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, 1996
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 0-21104
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 on
Title of each class which registered
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 $77,208,000 at March 18, 1997 (7,720,772 shares).
The number of common shares outstanding at March 18, 1997 was 9,585,808
(exclusive of treasury shares).
PART I
ITEM 1. BUSINESS.
OVERVIEW
CryoLife, Inc. (the "Company") is a leader in the development and
commercialization of technology for cryopreservation of viable human
cardiovascular, vascular and orthopaedic tissues for transplant. The Company was
organized in 1984 to address market opportunities in the area of biological
implantable devices and materials, and it is today the dominant provider of
cryopreservation services for viable human heart valves. Based on clinical
studies, management believes transplanted human tissues may offer, depending on
the particular tissue and application, certain advantages over mechanical,
synthetic, or animal-derived alternatives, including more natural functionality,
elimination of the need for anticoagulant therapy, reduced incidence of
reoperation, and reduced risk of catastrophic failure, thromboembolism (stroke),
or calcification.
The Company uses proprietary or patented processes to disinfect, preserve,
store, and transport human heart valves, veins, and connective tissues for use
in cardiac, vascular, and orthopaedic surgeries. Tissue preserved using the
Company's proprietary cryogenic processes can be stored for extended periods of
time and retains cell viability when properly thawed for implantation into human
recipients. Tissue is procured from deceased human donors by organ procurement
agencies and tissue banks (most of which are not-for-profit), which consign the
tissue to the Company for processing and preservation. After preservation,
tissue is stored by the Company or delivered directly to hospitals at the
implanting physician's request. The Company charges a fee for performing its
services but does not buy or sell human tissue.
STRATEGY
The Company is becoming active in the development and acquisition of new
technologies that do not require donated human tissue and are therefore not
dependent upon the availability of human tissue. The Company's acquisition in
1992 of distribution rights for certain porcine heart valves was the first
addition of a product that did not require donated human tissue. In March 1997,
the Company acquired Ideas for Medicine ("IFM"), a medical device company
specializing in the manufacture and design of endarterectomy surgical
instruments, intravascular shunts, infusion ports, accessories utilized in
laparoscopic procedures and a wide range of single and dual lumen balloon
catherters. Products and applications currently under development, some of which
are based on acquired or licensed technologies, are a surgical bio-adhesive
based on a derivative of the human blood factor fibrinogen, a surgical
bio-adhesive based on blood protein and a cross linking agent, and a process for
transplanting human cells onto the structure of non-viable animal tissue.
RECENT DEVELOPMENTS
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 vein for transplant. The
acquisition provided the tissue bank clients of UCFI with access to the
Company's advanced cryopreservation technology for human tissue.
On October 30, 1996 the Company purchased the patent for an advanced-design
stentless pulmonary porcine heart valve developed by English heart surgeon,
Donald N. Ross, D.Sc., F.R.C.S. (Doctor of Science, Fellow Royal College of
Surgeons). The Ross pulmonary porcine valve was designed for heart valve
replacement surgery for correcting cardiac valve anomalies in children.
As noted above, the Company acquired IFM in March 1997. The Company will
apply its comprehensive quality assurance program to the manufacturing process
of IFM and will endeavor to follow good manufacturing processes based on FDA
standards. The Company intends to use its existing distribution channels to
market IFM's vascular access products while maintaining IFM's existing
distribution channels for IFM's non-vascular products. The Company contracts
with third parties to sterilize products connected with the IFM acquisition and
believes that it is in compliance with the United States Environmental
Protection Agency and its regulations. IFM currently employs approximately 100
individuals, none of which are represented by unions. Management believes that
its relations with its employees are good.
MARKETS
Cardiac Surgery. Based on clinical studies, management believes
cryopreserved human heart valves have characteristics that make them one of the
preferred replacement alternatives for children. They are also indicated for
patients with bacterial endocarditis and women in their child-bearing years.
Cryopreserved human heart valves do not require postoperative anticoagulant
therapy, which could interfere with a normal pregnancy, or have a catastrophic
failure, as do some mechanical valves. In addition, based on clinical studies,
management believes human heart valves are more durable than porcine valves.
Cryopreserved human heart valves also have good flow characteristics, which
provide an advantage when treating children.
Vascular Surgery. The vascular surgery market addressed by the Company
involves coronary bypass and peripheral revascularization surgeries, both of
which require small diameter (4 to 6 mm) conduits. Failure to bypass or
revascularize an obstruction in such cases may result in death or the loss of a
limb.
The Company cryopreserves saphenous veins for use in coronary bypass and
revascularization surgeries. In such surgeries, physicians prefer to use the
patient's own vein tissue and consider using cryopreserved veins or synthetic
veins only when the patient does not have suitable vein tissue available.
Synthetic veins in such small diameters are currently not a suitable
alternative. The patient may not have suitable vein tissue available because of
a previous coronary bypass or other vascular surgery, or such tissue may be
unsuitable due to injury or disease. Based on a market report commissioned by
the Company, management believes that the patient's own vein tissue is available
in all but a very small percentage of these surgeries and that cryopreserved
veins may provide an alternative treatment when the patient's own veins are not
available.
In analyzing alternative treatments, physicians generally focus on the
patency (openness to the flow of blood) of available vein tissue, given the
position of implantation, flow characteristics, and other factors. If a
physician believes that a vein graft will retain patency for a relatively short
period, the physician may conclude that the risks of surgery outweigh any
potential benefits. Thus, physicians may recommend amputation over
revascularization using cryopreserved veins. At this time, there are no
long-term clinical data that establish a reliable minimum patency rate for
cryopreserved veins, and patency is not easily measured in asymptomatic
patients. In order to achieve wider acceptance of its cryopreserved veins, the
Company believes that clinical data establishing the efficacy and patency of
cryopreserved veins must be generated and that physicians must be educated to
consider the use of cryopreserved veins to save limbs even in the absence of
definitive patency data. There can be no assurance that clinical data will
establish acceptable patency rates for cryopreserved veins sufficient to make
the use of such vein tissue an accepted alternative to amputation. In addition,
Medicare patients account for most below-the-knee vascular procedures, and fixed
fee payments for these patients do not specifically incorporate cryopreserved
veins.
Also, in 1996, the Company began a program for the recovery and
cryopreservation of human superficial femoral veins. This program is important
for patients suffering from chronic venous insufficiency, a condition where the
blood supply through the superficial veins in the legs is severely reduced.
Prior to the introduction of CryoLife's cryopreserved veins, patients suffering
with this ailment were restricted to drug or compression therapy.
Orthopaedic Surgery (Sports Medicine). The orthopaedic surgery market
addressed by the Company involves surgical replacements of the meniscus and the
anterior and posterior cruciate ligaments. The Company is currently focusing its
cryopreservation efforts in this area to menisci, anterior cruciate ligaments,
and patellar tendons, which are available for use as replacement tissue in
surgeries involving the knee.
Meniscal insufficiency increases the risk of premature knee degeneration
and arthritis. Management believes the Company is the only provider of
cryopreserved menisci tissue and that there are no synthetic menisci on the
market. When a patient has a damaged meniscus, the present surgical alternatives
are to repair, partially remove, or completely remove the patient's meniscus,
with partial removal being the most common procedure. Management believes its
cryopreserved menisci offer physicians an alternative treatment option in such
surgeries.
SERVICES AND PRODUCTS
Preservation Services. The transplant of human tissue that has not been
preserved must be accomplished in extremely short time frames (not to exceed
eight hours for transplants of the human heart). The application by the Company
of its preservation and other processes to donated tissue expands the amount of
human tissue available to physicians for transplantation. It also expands the
treatment options available to physicians and their patients by offering
alternatives to implantable mechanical devices and animal tissues. The tissues
presently cryopreserved by the Company include human heart valves, veins, and
connective tissues of the knee, and, outside the United States, processed
porcine heart valves.
Human Heart Valves. The Company's primary business is the cryopreservation
of human heart valves for use in cardiac reconstructive surgery and heart valve
replacement. Based on its discussions with physicians and data contained in
published reports of clinical studies, management believes that the Company's
success in the allograft heart valve market is due in part to physicians'
recognition of the durability and good blood flow characteristics of the
Company's cryopreserved tissues. The Company first made its cryogenically
preserved human heart valves available to physicians in 1984. Company revenues
attributable to human heart valve preservation in 1994, 1995, and 1996 were
$16.7 million, $19.7 million, and $24.8 million, respectively, accounting for
70%, 67%, and 67% respectively, of the Company's total revenues during those
years.
Veins. The Company cryopreserves human saphenous and superficial femoral
veins for use in vascular surgeries that require small diameter conduits, such
as coronary bypass surgery and below-the-knee vascular reconstructions. The
Company first made its cryogenically preserved saphenous veins available to
physicians in 1986, utilizing technology licensed from a third party. Company
revenues attributable to vein preservation in 1994, 1995, and 1996 were $5.5
million, $6.8 million, and $8.2 million, respectively, accounting for 23%, 23%,
and 22% respectively, of the Company's total revenues during those years.
Connective Tissue. The Company entered the growing field of sports medicine
in 1990 with the introduction of cryopreserved orthopaedic tissues, including
the meniscus, anterior and posterior cruciate ligaments, and patellar tendon,
which are connective tissues critical to the proper operation of the human knee.
Human menisci cryopreserved by the Company provide orthopaedic surgeons with a
new alternative treatment in cases where a patient's meniscus must be completely
removed. Ligaments and tendons cryopreserved by the Company are used for the
reconstruction of the ligaments and tendons within and about the knee in cases
where such ligaments and tendons must be completely removed.
Company revenues attributable to connective tissue preservation in 1994,
1995, and 1996 were $593,000, $1.5 million, and $3.4 million, respectively,
accounting for 2%, 5%, and 9%, respectively, of the Company's total revenues
during each of those years. Based on its experience with human heart valves,
management believes that, as the body of clinical data builds regarding the
efficacy of using cryopreserved orthopaedic tissues, the use of such tissues
will increase, although there can be no assurance that this will be the case.
Porcine Heart Valves. In July, 1992, in order to improve its competitive
position in the cardiac reconstructive surgery market, the Company acquired
exclusive, worldwide distributor rights to certain low pressure, gluteraldehyde
fixed porcine aortic and mitral heart valves processed by Bravo Cardiovascular,
Inc. ("Bravo"). Marketing efforts for the porcine heart valves were hindered
during 1994 and 1995 by legal actions between the Company and Bravo. In February
1995, the Company and Bravo reached an agreement to settle their differences
whereby the Company obtained ownership of the trademarks, trade secrets, and
technology of the stentless porcine heart valves and Bravo retained the same for
the stented porcine heart valves. Sales of the stentless porcine valves in 1994,
1995, and 1996 were $268,000 $263,000, and $385,000, respectively. Stented
porcine valve sales totaled $146,000 in 1994. Accordingly, total Company
revenues attributable to porcine heart valve sales in 1994, 1995, and 1996 were
$414,000, $263,000, and $385,000 respectively, accounting for 2%, 1%, and 1%,
respectively, of the Company's total revenues during those years.
The Company will concentrate marketing efforts for the stentless porcine
heart valve in Europe where it has been approved for sale in certain countries.
During December 1995, the Company obtained CE Mark Certification for the
stentless porcine heart valves and ISO 9001 Certification, a European quality
standards system, for its tissue processing laboratory. Management believes that
CE Mark Certification and ISO 9001 Certification will help the Company gain
entry and approval for its porcine heart valves in the European community. The
Company will also investigate the process for IDE and PMA approval of stentless
porcine heart valves in the United States in 1998.
OPERATIONS
The Company's cryopreservation process involves the procurement of tissue
from deceased human donors, the timely and controlled delivery of such tissue 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.
Procurement of Tissue. Tissue is procured from deceased human donors by
organ procurement agencies. 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 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.
Each procurement agency procuring tissue for the Company is given a
protocol that describes the techniques required by the Company for dissection
and packaging of the tissue. The tissue is transported to the Company's
laboratory in Kennesaw, Georgia, in containers provided by the Company 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.
Although the Company is developing or has acquired rights to some products
that are not supply constrained, such as the stentless Bravo porcine valves,
SynerGraft(R) and the product line acquired in the IFM acquisition, the
Company's business depends on the availability of sufficient quantities of
tissue from human donors. Over the past several years, the procurement of human
tissue by the Company has been increasing; however, there is no assurance that
the trend will continue. The Company must rely primarily on the efforts of third
party procurement agencies (most of which are not-for-profit) and others to
educate the public and foster an increased willingness to donate tissue. The
inability to obtain sufficient supplies of human tissue could have a material
adverse effect on the Company's business.
Preservation of Tissue. Upon receiving the tissue, a Company technician
completes the documentation control for the tissue prepared by the procurement
agency and gives it a control/inventory number. The documentation identifies,
among other things, donor age, blood type, and cause of death. A trained
technician then removes from the delivered tissue the portion or portions of the
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 Company's comprehensive quality
assurance program. This program may identify characteristics which would
disqualify the tissue for cryopreservation.
Preserved human heart valves, veins, and connective tissues are then frozen
in a controlled freezing process conducted according to strict Company
protocols. After the freezing process, the specimens are transferred to liquid
nitrogen freezers for long-term storage at temperatures below -190 C. The entire
cryopreservation process is rigidly controlled by guidelines established by the
Company.
Shipment of Tissue to Implanting Physicians. After preservation, tissue is
stored by the Company or is delivered directly to hospitals at the implanting
physician's request. Cryopreserved tissue is packaged for shipping 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. The Company will store tissue for up to 90 days at no charge.
Thereafter, there is a nominal monthly charge. After the Company ships the
tissue to the hospital, the Company invoices the institution for its services,
the procurement fee, and shipping costs.
The Company encourages hospitals to accept the cryopreserved tissue back
quickly by providing Company-owned liquid nitrogen freezers to client hospitals
without charge. 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 improves the Company's cash
flow.
QUALITY ASSURANCE
The Company employs a comprehensive quality assurance program in all of its
tissue processing activities. The Company endeavors to follow good manufacturing
processes ("GMPs"), based on FDA standards, to assure the consistency of the
Company's processing and cryopreservation operations. 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. A
trained technician then removes samples from the delivered tissue upon which
serial cultures are performed to identify any disease or fungal growth. 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 removal of the tissue to be
preserved, a separate disinfection procedure is begun during which the removed
tissue is treated with proprietary antibiotic solutions.
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 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.
RESEARCH AND DEVELOPMENT
The Company's preservation service efforts have been directed toward tissue
transplant opportunities in the medical specialties of cardiac, vascular and
orthopaedic surgery. The company seeks to identify medical market areas that can
benefit from its expertise in biochemistry and cell biology in order to develop
innovative techniques and biological products for the cardiac, vascular and
orthopaedic reconstructive surgery fields.
Additionally, the Company seeks to expand the Company's implantable product
lines and laboratory service business to include biological products that are
not dependent upon the availability of human tissue. The Company is currently in
the process of developing or investigating the development of several
technologies and products, several of which are licensed by the Company pursuant
to exclusive license agreements from third parties, to expand the Company's
service and product offerings, including the following:
o FibRx(R) - The Company is developing a surgical bio-adhesive
based on a derivative of the human blood factor fibrinogen. This
technology creates a stable and unique delivery method for fibrin
adhesive to be used in a variety of surgical applications, which, if
successful, may control bleeding and assist in positioning tissue at
wound sites during and after surgery. FibRx is progressing through
animal trials and is presently undergoing toxicology validation
procedures mandated by the FDA prior to the approval for human clinical
trials.
o BioGlue(R) - Surgical bio-adhesive. This technology creates
a surgical bio-adhesive based on a derivative of blood protein and a
cross linking agent. Management believes that this adhesive may be
stronger than FibRx. BioGlue is currently preparing through animal and
toxicity evaluation. In addition, the Company's emphasis with respect
to its BioGlue product continues to undergo modification regarding
delivery mechanism and evaluation of its key components and intended
application. During March 1996, the Company acquired the technology
underlying the BioGlue.
o SynerGraft(R) - The Company is developing a process for
transplanting human cells onto the structure of a non-viable animal
tissue. This technology, which has demonstrated feasibility in animal
trials, may avoid donor supply constraints associated with human
tissue. The technology underlying the SynerGraft project was licensed
by the Company pursuant to an exclusive, worldwide license agreement.
Under the agreement, the licensor retains title to such technology and
any patents and patent applications relating thereto.
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. Historically, the Company has allocated a
significant portion of its revenues to research and development. In 1994, 1995
and 1996 the Company expended approximately $2.0 million, $2.6 million and $2.8
million, respectively, on research and development activities on new and
existing products. These amounts represented approximately 8%, 9% and 7.5%,
respectively, of the Company's revenues for those years. The Company's research
and development program is overseen by its medical and scientific advisory
boards. The Company's animal 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.
DISTRIBUTION
Cryopreserved tissues do not lend themselves to the traditional medical
products distribution systems and are subject to governmental regulations that
forbid the purchase or sale of human organs. Also, cryopreserved tissue must be
transported under stringent handling conditions and maintained within specific
temperature tolerances at all times. The Company utilizes proprietary shipping
containers for transporting tissue to implanting surgeons.
Trained field support personnel provide back-up and support to implanting
institutions and surgeons. The Company currently has approximately 98
independent technical service representatives and sub-representatives, as well
as 23 technical service representatives who are Company employees, who provide
field support. Some of these representatives are independent contractors who
visit physicians to explain the use of the Company's cryopreserved tissues and
to answer questions that doctors may have regarding the Company's products and
services. These representatives receive fees based on service fees received by
the Company that are attributable to physicians in their territory.
GOVERNMENT REGULATION
FDA Regulation--General. Because human heart valves are, and other Company
products may be, 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 United States Food and Drug
Administration ("FDA") regulates the distribution, manufacture, labeling, and
promotion of medical devices in the United States. In addition, various foreign
countries in which the Company's products are or may be distributed impose
additional regulatory requirements.
The FDCA provides that, unless exempted by regulation, medical devices may
not be commercially distributed in the United States 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 exemptions from the premarket approval process
for investigational devices ("IDEs"), which authorize 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. Patients must give informed consent to be treated
with an investigational device. The device may not be advertised, or otherwise
promoted, and the charges that may be made for the device may be limited.
Unexpected adverse experiences must be reported to the FDA.
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 GMPs, which require that companies
manufacture their products and maintain their documents in a prescribed manner
with respect to manufacturing, testing, and quality control activities. The
FDA's medical device reporting 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 life-sustaining or
implantable devices, 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 United States have FDA approval before
they are exported.
The FDA inspects medical device manufacturers and distributors, and has
broad authority to order recalls of medical devices, to seize noncomplying
medical devices, to enjoin and/or to impose civil penalties on manufacturers and
distributors marketing non-complying medical devices, and to criminally
prosecute violators.
FDA Regulation--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 "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
a Class II Medical Device and has removed them from clinical trial status. It
also allows the Company to distribute such valves to cardiovascular surgeons
throughout the United States.
FDA Regulation--Other Tissue. Other than human and porcine heart valves,
none of the Company's other products or services is currently subject to
regulation as a medical device 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. On December 14, 1993 the FDA promulgated
an interim rule to require certain infectious disease testing, donor screening,
and record keeping with respect to human tissue held by tissue banks and
establishments engaged in the recovery, processing, storage or distribution of
banked human tissue. There are certain exemptions to this interim rule,
including an exemption for human tissue that is regulated as a human drug,
biological product or medical device. This rule applies to the veins and
connective tissue that are currently processed by the Company. 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, 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, Congress is expected to consider
legislation that would regulate human tissue for transplant. Such legislation
could have a material adverse effect on the Company.
FDA Regulation--Porcine Valves. Porcine heart valves are Class III medical
devices, and FDA approval is required prior to commercial distribution of such
valves in the United States. The porcine heart valves currently held by the
Company have not been approved by the FDA for commercial distribution in the
United States and may be distributed from the United States to foreign countries
only if FDA export approval is obtained.
FDA Regulation--IFM. The products offered by IFM are regulated as Class I
and Class II medical devices by the FDA.
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, FibRx, BioGlue). Some may be medical devices; others may be
drugs or biological products. Regulation of drugs and biological products is
substantially similar to medical device regulation as described above. Obtaining
FDA approval or clearance 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 assurances, 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 under Georgia law. The Company has such a
license, and the Company believes it is in compliance with applicable Georgia
regulations relating to clinical laboratories which procure, store, or process
human tissue designed to be used for medical purposes in human beings. There can
be no assurances, 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 certain licenses as
required.
COMPETITION
The Company faces competition from non-profit tissue banks that
cryopreserve human tissue, as well as companies that market mechanical valves
and synthetic and animal tissue for implantation. Many established companies,
some with resources greater than those of the Company, are engaged in
manufacturing alternatives to preserved human tissue. Based on its interviews
with physicians and its experience to date, management believes that, as
compared to other entities that cryopreserve human tissue, the Company competes
on the basis of technology, customer service and quality assurance. As compared
to mechanical valves or synthetic or animal tissue, management believes that the
Company's cryopreserved human heart valves compete on the factors set forth
above, as well as by providing a tissue that is one of the preferred replacement
alternatives 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 bacterial endocarditis. Although
tissue cryopreserved by the Company is initially higher priced than are porcine
and mechanical alternatives, the mechanical alternatives typically require that
the patient take daily doses of anticoagulants for the lifetime of the implant.
As a result of the costs associated with anticoagulants, mechanical valves are
generally, over the life of the implant, more expensive than the Company's
cryopreserved tissue. Notwithstanding the foregoing, management believes that,
to date, price has not been a significant competitive factor.
For each procedure that may utilize other human tissue the Company
preserves, there generally 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 for reimplantation. 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 preserved by the
Company.
Heart Valves. Alternatives to the Company's cryopreserved human heart
valves include mechanical valves and processed porcine and bovine (cow) valves.
St. Jude Medical, Inc. is dominant in the mechanical heart valve market, and a
division of Baxter International Inc. is dominant in the porcine heart valve
market. In addition, management believes that at least four tissue banks offer
cryopreservation services for human heart valves in competition with the
Company.
Veins. Synthetic alternatives to the Company's cryopreserved veins are
available primarily in medium and large diameters. Synthetic conduits in small
diameters are not a suitable alternative because they tend to occlude when
implanted. At present, management believes that one other tissue bank processes
human veins in competition with the Company. Other companies may enter this
market and compete with the Company in the future.
Connective Tissue. The Company's competition in the area of connective
tissue varies according to the tissue involved. Freeze dried and fresh frozen
human connective tissues and the Company's preserved ligaments and tendons
constitute the principal treatment alternatives to complete removal when the
repair or partial removal of damaged tissue is not possible. These alternative
allografts are distributed by distributors of Osteotech, Inc. and various tissue
banks, among others. Synthetic alternatives also exist for anterior cruciate
ligaments and patellar tendons. There are presently no processed or synthetic
alternatives to the Company's preserved menisci.
Porcine Heart Valves. The Company presently distributes its stentless
porcine heart valves only outside the United States. These porcine heart valves
compete with mechanical valves, human heart valves, and processed bovine valves.
The Company is aware of at least three other companies that offer stentless
porcine heart valves.
EDUCATION AND TECHNICAL SUPPORT
An important aspect of increasing the distribution of the Company's
cryopreservation services is educating physicians on the use of cryopreserved
tissue and on proper implantation techniques. The Company sponsors physician
training seminars where physicians teach other physicians the proper technique
for handling and implanting cryopreserved tissue. The Company also produces
educational videotapes for use by the physicians. The Company coordinates live
surgery demonstrations at various medical schools with patients selected by the
medical school. The medical facilities chosen for live surgery demonstrations
are selected in part based on their ability to broadcast the surgery to an
amphitheater of medical personnel by closed circuit television. The Company also
coordinates laboratory sessions that utilize animal tissue to duplicate 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 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. As with the
education of physicians, the Company 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 24-hour telephone support service.
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 United States 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.
PATENTS AND OTHER PROPRIETARY RIGHTS
The Company believes that its patents, trade secrets, and technology
licensing rights provide it with important competitive advantages. The Company
owns United States patents relating to its technology for human heart valve,
vein, and connective tissue preservation; tissue revitalization prior to
freezing; tissue transport; fibrin adhesive; organ storage solution; and
packaging. The Company has United States patents pending that relate to
alternative human heart valve processing methods, fibrin adhesive preparation,
stabilization of proteins for freeze drying, and vein and connective tissue
preservation. The Company also has exclusive licensing rights for technology
relating to light-sensitive enzyme inhibitors. The remaining duration of the
Company's patents ranges from 4 to 15 years, exclusive of any renewals thereof.
In 1985, the Company entered into an agreement with Medical University of
South Carolina and one of its employees, pursuant to which it agreed to
co-sponsor research regarding certain technologies relating to the
cryopreservation of vein tissue and acquired an option to license such
technologies. The University subsequently waived any rights it may have had in
respect of such technologies, and the Company and such employee (who
subsequently left the employ of the university) are now co-owners of certain
patents relating to such technologies. The Company pays such co-owner royalties
on "net revenues" derived from the cryopreservation of vein tissue.
ALT, the Company's logo, CryoGraft, CryoKids, CryoLife, CryoLife
International, CryoPak, CryoSafe, CryoValve, CryoValve-ALT, CryoVein, BioGlue,
FibRx and SynerGraft are registered trademarks of the Company, and
CryoLife-O'Brien is a trademark of the Company.
EMPLOYEES
The Company presently has approximately 315 employees, including those
employed at IFM. These employees include 13 persons with Ph.D. degrees or
higher. 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
GOVERNMENT REGULATION
The processing and distribution of the Company's human heart valves are
currently regulated as Class II medical devices by the U.S. Food and Drug
Administration ("FDA"), and are subject to significant regulatory requirements,
including current good manufacturing regulations (GMP) and record-keeping
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 impact the marketing of these products or could affect market demand for
these products.
Other allograft tissues processed and distributed by the Company are
currently regulated as "banked human tissue" under an interim rule promulgated
by the FDA pursuant to the Public Health Services Act. This interim rule
establishes requirements for donor testing and screening for human tissue and
record-keeping 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 premarket approval or product licensing requirements.
The Company's porcine heart valve products are classified as Class III
medical devices and have not been approved for distribution within the United
States. Distribution of these porcine heart valves within the European common
market is dependent upon the Company maintaining its CE Mark and ISO 9001
status. There can be no assurance that the Company will be able to obtain the
FDA approval which will be required to distribute its porcine heart valve
products in the United States or that it will be able to maintain its CE Mark or
ISO 9001 status.
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 and other regulatory
authorities normally involves clinical trials in humans and the preparation of
an extensive premarket approval 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
meet applicable regulatory criteria to receive the required approvals for
manufacturing and marketing. Delays in obtaining United States or foreign
approvals could result in substantial additional cost to the Company and
adversely affect the Company's competitive position.
The FDA may also place conditions on clearances 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.
Products marketed by the Company pursuant to FDA or foreign oversight or
approval are subject to pervasive and continuing regulation. In the United
States, devices and biologics must be manufactured in registered, and in the
case of biologics, licensed establishments and must be produced in accordance
with GMP 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.
In addition, the National Organ Transplant Act ("NOTA") prohibits the
acquisition or transfer of human organs for "valuable consideration" for use in
human transplantation. NOTA permits the payment of reasonable expenses
associated with the removal, transportation, processing, preservation, quality
control and storage of human organs. There can be no assurance, however, that
restrictive interpretations of NOTA will not be adopted in the future that will
call into question one or more aspects of the Company's methods of charging for
its preservation 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, and
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 adversely affect the Company's operations.
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 four 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. and Medtronic Inc. (mechanical valves) and a
division of Baxter International Inc. (porcine valves). Many of the Company's
competitors have greater financial, technical 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 continue 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. An
important factor in such competition may be the timing of market introduction of
competitive products. Accordingly, the relative speed with which the Company can
develop products, gain regulatory approval and reimbursement acceptance and
supply commercial quantities of the product to the market are expected to be
important competitive factors. In addition, the Company believes that the
primary competitive factors for its products include safety, efficacy, ease of
use, reliability, suitability for their specified uses in service and price. The
Company also believes that physician relationships are important competitive
factors.
LIMITED AVAILABILITY OF TISSUE
Although the Company is pursuing the development of products and services
that would not be constrained by tissue availability, such as its porcine heart
valves, biological glues, and the product line acquired from IFM, much of the
Company's current business depends upon the availability of sufficient
quantities of tissue from human donors. In particular, continuing limits on the
supply of donated heart tissue could restrict the Company to modest, if any,
growth in the number of human heart valves preserved by the Company. A
significant reduction in supplies of human tissue could have a material adverse
effect on the Company's business. 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 an increased 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 tissue gains acceptance, demand
for transplantable tissue will exceed the amount of tissue available from human
donors. While tissue availability is not currently a limiting factor for most
vein tissue and orthopedic tissues, rapid growth in these areas could ultimately
be limited by tissue availability, in addition to other factors.
UNCERTAINTIES REGARDING PRODUCTS IN DEVELOPMENT
The Company's porcine heart valve products are currently only offered for
sale outside of the United States. The porcine heart valves are subject to the
risk that the Company may be unable to obtain governmental approval necessary to
permit commercial distribution of these valves in the United States.
The Company's research and development efforts are time consuming and
expensive and there can be no assurance that these efforts will lead to
commercially successful products or services. Even the successful
commercialization of a new service or product in the medical industry can be
characterized by slow growth and high cost 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 human implants in order to gain community acceptance. With respect to the
Company's major products under development, FibRx(R) is progressing through
animal trials and is presently undergoing toxicology validation procedures
mandated by the FDA prior to the approval for human clinical trials, BioGlue(R)
is progressing through animal and toxicity evaluations, and SynerGraft(R) has
begun initial animal testing. In addition, the Company's emphasis with respect
to its BioGlue product in development continues to undergo modification
regarding delivery mechanisms and evaluation of its key components and their
intended applications. As a result of the foregoing, management cannot
effectively predict the duration or extent of, or whether any newly introduced
products will successfully complete, these initial stages, and as a result,
there is no guaranty that any of these products will ultimately be approved for
use on human tissue.
DEVELOPMENT PARTNERS
The Company's strategy for developing, testing and commercializing certain
of its products in development includes entering into collaborations with
academic institutions, corporate partners, licensors, licensees and others.
These collaborations potentially will provide access to technologies, technical
expertise and financial and other resources that might otherwise be unavailable
to the Company. The Company has entered into collaborations with various
institutions related to the development and testing of its tissue technologies.
Although the Company believes that its partners in these collaborations are
motivated to succeed in performing their contractual responsibilities, their
actual and timely success cannot be assured.
Furthermore, the Company anticipates that its future research and
development projects, including those with respect to its Synergraft and Bioglue
products under development, may require the assistance of third party
collaborators with respect to the provision of capital and know-how. There can
be no assurance, however, that the Company will be able to negotiate additional
collaborative agreements in the future on acceptable terms, if at all, or that
such collaborative arrangements will be successful. Failure to obtain and
successfully execute such arrangements in the future could increase the
Company's capital requirements to undertake research, development and marketing
of its proposed products. In addition the Company may encounter significant
delays in introducing its proposed products into certain markets or find that
the development, manufacture or sale of its proposed products in certain markets
is adversely affected by the absence of such collaborative agreements or the
failure of collaborative partners to perform their obligations in a timely
fashion.
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 would 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, licenses to which may
not be available to the Company. 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. Additionally, the Company
protects its proprietary technology 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.
UNCERTAINTIES REGARDING FUTURE HEALTH CARE REIMBURSEMENTS
Even though the Company does not receive payments directly from third party
healthcare payers, their reimbursement methods may impact demand for the
Company's cryopreserved tissue. The Company is unable to predict what changes
will be made in the reimbursement methods utilized by third party healthcare
payers or their effect on the Company. Changes in the reimbursement methods
utilized by third party healthcare payers, including Medicare, with respect to
cryopreserved tissues provided for implant by the Company and other Company
services and products, could have a material adverse effect on the Company.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products and services and there can be no assurance that adequate
third party coverage will be available for the Company to maintain price levels
sufficient for realization of an appropriate return on its investment in
developing new products. Government and other third party payers are
increasingly attempting to contain healthcare cost 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 payers for uses of the Company's new products and services,
market acceptance of these products could be adversely affected.
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 materially adversely affect the
Company's business, financial condition and results of operations.
ACQUISITIONS
The Company's growth strategy includes the consummation of strategic
acquisitions of other companies and products. The integration of such
acquisitions can require substantial efforts on the part of management and can
distract attention from the Company's core business. There can be no assurance
that the Company will be able to succesfully integrate the operations of any
such business, including IFM, nor can there be any assurance that the Company
will be able to successfully market IFM's medical devices, which represent a new
product line for the Company.
PRODUCT LIABILITY AND INSURANCE
The Company faces the inherent business risk of financial exposure to
product liability claims in the event that the use of tissue processed,
preserved or distributed by the Company results in personal injury or the
transmission of infectious disease. Although the Company has incurred minimal
losses due to product liability claims to date, there can be no assurance that
it will not incur such losses in the future. The Company currently maintains
product liability insurance in the aggregate amount of $14 million per
occurrence 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 demand for
the Company's services.
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. Any failure to
comply with such regulations could result in the imposition of penalties, fines
and sanctions which could have a material adverse effect on the Company's
business.
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 or cardiovascular 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 By-laws 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 stockholder rights plan adopted in 1995, the
Company has distributed a dividend of one right for each outstanding share of
Common Stock. 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.
SHARES ELIGIBLE FOR FUTURE SALE
Substantially all of the Company's outstanding Common Stock is available
for sale in the public marketplace. There are also outstanding stock options to
purchase an aggregate of approximately 708,000 shares of Common Stock at various
exercise prices per share. The majority of the shares to be received upon
exercise of these options will be available for immediate resale in the public
markets. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. The possibility exists that
substantial amounts of Common Stock may be sold in the public market, which may
adversely effect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
ABSENCE OF DIVIDENDS
The Company has not paid and does not presently intend to pay cash
dividends. It is not likely that any cash dividends will be paid in the
foreseeable future.
ITEM 2. PROPERTIES.
The Company's facilities are located in suburban Atlanta, Georgia, and
consist of three facilities totaling approximately 130,000 square feet of leased
office and laboratory space. Approximately 17,500 square feet are dedicated to
laboratory space. The primary laboratory facilities (excluding the Bio-Adhesive
laboratory) currently contain three main operating areas: Cryopreserved Tissue
Processing, Research and Development, and Microbiology. Each laboratory consists
of a general work area and adjoining "clean rooms" for work with human tissue or
in sterile processing. The clean rooms are designed to provide a near sterile
environment. The Cryopreserved Tissue Laboratory contains approximately 7,700
square feet with a suite of seven 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 Bio-Adhesive 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 a suite of three clean rooms.
ITEM 3. LEGAL PROCEEDINGS.
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
Inapplicable.
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 stockholders 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, offices with the
Registrant, and the dates from which they have continually served in their
present offices with the Registrant.
Date First Elected to
Present Office
Name Age Office With Registrant
Steven G. Anderson 58 Chairman of the Board of Directors, President February, 1984
and Chief Executive Officer
Robert T. McNally, Ph.D. 49 Senior Vice President, Clinical Research June, 1984
Albert E. Heacox, Ph.D. 46 Vice President, Laboratory Operations June, 1985
Gerald B. Seery 40 Vice President, Marketing August, 1995
Ronald D. McCall, Esq. 60 Director, Secretary and Treasurer January, 1984
Edwin B. Cordell, Jr., CPA 38 Vice President and Chief Financial Officer December, 1994
James C. Vander Wyk, Ph.D. 52 Vice President, Regulatory Affairs and February, 1996
Quality Assurance
Kirby S. Black, Ph.D. 42 Vice President, Research and Development July, 1995
Steven G. Anderson, a founder of the Company, has served as the Company's
President, Chairman of the Board, and Chief Executive Officer since its
inception. Mr. Anderson has 30 years of experience in the implantable medical
device industry. Prior to joining the Company, Mr. Anderson was Senior Executive
Vice President of Intermedics, Inc., a manufacturer and distributor of
pacemakers and other medical devices. Mr. Anderson has a B.A. from the
University of Minnesota.
Robert T. McNally, Ph.D., a founder of the Company, served as Vice
President, Clinical Research from June, 1984, until September, 1991, when he was
promoted to his current position, Senior Vice President, Clinical Research. Dr.
McNally has been responsible for clinical research and development, which
includes all testing of the Company's processes and services, supervision of new
product development, and oversight of all regulatory affairs. Prior to joining
the Company, Dr. McNally was employed as Regional Manager-Europe by Intermedics
International, Inc., which markets pacemakers and other medical devices. Dr.
McNally has a Ph.D. in bioengineering from the University of Pennsylvania, an
M.S.E. in biomedical electronic engineering from the University of Pennsylvania,
and a B.E.E. in electrical engineering from Villanova University.
Albert E. Heacox, Ph.D. has served as Vice President, Laboratory Operations
since June, 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, he 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 his
Ph.D. in Biology from Washington State University in 1980. He completed his
post-doctorate training in cell biology at the University of Cologne, West
Germany in 1981.
Gerald B. Seery joined the Company in 1993 as Director, Vascular Marketing.
In August, 1995 he was promoted to the position of Vice President of Marketing.
Mr. Seery is responsible for developing and implementing the Company's marketing
plans and supervising all tissue procurement activities. Prior to joining the
Company, Mr. Seery held senior marketing management positions with Meadox
Medical, Electro Catheter Corporation and Daig Corporation, accumulating some
sixteen years specialized marketing experience in cardiovascular medical
devices. Mr. Seery received a Bachelor of Arts degree in international economics
at The Catholic University of America in Washington D.C. in 1978 and completed
his Masters of Business Administration at Columbia University in New York in
1980.
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. He has a juris doctor degree from the University of Florida.
Edwin B. Cordell, Jr., CPA was appointed as Vice President and Chief
Financial Officer of the Company in November, 1994. From August, 1987 to
November, 1994, he served as Controller and Chief Financial Officer of Video
Display Corporation, a cathode ray tube remanufacturing and distribution
company. Mr. Cordell graduated from the University of Tennessee with a B.S. in
Accounting.
James C. Vander Wyk, Ph.D. was appointed as Vice President, Regulatory
Affairs and Quality Assurance of the Company in February 1996. Prior to that, he
held senior management positions at Schneider (USA), Inc., Pharmacia Deltec,
Inc. and Delmed, Inc. gaining some sixteen years experience in Regulatory
Affairs and Quality Assurance. Dr. Vander Wyk received his B.S. in Pharmacy from
the Massachusetts College of Pharmacy and his Ph.D. in Microbiology from the
University of Massachusetts. He performed his NIH Postdoctoral Fellowship at the
University of Illinois.
Kirby S. Black was appointed as Vice President of Research and Development
in July 1995. Dr. Black is responsible for new product research and development.
Prior to joining the Company, Dr. Black was Director, Medical Information and
Project Leader at Advanced Tissue Sciences, La Jolla, 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 holds a B.S. degree from the University of California, Los
Angeles, and a Ph.D. degree from the University of California at Irvine.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The following information contained in the 1996 Annual Report to
Stockholders is incorporated herein by reference: information concerning stock
prices on page 22. CryoLife, Inc. common stock is traded on The Nasdaq Stock
Market under the Symbol CRYL. As of March 14, 1997 the Company had 384
shareholders of record and approximately 6,000 benficial owners, including
shares held in brokerage accounts. CryoLife, Inc. has not paid any cash
dividends on its common stock and has no present plans to pay cash dividends in
the near future.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data on page 23 of the 1996 Annual Report to
Stockholders are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations included on pages 4 through 9 of the 1996 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements and supplementary data of
the Company included in the 1996 Annual Report to Stockholders, are incorporated
herein by reference.
Financial Statements:
Consolidated Statements of Income for each of the three years
in the period ended December 31, 1996, page 12.
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 1996, page
14.
Consolidated Balance Sheets as of December 31, 1996 and 1995,
pages 10 through 11.
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1996, page 13.
Notes to Consolidated Financial Statements, pages 15 through
21.
Independent Auditors' Report, page 22.
Supplementary Data:
Selected Financial Information and Selected Quarterly
Financial Information, page 23.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Effective April 17, 1996, the Audit Committee of the Board of Directors of
Registrant engaged the accounting firm of Ernst & Young LLP as independent
auditors for the Registrant to replace the firm of KPMG Peat Marwick LLP, which
was terminated by Registrant's Audit Committee effective that date.
There were no disagreements between Registrant and KPMG Peat Marwick LLP in
connection with the audits of the two most recent fiscal years ended December
31, 1995, or any subsequent interim period, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused KPMG Peat Marwick LLP to make reference in connection with their reports
to the subject matter of the disagreement.
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
Stockholders to be held May 15, 1997. Information concerning executive officers
is included in Part I, Item 4.A 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
Stockholders to be held May 15, 1997.
ITEM 11. EXECUTIVE COMPENSATION.
The response to Item 11 is incorporated herein by reference to the
information set forth under the captions "Report of the Compensation Advisory
Committee on Executive Compensation," "Performance Graph" and "Executive
Compensation" in the Proxy Statement for the Annual Meeting of Stockholders to
be held May 15, 1997.
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 Stockholders to be held May 15, 1997.
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 held May 15, 1997.
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 following consolidated financial statements are
incorporated herein by reference to the 1996 Annual Report to
Stockholders, portions of which are filed as an exhibit to this Form
10-K.
Consolidated Statements of Income for each of the three years
in the period ended December 31, 1996, page 12.
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 1996, page
14.
Consolidated Balance Sheets as of December 31, 1996 and 1995,
pages 10 through 11.
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1996, page 13.
Notes to Consolidated Financial Statements, pages 15 through
21.
Independent Auditors' Report, page 22.
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.
3. A. Exhibits
The following exhibits are filed herewith or incorporated herein by reference:
Exhibit
Number Description
2.1 Sale Agreement dated August 16, 1996 between the Company and
Donald Nixon Ross. (Incorporated by reference to Exhibit 2.1 to
the Registrant's Quarterly report on form 10-Q for the quarter
ended September 30, 1996.)
2.2 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.)
3.1 Restated Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1 (No. 33-56388).)
3.2 Amendment to Articles of Incorporation of the Company dated
November 29, 1995. (Incorporated by reference to Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.)
3.3 Amendment to the Company's Articles of Incorporation to increase
the number of authorized shares of common stock from 20 million
to 50 million shares and to delete the requirement that all
preferred shares have one vote per share. (Incorporated by
reference to Exhibit 3.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996.)
3.4 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).)
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.
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, Robert T. McNally, 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, 1995.)
10.9(b) Employment Agreement, by and between the Company and Robert T.
McNally. (Incorporated by reference to Exhibit 10.7(b) to the
Registrant's Registration Statement on Form S-1 (No. 33-56388).)
10.9(c) 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(d) 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(e) 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(f) 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(g) Employment Agreement, by and between the Company and Kirby S.
Black, Ph.D.
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 Registration Rights Agreement, by and among the Company, Galen
Partners, L.P., and Galen Partners International, L.P., both
Delaware limited partnerships, dated August 22, 1991.
(Incorporated by reference to Exhibit 10.13 to the Registrant's
Registration Statement on Form S-1 (No. 33-56388).)
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).)
10.15 Technical Services Agreement by and between the Company and
Validation Systems, Inc., dated as of January 1, 1994.
(Incorporated by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993.)
10.16 CryoLife, Inc. Non-Employee Directors Stock Option Plan adopted
on March 27, 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, 1994.)
10.17 Settlement Agreement between the Company and Bravo
Cardiovascular, Inc., dated February 14, 1995. (Incorporated by
reference to Exhibit 10.27 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.)
10.18 Sale Agreement between the Company and Bravo Cardiovascular, Inc.
dated February 14, 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, 1994.)
10.19 Private Label Agreement between the Company and Bravo
Cardiovascular, Inc. dated February 14, 1995. (Incorporated by
reference to Exhibit 10.29 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.)
10.20 Consignment Agreement between the Company and Bravo
Cardiovascular, Inc. dated February 14, 1995. (Incorporated by
reference to Exhibit 10.30 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.)
10.21 Sale and Assignment Agreement between the Company and Osteotech,
Inc. dated July 17, 1995. (Incorporated by reference to Exhibit
10.24 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
10.22 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.)
10.23 Preoccupancy and Construction Agreement between the Company and
Amli Land Development - I Limited Partnership dated April 18,
1995. (Incorporated by reference to Exhibit 10.27 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
10.24 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.)
10.25 Employee Stock Purchase Plan dated May 22, 1995. (Incorporated by
reference to Exhibit 10.29 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.)
10.26 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.)
10.27 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.)
10.28 Revolving\Term 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.)
10.29 Research and Option Agreement between the Company and
Biocompatibles Limited dated July 29, 1996. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996.)
10.30 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.)
10.31 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.)
11.1 Statement re: Computation of Per Share Earnings.
13.1 1996 Annual Report to Stockholders. The portions of the Annual
Report which are not specifically incorporated herein by
reference are provided for informational purposes only.
21.1 Subsidiaries of CryoLife, Inc.
23.1 Consent of Independent Auditors.
23.2 Consent of Independent Auditors.
27.1 Financial Data Schedule
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. (Exhibit 10.7(a) to the Registrant's Registration
Statement on Form S-1 (No. 33-56388).)
8. Employment Agreement, by and between the Company and Robert T.
McNally. (Exhibit 10.7(b) to the Registrant's Registration
Statement on Form S-1 (No. 33-56388).)
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 adopted
on March 27, 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, 1994.)
14. Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.)
15. Employment Aggrement by and between the Company and Kirby S.
Black (Exhibit 10.9(g) to this Form 10-K.)
(b) Reports on Form 8-K
The Registrant did not file a report on Form 8-K during the fourth quarter of
the recently completed fiscal year.
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 29, 1997 By: 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.
Signature Title Date
- --------- ----- ----
Steven G. Anderson President, March 29, 1997
- ------------------
Steven G. Anderson Chief Executive Officer
and Chairman of the
Board of Directors
(Principal Executive Officer)
Edwin B. Cordell, Jr. Vice President and March 29, 1997
- ---------------------
Edwin B. Cordell, Jr. Chief Financial Officer
(Principal Financial and
Accounting Officer)
Ronald D. McCall Director March 29, 1997
- ----------------
Ronald D. McCall
Director March 28, 1997
- ----------------
Benjamin H. Gray
Rodney G. Lacy Director March 28, 1997
- --------------
Rodney G. Lacy
Ronald Charles Elkins, M.D. Director March 31, 1997
- ---------------------------
Ronald Charles Elkins, M.D.
Independent Auditors' Report
The Board of Directors and Shareholders
CryoLife, Inc.
We have audited the accompanying consolidated balance sheet of CryoLife, Inc.,
and subsidiaries as of December 31, 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the two-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 financial position of CryoLife, Inc., and
subsidiaries as of December 31, 1995 and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
1995 in conformity with generally accepted accounting principles.
KPMG PEAT MAKWICK LLP
KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 14, 1996
Independent Auditors' Report
The Board of Directors and Shareholders
CryoLife, Inc.
Under date of February 14, 1996, we reported on the consolidated balance sheet
of CryoLife, Inc. and subsidiaries as of December 31, 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the two-year period ended December 31, 1995, as contained in the
annual report on Form 10-K for the year 1996. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule as listed in the accompanying
index, This financial statement schedule is the responsibiity of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 28, 1997
CRYOLIFE, INC.
Index to Financial Statement Schedule
Page No.
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Schedule II - Valuation and Qualifying Accounts S-1
SCHEDULE II
CRYOLIFE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995, and 1994
Balance beginning Balance end of
of period period
Description Additions Deductions
Year ended December 31, 1996
Allowance for doubtful
accounts $ 30,000 $88,400 $24,113 $ 94,287
Allowance for doubtful
note receivable 225,000 -- 225,000 --
Deferred preservation
costs 247,484 140,000 109,085 278,399
Year ended December 31, 1995
Allowance for doubtful
accounts $24,938 $41,433 $36,371 $30,000
Allowance for doubtful
note receivable -- 225,000 -- 225,000
Deferred preservation
costs 242,883 740,000 735,399 247,484
Inventory 150,000 -- 150,000 --
Year ended December 31, 1994
Allowance for doubtful
accounts $ 10,000 $ 150,000 $ 135,062 $ 24,938
Deferred preservation
costs -- 523,891 281,008 242,883
Inventory -- 150,000 -- 150,000