THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES ACTS OR LAWS, AND HAVE BEEN ISSUED AND SOLD IN RELIANCE
UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH ACTS AND LAWS,
INCLUDING BUT NOT LIMITED TO THE EXEMPTION CONTAINED IN SECTION 4(2) OF THE
SECURITIES ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS A
REGISTRATION STATEMENT HAS BECOME AND IS THEN EFFECTIVE WITH RESPECT TO SUCH
SECURITIES OR CRYOLIFE HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ITS COUNSEL, TO THE EFFECT THAT THE PROPOSED SALE OR TRANSFER IS
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ALL APPLICABLE
STATE SECURITIES ACTS AND LAWS.
SUBORDINATED CONVERTIBLE DEBENTURE
OF
CRYOLIFE, INC.
$4,999,999 MARCH 5, 1997
CRYOLIFE, INC., a Florida corporation ("CryoLife"), for value received,
hereby promises to pay to the order of J. Crayton Pruitt, Sr., M.D. or his
permitted assigns (the "Holder") at 643 6th Avenue South, St. Petersburg,
Florida 33701, the sum of $4,999,999, plus interest on the unpaid principal
balance at the rate specified below, in accordance with the provisions set forth
herein. During the term of this Debenture, interest shall accrue at the rate of
7% per annum, compounded annually. Accrued interest shall be payable quarterly
in arrears on each March 31, June 30, September 30, and December 31 of each year
in which any principal payable hereunder is outstanding. The full principal
amount of this Debenture, including any accrued interest thereon, shall be due
and payable on the fifth anniversary of the date hereof.
The following is a statement of the rights of the Holder and the conditions
to which this Debenture is subject, and to which the Holder hereof, by the
acceptance of this Debenture, agrees:
1. Prepayment.
1.1 Right to Prepay. At, or at any time after, March 5, 2000, CryoLife
may at any time and from time to time prepay in whole or in part the Debenture
(the amount of any prepayment being hereinafter referred to as the "Prepayment
Amount"). Any payment made in partial prepayment shall be allocated first to the
payment of accrued interest and then to principal.
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1.2 Notice. At least 45 days prior to the date fixed for any prepayment
of the Debenture (the "Prepayment Date"), written notice shall be delivered to
the Holder at his address last shown on the records of CryoLife, notifying the
Holder of the election of CryoLife to prepay the Debenture, in whole or in part,
and specifying in such notice the Prepayment Date, the Prepayment Amount, the
extent to which the payment of the Prepayment Amount will terminate the Holder's
conversion rights under Section 3 of this Debenture, and calling upon the Holder
to surrender to CryoLife, in the manner and at the place designated, his
Debenture certificate (such notice is hereinafter referred to as the "Prepayment
Notice").
1.3 Surrender of Debenture. On or prior to the Prepayment Date, unless
Holder shall have converted the Debenture by providing notice of conversion at
least ten days before the Prepayment Date pursuant to the provisions of Section
3 of this Debenture, the Holder shall surrender his Debenture certificate, in
the manner and at the place designated in the Prepayment Notice, and thereupon
the Prepayment Amount shall be payable to the order of the Holder and the
Debenture, if prepaid in full, shall be canceled. In the event the Debenture is
prepaid in part, the Debenture shall be returned to Holder appropriately marked
to show partial prepayment and reduction of principal.
2. Events of Default. If any of the events specified in this Section 2
shall occur (an "Event of Default"), the entire principal and unpaid accrued
interest hereon shall become immediately due and payable if the Holder gives
notice to CryoLife of its election to declare a default hereunder as a result of
any of the following:
(i) CryoLife fails to pay the unpaid principal and accrued interest on
any date due, and does not cure such failure within 30 days of receipt of
written notice of such nonpayment; or
(ii) CryoLife makes an assignment for the benefit of creditors, or any
proceeding is instituted by or against CryoLife alleging that it is bankrupt or
insolvent; provided however, that if any such proceeding is instituted against
CryoLife by a third party, such event shall not constitute an Event of Default
if dismissed within 90 days.
3. Conversion.
3.1 Election by Holder. The Holder has the right, at any time after the
first anniversary of this Debenture and until March 5, 2002, to convert this
Debenture in accordance with the provisions of Subsection 3.2 hereof, in whole
or in part, into fully paid and nonassessable shares of the Common Stock of
CryoLife (the "Common Stock"). The number of shares of Common Stock into which
this Debenture may be converted at any given time shall be determined by
dividing the sum of the unpaid principal amount by the Conversion Price. As used
herein, the term "Conversion Price" shall mean a price of $12.08 per share,
which represents the average of the daily closing bid/ask price for CryoLife
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Common Stock reported on the Nasdaq Stock Market's National Market as reported
in The Wall Street Journal newspaper for the period ending 90 days preceding the
last day of the week immediately preceding the date hereof, which Conversion
Price shall be subject to adjustment as set forth in Section 4. Accrued but
unpaid interest on the converted principal shall become due and payable upon
such conversion.
3.2 Conversion Procedure. Before the Holder shall be entitled to
convert this Debenture into shares of Common Stock, it shall surrender this
Debenture at the office of CryoLife and shall give ten days prior written
notice, to CryoLife at its principal corporate office, of the election to
convert the same pursuant to this Subsection 3.2, and shall state therein the
name or names in which the certificate or certificates for the shares issuable
upon such conversion (the "Conversion Shares") are to be issued. CryoLife shall,
as soon as practicable thereafter, issue and deliver to the Holder a certificate
or certificates for the number of Conversion Shares to which the Holder shall be
entitled. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of this Debenture and the
receipt of the notice required herein, and the person or persons entitled to
receive the Conversion Shares shall be treated for all purposes as the record
holder or holders of such Conversion Shares as of such date and shall be payable
within ten days following such date.
3.3 No Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of this Debenture. In lieu of CryoLife issuing any
fractional shares to the Holder upon the conversion of this Debenture, CryoLife
shall pay to the Holder in immediately available funds the amount of outstanding
principal that is not so converted. Upon conversion of this Debenture and the
proper issuance of the Conversion Shares, CryoLife shall be forever released
from all its obligations and liabilities under this Debenture.
4. Conversion Price Adjustments.
4.1 Adjustments for Stock Splits and Subdivisions. In the event
CryoLife should at any time or from time to time after the date of issuance
hereof fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of this Debenture shall be
appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of this Debenture shall be increased in proportion to such
increase of outstanding shares. If the Conversion Price is adjusted under this
Section 4.1 but
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the dividend distribution, split or subdivision which was the basis for such
adjustment is ultimately abandoned by CryoLife, then the Conversion Price shall
be readjusted to offset the effect of such previous adjustment.
4.2 Adjustments for Reverse Stock Splits. If the number of shares of
Common Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for this Debenture shall
be appropriately increased so that the number of shares of Common Stock issuable
on conversion hereof shall be decreased in proportion to such outstanding
shares.
4.3 Reservation of Stock Issuable upon Conversion. CryoLife shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock such number of its shares of Common Stock as shall from time to
time be sufficient to effect the full conversion of the Debenture.
5. Subordination.
5.1 Agreement to Subordinate. Notwithstanding anything contained in
this Debenture to the contrary, CryoLife hereby covenants and agrees, and each
holder hereof, by its acceptance thereof, likewise covenants and agrees that the
indebtedness evidenced by this Debenture and the payment of the principal
thereof and interest thereon and all other amounts payable under or in
connection with this Debenture (the "Subordinated Indebtedness") shall be
subordinate and subject in right of payment, to the extent and in the manner
hereinafter set forth, to the prior indefeasible payment in full in cash of all
Senior Indebtedness (as hereinafter defined), and that such subordination is for
the benefit of the holders of Senior Indebtedness.
5.2 Distribution on Dissolution, Etc. In the event of any voluntary or
involuntary insolvency or bankruptcy proceedings or any voluntary or involuntary
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to CryoLife or to its creditors, as such, or to
all or any part of its property, or in the event of any voluntary or involuntary
proceedings for liquidation, dissolution or other winding up of CryoLife or any
assignment for the benefit of creditors or marshalling of assets and
liabilities, whether or not involving insolvency or bankruptcy, then the holders
of Senior Indebtedness shall be entitled to receive payment in full in cash of
the principal of and the premium, if any, and interest on and all other amounts
constituting Senior Indebtedness before the holder of this Debenture is entitled
to receive payment or distribution, direct or indirect, of or on account of the
principal of, premium, if any, or interest on this Debenture or any other
Subordinated Indebtedness in cash or property (whether by payment, acquisition,
retirement, defeasance, redemption or otherwise) and to that end the holders of
Senior Indebtedness, until payment in full in cash of the principal of and the
premium, if any, and interest on and other amounts constituting Senior
Indebtedness, shall be entitled to receive any payment or distribution of any
kind or character, whether in cash, securities or
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other property, which may be payable or deliverable in respect of this
Debenture, including any such payment or distribution which may be payable or
deliverable by virtue of any security for, or by virtue of the provisions of (or
any security for) any securities which are subordinate and junior in right of
payment to, this Debenture.
5.3 Default on Senior Indebtedness.
5.3.1 Payment Defaults. Neither CryoLife nor any person on behalf
of CryoLife shall, directly or indirectly, make any payment or distribution on
account of the principal of or interest on this Debenture or any other
Subordinated Indebtedness (whether by payment, acquisition, retirement,
defeasance, redemption or otherwise) in cash or property during the existence of
a default in the payment when due (whether at stated maturity or upon
acceleration or mandatory prepayment or on any principal installment payment
date or interest payment date, or otherwise) of any Senior Indebtedness (a
"Payment Default") until the earlier of (i) the date such Payment Default is
cured (if capable of being cured) or waived in writing in accordance with the
terms of such Senior Indebtedness, and (ii) the date application of this
subsection 5.3.1 has been waived in writing by all holders of Senior
Indebtedness (or the trustee or agent on behalf of such holders) in accordance
with the terms of the agreements or other documents evidencing such Senior
Indebtedness.
5.3.2 Non-Payment Defaults. Neither CryoLife nor any person on
behalf of CryoLife shall, directly or indirectly, make any payment or
distribution on account of the principal of or interest on this Debenture or any
other Subordinated Indebtedness (whether by payment, acquisition, retirement,
defeasance, redemption or otherwise) in cash or property during the period (a
"Deferral Period") from the date CryoLife receives from any holder or holders of
Senior Indebtedness (or a trustee or agent on behalf of such holder or holders)
in accordance with the terms of such agreements or other documents evidencing
such Senior Indebtedness, a notice of the existence of any default (other than a
Payment Default) with respect to any Senior Indebtedness (a "Non-Payment
Default") until the earliest of (i) the date such Non-Payment Default is cured
(if capable of being cured) or waived in writing in accordance with the terms of
such Senior Indebtedness, and (ii) the date application of this subsection 5.3.2
has been waived in writing by all holders of Senior Indebtedness (or the trustee
or agent on behalf of such holders) in accordance with the terms of the
agreements or other documents evidencing such Senior Indebtedness.
5.4 Subordination Not Impaired. No present or future holder of Senior
Indebtedness shall be prejudiced in its right to enforce subordination of this
Debenture by any act or failure to act on the part of CryoLife or by its failure
to comply with this Debenture, or by any act or failure to act by any such
holder of Senior Indebtedness undertaken in good faith. The foregoing
subordination provisions shall be for the benefit of all holders of Senior
Indebtedness from time to time outstanding, and each of such holders may proceed
to enforce such provisions either directly against the holder of this Debenture
or in any other manner provided by law and without the need to prove reliance on
the
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subordination hereof. As used herein, the term "holders" of any indebtedness
shall include any trustee for, or other authorized representative of, the
holders of such indebtedness.
5.5 Definitions.
"Leverage Ratio" shall mean, as of any particular date, the ratio of
CryoLife's Total Liabilities to its Net Worth at such date.
"Net Worth" shall mean, as of any particular date, CryoLife's total
shareholders's equity (including capital stock, additional paid in capital, and
retained earnings after deducting treasury stock) which would appear as such on
a consolidated balance sheet of CryoLife prepared in accordance with generally
accepted accounting principles as then in effect.
"Senior Indebtedness" means (i) CryoLife's existing outstanding
indebtedness and credit facilities (excluding any trade indebtedness) ("Existing
Indebtedness"), including, without limitation, (A) any and all obligations,
liabilities and indebtedness, whether in respect of principal, interest
(including without limitation interest accruing after the filing of a petition,
action or proceeding by or against CryoLife pursuant to any bankruptcy law,
whether or not the claim for such interest would be allowed as a claim in such
proceeding), premium, fees, expenses, reimbursement obligations, indemnities or
other amounts, of CryoLife, whether contingent or mature, now existing or
hereafter arising or advanced, under and pursuant to that certain Credit
Agreement, dated as of August 30, 1996, by and between CryoLife and NationsBank,
N.A. (South) and the other Financing Documents (as defined in such Credit
Agreement), and any modifications, renewals, extensions, amendments, supplements
or restatements of any of the foregoing, provided that the outstanding principal
indebtedness outstanding thereunder which shall at any time constitute Senior
Indebtedness shall not exceed $10,000,000 (except as otherwise provided in
subsection (ii) below), (B) that certain Promissory Note in a principal amount
of $1,250,000 in favor of United Cryopreservation Foundation, Inc., and (C) any
indebtedness up to an aggregate principal amount of $11,250,000 incurred by
CryoLife to replace the loans identified in (A) and (B) or constituting an
extension, refinancing or renewal thereof, and (ii) any indebtedness ("Other
Indebtedness") of CryoLife for money borrowed from any lender (except from
officers or directors of CryoLife), created or incurred after the date hereof
(excluding any Existing Indebtedness); provided, however, that the portion (and
only such portion) of Other Indebtedness that, when added to the Existing
Indebtedness then in effect, causes the Leverage Ratio to exceed 1.0 to 1.0 (the
"Excess Indebtedness") shall be in parity to the indebtedness evidenced by this
Debenture. For example, assume that CryoLife is seeking a $20,000,000 loan and
that CryoLife could obtain a $15,000,000 loan and maintain a Leverage Ratio of
1.0 to 1.0, but any loan amount in excess of $15,000,000 would cause the
Leverage Ratio to exceed 1.0 to 1.0. CryoLife may obtain the $20,000,000 loan,
provided $15,000,000 of such loan shall be Senior Indebtedness and $5,000,000
shall be repayable by CryoLife on a pari passu basis with the indebtedness
evidenced by this Debenture. Excess Indebtedness may be included as Senior
Indebtedness and shall be treated
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as provided in Section 5.1 through 5.4 upon the consent of the holders of a
majority in interest of the aggregate principal amount of the IFM Debentures (as
defined in Section 7 below), which consent shall not be unreasonably withheld.
"Total Liabilities" shall mean, as of any particular date, the amount
which all liabilities of CryoLife would be shown on a consolidated balance sheet
of CryoLife at such date prepared in accordance with generally accepted
accounting principles consistently applied.
6. Assignment. Subject to the restrictions on transfer described in Section
8 below, the rights and obligations of CryoLife and the Holder shall be binding
upon and benefit the successors, assigns, heirs, administrators and transferees
of the parties.
7. Waiver and Amendment. Any provision of this Debenture may be amended,
waived or modified only upon the written consent of CryoLife and the holders of
a majority of the aggregate principal amount of indebtedness evidenced by those
certain debentures (the "IFM Debentures"), of which this Debenture is one, which
were issued as part of the merger of Ideas for Medicine, Inc. with and into
CryoLife Acquisition Corporation, a wholly-owned subsidiary of CryoLife,
pursuant to that Agreement and Plan of Merger dated March 5, 1997.
8. Transfer of this Debenture or Conversion Shares. The Holder shall not
make any offer, sale or other disposition of this Debenture or the Conversion
Shares unless the Holder shall first have provided to CryoLife a written opinion
of the Holder's counsel, reasonably satisfactory to CryoLife's counsel, to the
effect that such offer, sale or other distribution may be effected without
registration or qualification (under any federal or state law then in effect).
If so transferred, the Debenture or the Conversion Shares, as applicable, shall
bear a legend as to the applicable restrictions on transferability in order to
ensure compliance with state and federal securities laws, unless in the opinion
of counsel for CryoLife such legend is not required in order to ensure
compliance with such laws.
9. Notices. All notices, demands or other communications hereunder shall be
in writing and shall be deemed given when delivered personally, mailed by
certified mail, return receipt requested, sent by overnight courier service, or
telecopied (transmission confirmed and a copy sent by personal delivery,
certified mail or overnight courier service) to the following addresses or such
other address as may be designated in writing by either party in accordance with
the terms of this provision:
Holder: J. Crayton Pruitt, Sr., M.D.
643 6th Avenue South
St. Petersburg, Florida 33701
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CryoLife: CryoLife, Inc.
1655 Roberts Boulevard, N.W.
Kennesaw, Georgia 30144
Attention: President and Chief Executive Officer
Telefax: (770) 426-0031
IN WITNESS WHEREOF, CryoLife has caused this Subordinated Convertible
Debenture to be issued as of the date first set forth hereinabove.
CRYOLIFE, INC.
By:__________________________________
Edwin B. Cordell, Jr.
Vice President of Finance and
Chief Financial Officer
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