 1997, executed by the
undersigned in favor of Lender (the "Guaranty"), and that the Guaranty is in
full force and effect as of the date hereof, has not been amended, rescinded,
revoked or terminated by such party through the date hereof, and continues to
constitute the legal, valid and binding obligation of the undersigned
enforceable against the undersigned in accordance with its terms. The
undersigned hereby confirms and reaffirms all of its obligations and liabilities
to Lender under the Guaranty and further confirms and agrees that pursuant to
the Guaranty, the undersigned has guaranteed the payment and performance of the
Revolving Note, the Additional Term Note and each Hedge Agreement now or
hereafter in effect, and all obligations, liabilities and indebtedness of
Borrower arising thereunder or evidenced thereby.
The undersigned also consents to and approves the execution, delivery and
performance of the Fourth Modification of Third Amended and Restated Loan
Agreement and First Modification of Revolving Note, dated as of the date hereof,
between Lender and Borrower (the "Fourth Modification") and all the transactions
contemplated thereby. The undersigned also agrees that all indebtedness,
obligations and liabilities of Borrower to Lender which may now or hereafter
arise under or by reason of the Loan Agreement, including without limitation
Borrower's obligations in respect of Loans advanced pursuant to the Loan
Agreement, and all obligations arising under any Hedge Agreement, constitute
part of the obligations of Borrower to Lender which are guaranteed by the
undersigned under the terms and conditions of the Guaranty.
SIGNED, SEALED AND DELIVERED as of the 31st day of December, 1999.
IDEAS FOR MEDICINE, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
(CORPORATE SEAL)
<PAGE>
Exhibit A
CERTIFICATE OF CRYOLIFE, INC.
The undersigned officers of CRYOLIFE, INC. (the "Borrower"), a Florida
corporation, hereby certify and covenant in their representative capacities on
behalf of the Borrower as follows:
1. The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida, with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business, and is duly qualified to do business in every
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary.
2. The resolutions of the Directors of the Borrower adopted as of August
28, 1996, March 27, 1997, December 19, 1997 and July 24, 1998, which resolutions
were previously certified by officers of the Borrower as being true and correct
(the "Resolutions"), are in full force and effect and have not been amended,
altered or repealed as of the date hereof. Signed originals of the Resolutions
appear in the minute book of the Borrower. The Resolutions were adopted in
accordance with law and in accordance with the By-Laws of the Borrower. A true
and correct copy of the Borrower's Articles of Incorporation, as in effect on
the date hereof, is attached hereto as Exhibit 1. A true and correct copy of the
Borrower's By-Laws, as in effect on the date hereof, is attached hereto as
Exhibit 2.
3. The Borrower has duly authorized, executed and delivered, and approved
by all necessary corporate action, the Fourth Modification of Third Amended and
Restated Loan Agreement and First Modification of Note, dated as of December 31,
1999, by an between the Borrower and Bank of America, N.A. (the "Fourth
Modification"), pursuant to, and in full compliance with, authority granted by
the Directors of the Borrower in the Resolutions. The Borrower hereby
acknowledges receipt of an executed counterpart or photocopy (as executed) of
the Fourth Modification.
4. The persons named below are on the date hereof the duly elected and
qualified incumbents of the offices of the Borrower set forth below next to
their respective names, and the signatures appearing at the right of their
respective names below are the genuine signatures of such officers:
Name and Title Signature
Steven G. Anderson, President and Chief Executive _________________________
Officer
Edwin B. Cordell, Jr., Vice President and Chief _________________________
Financial Officer
5. The Borrower has the corporate power to execute the Fourth Modification
and to perform the obligations required to be performed by the Borrower under
the terms of the Fourth Modification.
6. As of the date hereof, and after giving effect to the execution and
delivery of the Fourth Modification, each of the representations and warranties
of the Borrower in the Fourth Modification is true and correct in all material
respects and no Default or Event of Default (as such terms are defined in the
Fourth Modification or the Loan Agreement referred to therein) has occurred and
is continuing.
7. The seal affixed to this certificate and the Fourth Modification is the
legally adopted, proper and only official corporate seal of the Borrower.
8. The Borrower's chief executive office and principal place of business
(within the meaning of Official Code of Georgia Annotated Section
11-9-401(1)(b)) is located in Cobb County, Georgia and its principal executive
office (within the meaning of Section 6323(f) of the Internal Revenue Code of
1986, as amended) is located in Cobb County, Georgia.
9. The Borrower's federal taxpayer identification number is 59-2417093.
IN WITNESS WHEREOF, the undersigned have hereunto set their signatures and
the seal of the Borrower as of the 31st day of December, 1999.
____________________________________________________
Steven G. Anderson, President and Chief Executive
Officer of CryoLife, Inc.
(CORPORATE SEAL)
____________________________________________________
Edwin B. Cordell, Jr., Vice President and Chief
Financial Officer of CryoLife, Inc.
<PAGE>
EXHIBIT 1
See attached Articles of Incorporation
<PAGE>
EXHIBIT 2
See attached By-Laws
1216314v1
Standard Form of Agreements Between
Owner and Design/Builder
AIA Document A191 - Electronic Format
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES: CONSULTATION WITH AN ATTORNEY IS
ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHENTICATION OF
THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401.
Copyright 1985, (C) 1996 The American Institute of Architects, 1735 New York
Avenue, NW, Washington, DC 20006-5292. Reproduction of the material herein or
substantial quotation of its provisions without the written permission of the
AIA violates the copyright laws of the United States and will subject the
violator to legal prosecution.
1996 EDITION
TABLE OF ARTICLES
PART 1 AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
1. Design/Builder 6. Dispute Resolution - Mediation and Arbitration
2. Owner 7. Miscellaneous Provisions
3. Ownership and Use of Documents and 8. Termination of the Agreement
Electronic data 9. Basis of Compensation
4. Time 10. Other Conditions and Services
5. Payments
</TABLE>
PART 2 AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
1. General Provisions 8. Changes in the Work
2. Owner 9. Correction of Work
3. Design/Builder 10. Dispute Resolution - Mediation and Arbitration
4. Time 11. Miscellaneous Provisions
5. Payments 12. Termination of the Agreement
6. Protection of Persons and Property 13. Basis of Compensation
7. Insurance and Bonds 14. Other Conditions and Services
</TABLE>
AIA DOCUMENT A191 o OWNER-DESIGN/BUILDER AGREEMENT o SECOND EDITION o AIA(R) o
(C) 1996 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, NW,
WASHINGTON, DC 20006-5292 o WARNING: Unlicensed photocopying violates U.S.
copyright laws and subject to legal prosecution. This document was
electronically produced with permission of the AIA and can be reproduced without
violation until the date of expiration as noted below.
Electronic Format A191-1996
User Document: CRYOLIFE -- 1/19/2000. AIA License Number 102512, which expires
on 2/5/2000 - Page #1
INITIAL______________
<PAGE>
Standard Form of Agreements Between
Owner and Design/Builder
AIA Document A191 - Electronic Format
This document comprises two separate Agreements: Part 1 Agreement and Part 2
Agreement. Before executing the Part 1 Agreement, the parties should reach
substantial agreement on the Part 2 Agreement. To the extent referenced in these
Agreements, subordinate parallel agreements to A191 consist of AIA Documents
A491, Standard Form of Agreements Between Design/Builder and Contractor, and AIA
Document B901, Standard Form of Agreements Between Design/Builder and Architect.
PART 1 AGREEMENT
1996 EDITION
AGREEMENT
made as of the 19th day of January in the year of Two Thousand.
(In words, indicate day, month and year.)
BETWEEN the Owner:
(Name and address)
CryoLife, Inc.
1655 Roberts Blvd, NW
Kennesaw, GA 30144
and the Design/Builder:
(Name and address)
Choate Design & Build Company
1640 Powers Ferry Road
Building 11, Suite 300
Marietta, GA 30067
For the following Project:
(Include Project name, location and a summary description.)
CryoLife, Inc - Phase II Interiors
1655 Roberts Blvd, NW
Kennesaw, GA 30144
The architectural services described in Article 1 will be provided by the
following person or entity who is lawfully licensed to practice architecture:
<TABLE>
<CAPTION>
<S> <C> <C>
(Name and address) (Registration Number) (Relationship to Design/Builder)
Lockwood Greene Engineering, Inc. Subcontractor-Architecture
Inforum, Suite 4000, 250 Williams St. & Engineering
Atlanta, GA 30303-1306
</TABLE>
Normal structural, mechanical and electrical engineering services will be
provided contractually through the Architect except as indicated below:
<TABLE>
<CAPTION>
<S> <C> <C>
(Name, address and discipline) (Registration Number) (Relationship to Design/Builder)
</TABLE>
The Owner and the Design/Builder agree as set forth below.
<PAGE>
TERMS AND CONDITIONS-PART 1 AGREEMENT
ARTICLE 1
DESIGN/BUILDER
1.1 SERVICES
1.1.1 Preliminary design, budget, and schedule comprise the services required to
accomplish the preparation and submission of the Design/Builder's Proposal as
well as the preparation and submission of any modifications to the Proposal
prior to execution of the Part 2 Agreement.
1.2 RESPONSIBILITIES
1.2.1 Design services required by this Part 1 Agreement shall be performed by
qualified architects and other design professionals. The contractual obligations
of such professional persons or entities are undertaken and performed in the
interest of the Design/Builder.
1.2.2 The agreements between the Design/Builder and the persons or entities
identified in this Part 1 Agreement, and any subsequent modifications, shall be
in writing. These agreements, including financial arrangements with respect to
this Project, shall be promptly and fully disclosed to the owner upon request.
1.2.3 Construction budgets shall be prepared by qualified professionals, cost
estimators or contractors retained by and acting in the interest of the
Design/Builder.
1.2.4 The Design/Builder shall be responsible to the Owner for acts and
omissions of the Design/Builder's employees, subcontractors and their agents and
employees, and other persons, including the Architect and other design
professionals, performing any portion of the Design/Builder's obligations under
this Part 1 Agreement. The Design/Builder shall be limited in liability to the
extent of the Architect's professional design liability insurance.
1.2.5 If the Design/Builder believes or is advised by the Architect or by
another design professional retained to provide services on the Project that
implementation of any instruction received from the Owner would cause a
violation of any applicable law, the Design/Builder shall notify the Owner in
writing. Neither the Design/Builder nor the Architect shall be obligated to
perform any act which either believes will violate any applicable law.
1.2.6 Nothing contained in this Part 1 Agreement shall create a contractual
relationship between the Owner and a person or entity other than the
Design/Builder.
1.3 BASIC SERVICES
1.3.1 The Design/Builder has provided a preliminary evaluation (Exhibit "A",
Final Build-Out Interiors dated 10/19/99) of the Owner's program and project
budget requirements, each in terms of the other.
1.3.2 The Design/Builder shall visit the site, become familiar with the local
conditions, and correlate observable conditions with the requirements of the
Owner's program, schedule, and budget.
1.3.3 The Design/Builder shall review laws applicable to design and construction
of the Project; correlate such laws with the Owner's program requirements; and
advise the Owner if any program requirement may cause a violation of such laws.
Necessary changes to the Owner's program shall be accomplished by appropriate
written modification or disclosed as described in Paragraph 1.3.5.
1.3.4 The Design/Builder shall review with the Owner a alternative approaches to
design and construction of the Project.
1.3.5 The Design/Builder shall submit to the Owner a Proposal, including the
completed Preliminary Design Documents, a statement of the proposed contract
sum, and a proposed schedule for completion of the Project. Preliminary Design
Documents shall consist of preliminary design drawings, outline specifications
or other documents sufficient to establish the size, quality and character of
the entire Project, its architectural, mechanical and electrical systems, and
the materials and such other elements of the Project as may be appropriate.
Deviations from the Owner's program shall be disclosed in the Proposal.
[intentionally omitted] . The Part 2 Agreement is accepted herein by the Owner.
1.4 ADDITIONAL SERVICES
1.4.1 The Additional Services described under this Paragraph 1.4 shall be
provided by the Design/Builder and paid for by the Owner if authorized or
confirmed in writing by the Owner.
1.4.2 Making revisions in the Preliminary Design Documents, budget or other
documents when such revisions are:
.1 inconsistent with approvals or instructions previously given by the
Owner, including revisions made necessary by adjustments in the
Owner's program or Project budget;
.2 required by the enactment or revision of codes, laws or regulations
subsequent to the preparation of such documents; or
.3 due to changes required as a result of the Owner's failure to render
decisions in a timely manner.
1.4.3 Providing more extensive programmatic criteria than that furnished by the
Owner as described in Paragraph 2.1. When authorized, the Design/Builder shall
provide professional services to assist the Owner in the preparation of the
program. Programming services may consist of:
.1 consulting with the Owner and other persons or entities not designated
in this Part 1 Agreement to define the program requirements of the
Project and to review the understanding of such requirements with the
Owner;
.2 documentation of the applicable requirements necessary for the various
Project functions or operations;
.3 providing a review and analysis of the functional and organizational
relationships, requirements, and objectives for the Project;
.4 setting forth a written program of requirements for the Owner's
approval which summarizes the Owner's objectives, schedule,
constraints, and criteria.
1.4.4 Providing financial feasibility or other special studies.
1.4.5 Providing planning surveys, site evaluations, or comparative studies of
prospective sites.
1.4.6 Providing special surveys, environmental studies and submissions required
for approvals of governmental authorities or others having jurisdiction over the
Project.
1.4.7 Providing services relative to future facilities, systems, and equipment.
1.4.8 Providing services at the Owner's specific request to perform detailed
investigations of existing conditions or facilities or to make measured drawings
thereof.
1.4.9 Providing services at the Owner's specific request to verify the accuracy
of drawings or other information furnished by the Owner.
1.4.10 Coordinating services in connection with the work of separate persons or
entities retained by the Owner, subsequent to the execution of this Part 1
Agreement.
1.4.11 Providing analyses of owning and operating costs.
1.4.12 Providing interior design and other similar services required for or in
connection with the selection, procurement or installation of furniture,
furnishings, and related equipment.
1.4.13 [intentionally omitted]
1.4.14 Making investigations, inventories of materials or equipment, or
valuations and detailed appraisals of existing facilities.
ARTICLE 2
OWNER
2.1 RESPONSIBILITIES
2.1.1 The Owner shall provide full information in a timely manner regarding
requirements for the Project, including a written program which shall set forth
the Owner's objectives, schedule, constraints and criteria.
2.1.2 The Owner shall establish and update an overall budget for the Project,
including reasonable contingencies. This budget shall not constitute the
contract sum.
2.1.3 The Owner shall designate a representative authorized to act on the
Owner's behalf with respect to the Project. The Owner or such authorized
representative shall render decisions in a timely manner pertaining to documents
submitted by the Design/Builder in order to avoid unreasonable delay in the
orderly and sequential progress of the Design/Builder's services. The Owner may
obtain independent review of the documents by a separate architect, engineer,
contractor, or cost estimator under contract to or employed by the Owner. Such
independent review shall be undertaken at the Owner's expense in a timely manner
and shall not delay the orderly progress of the Design/Builder's services. The
Owner designates Al Heacox/Tony Schreiber as the Owner's Representatives.
2.1.4 The Owner shall furnish surveys describing physical characteristics, legal
limitations and utility locations for the site of the Project, and a written
legal description of the site. The surveys and legal information shall include,
as applicable, grades and lines of streets, alleys, pavements, and adjoining
property and structures; adjacent drainage; rights-of-way, restrictions,
easements, encroachments, zoning, deed restrictions, boundaries and contours of
the site; locations, dimensions and necessary data pertaining to existing
buildings, other improvements and trees; and information concerning available
utility services and lines, both public and private, above and below grade,
including inverts and depths. All the information on the survey shall be
referenced to a Project benchmark.
2.1.5 The Owner shall furnish the services of geotechnical engineers when such
services are stipulated in this Part 1 Agreement, or deemed reasonably necessary
by the Design/Builder. Such services may include but are not limited to test
borings, test pits, determinations of soil bearing values, percolation tests,
evaluations of hazardous materials, ground corrosion and resistivity tests, and
necessary operations for anticipating subsoil conditions. The services of
geotechnical engineer(s) or other consultants shall include preparation and
submission of all appropriate reports and professional recommendations.
2.1.6 The Owner shall disclose, to the extent known to the Owner, the results
and reports of prior tests, inspections or investigations conducted for the
Project involving: structural or mechanical systems; chemical, air and water
pollution; hazardous materials; or other environmental and subsurface
conditions. The Owner shall disclose all information known to the Owner
regarding the presence of pollutants at the Project's site. The Owner shall
furnish a list of all Owner furnished-Owner installed (OFOI) and Owner
Furnished-Contractor Installed (OFCI) equipment completed with cut cheets,
drawings, diagrams, etc. The Owner shall furnish a list of "Sole Source" vendors
whose products or equipment must be used as part of the work.
2.1.7 The Owner shall furnish all legal, accounting and insurance counseling
services as may be necessary at any time for the Project, including such
auditing services as the Owner may require to verify the Design/Builder's
Applications for Payment.
2.1.8 The Owner shall promptly obtain easements, zoning variances, and legal
authorizations regarding site utilization where essential to the execution of
the Owner's program.
2.1.9 Those services, information, surveys, and reports required by Paragraphs
2.1.4 through 2.1.8 which are within the Owner's control shall be furnished at
the Owner's expense, and the Design/Builder shall be entitled to rely upon the
accuracy and completeness thereof, except to the extent the Owner advises the
Design/Builder to the contrary in writing.
2.1.10 If the Owner requires the Design/Builder to maintain any special
insurance coverage, policy, amendment, or rider, the Owner shall pay the
additional cost thereof, except as otherwise stipulated in this Part 1
Agreement.
2.1.11 The Owner shall communicate with persons or entities employed or retained
by the Design/Builder through the Design/Builder, unless otherwise directed by
the Design/Builder.
ARTICLE 3
OWNERSHIP AND USE OF DOCUMENTS
AND ELECTRONIC DATA
3.1 Drawings, specifications, and other documents and electronic data furnished
by the Design/Builder are instruments of service. [intentionally omitted] .
Drawings, specifications, and other documents and electronic data are furnished
for use solely with respect to this Part 1 Agreement. The Owner shall be
permitted to retain copies, including reproducible copies, of the drawings,
specifications, and other documents and electronic data furnished by the
Design/Builder for information and reference in connection with the Project
except as provided in Paragraphs 3.2 and 3.3.
3.2 [intentionally omitted]
3.3 If the Design/Builder defaults in the Design/Builder's obligations to the
Owner, the Architect shall grant a license to the Owner to use the drawings,
specifications, and other documents and electronic data furnished by the
Architect to the Design/Builder for the completion of the Project, conditioned
upon the Owner's execution of an agreement to cure the Design/Builder's default
in payment to the Architect for services previously performed and to indemnify
the Architect with regard to claims arising from such reuse without the
Architect's professional involvement.
3.4 Submission or distribution of the Design/Builder's documents to meet
official regulatory requirements or for similar purposes in connection with the
Project is not to be construed as publication in derogation of the rights
reserved in Paragraph 3. 1.
ARTICLE 4
TIME
4.1 Upon the request of the Owner, the Design/Builder shall prepare a schedule
for the performance of the Basic and Additional Services which shall not exceed
the time limits contained in Paragraph 10.1 and shall include allowances for
periods of time required for the Owner's review and for approval of submissions
by authorities having jurisdiction over the Project. Exhibit "C" Schedule.
4.2 If the Design/Builder is delayed in the performance of services under this
Part 1 Agreement through no fault of the Design/Builder, any applicable schedule
shall be equitably adjusted.
ARTICLE 5
PAYMENTS
5.1 The initial payment provided in Article 9 shall be made upon execution of
this Part 1 Agreement and credited to the Owner's account as provided in
Subparagraph 9.1.2.
5.2 Subsequent payments for Basic Services, Additional Services, and
Reimbursable Expenses provided for in this Part 1 Agreement shall be made
monthly on the basis set forth in Article 9.
5.3 Within ten (10) days of the Owner's receipt of a properly submitted and
correct Application for Payment, the Owner shall make payment to the
Design/Builder.
5.4 Payments due the Design/Builder under this Part 1 Agreement which are not
paid when due shall bear interest from the date due at the rate specified in
Paragraph 9.5, or in the absence of a specified rate, at the legal rate
prevailing where the Project is located.
ARTICLE 6
DISPUTE RESOLUTION-MEDIATION
AND ARBITRATION
6.1 Claims, disputes or other matters in question between the parties to this
Part 1 Agreement arising out of or relating to this Part 1 Agreement or breach
thereof shall be subject to and decided by mediation or arbitration. Such
mediation or arbitration shall be conducted in accordance with the Construction
Industry Mediation or Arbitration Rules of the American Arbitration Association
currently in effect.
6.2 In addition to and prior to arbitration, the parties shall endeavor to
settle disputes by mediation. Demand for mediation shall be filed in writing
with the other party to this Part 1 Agreement and with the American Arbitration
Association. A demand for mediation shall be made within a reasonable time after
the claim, dispute or other matter in question has arisen. In no event shall the
demand for mediation be made after the date when institution of legal or
equitable proceedings based on such claim, dispute or other matter in question
would be barred by the applicable statute of repose or limitations.
6.3 Demand for arbitration shall be filed in writing with the other party to
this Part 1 Agreement and with the American Arbitration Association. A demand
for arbitration shall be made within a reasonable time after the claim, dispute
or other matter in question has arisen. In no event shall the demand for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statutes of repose or limitations.
6.4 An arbitration pursuant to this Paragraph may be joined with an arbitration
involving common issues of law or fact between the Design/Builder and any person
or entity with whom the Design/Builder has a contractual obligation to arbitrate
disputes. No other arbitration arising out of or relating to this Part 1
Agreement shall include, by consolidation, joinder or in any other manner, an
additional person or entity not a party to this Part 1 Agreement or not a party
to an agreement with the Design/Builder, except by written consent containing a
specific reference to this Part 1 Agreement signed by the Owner, the
Design/Builder and all other persons or entities sought to be joined. Consent to
arbitration involving an additional person or entity shall not constitute
consent to arbitration of any claim, dispute or other matter in question not
described in the written consent or with a person or entity not named or
described therein. The foregoing agreement to arbitrate and other agreements to
arbitrate with an additional person or entity duly consented to by the parties
to this Part 1 Agreement shall be specifically enforceable in accordance with
applicable law in any court having jurisdiction thereof.
6.5 The award rendered by the arbitrator or arbitrators shall be final, and
judgment may be entered upon it in accordance with applicable law in any court
having jurisdiction thereof.
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Unless otherwise provided, this Part 1 Agreement shall be governed by the
law of the place where the Project is located.
7.2 The Owner and the Design/Builder, respectively, bind themselves, their
partners, successors, assigns and legal representatives to the other party to
this Part 1 Agreement and to the partners, successors and assigns of such other
party with respect to all covenants of this Part 1 Agreement. Neither the Owner
nor the Design/Builder shall assign this Part 1 Agreement without the written
consent of the other.
7.3 Unless otherwise provided, neither the design for nor the cost of
remediation of hazardous materials shall be the responsibility of the
Design/Builder.
7.4 [intentionally omitted] This Part 1 Agreement may be amended only by written
instrument signed by both the Owner and the Design/Builder.
7.5 Prior to the termination of the services of the Architect or any other
design professional designated in this Part 1 Agreement, the Design/Builder
shall identify to the Owner in writing another architect or design professional
with respect to whom the Owner has no [intentionally omitted] objection, who
will provide the services originally to have been provided by the Architect or
other design professional whose services are being terminated.
ARTICLE 8
TERMINATION OF THE AGREEMENT
8.1 This Part 1 Agreement may be terminated by either party upon seven (7) days'
written notice should the other party fail to perform substantially in
accordance with its terms through no fault of the party initiating the
termination.
8.2 This Part 1 Agreement may be terminated by the Owner without cause upon at
least seven (7) days' written notice to the Design/Builder.
8.3 In the event of termination not the fault of the Design/Builder, the
Design/Builder shall be compensated for services performed to the termination
date, together with Reimbursable Expenses then due and Termination Expenses.
Termination Expenses are expenses directly attributable to termination,
including a reasonable amount for overhead and profit, for which the
Design/Builder is not otherwise compensated under this Part 1 Agreement.
ARTICLE 9
BASIS OF COMPENSATION
The Owner shall compensate the Design/Builder in accordance with Article 5,
Payments, and the other provisions of this Part 1 Agreement as described below.
9.1 COMPENSATION FOR BASIC SERVICES
9.1.1 FOR BASIC SERVICES, compensation shall be as follows:
9.1.2 AN INITIAL PAYMENT of See Part Two Dollars ($ ) shall be made upon
execution of this Part 1 Agreement and credited to the Owner's account as
follows:
9.1.3 SUBSEQUENT PAYMENTS shall be as follows: See Part Two.
9.2 COMPENSATION FOR ADDITIONAL SERVICES
9.2.1 FOR ADDITIONAL SERVICES, compensation shall be as follows: See Part Two.
9.3 REIMBURSABLE EXPENSES
9.3.1 Reimbursable Expenses are in addition to Compensation for Basic and
Additional Services, and include actual expenditures made by the Design/Builder
and the Design/Builder's employees and contractors in the interest of the
Project, as follows:
9.3.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of See Part
Two ( ) times the amounts expended.
9.4 DIRECT PERSONNEL EXPENSE is defined as the direct salaries of personnel
engaged on the Project, and the portion of the cost of their mandatory and
customary contributions and benefits related thereto, such as employment taxes
and other statutory employee benefits, insurance, sick leave, holidays,
vacations, pensions, and similar contributions and benefits.
9.5 INTEREST PAYMENTS
9.5.1 The rate of interest for past due payments shall be as follows: 1% per
month.
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Design/Builder's principal places of business, at the location of the Project
and elsewhere may affect the validity of this provision. Specific legal advice
should be obtained with respect to deletion, modification or other requirements,
such as written disclosures or waivers.)
9.6 IF THE SCOPE of the Project is changed materially, the amount of
compensation shall be equitably adjusted.
9.7 The compensation set forth in this Part 1 Agreement shall be equitably
adjusted if through no fault of the Design/Builder the services have not been
completed within Exhibit "C" ( ) months of the date of this Part 1 Agreement.
ARTICLE 10
OTHER CONDITIONS AND SERVICES
10.1 The Basic Services to be performed shall be commenced on and, subject to
authorized adjustments and to delays not caused by the Design/Builder, shall be
completed in (Exhibit "C") calendar days. The Design/Builder's Basic Services
consist of those described in Paragraph 1.3 as part of Basic Services, and
include normal professional engineering and preliminary design services, unless
otherwise indicated.
10.2 Services beyond those described in Paragraph 1.4 are as follows: (Insert
descriptions of other services, identify Additional Services included within
Basic Compensation and modifications to the payment and compensation terms
included in this Agreement.)
10.3 The Owner's preliminary program, budget, and other documents, if any, are
enumerated as follows:
Title Date
Exhibit "A" - CryoLife, Inc. Final Build-Out Interiors dated 10/19/99.
Exhibit "B" - Contract Breakdown (One Page).
Exhibit "C" - Preliminary Project Schedule.
Exhibit "D" - List of Shell Drawings - Phase I (One Page).
Exhibit "El" - Lockwood Greene - Hourly Rate Compensation (One Page).
Exhibit "E2" - Lockwood Greene - Reimbursable Expenses (One Page).
This Agreement entered into as of the day and year first written above.
OWNER DESIGN BUILDER
/s/ Albert E. Heacox /s/ Wm. M. Choate
- - -------------------------------- --------------------------------------
(Signature) (Signature)
Al Heacox, VP - Lab Operators Choate Design & Build Company
- - -------------------------------- --------------------------------------
Cryolife, Inc. (Printed name and title)
- - --------------------------------
(Printed name and title)
<PAGE>
Standard Form of Agreements Between
Owner and Design/Builder
AIA Document A191 - Electronic Format
This document comprises two separate Agreements: Part 1 Agreements and Part 2
Agreement. Before executing the Part 1 Agreement, the parties should reach
substantial agreement on the Part 2 Agreement. To the extent referenced in these
Agreements, subordinate parallel agreements to A191 consists of AIA Document
A491, Standard Form of Agreements Between Design/Builder and Contractor, and AIA
Document B901, Standard Form of Agreements Between Design/Builder and Architect.
PART 2 AGREEMENT
1996 EDITION
AGREEMENT
made as of the 19th day of January in the year of Two Thousand.
(In words, indicate day, month and year.)
BETWEEN the Owner:
(Name and address)
CryoLife Inc.
1655 Roberts Blvd, NW
Kennesaw, GA 30144
and the Design/Builder:
(Name and address)
Choate Design & Build Company
1640 Powers Ferry Road
Building 11, Suite 300
Marietta, GA 30067
For the following Project:
(Include Project name, location and a summary description.)
CryoLife, Inc. - Phase II Interiors
1655 Roberts Blvd, NW
Kennesaw, GA 30144
The architectural services described in Article 3 will be provided by the
following person or entity who is lawfully licensed to practice architecture:
<TABLE>
<CAPTION>
<S> <C> <C>
(Name and address) (Registration Number) (Relationship to Design/Builder)
Lockwood Greene Engineering, Inc. Subcontractor-Architecture
Inforum, Suite 4000, 250 Williams St. & Engineering
Atlanta, GA 30303-1306
</TABLE>
Normal mechanical and electrical engineering services will be provided
contractually through the Architect except as indicated below:
<TABLE>
<CAPTION>
<S> <C> <C>
(Name. address and discipline) (Registration Number) (Relationship to Design/Builder)
</TABLE>
The Owner and the Design/Builder agree as set forth below.
<PAGE>
ARTICLE 1
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 The Contract Documents consist of the Part 1 Agreement to the extent not
modified by this Part 2 Agreement, this Part 2 Agreement, the Design/Builder's
Proposal and written addenda to the Proposal identified in Article 14, the
Construction Documents approved by the Owner in accordance with Subparagraph
3.2.3 and Modifications issued after execution of this Part 2 Agreement. A
Modification is a Change Order or a written amendment to this Part 2 Agreement
signed by both parties, or a Construction Change Directive issued by the Owner
in accordance with Paragraph 8.3.
1.2.2 The term "Work" means the construction and services provided by the
Design/Builder to fulfill the Design/Builder's obligations.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 It is the intent of the Owner and Design/Builder that the Contract
Documents include all items necessary for proper execution and completion of the
Work. The Contract Documents are complementary, and what is required by one
shall be as binding as if required by all; performance by the Design/Builder
shall be required only to the extent consistent with and reasonably inferable
from the Contract Documents as being necessary to produce the intended results.
Words that have well-known technical or construction industry meanings are used
in the Contract Documents in accordance with such recognized meanings.
1.2.2 If the Design/Builder believes or is advised by the Architect or by
another design professional retained to provide services on the Project that
implementation of any instruction received from the Owner would cause a
violation of any applicable law, the Design/Builder shall notify the Owner in
writing. Neither the Design/Builder nor the Architect shall be obligated to
perform any act which either believes will violate any applicable law.
1.2.3 Nothing contained in this Part 2 Agreement shall create a contractual
relationship between the Owner and any person or entity other than the
Design/Builder.
1.3 OWNERSHIP AND USE OF DOCUMENTS
1.3.1 Drawings, specifications, and other documents and electronic data
furnished by the Design/Builder are instruments of service. [intentionally
omitted] . Drawings, specifications, and other documents and electronic data are
furnished for use solely with respect to this Part 2 Agreement. The Owner shall
be permitted to retain copies, including reproducible copies, of the drawings,
specifications, and other documents and electronic data furnished by the
Design/Builder for information and reference in connection with the Project
except as provided in Subparagraphs 1.3.2 and 1.3.3.
1.3.2 Drawings, specifications, and other documents and electronic data
furnished by the Design/Builder shall not be used by the Owner or others on
other projects, for additions to this Project or for completion of this Project
by others, except by agreement in writing and with appropriate compensation to
the Design/Builder, unless the Design/Builder is adjudged to be in default under
this Part 2 Agreement or under any other subsequently executed agreement.
1.3.3 If the Design/Builder defaults in the Design/Builder's obligations to the
Owner, the Architect shall grant a license to the Owner to use the drawings,
specifications, and other documents and electronic data furnished by the
Architect to the Design/Builder for the completion of the Project,
[intentionally omitted] .
1.3.4 Submission or distribution of the Design/Builder's documents to meet
official regulatory requirements or for similar purposes in connection with the
Project is not to be construed as publication in derogation of the rights
reserved in Subparagraph 1.3.1.
ARTICLE 2
OWNER
2.1 The Owner shall designate a representative authorized to act on the Owner's
behalf with respect to the Project. The Owner or such authorized representative
shall examine documents submitted by the Design/Builder and shall render
decisions in a timely manner and in accordance with the schedule accepted by the
Owner. The Owner may obtain independent review of the Contract Documents by a
separate architect, engineer, contractor, or cost estimator under contract to or
employed by the Owner. Such independent review shall be undertaken at the
Owner's expense in a timely manner and shall not delay the orderly progress of
the Work. The Owner designates Al Heacox/Tony Schreiber as the Owner's
Representatives.
2.2 The Owner may appoint an on-site project representative to observe the Work
and to have such other responsibilities as the Owner and Design/Builder agree in
writing.
2.3 The Owner shall cooperate with the Design/Builder in securing building and
other permits, licenses and inspections. The Owner shall not be required to pay
the fees for such permits, licenses and inspections unless the cost of such fees
is excluded from the Design/Builder's Proposal.
2.4 The Owner shall furnish services of land surveyors, geotechnical engineers,
and other consultants for subsoil, air and water conditions, in addition to
those provided under the Part 1 Agreement, when such services are deemed
necessary by the Design/Builder to properly carry out the design services
required by this Part 2 Agreement.
2.5 The Owner shall disclose, to the extent known to the Owner, the results and
reports of prior tests, inspections or investigations conducted for the Project
involving: structural or mechanical systems; chemical, air and water pollution;
hazardous materials; or other environmental and subsurface conditions. The Owner
shall disclose all information known to the Owner regarding the presence of
pollutants at the Project's site.
2.6 The Owner shall furnish all legal, accounting and insurance counseling
services as may be necessary at any time for the Project, including such
auditing services as the Owner may require to verify the Design/Builder's
Applications for Payment.
2.7 Those services, information, surveys and reports required by Paragraphs 2.4
through 2.6 which are within the Owner's control shall be furnished at the
Owner's expense, and the Design/Builder shall be entitled to rely upon the
accuracy and completeness thereof, except to the extent the Owner advises the
Design/Builder to the contrary in writing.
2.8 If the Owner requires the Design/Builder to maintain any special insurance
coverage, policy, amendment, or rider, the Owner shall pay the additional cost
thereof, except as otherwise stipulated in this Part 2 Agreement.
2.9 If the Owner observes or otherwise becomes aware of a fault or defect in the
Work or nonconformity with the Design/Builder's Proposal or the Construction
Documents, the Owner shall give prompt written notice thereof to the
Design/Builder.
2.10 The Owner shall, at the request of the Design/Builder, prior to execution
of this Part 2 Agreement and promptly upon request thereafter, furnish to the
Design/Builder reasonable evidence that financial arrangements have been made to
fulfill the Owner's obligations under the Contract.
2.11 The Owner shall communicate with persons or entities employed or retained
by the Design/Builder through the Design/Builder, unless otherwise directed by
the Design/Builder.
ARTICLE 3
DESIGN/BUILDER
3.1 SERVICES AND RESPONSIBILITIES
3.1.1 Design services required by this Part 2 Agreement shall be performed by
qualified architects and other design professionals. The contractual obligations
of such professional persons or entities are undertaken and performed in the
interest of the Design/Builder.
3.1.2 The agreements between the Design/Builder and the persons or entities
identified in this Part 2 Agreement, and any subsequent modifications, shall be
in writing. These agreements, including financial arrangements with respect to
this Project, shall be promptly and fully disclosed to the Owner upon request.
3.1.3 The Design/Builder shall be responsible to the Owner for acts and
omissions of the Design/Builder's employees, subcontractors and their agents and
employees, and other persons, including the Architect to the extent of the
Architect's professional design liability and other design professionals,
performing any portion of the Design/Builder's obligations under this Part 2
Agreement.
3.2 BASIC SERVICES
3.2.1 The Design/Builder's Basic Services are described below and in Article 14.
3.2.2 The Design/Builder shall designate a representative authorized to act on
the Design/Builder's behalf with respect to the Project.
3.2.3 The Design/Builder shall submit Construction Documents for review and
approval by the Owner. Construction Documents may include drawings,
specifications, and other documents and electronic data setting forth in detail
the requirements for construction of the Work, and shall:
.1 be consistent with the intent of the Design/Builder's Proposal;
.2 provide information for the use of those in the building trades; and
.3 include documents customarily required for regulatory agency
approvals.
3.2.4 The Design/Builder, with the assistance of the Owner, shall file documents
required to obtain necessary approvals of governmental authorities having
jurisdiction over the Project.
3.2.5 Unless otherwise provided in the Contract Documents, the Design/Builder
shall provide or cause to be provided and shall pay for design services, labor,
materials, equipment, tools, construction equipment and machinery, water, heat,
utilities, transportation and other facilities and services necessary for proper
execution and completion of the Work, whether temporary or permanent and whether
or not incorporated or to be incorporated in the Work.
3.2.6 The Design/Builder shall be responsible for all construction means,
methods, techniques, sequences and procedures, and for coordinating all portions
of the Work under this Part 2 Agreement.
3.2.7 The Design/Builder shall keep the Owner informed of the progress and
quality of the Work.
3.2.8 The Design/Builder shall be responsible for correcting Work which does not
conform to the Contract Documents.
3.2.9 The Design/Builder warrants to the Owner that materials and equipment
furnished under the Contract will be of good quality and new unless otherwise
required or permitted by the Contract Documents, that the construction will be
free from faults and defects, and that the construction will conform with the
requirements of the Contract Documents. Construction not conforming to these
requirements, including substitutions not properly approved by the Owner, shall
be corrected in accordance with Article 9.
3.2.10 The Design/Builder shall pay all sales, consumer, use and similar taxes
which had been legally enacted at the time the Design/Builder's Proposal was
first submitted to the Owner, and shall secure and pay for building and other
permits and governmental fees, licenses and inspections necessary for the proper
execution and completion of the Work which are either customarily secured after
execution of a contract for construction or are legally required at the time the
Design/Builder's Proposal was first submitted to the Owner.
3.2.11 The Design/Builder shall comply with and give notices required by laws,
ordinances, rules, regulations and lawful orders of public authorities relating
to the Project.
3.2.12 The Design/Builder shall pay royalties and license fees for patented
designs, processes or products. The Design/Builder shall defend suits or claims
for infringement of patent rights and shall hold the Owner harmless from loss on
account thereof, but shall not be responsible for such defense or loss when a
particular design, process or product of a particular manufacturer is required
by the Owner. However, if the Design/Builder has reason to believe the use of a
required design, process or product is an infringement of a patent, the
Design/Builder shall be responsible for such loss unless such information is
promptly furnished to the Owner.
3.2.13 The Design/Builder shall keep the premises and surrounding area free from
accumulation of waste materials or rubbish caused by operations under this Part
2 Agreement. At the completion of the Work, the Design/Builder shall remove from
the site waste materials, rubbish, the Design/Builder's tools, construction
equipment, machinery, and surplus materials.
3.2.14 The Design/Builder shall notify the Owner when the Design/Builder
believes that the Work or an agreed upon portion thereof is substantially
completed. If the Owner concurs, the Design/Builder shall issue a Certificate of
Substantial Completion which shall establish the Date of Substantial Completion
which shall establish the Date of Substantial Completion, shall state the
responsibility of each party for security, maintenance, heat, utilities, damage
to the Work and insurance, shall include a list of items to be completed or
corrected and shall fix the time within which the Design/Builder shall complete
items listed therein. Disputes between the Owner and Design/Builder regarding
the Certificate of Substantial Completion shall be resolved in accordance with
provisions of Article 10.
3.2.15 The Design/Builder shall maintain at the site for the Owner one record
copy of the drawings, specifications, product data, samples, shop drawings,
Change Orders and other modifications, in good order and regularly updated to
record the completed construction. These shall be delivered to the Owner upon
completion of construction and prior to final payment.
3.3 ADDITIONAL SERVICES
3.3.1 The services described in this Paragraph 3.3 are not included in Basic
Services unless so identified in Article 14, and they shall be paid for by the
Owner as provided in this Part 2 Agreement, in addition to the compensation for
Basic Services. The services described in this Paragraph 3.3 shall be provided
only if authorized or confirmed in writing by the Owner.
3.3.2 Making revisions in drawings, specifications, and other documents or
electronic data when such revisions are required by the enactment or revision of
codes, laws or regulations subsequent to the preparation of such documents or
electronic data.
3.3.3 Providing consultation concerning replacement of Work damaged by fire or
other cause during construction, and furnishing services required in connection
with the replacement of such Work.
3.3.4 Providing services in connection with a public hearing, arbitration
proceeding or legal proceeding, except where the Design/Builder is a party
thereto.
3.3.5 Providing coordination of construction performed by the Owner's own forces
or separate contractors employed by the Owner, and coordination of services
required in connection with construction performed and equipment supplied by the
Owner.
3.3.6 Preparing a set of reproducible record documents or electronic data
showing significant changes in the Work made during construction.
3.3.7 Providing assistance in the utilization of equipment or systems such as
preparation of operation and maintenance manuals, training personnel for
operation and maintenance [intentionally omitted] .
ARTICLE 4
TIME
4.1 Unless otherwise indicated, the Owner and the Design/Builder shall perform
their respective obligations expeditiously as is consistent with reasonable
skill and care and the orderly progress of the Project.
4.2 Time limits stated in the Contract Documents are of the essence. The Work to
be performed under this Part 2 Agreement shall commence upon receipt of a notice
to proceed unless otherwise agreed and, subject to authorized Modifications,
Substantial Completion shall be achieved on or before the date established in
Article 14.
4.3 Substantial Completion is the stage in the progress of the Work when the
Work or designated portion thereof is sufficiently complete in accordance with
the Contract Documents so the Owner can occupy or utilize the Work for its
intended use.
4.4 Based on the Design/Builder's Proposal, a construction schedule shall be
provided consistent with Paragraph 4.2 above.
4.5 If the Design/Builder is delayed at any time in the progress of the Work by
an act or neglect of the Owner, Owner's employees, or separate contractors
employed by the Owner, or by changes ordered in the Work, or by labor disputes,
fire, unusual delay in deliveries, adverse weather conditions not reasonably
anticipatable, unavoidable casualties or other causes beyond the
Design/Builder's control, or by delay authorized by the Owner pending
arbitration, or by other causes which the Owner and Design/Builder agree may
justify delay, then the Contract Time shall be reasonably extended by Change
Order.
ARTICLE 5
PAYMENTS
5.1 PROGRESS PAYMENTS
5.1.1 The Design/Builder shall deliver to the Owner itemized Applications for
Payment in such detail as indicated in Article 14.
5.1.2 Within ten (10) days of the Owner's receipt of a properly submitted and
correct Application for Payment, the Owner shall make payment to the
Design/Builder.
5.1.3 The Application for Payment shall constitute a representation by the
Design/Builder to the Owner that the design and construction have progressed to
the point indicated; the quality of the Work covered by the application is in
accordance with the Contract Documents; and the Design/Builder is entitled to
payment in the amount requested.
5.1.4 Upon receipt of payment from the Owner, the Design/Builder shall promptly
pay the Architect, other design professionals and each contractor the amount to
which each is entitled in accordance with the terms of their respective
contracts.
5.1.5 The Owner shall have no obligation under this Part 2 Agreement to pay or
to be responsible in any way for payment to the Architect, another design
professional, or a contractor performing portions of the work.
5.1.6 Neither progress payment nor partial or entire use or occupancy of the
Project by the Owner shall constitute an acceptance of Work not in accordance
with the Contract Documents.
5.1.7 The Design/Builder warrants that title to all construction covered by an
Application for Payment will pass to the Owner no later than the time of
payment. The Design/Builder further warrants that upon submittal of an
Application for Payment all construction for which payments have been received
from the Owner shall be free and clear of liens, claims, security interests or
encumbrances in favor of the Design/Builder or any other person or entity
performing construction at the site or furnishing materials or equipment
relating to the construction.
5.1.8 At the time of Substantial Completion, the Owner shall pay the
Design/Builder the retainage, if any, less reasonable cost to correct or
complete incorrect or incomplete Work. Final payment of such withheld sum shall
be made upon correction or completion of such Work.
Insert A:
5.2 FINAL PAYMENT
5.2.1 Neither final payment nor amounts retained, if any, shall become due until
the Design/Builder submits to the Owner (1) an affidavit that payrolls, bills
for materials and equipment, and other indebtedness connected with the Work for
which the Owner or Owner's property might be responsible or encumbered (less
amounts withheld by the Owner) have been paid or otherwise satisfied; (2) a
certificate evidencing that insurance required by the Contract Documents to
remain in force after final payment is currently in effect and will not be
canceled or allowed to expire until at least 30 days' prior written notice has
been given to the Owner; (3) a written statement that the Design/Builder knows
of no substantial reason that the insurance will not be renewable to cover the
period required by the Contract Documents; (4) consent of surety, if any, to
final payment; and (5) if required by the Owner, other data establishing payment
or satisfaction of obligations, such as receipts, releases and waivers of liens,
claims, security interests or encumbrances arising out of the Contract, to the
extent and in such form as may be designed by the Owner. If a contractor or
other person or entity entitled to assert a lien against the Owner's property
refuses to furnish a release or waiver required by the Owner, the Design/Builder
may furnish a bond satisfactory to the Owner to indemnify the Owner against such
lien. If such lien remains unsatisfied after payments are made, the
Design/Builder shall indemnify the Owner for all loss and cost, including
reasonable attorneys' fees incurred as a result of such lien. (6) Completion of
all punch list items.
5.2.2 When the Work has been completed and the contract fully performed, the
Design/Builder shall submit a final application for payment to the Owner, who
shall make final payment within 30 days of receipt.
5.2.3 The making of final payment shall constitute a waiver of claims by the
Owner except those arising from:
.1 liens, claims, security interests or encumbrances arising out of the
Contract and unsettled;
.2 failure of the Work to comply with the requirements of the Contract
Documents; or
.3 terms of special warranties required by the Contract Documents.
5.2.4 Acceptance of final payment shall constitute a waiver of all claims by the
Design/Builder except those previously made in writing and identified by the
Design/Builder as unsettled at the time of final Application for Payment. The
Owner shall reserve the right to review the Design/Builder's accounting files
for up to 12 months after the date of Substantial Completion.
5.3 INTEREST PAYMENTS
5.3.1 Payments due the Design/Builder under this Part 2 Agreement which are not
paid when due shall bear interest from the date due at the rate specified in
Article 13, or in the absence of a specified rate, at the legal rate prevailing
where the Project is located.
ARTICLE 6
PROTECTION OF PERSONS AND PROPERTY
6.1 The Design/Builder shall be responsible for initiating, maintaining and
providing supervision of all safety precautions and programs in connection with
the performance of this Part 2 Agreement.
6.2 The Design/Builder shall take reasonable precautions for the safety of, and
shall provide reasonable protection to prevent damage, injury or loss to: (1)
employees on the Work and other persons who may be affected thereby; (2) the
Work and materials and equipment to be incorporated therein, whether in storage
on or off the site, under care, custody, or control of the Design/Builder or the
Design/Builder's contractors; and (3) other property at or adjacent thereto,
such as trees, shrubs, lawns, walks, pavements, roadways, structures and
utilities not designated for removal relocation, or replacement in the course of
construction.
6.3 The Design/Builder shall give notices and comply with applicable laws,
ordinances, rules, regulations and lawful orders of public authorities bearing
on the safety of persons or property or their protection from damage, injury or
loss.
6.4 The Design/Builder shall promptly remedy damage and loss (other than damage
or loss insured under property insurance provided or required by the Contract
Documents) to property at the site caused in whole or in part by the
Design/Builder, a contractor of the Design/Builder or anyone directly or
indirectly employed by any of them, or by anyone for whose acts they may be
liable.
ARTICLE 7
INSURANCE AND BONDS
7.1 DESIGN/BUILDER'S LIABILITY INSURANCE
7.1.1 The Design/Builder shall purchase from and maintain, in a company or
companies lawfully authorized to do business in the jurisdiction in which the
Project is located, such insurance as will protect the Design/Builder from
claims set forth below which may arise out of or result from operations under
this Part 2 Agreement by the Design/Builder or by a contractor of the
Design/Builder, or by anyone directly or indirectly employed by any of them, or
by anyone for whose acts any of them may be liable:
.1 claims under workers' compensation, disability benefit and other
similar employee benefit laws that are applicable to the Work to be
performed;
.2 claims for damages because of bodily injury, occupational sickness or
disease, or death of the Design/Builder's employees;
.3 claims for damages because of bodily injury, sickness or disease, or
death of persons other than the Design/Builder's employees;
.4 claims for damages covered by usual personal injury liability coverage
which are sustained (1) by a person as a result of an offense directly
or indirectly related to employment of such person by the
Design/Builder or (2) by another person;
.5 claims for damages, other than to the Work itself, because of injury
to or destruction of tangible property, including loss of use
resulting therefrom;
.6 claims for damages because of bodily injury, death of a person or
property damage arising out of ownership, maintenance or use of a
motor vehicle; and
.7 claims involving contractual liability insurance applicable to the
Design/Builder's obligations under Paragraph 11.5.
7.1.2 The insurance required by Subparagraph 7.1.1 shall be written for not less
than limits of liability specified in this Part 2 Agreement or required by law,
whichever coverage is greater. Coverages, whether written on an occurrence or
claims-made basis, shall be maintained without interruption from date of
commencement of the Work until date of final payment and termination of any
coverage required to be maintained after final payment.
7.1.3 Certificates of Insurance acceptable to the Owner shall be delivered to
the Owner immediately after execution of this Part 2 Agreement. These
Certificates and the insurance policies required by this Paragraph 7.1 shall
contain a provision that coverages afforded under the policies will not be
canceled or allowed to expire until at least 30 days' prior written notice has
been given to the Owner. If any of the foregoing insurance coverages are
required to remain in force after final payment, an additional certificate
evidencing continuation of such coverage shall be submitted with the application
for final payment. Information concerning reduction of coverage shall be
furnished by the Design/Builder with reasonable promptness in accordance with
the Design/Builder's information and belief.
7.2 OWNER'S LIABILITY INSURANCE
7.2.1 The Owner shall be responsible for purchasing and maintaining the Owner's
usual liability insurance. Optionally, the Owner may purchase and maintain other
insurance for self-protection against claims which may arise from operations
under this Part 2 Agreement. The Design/Builder shall not be responsible for
purchasing and maintaining this optional Owner's liability insurance unless
specifically required by the Contract Documents.
7.3 PROPERTY INSURANCE
7.3.1 Unless otherwise provided under this Part 2 Agreement, the Owner shall
purchase and maintain, in a company or companies authorized to do business in
the jurisdiction in which the principal improvements are to be located, property
insurance upon the Work to the full insurable value thereof on a replacement
cost basis without optional deductibles. Such property insurance shall be
maintained, unless otherwise provided in the Contract Documents or otherwise
agreed in writing by all persons and entities who are beneficiaries of such
insurance, until final payment has been made or until no person or entity other
than the Owner has an insurable interest in the property required by this
Paragraph 7.3 to be insured, whichever is earlier. This insurance shall include
interests of the Owner, the Design/Builder, and their respective contractors and
subcontractors in the Work.
7.3.2 Property insurance shall be on an all-risk policy form and shall insure
against the perils of fire and extended coverage and physical loss or damage
including, without duplication of coverage, theft, vandalism, malicious
mischief, collapse, falsework, temporary buildings and debris removal including
demolition occasioned by enforcement of any applicable legal requirements, and
shall cover reasonable compensation for the services and expenses of the
Design/Builder's Architect and other professionals required as a result of such
insured loss. Coverage for other perils shall not be required unless otherwise
provided in the Contract Documents.
7.3.3 If the Owner does not intend to purchase such property insurance required
by this Part 2 Agreement and with all of the coverages in the amount described
above, the Owner shall so inform the Design/Builder prior to commencement of the
construction. The Design/Builder may then effect insurance which will protect
the interests of the Design/Builder and the Design/Builder's contractors in the
construction, and by appropriate Change Order the cost thereof shall be charged
to the Owner. If the Design/Builder is damaged by the failure or neglect of the
Owner to purchase or maintain insurance as described above, then the Owner shall
bear all reasonable costs properly attributable thereto.
7.3.4 Unless otherwise provided, the Owner shall purchase and maintain such
boiler and machinery insurance required by this Part 2 Agreement or by law,
which shall specifically cover such insured objects during installation and
until final acceptance by the Owner. This insurance shall include interests of
the Owner, the Design/Builder, the Design/Builder's contractors and
subcontractors in the Work, and the Design/Builder's Architect and other design
professionals. The Owner and the Design/Builder shall be named insureds.
7.3.5 A loss insured under the Owner's property insurance shall be adjusted by
the Owner as trustee and made payable to the Owner as trustee for the insureds,
as their interests may appear, subject to requirements of any applicable
mortgagee clause and of Subparagraph 7.3.10. The Design/Builder shall pay
contractors their shares of insurance proceeds received by the Design/Builder,
and by appropriate agreement, written where legally required for validity, shall
require contractors to make payments to their subcontractors in similar manner.
7.3.6 Before an exposure to loss may occur, the Owner shall file with the
Design/Builder a copy of each policy that includes insurance coverages required
by this Paragraph 7.3. Each policy shall contain all generally applicable
conditions, definitions, exclusions and endorsements related to this Project.
Each policy shall contain a provision that the policy will not be canceled or
allowed to expire until at least 30 days' prior written notice has been given to
the Design/Builder.
7.3.7 If the Design/Builder requests in writing that insurance for risks other
than those described herein or for other special hazards be included in the
property insurance policy, the Owner shall, if possible, obtain such insurance,
and the cost thereof shall be charged to the Design/Builder by appropriate
Change Order.
7.3.8 The Owner and the Design/Builder waive all rights against each other and
the Architect and other design professionals, contractors, subcontractors,
agents and employees, each of the other, for damages caused by fire or other
perils to the extent covered by property insurance obtained pursuant to this
Paragraph 7.3 or other property insurance applicable to the Work, except such
rights as they may have to proceeds of such insurance held by the Owner as
trustee. The Owner or Design/Builder, as appropriate, shall require from
contractors and subcontractors by appropriate agreements, written where legally
required for validity, similar waivers each in favor of other parties enumerated
in this Paragraph 7.3. The policies shall provide such waivers of subrogation by
endorsement or otherwise. A waiver of subrogation shall be effective as to a
person or entity even though that person or entity would otherwise have a duty
of indemnification, contractual or otherwise, did not pay the insurance premium
directly or indirectly, and whether or not the person or entity had an insurable
interest in the property damaged.
7.3.9 If required in writing by a party in interest, the Owner as trustee shall,
upon occurrence of an insured loss, give bond for proper performance of the
Owner's duties. The cost of required bonds shall be charged against proceeds
received as fiduciary. The Owner shall deposit in a separate account proceeds so
received, which the Owner shall distribute in accordance with such agreement as
the parties in interest may reach, or in accordance with an arbitration award in
which case the procedure shall be as provided in Article 10. If after such loss
no other special agreement is made, replacement of damaged Work shall be covered
by appropriate Change Order.
7.3.10 The Owner as trustee shall have power to adjust and settle a loss with
insurers unless one of the parties in interest shall object in writing, within
five (5) days after occurrence of loss to the Owner's exercise of this power; if
such objection be made, the parties shall enter into dispute resolution under
procedures provided in Article 10. If distribution of insurance proceeds by
arbitration is required, the arbitrators will direct such distribution.
7.3.11 Partial occupancy or use prior to Substantial Completion shall not
commence until the insurance company or companies providing property insurance
have consented to such partial occupancy or use by endorsement or otherwise. The
Owner and the Design/Builder shall take reasonable steps to obtain consent of
the insurance company or companies and shall not, without mutual written
consent, take any action with respect to partial occupancy or use that would
cause cancellation, lapse or reduction of coverage.
7.4 LOSS OF USE INSURANCE
7.4.1 The Owner, at the Owner's option, may purchase and maintain such insurance
as will insure the Owner against loss of use of the Owner's property due to fire
or other hazards, however caused. The Owner waives all rights of action against
the Design/Builder for loss of use of the Owner's property, including
consequential losses due to fire or other hazards, however caused.
ARTICLE 8
CHANGES IN THE WORK
8.1 CHANGES
8.1.1 Changes in the Work may be accomplished after execution of this Part 2
Agreement, without invalidating this Part 2 Agreement, by Change Order,
Construction Change Directive, or order for a minor change in the Work, subject
to the limitations stated in the Contract Documents.
8.1.2 A Change Order shall be based upon agreement between the Owner and the
Design/Builder; a Construction Change Directive may be issued by the Owner
without the agreement of the Design/Builder; an order for a minor change in the
Work may be issued by the Design/Builder alone.
8.1.3 Changes in the Work shall be performed under applicable provisions of the
Contract Documents, and the Design/Builder shall proceed promptly, unless
otherwise provided in the Change Order, Construction Change Directive, or order
for a minor change in the Work.
8.1.4 If unit prices are stated in the Contract Documents or subsequently agreed
upon, and if quantities originally contemplated are so changed in a proposed
Change Order or Construction Change Directive that application of such unit
prices to quantities of Work proposed will cause substantial inequity to the
Owner or the Design/Builder, the applicable unit prices shall be equitably
adjusted.
8.2 CHANGE ORDERS
8.2.1 A Change Order is a written instrument prepared by the Design/Builder and
signed by the Owner and the Design/Builder, stating their agreement upon all of
the following:
.1 a change in the Work;
.2 the amount of the adjustment, if any, in the Contract Sum; and
.3 the extent of the adjustment, if any, in the Contract Time.
8.2.2 If the Owner requests a proposal for a change in the Work from the
Design/Builder and subsequently elects not to proceed with the change, a Change
Order shall be issued to reimburse the Design/Builder for any costs incurred for
estimating services, design services or preparation of proposed revisions to the
Contract Documents.
8.3 CONSTRUCTION CHANGE DIRECTIVES
8.3.1 A Construction Change Directive is a written order prepared and signed by
the Owner, directing a change in the Work prior to agreement on adjustment, if
any, in the Contract Sum or Contract Time, or both.
8.3.2 Except as otherwise agreed by the Owner and the Design/Builder, the
adjustment to the Contract Sum shall be determined on the basis of reasonable
expenditures and savings of those performing the Work attributable to the
change, including the expenditures for design services and revisions to the
Contract Documents. In case of an increase in the Contract Sum, the cost shall
include a reasonable allowance for overhead and profit. In such case, the
Design/Builder shall keep and present an itemized accounting together with
appropriate supporting data for inclusion in a Change Order. Unless otherwise
provided in the Contract Documents, costs for these purposes shall be limited to
the following:
.1 costs of labor, including social security, old age and unemployment
insurance, fringe benefits required by agreement or custom, and
workers' compensation insurance;
.2 costs of materials, supplies and equipment, including cost of
transportation, whether incorporated or consumed;
.3 rental costs of machinery and equipment exclusive of hand tools,
whether rented from the Design/Builder or others;
.4 costs of premiums for all bonds and insurance permit fees, and sales,
use or similar taxes;
.5 additional costs of supervision and field office personnel directly
attributable to the change; and fees paid to the Architect, engineers
and other professionals.
8.3.3 Pending final determination of cost to the Owner, amounts not in dispute
may be included in Applications for Payment. The amount of credit to be allowed
by the Design/Builder to the Owner for deletion or change which results in a net
decrease in the Contract Sum will be actual net cost. When both additions and
credits covering related Work or substitutions are involved in a change, the
allowance for overhead and profit shall be figured on the basis of the net
increase, if any, with respect to that change.
8.3.4 When the Owner and the Design/Builder agree upon the adjustments in the
Contract Sum and Contract Time, such agreement shall be effective immediately
and shall be recorded by preparation and execution of an appropriate Change
Order.
8.4 MINOR CHANGES IN THE WORK
8.4.1 The Design/Builder shall have authority to make minor changes in the
Construction Documents and construction consistent with the intent of the
Contract Documents when such minor changes do not involve adjustment in the
Contract Sum or extension of the Contract Time. The Design/Builder shall
promptly inform the Owner, in writing, of minor changes in the Construction
Documents and construction.
8.5 CONCEALED CONDITIONS
8.5.1 If conditions are encountered at the site which are (1) subsurface or
otherwise concealed physical conditions which differ materially from those
indicated in the Contract Documents, or (2) unknown physical conditions of an
unusual nature which differ materially from those ordinarily found to exist and
generally recognized as inherent in construction activities of the character
provided for in the Contract Documents, then notice by the observing party shall
be given to the other party promptly before conditions are disturbed and in no
event later than 21 days after first observance of the conditions. The Contract
Sum shall be equitably adjusted for such concealed or unknown conditions by
Change Order upon claim by either party made within 21 days after the claimant
becomes aware of the conditions.
8.6 REGULATORY CHANGES
8.6.1 The Design/Builder shall be compensated for changes in the construction
necessitated by the enactment or revisions of codes, laws or regulations
subsequent to the submission of the Design/Builder's Proposal.
ARTICLE 9
CORRECTION OF WORK
9.1 The Design/Builder shall promptly correct Work rejected by the Owner or
known by the Design/Builder to be defective or failing to conform to the
requirements of the Contract Documents, whether observed before or after
Substantial Completion and whether or not fabricated, installed or completed.
The Design/Builder shall bear costs of correcting such rejected Work, including
additional testing and inspections.
9.2 If, within one (1) year after the date of Substantial Completion of the Work
or, after the date for commencement of warranties established in a written
agreement between the Owner and the Design/Builder, or by terms of an applicable
special warranty required by the Contract Documents, any of the Work is found to
be not in accordance with the requirements of the Contract Documents, the
Design/Builder shall correct it promptly after receipt of a written notice from
the Owner to do so unless the Owner has previously given the Design/ Builder a
written acceptance of such condition.
9.3 Nothing contained in this Article 9 shall be construed to establish a period
of limitation with respect to other obligations which the Design/Builder might
have under the Contract Documents. Establishment of the time period of one (1)
year as described in Subparagraph 9.2 relates only to the specific obligation of
the Design/Builder to correct the Work, and has no relationship to the time
within which the obligation to comply with the Contract Documents may be sought
to be enforced, nor to the time within which proceedings may be commenced to
establish the Design/Builder's liability with respect to the Design/Builder's
obligations other than specifically to correct the Work.
9.4 If the Design/Builder fails to correct nonconforming Work as required or
fails to carry out Work in accordance with the Contract Documents, the Owner, by
written order signed personally or by an agent specifically so empowered by the
Owner in writing, may order the Design/Builder to stop the Work, or any portion
thereof, until the cause for such order has been eliminated; however, the
Owner's right to stop the Work shall not give rise to a duty on the part of the
Owner to exercise the right for benefit of the Design/Builder or other persons
or entities.
9.5 If the Design/Builder defaults or neglects to carry out the Work in
accordance with the Contract Documents and fails within seven (7) days after
receipt of written notice from the Owner to commence and continue correction of
such default or neglect with diligence and promptness, the Owner may give a
second written notice to the Design/Builder and, seven (7) days following
receipt by the Design/Builder of that second written notice and without
prejudice to other remedies the Owner may have, correct such deficiencies. In
such case an appropriate Change Order shall be issued deducting from payments
then or thereafter due the Design/ Builder, the costs of correcting such
deficiencies. If the payments then or thereafter due the Design/Builder are not
sufficient to cover the amount of the deduction, the Design/Builder shall pay
the difference to the Owner. Such action by the Owner shall be subject to
dispute resolution procedures as provided in Article 10.
ARTICLE 10
DISPUTE RESOLUTION--
MEDIATION AND ARBITRATION
10.1 Claims, disputes or other matters in question between the parties to this
Part 2 Agreement arising out of or relating to this Part 2 Agreement or breach
thereof shall be subject to and decided by mediation or arbitration. Such
mediation or arbitration shall be conducted in accordance with the Construction
Industry Mediation or Arbitration Rules of the American Arbitration Association
currently in effect.
10.2 In addition to and prior to arbitration, the parties shall endeavor to
settle disputes by mediation. Demand for mediation shall be filed in writing
with the other party to this Part 2 Agreement and with the American Arbitration
Association. A demand for mediation shall be made within a reasonable time after
the claim, dispute, or other matter in question has arisen. In no event shall
the demand for mediation be made after the date when institution of legal or
equitable proceedings based on such claim, dispute or other matter in question
would be barred by the applicable statutes of repose or limitations.
10.3 Demand for arbitration shall be filed in writing with the other party to
this Part 2 Agreement and with the American Arbitration Association. A demand
for arbitration shall be made within a reasonable time after the claim, dispute
or other matter in question has arisen. In no event shall the demand for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statutes of repose or limitations.
10.4 An arbitration pursuant to this Article may be joined with an arbitration
involving common issues of law or fact between the Design/Builder and any person
or entity with whom the Design/Builder has a contractual obligation to arbitrate
disputes. No other arbitration arising out of or relating to this Part 2
Agreement shall include, by consolidation, joinder or in any other manner, an
additional person or entity not a party to this Part 2 Agreement or not a party
to an agreement with the Design/Builder, except by written consent containing a
specific reference to this Part 2 Agreement signed by the Owner, the
Design/Builder and any other person or entities sought to be joined. Consent to
arbitration involving an additional person or entity shall not constitute
consent to arbitration of any claim, dispute or other matter in question not
described in the written consent or with a person or entity not named or
described therein. The foregoing agreement to arbitrate and other agreements to
arbitrate with an additional person or entity duly consented to by the parties
to this Part 2 Agreement shall be specifically enforceable in accordance with
applicable law in any court having jurisdiction thereof.
10.5 The award rendered by the arbitrator or arbitrators shall be final, and
judgment may be entered upon it in accordance with applicable law in any court
having jurisdiction thereof.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Unless otherwise provided, this Part 2 Agreement shall be governed by the
law of the place where the Project is located.
11.2 SUBCONTRACTS
11.2.1 The Design/Builder, as soon as practicable after execution of this Part 2
Agreement, shall furnish to the Owner in writing the names of the persons or
entities the Design/Builder will engage as contractors for the Project. The
Owner will be given 5 days to approve the Subcontractors and Entities of the
Design/Builder or show a reasonable objection for rejection of a Subcontractor
or Entity. After Owner's approval, the Design/Builder may not release a
Subcontractor or entity without written approval from the Owner, unless the
Subcontractor or entity fails to perform the work as outlined in the Contract
Documents.
11.3 WORK BY OWNER OR OWNER'S CONTRACTORS
11.3.1 The Owner reserves the right to perform construction or operations
related to the Project with the Owner's own forces, and to award separate
contracts in connection with other portions of the Project or other construction
or operations on the site under conditions of insurance and waiver of
subrogation identical to the provisions of this Part 2 Agreement. If the
Design/Builder claims that delay or additional cost is involved because of such
action by the Owner, the Design/Builder shall assert such claims as provided in
Subparagraph 11.4.
11.3.2 The Design/Builder shall afford the Owner's separate contractors
reasonable opportunity for introduction and storage of their materials and
equipment and performance of their activities and shall connect and coordinate
the Design/Builder's construction and operations with theirs as required by the
Contract Documents.
11.3.3 Costs caused by delays or by improperly timed activities or defective
construction shall be borne by the party responsible therefor.
11.4 CLAIMS FOR DAMAGES
11.4.1 If either party to this Part 2 Agreement suffers injury or damage to
person or property because of an act or omission of the other party, of any of
the other party's employees or agents, or of others for whose acts such party is
legally liable, written notice of such injury or damage, whether or not insured,
shall be given to the other party within a reasonable time not exceeding 21 days
after first observance. The notice shall provide sufficient detail to enable the
other party to investigate the matter. If a claim of additional cost or time
related to this claim is to be asserted, it shall be filed in writing.
11.5 INDEMNIFICATION
11.5.1 To the fullest extent permitted by law, the Design/Builder shall
indemnify and hold harmless the Owner, Owner's consultants, and agents and
employees of any of them from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting from
performance of the Work, provided that such claim, damage, loss or expense is
attributable to bodily injury, sickness, disease or death, or to injury to or
destruction of tangible property (other than the Work itself) including loss of
use resulting therefrom, but only to the extent caused in whole or in part by
negligent acts or omissions of the Design/Builder, anyone directly or indirectly
employed by the Design/Builder or anyone for whose acts the Design/Builder may
be liable, regardless of whether or not such claim, damage, loss or expense is
caused in part by a party indemnified hereunder. Such obligation shall not be
construed to negate, abridge, or reduce other rights or obligations of indemnity
which would otherwise exist as to a party or person described in this Paragraph
11.5.
11.5.2 In claims against any person or entity indemnified under this Paragraph
11.5 by an employee of the Design/Builder, anyone directly or indirectly
employed by the Design/Builder or anyone for whose acts the Design/Builder may
be liable, the indemnification obligation under this Paragraph 11.5 shall not be
limited by a limitation on amount or type of damages, compensation or benefits
payable by or for the Design/Builder under workers' compensation acts,
disability benefit acts or other employee benefit acts.
11.6 SUCCESSORS AND ASSIGNS
11.6.1 The Owner and Design/Builder, respectively, bind themselves, their
partners, successors, assigns and legal representatives to the other party to
this Part 2 Agreement and to the partners, successors and assigns of such other
party with respect to all covenants of this Part 2 Agreement. Neither the Owner
nor the Design/Builder shall assign this Part 2 Agreement without the written
consent of the other. The Owner may assign this Part 2 Agreement to any
institutional lender providing construction financing, and the Design/Builder
agrees to execute all consents reasonably required to facilitate such an
assignment. If either party makes such an assignment, that party shall
nevertheless remain legally responsible for all obligations under this Part 2
Agreement, unless otherwise agreed by the other party.
11.7 TERMINATION OF PROFESSIONAL DESIGN SERVICES
11.7.1 Prior to termination of the services of the Architect or any other design
professional designated in this Part 2 Agreement, the Design/Builder shall
identify to the Owner in writing another architect or other design professional
with respect to whom the Owner has no objection, who will provide the services
originally to have been provided by the Architect or other design professional
whose services are being terminated. Owner must approve termination of
Architect.
11.8 EXTENT OF AGREEMENT
11.8.1 This Part 2 Agreement represents the entire agreement between the Owner
and the Design/Builder and supersedes prior negotiations, representations or
agreements, either written or oral. This Part 2 Agreement may be amended only by
written instrument and signed by both the Owner and the Design/Builder.
ARTICLE 12
TERMINATION OF THE AGREEMENT
12.1 TERMINATION BY THE OWNER
12.1.1 This Part 2 Agreement may be terminated by the Owner upon 14 days'
written notice to the Design/Builder in the event that the Project is abandoned.
If such termination occurs, the Owner shall pay the Design/Builder for Work
completed and for proven loss sustained upon materials, equipment, tools, and
construction equipment and machinery, including reasonable profit and applicable
damages.
12.1.2 If the Design/Builder defaults or persistently fails or neglects to carry
out the Work in accordance with the Contract Documents or fails to perform the
provisions of this Part 2 Agreement, the Owner may give written notice that the
Owner intends to terminate this Part 2 Agreement. If the Design/Builder fails to
correct the defaults, failure or neglect within seven (7) days after being given
notice, the Owner may then give a second written notice and, after an additional
seven (7) days, the Owner may without prejudice to any other remedy terminate
the employment of the Design/Builder and take possession of the site and of all
materials, equipment, tools and construction equipment and machinery thereon
owned by the Design/Builder and finish the Work by whatever method the Owner may
deem expedient. If the unpaid balance of the Contract Sum exceeds the expense of
finishing the Work and all damages incurred by the Owner, such excess shall be
paid to the Design/Builder. If the expense of completing the Work and all
damages incurred by the Owner exceeds the unpaid balance, the Design/Builder
shall pay the difference to the Owner. This obligation for payment shall survive
termination of this Part 2 Agreement.
12.2 TERMINATION BY THE DESIGN/BUILDER
12.2.1 If the Owner fails to make payment when due, the Design/Builder may give
written notice of the Design/Builder's intention to terminate this Part 2
Agreement. If the Design/Builder fails to receive payment within seven (7) days
after receipt of such notice by the Owner, the Design/Builder may give a second
written notice and, seven (7) days after receipt of such second written notice
by the Owner, may terminate this Part 2 Agreement and recover from the Owner
payment for Work executed and for proven losses sustained upon materials,
equipment, tools, and construction equipment and machinery, including reasonable
profit and applicable damages.
ARTICLE 13
BASIS OF COMPENSATION
The Owner shall compensate the Design/Builder in accordance with Article 5,
Payments, and the other provisions of this Part 2 Agreement as described below.
13.1 COMPENSATION
13.1.1 For the Design/Builder's performance of the Work, as described in
Paragraph 3.2 and including any other services listed in Article 14 as part of
Basic Services, the Owner shall pay the Design/Builder in current funds the
Contract Sum as follows: Exhibit "B".
13.1.2 For Additional Services, as described in Paragraph 3.3 and including any
other services listed in Article 14 as Additional Services, compensation shall
be as follows:
13.2 REIMBURSABLE EXPENSES
13.2.1 Reimbursable Expenses are in addition to the compensation for Basic and
Additional Services, and include actual expenditures made by the Design/Builder
and the Design/Builder's employees and contractors in the interest of the
Project, as follows:
13.2.2 FOR REIMBURSABLE EXPENSES, compensation shall be a multiple of ( ) times
the amounts expended.
13.3 INTEREST PAYMENTS
13.3.1 The rate of interest for past due payments shall be as follows: 1% per
month.
(Usury laws and requirements under the Federal Truth in Lending Act, similar
State and local consumer credit laws and other regulations at the Owner's and
Design/Builder's principal places of business, at the location of the Project
and elsewhere may affect the validity of this provision. Specific legal advice
should be obtained with respect to deletion, modification or other requirements,
such as written disclosures or waivers.)
ARTICLE 14
OTHER CONDITIONS AND SERVICES
14.1 The Basic Services to be performed shall be commenced on and, subject to
authorized adjustments and to delays not caused by the Design/Builder,
Substantial Completion shall be achieved in the Contract Time of ( ) calendar
days.
14.2 The Basic Services beyond those described in Article 3 are as follows:
14.3 Additional Services beyond those described in Article 3 are as follows:
14.4 The Design/Builder shall submit an Application for Payment on the ( ) day
of each month.
14.5 The Design/Builder's Proposal includes the following documents:
(List the documents by specific title and date; include any required performance
and payment bonds.)
Title Date
Exhibit "A" - CryoLife, Inc. Final Build-Out Interiors dated 10/19/99.
Exhibit "B" - Contract Breakdown (One Page).
Exhibit "C" - Preliminary Project Schedule.
Exhibit "D" - List of Shell Drawings - Phase I (One Page).
Exhibit "E1" - Lockwood Greene - Hourly Rate Compensation (One Page).
Exhibit "E2" - Lockwood Greene - Reimbursable Expenses (One Page)This Agreement
entered into as of the day and year first written above.
OWNER DESIGN BUILDER
/s/ Albert E. Heacox /s/ Wm. M. Choate
- - -------------------------------- --------------------------------------
(Signature) (Signature)
Al Heacox, VP - Lab Operators Choate Design & Build Company
- - -------------------------------- --------------------------------------
Cryolife, Inc. (Printed name and title)
- - -------------------------------- Wm. M. Choate
(Printed name and title) President
Item 5. Market for Registrant's Equity and Related Stockholder Matters - page 35
of annual shareholder report below:
MARKET PRICE OF COMMON STOCK
The Company's Common Stock is traded under the symbol "CRY." The following table
sets forth, for the periods indicated, the intra-day high and low sale prices
per share of Common Stock on the NYSE.
1999 High Low
---------------------- ---------------------- ----------------------
First quarter 12 3/4 10 1/4
Second quarter 12 5/8 10
Third quarter 15 1/4 11 1/4
Fourth quarter 13 7/8 11 1/16
----------------------- ---------------------- ----------------------
1998 High Low
----------------------- ---------------------- ----------------------
First quarter 17 15/16 12 1/4
Second quarter 18 1/4 14 3/4
Third quarter 16 1/4 12 1/16
Fourth quarter 15 11/16 9 3/16
----------------------- ---------------------- ----------------------
Item 6. Selected Financial Data - page 36 of annual shareholder report below:
SELECTED FINANCIAL INFORMATION
(In thousands except per share data) December 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
OPERATIONS 1999 1998 1997 1996 1995
- - -------------------------------------------------------- ----------- ------------ ----------- ----------- ----------
Revenues $66,722 $60,691 $50,571 $36,866 $29,226
Net income 4,451 6,486 4,725 3,927 2,202
Research and development as a percentage of revenues 6.6% 7.8% 7.8% 7.6% 9.0%
EARNINGS PER SHARE1,2
- - -------------------------------------------------------- ----------- ------------ ----------- ----------- ----------
Basic $0.36 $0.54 $0.49 $0.41 $0.23
Diluted $0.36 $0.53 $0.48 $0.40 $0.23
YEAR-END FINANCIAL POSITION
- - -------------------------------------------------------- ----------- ------------ ----------- ----------- ----------
Total assets $94,023 $98,390 $54,402 $34,973 $24,132
Working capital 59,928 62,310 19,478 10,787 15,217
Long-term liabilities 6,177 8,577 17,846 2,799 --
Shareholders' equity 80,226 80,421 30,227 24,929 20,465
Current ratio 9:1 8:1 4:1 3:1 5:1
Shareholders' equity per diluted common share1,2 $6.40 $6.56 $3.04 $2.52 $2.14
</TABLE>
1 Reflects adjustment for the 2-for-1 stock split effected June 28, 1996.
2 Presented, and where appropriate, restated to conform to Statement
128 requirements.
1
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
of Operations - page 16-21 of annual shareholder report below:
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
CryoLife, Inc. was organized in 1984 to address market opportunities in the area
of biological implantable products and materials, and today is the leader in the
cryopreservation of viable human tissue for cardiovascular, vascular, and
orthopedic applications. The Company began cryopreserving aortic heart valves in
1984, pulmonary heart valves in 1986, and mitral heart valves in 1995. The
Company has also expanded into the cryopreservation of other human tissue,
including vascular tissue and connective tissue of the knee.
The Company pays a fee to an organ procurement agency or tissue bank at the time
such organization consigns human tissue to the Company. The Company generates
revenues from cryopreservation services by charging hospitals a fee, which
covers the Company's services, the associated procurement fee, and applicable
shipping expenses. The Company records revenue upon shipping tissue. Costs
associated with the procurement, processing, and storage of tissue are accounted
for as deferred preservation costs on the Company's consolidated balance sheet
and are expensed when the tissue is shipped. The Company continually monitors
cryopreserved tissue in its possession to determine its viability. Tissue
determined not to be suitable for implantation is disposed of and the associated
deferred preservation costs are expensed. As part of an effort to reduce its
working capital needs, while simultaneously facilitating the use of
cryopreserved tissue, the Company consigns liquid nitrogen freezers to a number
of hospitals. The Company retains ownership of the liquid nitrogen freezers and,
consequently, incurs associated depreciation charges. The hospitals are
responsible for operating expenses related to the use of the liquid nitrogen
freezers.
The Company has expanded, and intends to continue to expand, its portfolio of
products and services. Much of this expansion has been accomplished through
acquisitions of intellectual property and businesses. In 1992, the Company
purchased for $730,000 the exclusive distribution rights for a line of stentless
aortic porcine heart valves and in 1996 purchased for $275,000 a patent for an
advanced design stentless pulmonary porcine heart valve, both of which the
Company currently markets in Europe, South America, the Middle East, and South
Africa. In 1996, the Company purchased the patent for BioGlue, a surgical
adhesive which the Company currently markets in North America, Europe, South
America, Asia, South Africa, and the Middle East. In 1996, the Company also
acquired the assets of UCFI, a tissue processor, for $750,000 in cash and a $1.3
million note. In 1997, the Company acquired Ideas for Medicine, Inc. ("IFM") and
its line of single-use medical devices for $4.5 million in cash, and a $5.0
million convertible debenture.
On September 30, 1998 the Company completed the sale of substantially all of the
IFM product line and certain related assets to Horizon Medical Products, Inc.
("HMP") for $15 million in cash pursuant to an asset purchase agreement.
Concurrently, IFM and HMP signed a Manufacturing Agreement (the "Agreement")
which provides for the manufacture by IFM of specified minimum dollar amounts of
IFM products to be purchased exclusively by HMP over each of the four years
following the sale. Thereafter, responsibility for such manufacturing is to be
assumed by HMP. The Company recorded a deferred gain at the transaction date
totaling $2.9 million, representing the selling price less the net book value of
the assets sold, which included $7.7 million of goodwill, net of accumulated
amortization, and the costs related to the sale. The gain was deferred because
the sale and the manufacturing agreements represent, in the aggregate, a single
transaction for which the related income should be recognized over the term of
the Agreement. Accordingly, the deferred gain is being amortized in cost of
goods sold over the four-year term of the manufacturing agreement in a manner
which is expected to result in approximately equal margins over the four-year
period on the products manufactured and sold by IFM to HMP. During 1999 and 1998
amortization of deferred revenue totaled $1.2 million and $387,000,
respectively. As more fully discussed under nonrecurring charges in the Results
of Operations section, HMP defaulted on the Agreement in June of 1999.
The composition of the Company's revenues is expected to change in future years,
reflecting, among other things, the anticipated growth in shipments of human
vascular tissue and human connective tissue for the knee, and the introduction
of BioGlue surgical adhesive into domestic and international markets, as well as
other expected new products.
2
<PAGE>
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues increased 10% to $66.7 million in 1999 from $60.7 million in 1998. The
increase in revenues was primarily due to increased acceptance in the medical
community of cryopreserved tissues, the Company's ability to procure greater
amounts of tissue, price increases for certain cryopreservation services
instituted during the third quarter of 1998 which continued during 1999, a full
year of BioGlue international revenue in 1999 as compared to nine months in
1998, and revenues attributable to the Company's introduction of osteoarticular
grafts in January 1999. These increases in revenues have been offset by certain
decreases in revenues as discussed below.
Revenues from human heart valve and conduit cryopreservation services decreased
6% to $29.0 million in 1999 from $30.8 million in 1998, representing 44% and
51%, respectively, of total revenues during such periods. This decrease in
revenues resulted from an 8% decrease in the number of heart allograft shipments
primarily resulting from a 9% decrease in the number of pulmonary heart valve
shipments due to a decrease in the number of Ross procedures being performed and
competitive price pressures on pulmonary valves. In a Ross procedure, the
patient's pulmonary valve is transplanted into the aortic position and a human
pulmonary allograft is transplanted into the patient's pulmonary position. The
Company has attempted to promote the positive clinical results of the Ross
procedure by hosting science forums around the country with its cardiovascular
surgeon customers. Although we are currently unable to predict the annual trend
in pulmonary heart valve shipments, shipments through March 10, 2000 are up 12%
over shipments through March 10, 1999.
Revenues from human vascular tissue cryopreservation services increased 35% to
$19.3 million in 1999 from $14.3 million in 1998, representing 29% and 24%,
respectively, of total revenues during such periods. This increase in revenues
was primarily due to a 32% increase in the number of vascular allograft
shipments attributable to an increased demand for preserved vascular tissue, the
Company's ability to procure greater amounts of tissue, and the introduction of
the femoral vein program for use as A-V shuts in dialysis patients. The increase
in revenues was also due to the Company's focus on procuring and distributing
long segment veins, which have a higher per unit revenue than the short segment
veins.
Revenues from human connective tissue of the knee cryopreservation services
increased 45% to $11.2 million in 1999 from $7.7 million in 1998, representing
17% and 13%, respectively, of total revenues during such periods. This increase
in revenues was primarily due to a 31% increase in the number of allograft
shipments due to increased demand, the Company's ability to procure greater
amounts of tissue, and the introduction of preserved osteoarticular grafts in
January of 1999. Additional revenue increases resulted from price increases for
the cryopreservation of menisci and tendons during the third quarter of 1998.
Revenues from IFM decreased 34% to $3.7 million in 1999 from $5.7 million in
1998, representing 6% and 9%, respectively, of total revenues during such
periods. The decrease in revenues is due to HMP's failure to meet the minimum
purchase requirements set forth in the Agreement as more fully discussed below.
Revenues from bioprosthetic cardiovascular devices increased 20% to $955,000 in
1999 from $798,000 in 1998, representing 1% of total revenues during such
periods. This increase in revenues was due to a 7% increase in the number of
bioprosthetic cardiovascular device shipments due to an increase in demand, a
full year of international revenues from the CryoLife-Ross Pulmonary Valve in
1999 as compared to three months of revenues in 1998, and price increases in
November of 1998 that continued throughout 1999.
Revenues from BioGlue surgical adhesive increased 93% to $1.7 million for 1999
from $883,000 in 1998, representing 2% and 1%, respectively, of total revenues
during such periods. The increase in revenues is due to a 95% increase in the
volume of BioGlue shipments due to increased product awareness as a result of
the introduction of BioGlue in international markets in April of 1998, increased
surgeon training, and the receipt of the CE mark approval for the use of BioGlue
for pulmonary indications in Europe in March 1999.
Grant revenues increased to $877,000 in 1999 from $512,000 in 1998. This
increase in grant revenues is primarily attributable to the SynerGraft research
and development programs.
Other income decreased to $224,000 in 1999 from $1.1 million in 1998. Other
income in 1998 relates primarily to proceeds from the sale of the Company's port
product line.
Cost of cryopreservation services and products aggregated $30.2 million in 1999
compared to $25.3 million in 1998, representing 46% and 42%, respectively, of
total cryopreservation and product revenues. The increase of the cost of
cryopreservation services and products as a percentage of revenues in 1999
results from a smaller percentage of 1999 revenues being derived from human
3
<PAGE>
heart valve and conduit cryopreservation services, which carry a significantly
higher gross margin than other cryopreservation services. An additional reason
for the increase in costs in 1999 results from the switch in October of 1998 to
OEM manufacturing of single-use medical devices, which generates lower gross
margins than cryopreservation services and lower gross margins than the IFM
products generated prior to the sale of the IFM product line.
General, administrative, and marketing expenses increased 3% to $24.7 million in
1999, compared to $23.9 million in 1998, representing 38% and 40%, respectively,
of total cryopreservation and product revenues in such periods. The increase in
expenditures in 1999 resulted from expenses incurred to support the increase in
revenues, partially offset by increased absorption of overhead expenses
associated with increased production of new products.
Research and development expenses decreased 7% to $4.4 million in 1999, compared
to $4.7 million in 1998, representing 7% and 8%, respectively, of total
cryopreservation and product revenues for each period. Research and development
spending relates principally to the Company's focus on its bioadhesives and
SynerGraft technologies.
The Company recorded a nonrecurring charge of $2.4 million in 1999 primarily as
a result of HMP's default on its manufacturing contract with IFM. On June 22,
1999 IFM notified HMP that it was in default of certain provisions of the
Agreement. Specifically, HMP is in violation of the payment provisions contained
within the Agreement, which calls for inventory purchases to be paid for within
45 days of delivery. Additionally, HMP is in violation due to nonpayment of
interest related to such past due accounts receivable.
After notification of the default, HMP indicated to the Company that it would
not be able to meet and has not met the minimum purchase requirements outlined
in the Agreement. The Company has been negotiating with HMP in order to reach a
mutually agreeable solution to the default; however, due to the significant
uncertainties related to the Company's ability to realize its investment in IFM,
the Company determined that it had incurred an impairment loss on its IFM
assets. In calculating the amount of the impairment loss, management used its
best estimate to determine the realizable value of its increase in working
capital due to the HMP default, and the recoverability of IFM's long-lived
assets, consisting primarily of leasehold improvements and equipment. As a
result, management recorded a $2.1 million impairment loss on working capital
and a $2.6 million impairment loss on leasehold improvements. Additionally, the
Company offset the above charges with $2.5 million of deferred gain recorded in
connection with the sale of the IFM product line to HMP. The net pretax effect
of the above nonrecurring charges is $2.2 million, and has been included under
the caption "Nonrecurring charges" in the accompanying Consolidated Income
Statements.
Net interest income was $1.2 million and $820,000 in 1999 and 1998,
respectively. This increase in interest income is due to recording a full year
of interest income on the invested proceeds from the follow-on equity offering
(the "Offering") completed in April 1998, lower interest expense resulting from
the repayment of certain indebtedness with the proceeds from the Offering, and
the conversion of certain convertible debentures into common stock of the
Company.
The increase in the effective income tax rate to 32% in 1999 from 25% in 1998,
is the result of the nonrecurrence of income tax benefits realized in 1998 from
the implementation of certain income tax planning strategies in the fourth
quarter, which had a significant one-time impact on 1998 taxes. Despite the
increase in the tax rate between 1999 and 1998, the 1999 effective tax rate is
reflective of the ongoing impact of these tax planning strategies.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues increased 20% to $60.7 million in 1998 from $50.6 million in 1997. The
increase in revenues was primarily due to increased acceptance in the medical
community of cryopreserved tissues, the Company's ability to procure greater
amounts of tissue, price increases for certain cryopreservation services,
revenues attributable to the Company's line of single-use medical devices
following the IFM acquisition in March of 1997, and revenues attributable to the
Company's introduction of BioGlue surgical adhesive in international markets in
April 1998.
Revenues from human heart valve and conduit cryopreservation services increased
6% to $30.8 million in 1998 from $29.0 million in 1997, representing 51% and
57%, respectively, of total revenues during such periods. This increase in
revenues was primarily due to a 6% increase in the number of heart allograft
shipments due to an increased demand and the Company's ability to procure
greater amounts of tissue.
4
<PAGE>
Revenues from human vascular tissue cryopreservation services increased 36% to
$14.3 million in 1998 from $10.5 million in 1997, representing 24% and 21%,
respectively, of total revenues during such periods. This increase in revenues
was primarily due to a 37% increase in the number of vascular allograft
shipments due to an increased demand and the Company's ability to procure
greater amounts of tissue.
Revenues from human connective tissue for the knee cryopreservation services
increased 63% to $7.7 million in 1998 from $4.7 million in 1997, representing
13% and 9%, respectively, of total revenues during such periods. This increase
in revenues was primarily due to a 50% increase in the number of allograft
shipments due to increased demand and the Company's ability to procure greater
amounts of tissue. Additional revenue increases resulted from a greater
proportion of the 1998 shipments consisting of cryopreserved menisci, which have
a significantly higher per unit revenue than the Company's cryopreserved
tendons, and price increases for the cryopreservation of menisci and tendons.
Revenues from IFM increased 1% to $5.7 million in 1998 from $5.6 million in
1997, representing 9% and 11%, respectively, of total revenues during such
periods. This increase in revenues was due to 1998 having two additional months
of IFM revenue than 1997 due to the IFM acquisition closing on March 5, 1997,
partially offset by the sale of the IFM product line to HMP pursuant to which
the Company became an OEM manufacturer of such products on October 1, 1998.
Revenues from bioprosthetic cardiovascular devices increased 33% to $798,000 in
1998 from $576,000 in 1997, representing 1% of total revenues during such
periods. This increase in revenues was primarily due to a 36% increase in the
number of bioprosthetic cardiovascular device shipments due to increased
manufacturing capacity. Revenues in 1998 also benefited from the introduction of
the CryoLife-Ross Pulmonary Valve into international markets in October 1998.
Revenues from BioGlue were $883,000 for 1998. The Company introduced the product
into international markets in April 1998.
Grant revenues increased to $512,000 in 1998 from $162,000 in 1997. This
increase in grant revenues is primarily attributable to the SynerGraft research
and development programs.
Other income increased to $1,078,000 in 1998 from $290,000 in 1997. Other income
in 1998 relates primarily to proceeds from the sale of the Company's port
product line.
Cost of cryopreservation services and products aggregated $25.3 million in 1998
compared to $17.8 million in 1997, representing 42% and 35%, respectively, of
total cryopreservation and product revenues. The increase in 1998 of the cost of
cryopreservation services and products as a percentage of revenues results from
a lesser portion of 1998 revenues being derived from human heart valve and
conduit cryopreservation services, which carry significantly higher gross
margins than other cryopreservation services, from increased manufacturing
overhead costs associated with the Company's new manufacturing facilities, from
the switch in October of 1998 to OEM manufacturing of single-use medical
devices, which generates lower gross margins than cryopreservation services and
lower gross margins than the IFM products generated prior to the sale of the IFM
product line, compared with ten months of IFM sales in 1997, and from a one-time
charge of $500,000 associated with the start-up of the bioprosthetic
cardiovascular device manufacturing facility. The increase in the cost of
cryopreservation services and products as a percentage of revenues was partially
offset by a decrease in the IFM products sold in 1998 relative to those sold in
1997, which generate lower gross margins than cryopreservation services, and the
impact of the fourth quarter amortization of deferred gain resulting from the
sale of the IFM product line, which has the impact of reducing cost of goods
sold.
General, administrative, and marketing expenses increased 16% to $23.9 million
in 1998, compared to $20.5 million in 1997, representing 40% and 41%,
respectively, of total cryopreservation and product revenues in such periods.
The increase in expenditures in 1998 resulted from expenses incurred to support
the increase in revenues and costs associated with the introduction of BioGlue
into international markets.
Research and development expenses increased 19% to $4.7 million in 1998,
compared to $3.9 million in 1997, representing 8% of total cryopreservation and
product revenues for each period. Research and development spending relates
principally to the Company's focus on its bioadhesives and SynerGraft
technologies.
Net interest income was $820,000 in 1998 compared to net interest expense of
$970,000 in 1997. This variance is due to the repayment of certain indebtedness
with the proceeds from the follow-on equity offering completed in April 1998, as
well as the conversion of a portion of a convertible debenture into common stock
of the Company, and the receipt of interest income on the invested proceeds from
the Offering.
5
<PAGE>
The decline in the effective income tax rate to 25% in 1998 from 38% in 1997 is
due to the implementation of certain income tax planning strategies including
the recognition of approximately $600,000 of research and development tax
credits during the fourth quarter of 1998, during which period studies were
completed which quantified the amounts related thereto.
Seasonality
The demand for the Company's human heart valve and conduit cryopreservation
services is seasonal, with peak demand generally occurring in the second and
third quarters. Management believes this trend for human heart valve and conduit
cryopreservation services is primarily due to the high number of surgeries
scheduled during the summer months. Management believes the trends experienced
by the Company for its human connective tissue of the knee cryopreservation
services indicate this business may also be seasonal because it is an elective
procedure which may be performed less frequently during the fourth quarter's
holiday season. However, the demand for the Company's vascular tissue
cryopreservation services, bioprosthetic cardiovascular devices, single-use
medical devices, and BioGlue surgical adhesive does not appear to experience
seasonal trends.
Liquidity and Capital Resources
At December 31, 1999 net working capital was $59.9 million, compared to $62.3
million at December 31, 1998, with a current ratio of 9 to 1. The Company's
primary capital requirements arise out of general working capital needs, capital
expenditures for facilities and equipment, funding of research and development
projects, and a common stock repurchase plan approved by the board of directors
in October of 1998. The Company historically has funded these requirements
through bank credit facilities, cash generated by operations, and equity
offerings.
Net cash provided by operating activities was $1.0 million in 1999, as compared
to net cash provided by operating activities of $1.2 million in 1998. This
decrease primarily resulted from 1) an increase in the growth of deferred
preservation costs due to the inventory build up associated with the
introduction of new product lines, and 2) an increase in the amount of accounts
payable liquidated in the first quarter of 1999 as compared to the first quarter
of 1998 due to the expansion of the BioGlue manufacturing laboratory at
corporate headquarters, partially offset by 1) an increase in net income
excluding the nonrecurring charge of $2.4 million, 2) a decrease in prepaid
expenses, and 3) an increase in accrued expenses due to an increase in tissue
procurement.
Net cash used in investing activities was $3.3 million in 1999, as compared to
$18.9 million in 1998. This decrease in cash used was primarily attributable to
a decrease in capital expenditures and in purchases of marketable equity
securities during 1999, partially offset by the absence of proceeds from the
sale of the IFM product line in 1999, as compared to 1998.
Net cash used in financing activities was $4.5 million in 1999, as compared to
net cash provided by financing activities of $30.5 million in 1998. The 1998 net
cash inflow was primarily attributable to a follow-on equity offering in March
of 1998 that generated proceeds of $45.4 million, partially offset by the
repayment of borrowings on the Company's bank loans, and accrued interest
thereon, totaling $13.3 million. The Company used funds in 1999 primarily to
increase repurchases of treasury stock.
Management is currently seeking to complete a potential private placement of
equity or equity-oriented securities to form a subsidiary company for the
commercial development of its serine proteinase light activation technologies.
This strategy, if successful, will allow an affiliated entity to fund the light
activation technology and should expedite the commercial development of its
blood clot dissolving and surgical sealant product applications without
additional research and development expenditures by the Company (other than
through the affiliated company). This strategy, if successful, will favorably
impact the Company's liquidity going forward. The Company has ceased further
development of light activation technology pending the identification of a
corporate partner to fund future development. The Company began its search for a
corporate partner in October 1998 and anticipates locating a partner during
fiscal 2000. As of December 31, 1999, the Company classified approximately $1.5
million of equipment and other assets related to the light activation
technologies as being held for sale.
The Company anticipates that current cash and marketable securities and cash
generated from operations will be sufficient to meet its operating and
development needs for at least the next 12 months, including the expansion of
the Company's corporate headquarters and manufacturing facilities. Additionally,
the Company currently maintains a $2.0 million unrestricted line of credit that
expires on December 31, 2001. However, the Company's future liquidity and
capital requirements beyond that period will depend upon numerous factors,
including the timing of the Company's receipt of FDA approvals to begin clinical
trials for its products currently in development, the resources required to
6
<PAGE>
further develop its marketing and sales capabilities if and when those products
gain approval, the resources required to expand its corporate headquarters and
manufacturing facility, and the extent to which the Company's products generate
market acceptance and demand. There can be no assurance the Company will not
require additional financing or will not seek to raise additional funds through
bank facilities, debt or equity offerings, or other sources of capital to meet
future requirements. These additional funds may not be available when needed or
on terms acceptable to the Company, which could have a material adverse effect
on the Company's business, financial condition, and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk - page 20 of
annual shareholder report below:
The Company's interest income and expense are most sensitive to changes in the
general level of U.S. interest rates. In this regard, changes in U.S. interest
rates affect the interest earned on the Company's cash equivalents of $5.0
million and short-term investments of $15.9 million in municipal obligations as
of December 31, 1999, as well as interest paid on its debt. To mitigate the
impact of fluctuations in U.S. interest rates, the Company generally maintains
80% to 90% of its debt as fixed rate in nature. As a result, the Company is
subject to a risk that interest rates will decrease and the Company may be
unable to refinance its debt.
7
<PAGE>
Item 8. Financial Statements and Supplementary Data - pages 22-35 of annual
shareholder report below:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CryoLife, Inc.:
We have audited the accompanying consolidated balance sheet of CRYOLIFE,
INC. AND SUBSIDIARIES as of December 31, 1999 and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of the Company as of
December 31, 1998 and for each of the two years ended December 31, 1998 were
audited by other auditors whose report dated February 2, 1999 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CryoLife, Inc. and subsidiaries
as of December 31, 1999 and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN, LLP
Atlanta, Georgia
February 7, 2000
8
<PAGE>
CryoLife, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
December 31, 1999 1998
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
Current assets:
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
Cash and cash equivalents $6,128 $12,885
Marketable securities, at market 24,403 26,713
Receivables:
Trade accounts, less allowance for doubtful accounts of
$528 in 1999 and $256 in 1998 11,694 10,733
Income taxes 31 71
Other 608 383
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
Total receivables 12,333 11,187
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
Deferred preservation cost 17,652 14,239
Inventories 4,597 3,385
Prepaid expenses 1,454 1,945
Deferred income taxes 983 1,348
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
Total current assets 67,550 71,702
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
Property and equipment:
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
Equipment 11,882 12,145
Furniture and fixtures 3,147 3,011
Leasehold improvements 14,487 14,254
Construction in progress 1,001 2,266
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
30,517 31,676
Less accumulated depreciation and amortization 11,843 10,216
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
Net property and equipment 18,674 21,460
Other assets:
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
Goodwill, less accumulated amortization
of $311 in 1999 and $215 in 1998 1,590 1,685
Patents, less accumulated amortization
of $794 in 1999 and $660 in 1998 2,363 2,216
Other, less accumulated amortization
of $742 in 1999 and $566 in 1998 2,449 1,327
Deferred income taxes 1,399 --
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
Total assets $94,025 $98,390
- - ---------------------------------------------------------------------------------------- ------------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
CryoLife, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, 1999 1998
- - --------------------------------------------------------------------------------- -------------- -------------
Current liabilities:
- - --------------------------------------------------------------------------------- -------------- -------------
Accounts payable $975 $1,655
Accrued expenses 2,145 2,968
Accrued compensation 913 726
Accrued fees to technical service representatives 248 459
Accrued procurement fees 2,874 1,806
Current maturities of capital lease obligation 180 224
Current maturities of long-term debt 287 516
Deferred income -- 1,038
- - --------------------------------------------------------------------------------- -------------- -------------
Total current liabilities 7,622 9,392
- - --------------------------------------------------------------------------------- -------------- -------------
Deferred income, less current amount -- 1,525
Deferred income taxes -- 410
Capital lease obligations, less current maturities 1,534 1,714
Convertible debenture 4,393 4,393
Other long-term debt 250 535
- - --------------------------------------------------------------------------------- -------------- -------------
Total liabilities 13,799 17,969
- - --------------------------------------------------------------------------------- -------------- -------------
Commitments and Contingencies
Shareholders' equity:
Preferred stock $.01 par value per share;
authorized 5,000 shares including 2,000
shares of series A junior participating preferred stock;
no shares issued -- --
Common stock $.01 par value per share;
authorized 50,000 shares; issued 13,361
shares in 1999 and 1998 134 134
Additional paid-in capital 64,425 64,347
Retained earnings 23,564 19,113
Deferred compensation (57) --
Accumulated other comprehensive income (785) 139
Treasury stock; 1,134 shares in 1999 and 845
shares in 1998, at cost (7,055) (3,312)
- - --------------------------------------------------------------------------------- -------------- -------------
Total shareholders' equity 80,226 80,421
- - --------------------------------------------------------------------------------- -------------- -------------
- - --------------------------------------------------------------------------------- -------------- -------------
Total liabilities and shareholders' equity $94,025 $98,390
- - --------------------------------------------------------------------------------- -------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
CryoLife, Inc.
Consolidated Income Statements
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended
December 31, 1999 1998 1997
- - ----------------------------------------------------------------- ------------------ --------------- ----------------
Revenues:
- - ----------------------------------------------------------------- ------------------ --------------- ----------------
Preservation services and products $65,845 $60,179 $50,409
Research grants and licenses 877 512 162
- - ----------------------------------------------------------------- ------------------ --------------- ----------------
66,722 60,691 50,571
- - ----------------------------------------------------------------- ------------------ --------------- ----------------
Costs and Expenses:
- - ----------------------------------------------------------------- ------------------ --------------- ----------------
Preservation services and products 30,170 25,303 17,764
General, administrative, and marketing 24,693 23,907 20,548
Research and development 4,396 4,708 3,946
Nonrecurring charges 2,355 -- --
Interest expense 387 670 978
Interest income (1,556) (1,490) (8)
Other income, net (224) (1,078) (290)
- - ----------------------------------------------------------------- ------------------ --------------- ---------------
60,221 52,020 42,938
- - ----------------------------------------------------------------- ------------------ --------------- ---------------
Income before income taxes 6,501 8,671 7,633
Income tax expense 2,050 2,185 2,908
- - ----------------------------------------------------------------- ------------------ --------------- ---------------
Net income $4,451 $6,486 $4,725
- - ----------------------------------------------------------------- ------------------ --------------- ---------------
Earnings per share:
- - ----------------------------------------------------------------- ------------------ --------------- ---------------
Basic $ 0.36 $ 0.54 $ 0.49
- - ----------------------------------------------------------------- ------------------ --------------- ---------------
Diluted $ 0.36 $ 0.53 $ 0.48
- - ----------------------------------------------------------------- ------------------ --------------- ---------------
Weighted average shares outstanding:
- - ----------------------------------------------------------------- ------------------ --------------- ---------------
Basic 12,341 11,974 9,642
- - ----------------------------------------------------------------- ------------------ --------------- ---------------
Diluted 12,533 12,264 9,942
- - ----------------------------------------------------------------- ------------------ --------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
CryoLife, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31, 1999 1998 1997
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Net cash flows from operating activities:
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Net income $4,451 $6,486 $4,725
Adjustments to reconcile net income to net cash
flows provided by (used in) operating activities:
Deferred income recognized (1,176) (387) --
Gain on sale of marketable equity securities (112) (4) --
Depreciation of property and equipment 2,854 2,586 1,842
Amortization 300 905 814
Provision for doubtful accounts 121 176 46
Deferred income taxes (970) (1,948) 972
Nonrecurring charges 2,355 -- --
Changes in operating assets and liabilities:
Trade and other receivables (1,707) (1,797) (533)
Income taxes 40 771 (438)
Deferred preservation costs (3,413) (1,982) (5,079)
Inventories (2,882) (3,010) (864)
Prepaid expenses and other assets 491 (706) (506)
Accounts payable (686) 295 (2,756)
Accrued expenses 1,321 (158) (468)
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Net cash flows provided by (used in) operating activities 987 1,227 (2,245)
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Net cash flows from investing activities:
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Capital expenditures (3,853) (6,693) (5,059)
Cash paid for acquisitions, net of cash acquired -- -- (4,418)
Net proceeds from sale of IFM product line -- 15,000 --
Other assets (452) (752) (148)
Purchases of marketable securities (5,123) (34,063) --
Sales of marketable securities 6,149 7,604 3
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Net cash flows used in investing activities (3,279) (18,904) (9,622)
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Net cash flows from financing activities:
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Principal payments of debt (514) (13,990) (6,607)
Proceeds from debt issuance -- 1,680 16,643
Principal payments on obligations under capital leases (224) (203) --
Proceeds from exercise of options and issuance of stock 571 46,298 567
Purchase of treasury stock (4,296) (3,350) --
Net payments on notes receivable from shareholders -- 16 5
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Net cash flows (used in) provided by financing activities: (4,463) 30,451 10,608
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Increase (decrease) in cash (6,755) 12,774 (1,259)
Effect of exchange rate changes on cash (2) -- --
Cash and cash equivalents, beginning of year 12,885 111 1,370
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Cash and cash equivalents, end of year $6,128 $12,885 $111
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Supplemental disclosures of cash flow information - cash paid during the year
for:
- - ------------------------------------------------------------------------------------------------------------------------
Interest $369 $742 $920
Income taxes 3,816 3,568 2,380
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Noncash investing and financing activities:
Establishing capital lease obligation $-- $2,141 $--
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Debt conversion into common stock $-- $608 $--
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Purchase of property and equipment
in accounts payable $6 $185 $440
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Net cash paid for acquisition $-- $-- $1,768
Cost in excess of assets acquired -- -- 8,541
Liabilities assumed -- -- (891)
Notes issued for assets acquired -- -- (5,000)
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
Fair value of assets acquired $-- $-- $4,418
- - ------------------------------------------------------------------------ --------------- --------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
CryoLife, Inc.
Consolidated Statements of Shareholders' Equity and Comprehensive Income
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common Shares Notes
Outstanding Additional Unrealized Receivable Total
Shares Paid-In Retained Deferred Gains on Translation Treasury From Shareholders'
Amount Capital Earnings Compsation Investments Gain Stock Shareholders Equity
- - ------------------- ------------- ---------- -------- ------------ ----------- ----------- -------- ------------ -------------
Balance at December
31, 1996 9,567 $ 101 $ 17,128 $ 7,902 $ -- $ (1) $ -- $ (180) $ (21) $ 24,929
- - ------------------ ------------- ---------- -------- ------------ ----------- ----------- -------- ------------ -------------
Net income -- -- -- 4,725 -- -- -- -- -- 4,725
Unrealized gains on
investments -- -- -- -- -- 1 -- -- -- 1
--------------
Comprehensive income 4,726
Exercise of options 105 1 298 -- -- -- -- -- -- 299
Employee stock
purchase plan 30 -- 268 -- -- -- -- -- -- 268
Additions to
shareholder notes -- -- -- -- -- -- -- -- (21) (21)
Payments on
shareholder notes -- -- -- -- -- -- -- -- 26 26
- - ------------------- ------------- ---------- -------- ------------ ----------- ----------- -------- ------------ -------------
Balance at December
31, 1997 9,702 102 17,694 12,627 -- -- -- (180) (16) 30,227
- - ------------------- ------------- ---------- -------- ------------ ----------- ----------- -------- ------------ -------------
Net income -- -- -- 6,486 -- -- -- -- -- 6,486
Unrealized gains on
investments -- -- -- -- -- 139 -- -- -- 139
-------------
Comprehensive income 6,625
Follow-on equity
offering, net of $703
of offering costs 2,976 30 45,417 -- -- -- -- -- -- 45,447
Exercise of options 100 1 338 -- -- -- -- 121 -- 460
Employee stock
purchase plan 31 -- 294 -- -- -- -- 97 -- 391
Convertible debenture 50 1 604 -- -- -- -- -- -- 605
Purchase of treasury
stock (343) -- -- -- -- -- -- (3,350) -- (3,350)
Payment on
shareholder note -- -- -- -- -- -- -- -- 16 16
- - ------------------- ------------- ---------- -------- ------------ ----------- ----------- -------- ------------ -------------
Balance at December
31, 1998 12,516 134 64,347 19,113 -- 139 -- (3,312) -- 80,421
- - ------------------- ------------- ---------- -------- ------------ ----------- ----------- -------- ------------ -------------
Net income -- -- -- 4,451 -- -- -- -- -- 4,451
Unrealized losses on
investments -- -- -- -- -- (922) -- -- -- (922)
Translation
adjustment -- -- -- -- -- -- (2) -- -- (2)
-------------
Comprehensive income 3,527
Exercise of options 49 -- (126) -- -- -- -- 305 -- 179
Employee stock
purchase plan 40 -- 144 -- -- -- -- 248 -- 392
Issuance of stock
options to a
nonemployee -- -- 60 -- (60) -- -- -- -- --
Amortization of de-
ferred compensation -- -- -- -- 3 -- -- -- -- 3
Purchase of treasury
stock (378) -- -- -- -- -- -- (4,296) -- (4,296)
- - ------------------- ------------- ---------- -------- ------------ ----------- ----------- -------- ------------ -------------
Balance at December
31, 1999 12,227 $134 $ 64,425 $23,564 $ (57) $ (783) $ (2) $(7,055) $ -- $ 80,226
- - ------------------- ============= ========== ======== ============ =========== =========== ======== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
CRYOLIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business
Founded in 1984, CryoLife, Inc. (the "Company") is the leader in the
cryopreservation of viable human tissues for transplant, and is developing and
commercializing additional implantable and single-use nonimplantable devices for
use in vascular, cardiovascular, and orthopaedic applications. The Company has
one primary business segment, cryopreservation of human tissues, marketed in
North and South America, Europe, and Asia. The Company's bioprosthetic
implantable products include stentless porcine heart valves marketed in Europe,
South America, the Middle East, and South Africa, as well as a proprietary
project to transplant human cells onto the structure of animal tissue. The
Company also serves as an original equipment manufacturer for single-use medical
devices for use in vascular surgical procedures. In addition, the Company
develops proprietary implantable bioadhesives, including BioGlue surgical
adhesive, which it has begun commercializing for vascular and pulmonary
applications in North America, Europe, South America, Asia, South Africa, and
the Middle East. International revenues were $4.0 million for 1999 and 1998 and
were $2.7 million in 1997. Net sales by product for the years ended December 31,
1999, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
----------------- ------------------ -----------------
Cryopreservation services:
Heart valve and conduit $29,043 $30,836 $29,046
Vascular tissue 19,273 14,270 10,469
Connective tissue 11,200 7,720 4,727
--------------- --------------- ---------------
Total cryopreservation services 59,516 52,826 44,242
Bioprosthetic products 955 798 576
Single-use medical devices 3,717 5,672 5,591
BioGlue surgical adhesive 1,657 883 ---
</TABLE>
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances are eliminated.
Reclassifications
Certain prior year balances have been reclassified to conform to the 1999
presentation.
Use of Estimates
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
informed estimates and judgments of management with consideration given to
materiality. Actual results could differ from those estimates.
Cash and cash equivalents
Cash equivalents consist primarily of highly liquid investments with
insignificant interest rate risk and maturity dates of 90 days or less at the
time of acquisition. The carrying value of cash equivalents approximates fair
value.
Marketable Securities
The Company maintains cash equivalents and investments in several large,
well-capitalized financial institutions, and the Company's policy disallows
investment in any securities rated less than "investment-grade" by national
rating services.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designations as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost. Debt securities not
classified as held-to-maturity or trading and marketable equity securities not
classified as trading are classified as available-for-sale. Available-for-sale
securities are stated at their fair values, with the unrealized gains and
losses, net of tax, reported in a separate component of shareholders' equity.
The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
14
<PAGE>
Such amortization is included in investment income. Realized gains and losses
and declines in value judged to be other than temporary on available-for-sale
securities are included in investment income. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income. At
December 31, 1999 and 1998, all marketable equity securities and debt securities
were designated as available-for-sale.
Deferred Preservation Costs and Revenue Recognition
Tissue is procured from deceased human donors by organ procurement organizations
and tissue banks which consign the tissue to the Company for processing and
preservation. Preservation costs related to tissue held by the Company are
deferred until shipment to the implanting hospital. Deferred preservation costs
consist primarily of laboratory expenses, tissue procurement fees, fringe and
facility allocations, and freight-in charges, and are stated at average cost,
determined annually, on a first-in, first-out basis. When the tissue is shipped
to the implanting hospital, revenue is recognized and the related deferred
preservation costs are charged to operations. The Company does not require
collateral or other security for its receivables.
Inventories
Inventories are comprised of single-use medical devices, bioprosthetic
implantable products, and implantable bioadhesives and are valued at the lower
of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets, generally five to ten years, on a
straight-line basis. Leasehold improvements are amortized on a straight-line
basis over the lease term or the estimated useful lives of the assets, whichever
is shorter.
Assets Held for Sale
As of December 31, 1999, other assets included approximately $1.5 million of
equipment and other assets related to the Company's FibRx technologies. In
January 1999, the Company ceased further development of FibRx pending the
identification of a corporate partner to fund future development. The Company
continues to actively pursue a strategic partner for the FibRx technologies. The
nonrecurring charge taken in the fourth quarter of 1999 includes approximately
$158,000 in costs associated with the location of a corporate partner.
Intangible Assets
Goodwill resulting from business acquisitions is amortized on a straight-line
basis over 20 years. Patent costs are amortized over the expected useful lives
of the patents (primarily 17 years) using the straight-line method. Other
intangibles, which consist primarily of manufacturing rights and agreements, are
being amortized over the expected useful lives of the related assets (primarily
five years).
The Company periodically evaluates the recoverability of noncurrent tangible and
intangible assets and measures the amount of impairment, if any, by assessing
current and future levels of income and cash flows as well as other factors,
such as business trends and prospects and market and economic conditions.
Income Taxes
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted income tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Research Grant and License Revenues
Revenues from research grants are recognized in the period the associated costs
are incurred. License revenues are recognized in the period the cash is received
and all licensor obligations have been fulfilled.
Earnings Per Share
In 1997 the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("Statement 128"). Statement
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented and, where appropriate, restated to
conform to the Statement 128 requirements.
15
<PAGE>
Comprehensive Income
In 1997 the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("Statement
130"), which established standards for the reporting and display of
comprehensive income and its components in a full set of comparative
general-purpose financial statements. The statement became effective for the
Company in 1998. Comprehensive income is defined in Statement 130 as net income
plus other comprehensive income, which, under existing accounting standards,
includes foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. Comprehensive income disclosures are included in the Consolidated
Statements of Shareholders' Equity and Comprehensive Income.
2. Follow-On Equity Offering
On April 3, 1998 the Company completed a follow-on equity offering (the
"Offering") of 2,588,000 new shares of its common stock resulting in net
proceeds of $39.4 million. On April 16, 1998 the Company issued an additional
387,500 shares of common stock pursuant to the underwriters' overallotment
option resulting in $6.0 million of additional net proceeds to the Company. A
portion of the net proceeds was used to repay $13.3 million of principal and
interest outstanding under the Company's bank loans.
3. Ideas for Medicine, Inc.
On March 5, 1997 the Company acquired the stock of Ideas for Medicine, Inc.
("IFM"), a medical device company specializing in the manufacture and
distribution of single-use medical devices, for consideration of approximately
$4.5 million in cash and approximately $5.0 million in convertible debentures
plus related expenses. The cash portion of the purchase price was financed by
borrowings under the Company's revolving term loan agreement. Pursuant to the
purchase agreement, an additional consideration of $700,000 was paid in January
2000. The acquisition was accounted for as a purchase; accordingly, the results
of operations have been included in the accompanying consolidated income
statements from the date of acquisition. Based on the allocation of the purchase
price, the Company's unaudited condensed pro forma results of operations for
1997, assuming consummation of the purchase as of January 1, 1997, are as
follows (in thousands, except per share data):
1997
----------------
Revenues $52,082
Net income 4,756
Earnings per share:
Basic $0.49
Diluted 0.48
In connection with this acquisition, the Company also entered into a consulting
agreement with the former majority shareholder of IFM requiring monthly payments
to such shareholder of approximately $17,000 until March 2002.
On September 30, 1998 the Company completed the sale of substantially all of the
IFM product line and certain related assets to Horizon Medical Products, Inc.
("HMP") for $15 million in cash pursuant to an asset purchase agreement.
Concurrently, IFM and HMP signed a Manufacturing Agreement (the "Agreement")
which provides for the manufacture by IFM of specified minimum dollar amounts of
IFM products to be purchased exclusively by HMP over each of the four years
following the sale. Thereafter, responsibility for such manufacturing is to be
assumed by HMP.
The Company recorded deferred income at the transaction date totaling $2.9
million, representing the selling price less the net book value of the assets
sold, which included $7.7 million of goodwill, net of accumulated amortization,
and the costs related to the sale. The income was deferred because the sale and
manufacturing agreements represent, in the aggregate, a single transaction for
which the related income should be recognized over the term of the manufacturing
agreement. Accordingly, the deferred income is being reflected in cost of goods
sold over the four-year term of the Agreement in a manner which is expected to
result in approximately equal margins over the four-year period on the products
manufactured and sold by IFM to HMP. During 1999 and 1998 amortization of
deferred income totaled $1.2 million and $387,000, respectively.
On June 22, 1999 IFM notified HMP that it was in default of certain provisions
of the Agreement. Specifically, HMP is in violation of the payment provisions
contained within the Agreement, which calls for inventory purchases to be paid
for within 45 days of delivery. Additionally, HMP is in violation due to
nonpayment of interest related to such past due accounts receivable.
After notification of the default, HMP indicated to the Company that it would
not be able to meet and has not met the minimum purchase requirements outlined
in the Agreement. The Company has been negotiating with HMP in order to reach a
mutually agreeable solution to the default; however, due to the significant
uncertainties related to the Company's ability to realize its investment in IFM,
the Company determined that it had incurred an impairment loss on its IFM
16
<PAGE>
assets. In calculating the amount of the impairment loss, management used its
best estimate to determine the realizable value of its increase in working
capital due to the HMP default and the recoverability of IFM's long-lived
assets, consisting primarily of leasehold improvements and equipment. As a
result, management recorded a $2.1 million impairment loss on working capital
and a $2.6 million impairment loss on leasehold improvements. Additionally, the
Company offset the above charges with $2.5 million of deferred income recorded
in connection with the sale of the IFM product line to HMP. The net pretax
effect of the above nonrecurring charges is $2.2 million and has been included
under the caption "Nonrecurring charges" in the accompanying Consolidated Income
Statements.
At December 31, 1999, after recognition of the impairment loss, IFM assets
consist of $800,000 of accounts receivable, $1.7 million of inventory, $1.6
million of a building, and $360,000 of equipment. Management believes any
potential resolution to the default on the manufacturing agreement will not have
a material adverse impact on the Company's future operating results.
4. Marketable Securities
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Unrealized Estimated
Holding Losses Market Value
December 31, 1999 Cost
----------------- ----------------- -----------------
Municipal obligations $ 20,223 $ (226) $ 19,997
Equity securities 9,444 (959) 8,485
---------------- ---------------- ----------------
$ 29,667 $ (1,185) $ 28,482
================ ================ ================
Unrealized Estimated
Holding Gains Market Value
December 31, 1998 Cost
----------------- ----------------- -----------------
Municipal obligations $ 24,963 $ 35 $ 24,998
Equity securities 10,440 175 10,615
---------------- ---------------- ----------------
$ 35,403 $ 210 $ 35,613
================ ================ ================
</TABLE>
The gross realized gains on sales of available-for-sale securities totaled
$112,000 and $4,000 in 1999 and 1998, respectively. Differences between cost and
market of a $1.2 million loss (less deferred taxes of $403,000) and a $210,000
gain (less deferred taxes of $71,000) are included as a separate component of
shareholders' equity as of December 31, 1999 and 1998, respectively.
At December 31, 1999 and 1998, approximately $4.1 million and $8.9 million,
respectively, of debt securities with original maturities of 90 days or less at
their acquisition dates were included in cash and cash equivalents. At December
31, 1999 no investments had a maturity date between 90 days and 1 year and
approximately $15.9 million of investments mature between 1 and 5 years.
5. Inventories
Inventories at December 31 are comprised of the following (in thousands):
1999 1998
-------------------- -------------------
Raw materials $1,555 $1,296
Work -in process 578 1,037
Finished goods 2,464 1,052
-------------------- -------------------
$4,597 $3,385
==================== ===================
17
<PAGE>
6. Long-Term Debt
Long-term debt at December 31 consists of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
----------------- ------------------
7% convertible debenture, due in March 2002 $4,393 $4,393
8.25% note payable due in equal annual installments of $250,000
500 750
Note payable due in 2000 with an effective interest rate
of 8%, net of unamortized discount of $3,000 in 1999 and $29,000
in 1998
37 301
----------------- ------------------
4,930 5,444
Less current maturities 287 516
----------------- ------------------
Total long-term debt $4,643 $4,928
----------------- ------------------
</TABLE>
On August 30, 1996 the Company executed a $10 million revolving loan agreement
(the "Loan Agreement") with a bank which, as amended on June 12, 1998, permits
the Company to borrow up to $2.0 million at either the bank's prime rate of
interest (8.5% at December 31, 1999) or at adjusted LIBOR, as defined, plus an
applicable LIBOR margin. The Loan Agreement expires on December 31, 2001. The
Loan Agreement contains certain restrictive covenants including, but not limited
to, maintenance of certain financial ratios and a minimum tangible net worth
requirement. The Loan Agreement is secured by substantially all of the Company's
assets, including IFM's stock but excluding intellectual property. Commitment
fees are paid based on the unused portion of the facility.
In March 1997 the Company issued a $5.0 million convertible debenture in
connection with the IFM acquisition. The debenture bears interest at 7% and is
due in March 2002. The debenture is convertible into common stock of the Company
at any time prior to the due date at $12.08 per common share. In conjunction
with the Offering, $607,000 of the convertible debenture was converted into
50,000 shares of the Company's common stock on March 30, 1998.
On September 12, 1996 the Company acquired the assets of United Cryopreservation
Foundation, Inc. ("UCFI"), a processor and distributor of cryopreserved human
heart valves and saphenous veins for transplant. The Company issued a $1.25
million note in connection with the acquisition. The note bears interest at
prime, as adjusted annually on the anniversary date of the acquisition.
In April 1996 the Company issued a $910,000 noninterest bearing note in
connection with the acquisition of its BioGlue technology. The note is payable
in three annual installments of $290,000, plus a final payment of $40,000 at
maturity.
Scheduled maturities of long-term debt for the next five years are as follows
(in thousands):
2000 $287
2001 250
2002 4,393
-----
$4,930
7. Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires the Company to disclose estimated fair
values for its financial instruments. The carrying amounts of receivables and
accounts payable approximate their fair values due to the short-term maturity of
these instruments. The carrying value of the Company's other financial
instruments approximated fair value at December 31, 1999 and 1998.
8. Leases
The Company leases equipment, furniture, and office space under various leases
with terms of up to 15 years. Commencing January 5, 1998 IFM leased office and
manufacturing facilities under a capital lease for $24,125 per month through
January 2008 from the former majority shareholder of IFM. Certain leases contain
18
<PAGE>
escalation clauses and renewal options for additional periods. Future minimum
lease payments under noncancelable leases as of December 31, 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Capitalized Operating
Leases Leases
2000 $ 310 $ 1,422
2001 290 1,324
2002 290 975
2003 290 952
2004 290 933
Thereafter 868 11,342
--------------------------------------------------------------------------------------------------
Total minimum lease payments 2,338 $ 16,948
=================
Less amount representing interest 624
------------------------------------------------------------------
Present value of net minimum
lease payments 1,714
Less current portion 180
------------------------------------------------------------------
$ 1,534
==================================================================
</TABLE>
Property acquired under capital leases at December 31, 1999 consists of the
following (in thousands):
Buildings $ 1,987
Furniture and fixtures 150
-----------------
2,137
Accumulated depreciation 529
$ 1,608
=================
Total rental expense for operating leases amounted to $1,457,000, $1,321,000,
and $1,282,000 for 1999, 1998, and 1997, respectively.
9. Stock Option Plans
The Company has stock option plans which provide for grants of options to
employees and directors to purchase shares of the Company's common stock at
exercise prices generally equal to the fair values of such stock at the dates of
grant, which generally become exercisable over a five-year vesting period and
expire within ten years of the grant dates. Under the 1993 Employee Incentive
Stock Option Plan, the 1998 Long-Term Incentive Plan, and the amended and
restated Nonemployee Director's Plan, the Company has authorized the grant of
options of up to 700,000, 300,000, and 396,000 shares of common stock,
respectively. As of December 31, 1999 and 1998, there were 383,000 and 569,000
shares of common stock reserved for future issuance under the Company's stock
option plans. A summary of stock option transactions under the plans follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Exercise Weighted Average
Shares Price Exercise Price
--------------- ----------------- ------------------------
Outstanding at December 31, 1996 708,000 $2.25-18.43 $7.36
Granted 201,000 10.25-15.88 11.97
Exercised (105,000) 2.25-7.50 2.85
Canceled (50,000) 2.25-16.75 10.06
---------------
Outstanding at December 31, 1997 754,000 3.00-18.43 8.95
Granted 331,000 12.00-17.13 15.48
Exercised (103,000) 3.12-10.25 4.80
Canceled (155,000) 3.12-18.43 16.03
---------------
Outstanding at December 31, 1998 827,000 3.00-17.13 10.73
Granted 335,000 11.88-17.13 13.86
Exercised (49,000) 3.00-10.25 3.66
Canceled (100,000) 10.25-17.13 16.94
---------------
Outstanding at December 31, 1999 1,013,000 $3.00-17.13 $11.49
===============
</TABLE>
19
<PAGE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
- - -------------------------------------------------------------------------- ---------------------------------
Weighted Average Weighted Weighted
Range of Exercise Remaining Average Average
Prices Number Contractual Life Exercise Number Exercise
Outstanding Price Exercisable Price
- - ------------------- ---------------- ---------------------- -------------- ------------------ --------------
$3.00-10.25 341,000 1.1 $6.26 284,000 $5.92
11.28-12.75 351,000 5.0 12.36 112,000 12.05
13.50-17.13 321,000 4.5 16.11 219,000 16.49
---------------- ------------------
$3.00-17.13 1,013,000 3.5 11.49 615,000 $10.79
================ ==================
</TABLE>
In September 1999, the Company granted options to a nonemployee to purchase
12,000 shares of common stock at an exercise price of $12.31 per share. In
connection with the issuance of these options, the Company recognized $60,000 as
deferred compensation for the estimated fair value of the options. Deferred
compensation is amortized ratably over the vesting period of the options.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations ("APB
25") in accounting for its employee stock options because, as discussed below,
the alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("Statement 123"), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of the grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. The fair values
for these options were estimated at the dates of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
----------------- ---------------- -----------------
Expected dividend yield 0% 0% 0%
Expected stock price volatility .540 .520 .533
Risk-free interest rate 5.78% 5.30% 5.75%
Expected life of options 3.6Years 3.8 Years 4.7 Years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
20
<PAGE>
For purposes of pro forma disclosures, the estimated fair values of the options
are amortized to expense over the options' vesting periods. The Company's pro
forma information follows (in thousands, except per share data):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---------------- ----------------- -----------------
Net income--as reported $4,451 $6,486 $4,725
Net income--pro forma $3,421 $5,705 $4,164
Earnings per share--as reported:
Basic $ 0.36 $ 0.54 $ 0.49
Dilutive $ 0.36 $ 0.53 $ 0.48
Earnings per share--pro forma:
Basic $ 0.28 $ 0.48 $ 0.43
Dilutive $ 0.27 $ 0.47 $ 0.42
</TABLE>
Other information concerning stock options follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---------------- ----------------- -----------------
Weighted average fair value of options granted
during the year $5.62 $6.54 $6.69
Number of shares as to which options are
exercisable at end of year 615,000 505,000 308,000
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect is not fully reflected until 1999.
10. Shareholder Rights Plan
On November 27, 1995 the Board of Directors adopted a shareholder rights plan to
protect long-term share value for the Company's shareholders. Under the plan,
the Board declared a distribution of one Right for each outstanding share of the
Company's Common Stock to shareholders of record on December 11, 1995.
Additionally, the Company has further authorized and directed the issuance of
one Right with respect to each Common Share that shall become outstanding
between December 11, 1995 and the earliest of the Right's exercise date or
expiration date. Each Right entitles the registered holder to purchase from the
Company one-tenth of a share of a newly created Series A Junior Participating
Preferred Stock at an exercise price of $100. The Rights, which expire on
November 27, 2005, may be exercised only if certain conditions are met, such as
the acquisition of 15% or more of the Company's Common Stock by a person or
affiliated group ("Acquiring Person").
In the event the Rights become exercisable, each Right will enable the owner,
other than the Acquiring Person, to purchase, at the Right's then current
exercise price, that number of shares of Common Stock with a market value equal
to twice the exercise price. In addition, unless the Acquiring Person owns more
than 50% of the outstanding shares of Common Stock, the Board of Directors may
elect to exchange all outstanding Rights (other than those owned by such
Acquiring Person) at an exchange ratio of one share of Common Stock, or
one-tenth of a Preferred Share, per Right.
11. Stock Repurchase
On October 14, 1998, the Company's Board of Directors authorized the Company to
purchase up to 1 million shares of its common stock. The purchase of shares will
be made from time -to time in open market or privately negotiated transactions
on such terms as management deems appropriate. As of December 31, 1999 and 1998,
the Company had purchased 721,000 and 343,000 shares, respectively, of its
common stock for an aggregate purchase price of $7,646,000 and $3,350,000,
respectively.
12. Employee Benefit Plans
The Company has a 401(k) savings plan (the "Plan") providing retirement benefits
to all employees who have completed at least six months of service. The Company
makes matching contributions of 50% of each participant's contribution up to 5%
of each participant's salary. Total company contributions approximated $351,000,
$241,000, and $139,000 for 1999, 1998, and 1997, respectively. Additionally, the
Company may make discretionary contributions to the Plan that are allocated to
each participant's account. No such discretionary contributions were made in
1999, 1998, or 1997.
On May 16, 1996 the Company's shareholders approved the CryoLife, Inc. Employee
Stock Purchase Plan (the "ESPP"). The ESPP allows eligible employees the right
to purchase common stock on a quarterly basis at the lower of 85% of the market
price at the beginning or end of each three-month offering period. As of
December 31, 1999 and 1998 there were 503,000 and 543,000, respectively, shares
of common stock reserved under the ESPP and there had been 97,000 and 57,000,
respectively, shares issued under the plan.
21
<PAGE>
13. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
-------------- ------------ ----------------
Numerator for basic and diluted earnings per share -- income
available to common shareholders $4,451 $6,486 $4,725
============== ============ ================
Denominator for basic earnings per share - weighted-average 12,341 11,974 9,642
basis
Effect of dilutive stock options 192 290 300
-------------- ------------ ----------------
Denominator for diluted earnings per share -- adjusted 12,533 12,264 9,942
weighted-average shares
============== ============ ================
Basic earnings per share $ 0.36 $ 0.54 $ 0.49
============== ============ ================
Diluted earnings per share $ 0.36 $ 0.53 $ 0.48
============== ============ ================
</TABLE>
14. Income Taxes
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
------------------ ----------------- ----------------
Current:
Federal $2,912 $3,854 $1,533
State 95 279 403
------------------ ----------------- ----------------
3,007 4,133 1,936
Deferred (957) (1,948) 972
------------------ ----------------- ----------------
$2,050 $2,185 $2,908
================== ================= ================
</TABLE>
Such amounts differ from the amounts computed by applying the U.S. federal
income tax rate of 34% to pretax income as a result of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
------------------ ----------------- ----------------
Tax expense at statutory rate $2,210 $2,947 $2,593
Increase (reduction) in income taxes
resulting from:
Change in valuation allowance for
deferred tax assets -- -- (30)
Entertainment expenses 47 90 42
State income taxes, net of federal 163 173 266
benefit
Nontaxable interest income (232) (63) --
Research and development credits (100) (585) --
State and local tax refunds -- (256) --
Other (38) (121) 37
------------------ ----------------- ----------------
$2,050 $2,185 $2,908
================== ================= ================
</TABLE>
22
<PAGE>
The tax effects of temporary differences which give rise to deferred tax
liabilities and assets at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---------------- -----------------
Long-term deferred tax assets (liabilities):
Impairment of IFM long-lived assets $993 $--
Intangible assets 579 547
Property (556) (1,537)
Deferred income -- 580
---------------- -----------------
1,016 (410)
Current deferred tax assets (liabilities):
Impairment of IFM inventory 634 --
Unrealized gain on marketable securities 403 (71)
Allowance for bad debts 201 97
Accrued expenses 98 872
Deferred income -- 394
Deferred preservation costs and inventory reserves 57 20
Other (27) 36
---------------- -----------------
1,366 1,348
---------------- -----------------
Net deferred tax assets $2,382 $938
================ =================
</TABLE>
At December 31, 1999, the Company has recorded a net deferred tax asset of $2.4
million. Realization of the net deferred tax asset is dependent on generating
sufficient taxable income in future periods. Although realization is not
ensured, management believes that it is more likely than not that the deferred
tax asset will be realized.
15. Executive Insurance Plan
Pursuant to a supplemental life insurance program for certain executive officers
of the Company, the Company and the executives share in the premium payments and
ownership of insurance policies on the lives of such executives. The Company's
aggregate premium contributions under this program were $33,000, $43,000, and
$38,000 for 1999, 1998, and 1997, respectively.
16. Equipment on Loan to Implanting Hospitals
The Company consigns liquid nitrogen freezers with certain implanting hospitals
for tissue storage. The freezers are the property of the Company. At December
31, 1999 freezers with a total cost of approximately $1.8 million and related
accumulated depreciation of approximately $1.0 million were located at the
implanting hospitals' premises. Depreciation is provided over the estimated
useful lives of the freezers on a straight-line basis.
17. Transactions with Related Parties
The Company expensed $60,000, $68,000, and $65,000 during 1999, 1998, and 1997,
respectively, relating to services performed by a law firm whose sole proprietor
is a member of the Company's Board of Directors and a shareholder of the
Company. The Company expensed $64,000 and $75,000 in 1999 and 1998,
respectively, relating to consulting services performed by a member of the
Company's Board of Directors and a shareholder of the Company. The Company
expensed $195,000, $210,000, and $175,000 in 1999, 1998, and 1997, respectively,
relating to consulting services performed by a shareholder of the Company.
23
<PAGE>
SELECTED QUARTERLY FINANCIAL INFORMATION
(In thousands except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- - ------------------------------------------- ----------- ------------ ----------- ----------- -----------
REVENUES Year First Second Third Fourth
Quarter Quarter Quarter Quarter
- - ------------------------------------------- ----------- ------------ ----------- ----------- -----------
1999 $16,325 $17,395 $16,529 $16,473
1998 14,561 15,554 16,014 14,562
1997 10,413 12,723 14,641 13,092
NET INCOME
- - ------------------------------------------- ----------- ------------ ----------- ----------- -----------
1999 $1,380 $1,727 $1,714 $ (370)
1998 1,172 2,048 1,902 1,364
1997 952 1,160 1,458 $1,155
EARNINGS PER SHARE - DILUTED1,2
- - ------------------------------------------- ----------- ------------ ----------- ----------- -----------
1999 $0.11 $0.14 $0.14 $ (0.03)
1998 0.12 0.16 0.15 0.11
1997 0.10 0.12 0.15 0.12
</TABLE>
1 Reflects adjustment for the 2-for-1 stock split effected June 28, 1996.
2 Presented, and where appropriate, restated to conform to Statement
128 requirements.
24
EXHIBIT 21.1
SUBSIDIARIES OF CRYOLIFE, INC.
Subsidiary Jurisdiction
- - ----------- -------------
Ideas for Medicine, Inc. Florida
CryoLife Technology, Inc. Nevada
CryoLife Foreign Sales, Inc. Barbados
CryoLife Europa, LTD. United Kingdom
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated February 7, 2000, appearing on pages 8 of
Exhibit 13.1 and S-1 of this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-83996, 33-84048, 333-03513, 333-75535
333-59853, 333-59849, 333-06141, and 333-34025.
ARTHUR ANDERSEN, LLP
Atlanta, Georgia
March 27, 2000
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 2, 1999, with respect to the
consolidated financial statements of CryoLife, Inc. for the two years ended
December 31, 1998, included in this Annual Report (Form 10-K).
Our audits also included the financial statement schedule of CryoLife, Inc.
listed in Item 14(a) for each of the years in the period ended December 31,
1998. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, as
of the date of our report referred to in the preceding paragraph, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein for each of the years in the period ended
December 31, 1998.
We also consent to the incorporation by reference in Registration Statements No.
33-83996, 33-84048, 333-03513, 333-59853, 333-59849, 333-06141, 333-75535, and
333-34025, of our report dated February 2, 1999, with respect to the
consolidated financial statements and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of CryoLife, Inc. for the year ended December 31,
1999.
Atlanta, Georgia /s/ Ernst & Young, LLP
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CRYOLIFE, INC. FOR THE YEAR ENDED DECEMBER 31, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000784199
<NAME> CRYOLIFE, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,128,000
<SECURITIES> 24,403,000
<RECEIVABLES> 11,694,000
<ALLOWANCES> 528,000
<INVENTORY> 4,597,000
<CURRENT-ASSETS> 67,550,000
<PP&E> 30,517,000
<DEPRECIATION> 11,843,000
<TOTAL-ASSETS> 94,025,000
<CURRENT-LIABILITIES> 7,622,000
<BONDS> 6,644,000
0
0
<COMMON> 134,000
<OTHER-SE> 80,092,000
<TOTAL-LIABILITY-AND-EQUITY> 94,025,000
<SALES> 6,329,000
<TOTAL-REVENUES> 66,722,000
<CGS> 5,754,000
<TOTAL-COSTS> 30,170,000
<OTHER-EXPENSES> 30,051,000
<LOSS-PROVISION> 121,000
<INTEREST-EXPENSE> 387,000
<INCOME-PRETAX> 6,501,000
<INCOME-TAX> 2,050,000
<INCOME-CONTINUING> 4,451,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,451,000
<EPS-BASIC> .36
<EPS-DILUTED> .36
</TABLE>
