SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X] (Amendment No. )
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[_] Definitive Additional Materials Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
(ss.)240.14a-11(c) or (ss.)240.14a-12
CRYOLIFE, INC.
(Name of Registrant as Specified In Its Charter)
N/A
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
[CRYOLIFE LOGO]
[LOGO]
1655 ROBERTS BOULEVARD, N.W.
KENNESAW, GEORGIA 30144
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF CRYOLIFE, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of CRYOLIFE,
INC. will be held at CryoLife, Inc.'s Corporate Headquarters, 1655 Roberts
Boulevard, NW, Kennesaw, Georgia 30144, on June 19, 2003 at 10:00 a.m., Atlanta
time, for the following purposes:
1. To elect six Directors to serve until the next Annual Meeting of
Shareholders or until their successors are elected and have been
qualified.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only record holders of CryoLife's common stock at the close of business on
April 21, 2003 will be eligible to vote at the meeting.
Your attendance at the annual meeting is very much desired. However, if
there is any chance you may not be able to attend the meeting, please execute,
complete, date and return the enclosed proxy in the envelope provided. If you
attend the meeting, you may revoke the proxy and vote in person.
By Order of the Board of Directors:
/s/ Steven G. Anderson
STEVEN G. ANDERSON,
Chairman of the Board, President and
Chief Executive Officer
Date: April 30, 2003
A copy of the Annual Report of CryoLife, Inc. for the fiscal year ended
December 31, 2002 containing financial statements is enclosed.
[CRYOLIFE LOGO]
[LOGO]
1655 ROBERTS BOULEVARD, N.W.
KENNESAW, GEORGIA 30144
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
This proxy statement is furnished for the solicitation by the Board of
Directors of proxies for the Annual Meeting of Shareholders of CryoLife, Inc. to
be held on June 19, 2003, at 10:00 a.m., Atlanta time, in the auditorium at
CryoLife, Inc.'s Corporate Headquarters, 1655 Roberts Boulevard, NW, Kennesaw,
Georgia 30144. The sending in of a signed proxy will not affect a shareholder's
right to attend the meeting and vote in person. A signed proxy may be revoked by
the sending in of a timely, but later dated, signed proxy. Any shareholder
sending in or completing a proxy may also revoke it at any time before it is
exercised by giving oral or written notice to Suzanne Gabbert, Corporate
Secretary of CryoLife, at the offices of CryoLife. Oral notice may be delivered
by telephone call to Ms. Gabbert, at (770) 419-3355.
Holders of record of CryoLife's common stock at the close of business on
April 21, 2003 will be eligible to vote at the meeting. CryoLife's stock
transfer books will not be closed. At the close of business on April 21, 2003,
CryoLife had outstanding a total of 19,663,833 shares of common stock, excluding
a total of 1,361,304 shares of treasury stock held by CryoLife, which are not
entitled to vote. Each such share will be entitled to one vote, non-cumulative,
at the meeting.
Other than the matters set forth herein, management is not aware of any
other matters that may come before the meeting. If any other business should
properly come before the meeting, the persons named in the enclosed proxy will
have discretionary authority to vote the shares represented by the effective
proxies and intend to vote them in accordance with their best judgment.
This proxy statement and the attached proxy were first mailed to security
holders on behalf of CryoLife on or about April 30, 2003. Properly executed
proxies, timely returned, will be voted and, where the person solicited
specifies by means of a ballot a choice with respect to any matter to be acted
upon at the meeting, the shares will be voted as indicated by the shareholder.
If the person solicited does not specify a choice with respect to election of
Directors, the shares will be voted for management's nominees for election as
Directors. In addition to the solicitation of proxies by the use of the mails,
Directors and Officers of CryoLife may solicit proxies on behalf of management
by telephone, telegram and personal interview. Such persons will receive no
additional compensation for their solicitation activities, and will be
reimbursed only for their actual expenses incurred. CryoLife has requested
brokers and nominees who hold stock in their name to furnish this proxy material
to their customers and CryoLife will reimburse such brokers and nominees for
their related out-of-pocket expenses. The costs of soliciting proxies will be
borne by CryoLife.
VOTING PROCEDURES AND VOTE REQUIRED
The Secretary of CryoLife, in consultation with the judge of election, who
will be an employee of CryoLife's transfer agent, shall determine the
eligibility of persons present at the Annual Meeting to vote and shall determine
whether the name signed on each proxy card corresponds to the name of a
shareholder of CryoLife. The Secretary, based on such consultation, shall also
determine whether or not a quorum of the shares of CryoLife, consisting of a
majority of the votes entitled to be cast at the Annual Meeting, exists at the
Annual Meeting. Both abstentions from voting and broker non-votes, if any, will
be counted for the purpose of determining the presence or absence of a quorum
for the transaction of business.
Nominees for election as Directors will be elected by a plurality of the
votes cast by the holders of shares entitled to vote in the election. Since
there are six Directorships to be filled, this means that the six individuals
receiving the most votes will be elected. Abstentions and broker non-votes, if
any, will therefore not be relevant to the outcome.
There are no rights of appraisal or similar dissenters' rights with respect
to any matter to be acted upon pursuant to this proxy statement.
ANNUAL MEETING ADMISSION
Attendance at the Annual Meeting will be limited to shareholders as of the
record date, their authorized proxy holders and guests of CryoLife. Admission
will be by ticket only. If you are a registered shareholder (your shares are
held in your name) and plan to attend the meeting, please vote your proxy and
detach your Annual Meeting ticket from the bottom portion of the proxy card. If
you are a beneficial owner (your shares are held in the name of a bank, broker
or other holder of record) and plan to attend the meeting, you can obtain an
admission ticket in advance by writing to Suzanne Gabbert, CryoLife, Inc., 1655
Roberts Blvd, N.W., Kennesaw, Georgia 30144, 770-419-3355. Please be sure to
enclose proof of ownership such as a bank or brokerage account statement.
Shareholders who do not obtain tickets in advance may obtain them upon
verification of ownership at the Reception Desk on the day of the meeting.
Tickets may be issued to others at the discretion of CryoLife.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of CryoLife recommends a vote "FOR" the election of
each of the nominees named below for election as Director.
ELECTION OF DIRECTORS
The proxy holders intend to vote "FOR" election of the nominees named
below, who are currently members of the Board, as Directors of CryoLife, unless
otherwise specified in the proxy. Directors of CryoLife elected at the Annual
Meeting to be held on June 19, 2003 will hold office until the next Annual
Meeting or until their successors are elected and qualified.
Each of the nominees has consented to serve on the Board of Directors, if
elected. Should any nominee for the office of Director become unable to accept
nomination or election, which is not anticipated, it is the intention of the
persons named in the proxy, unless otherwise specifically instructed in the
proxy, to vote for the election of such other person as the Board may recommend.
The individuals listed below as nominees for the Board of Directors were
all Directors of CryoLife during 2002. Alexander Schwartz, who had served as a
Director of CryoLife since 1999, passed away in 2002. The size of the Board has
been reduced from seven to six Directors. The name and age of each nominee, and
the period during which such person has served as a Director, together with the
number of shares of CryoLife's common stock beneficially owned, directly or
indirectly, by such person and the percentage of outstanding shares of
CryoLife's common stock such ownership represented at the close of business on
April 21, 2003, according to information received by CryoLife, is set forth
below:
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SHARES OF
CRYOLIFE STOCK
BENEFICIALLY OWNED PERCENTAGE OF
SERVICE AS AT OUTSTANDING SHARES
NAME OF NOMINEE DIRECTOR AGE APRIL 21, 2003 OF CRYOLIFE STOCK
---------------------------------- ------------- ------- --------------------- ---------------------
Steven G. Anderson Since 1984 64 1,660,967 (2) 8.43 %
John M. Cook (4) Since 1999 60 155,750 (3) *
Ronald C. Elkins, M.D.(4) (6) Since 1994 66 187,270 (7) *
Virginia C. Lacy(4) (5) (6) Since 1997 61 700,909 (8) 3.54 %
Ronald D. McCall, Esq.(5) Since 1984 66 306,863 (9) 1.55 %
Bruce J. Van Dyne, M.D.(5) (6) Since 1999 62 106,550 (10) *
---------------
* Ownership represents less than 1% of outstanding shares of CryoLife common
stock.
(1) Except as otherwise noted, the nature of the beneficial ownership for all
shares is sole voting and investment power.
(2) Includes 107,899 shares held of record by Ms. Ann B. Anderson, Mr.
Anderson's spouse. Also includes options to acquire 38,387 shares of common
stock that are presently exercisable or will become exercisable within 60
days after the date of this proxy statement.
(3) Includes 19,500 shares that are held by CT Investments, LLC of which Mr.
Cook owns 90% of the membership interests. Includes options to acquire
106,250 shares of common stock that are presently exercisable or will
become exercisable within 60 days after the date of this proxy statement.
(4) Member of the Audit Committee.
(5) Member of the Compensation Advisory Committee.
(6) Member of the Nominating Committee.
(7) Includes options to acquire 143,750 shares of common stock which are
presently exercisable or will become exercisable within 60 days after the
date of this proxy statement.
(8) Includes 355,280 shares held as beneficiary of three trusts, and 165,879
shares held as beneficiary of an IRA, of Ms. Lacy's deceased spouse.
Includes 22,500 shares held as administrator of a pension plan. Includes
157,250 shares subject to options which are presently exercisable or will
become exercisable within 60 days after the date of this proxy statement.
(9) Includes 16,000 shares of common stock owned of record by Ms. Marilyn B.
McCall, Mr. McCall's spouse. Includes options to acquire 171,175 shares of
common stock that are presently exercisable or will become exercisable
within 60 days after the date of this proxy statement.
(10) Includes options to acquire 106,250 shares of common stock that are
presently exercisable or will become exercisable within 60 days after the
date of this proxy statement.
STEVEN G. ANDERSON, a founder of CryoLife, has served as CryoLife's
President, Chief Executive Officer and Chairman of the Board of Directors since
its inception. Mr. Anderson has more than 35 years of experience in the
implantable medical device industry. Prior to founding CryoLife, Mr. Anderson
was Senior Executive Vice President and Vice President, Marketing, from 1976
until 1983 of Intermedics, Inc. (now Guidant Corp.), a manufacturer and
distributor of pacemakers and other medical devices. Mr. Anderson is a graduate
of the University of Minnesota.
JOHN M. COOK has served as a Director of CryoLife since August 1999. Mr.
Cook is Chairman and Chief Executive Officer of PRG-Schultz International, Inc.,
an international, publicly held audit recovery firm operating in over 40
countries, with 2002 revenues exceeding $460 million. Mr. Cook has served as
Chief Executive Officer of PRG-Schultz since its founding in January 1991. Prior
to PRG Schultz, he served in a number of top financial and management positions
in the retail industry, including Senior Vice President and Chief Financial
Officer of Caldor Stores and Senior Vice President of Finance and Controller of
Kaufmann's Department Stores, both May Department Stores affiliates. He holds a
B.S. degree in accounting from Saint Louis University, where he serves as a
member of the Board of Trustees and holds a seat on the Executive Advisory Board
of the University's School of Business and Administration.
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RONALD C. ELKINS, M.D. has served as a Director of CryoLife since January
1994. Dr. Elkins is Professor Emeritus, Section of Thoracic and Cardiovascular
Surgery, University of Oklahoma Health Science Center. Dr. Elkins has been a
physician at the Health Science Center since 1971, and was Chief, Section of
Thoracic and Cardiovascular Surgery from 1975 to 2002. Dr. Elkins is a graduate
of the University of Oklahoma and Johns Hopkins Medical School.
VIRGINIA C. LACY has served as a Director of CryoLife since August 1997.
Ms. Lacy received her B.A. degree from Northwestern University in 1963. Ms. Lacy
is the Administrator of The Jeannette & John Cruikshank Memorial Foundation,
which provides housing assistance to those in need throughout the greater
Chicago area. Since 1997, Ms. Lacy has served as President, and since 1974 has
served as Secretary-Treasurer and Chief Financial Officer, of Precision Devices
Corporation, a distributor of medical devices. She was one of the founders of
that company and serves as the Chairman of its Board of Directors. As an elected
member of the Board of Education of District 203 of the State of Illinois for 12
years, she served on its budget committee, which was responsible for planning
and reviewing the spending of $100 million in public funds each year in a school
district having 2,500 employees. Ms. Lacy also provided leadership in State
education by serving on committees that analyzed State funding for education.
RONALD D. MCCALL, ESQ. has served as a Director of CryoLife since January
1984 and served as its Secretary and Treasurer from 1984 to 2002. From 1985 to
the present, Mr. McCall has been the proprietor of the law firm of Ronald D.
McCall, Attorney at Law, based in Tampa, Florida. Mr. McCall was admitted to the
practice of law in Florida in 1961. Mr. McCall received his B.A. and J.D.
degrees from the University of Florida.
BRUCE J. VAN DYNE, M.D. has served as a Director of CryoLife since August
1999. Dr. Van Dyne is a board-certified neurologist and has been in private
practice in Minneapolis, Minnesota since 1975. He has served in numerous
advisory positions, including as an Examiner in Neurology for the American Board
of Psychiatry and Neurology and as previous Chairman of the Department of
Neurology for Park Nicollet Medical Center in Minneapolis. He is a graduate of
Northwestern University Medical School and is the author of numerous medical
publications in the field of neurology.
CryoLife received notice in October 2002 that a complaint had been filed
instituting a shareholder derivative action against CryoLife and CryoLife
Officers and Directors Steven G. Anderson, Albert E. Heacox, John M. Cook,
Ronald C. Elkins, Virginia C. Lacy, Ronald D. McCall, Alexander C. Schwartz, and
Bruce J. Van Dyne. The suit was filed in the Superior Court of Gwinnett County,
Georgia, by Rosemary Lichtenberger. The suit alleges the individual defendants
breached their fiduciary duties to CryoLife by causing or allowing CryoLife to
engage in practices that caused CryoLife to suffer damages by being out of
compliance with FDA guidelines, and by causing CryoLife to issue press releases
that erroneously portrayed CryoLife's products, operations, financial results,
and future prospects.
The complainant seeks undisclosed damages, costs and attorney's fees,
punitive damages, and prejudgment interest against the individual defendants
derivatively on behalf of CryoLife as a nominal defendant. By an order entered
on January 21, 2003, the lawsuit was stayed until discovery commences in the
consolidated complaint of the class action lawsuit.
In January 2003 CryoLife received notice that another shareholder
derivative lawsuit was filed in the Superior Court of Fulton County, Georgia by
Robert F. Frailey against CryoLife as a nominal defendant, and CryoLife Officers
and Directors Steven G. Anderson, Bruce J. Van Dyne, John M. Cook, Ronald D.
McCall, Ronald C. Elkins, Virginia C. Lacy, and Alexander C. Schwartz. The
complaint asserts claims for breach of fiduciary duty, abuse of control, gross
mismanagement, and waste of corporate assets. As in the Lichtenberger action,
the Frailey action alleges that the defendant Officers and Directors caused
CryoLife to suffer damages by not being in compliance with FDA guidelines, and
by causing CryoLife to issue press releases that erroneously portrayed
CryoLife's products, operations, financial results, and future prospects.
The complaint also alleges improper insider trading by certain CryoLife
Officers and Directors. The complainant seeks declaratory relief, damages of an
unspecified amount, litigation expenses including attorneys' and experts' fees,
and unspecified equitable or injunctive relief against the individual defendants
derivatively on behalf of CryoLife as a nominal defendant.
4
CryoLife's Board of Directors has established a committee that is
independent of management to investigate the claims asserted in the
Lichtenberger and Frailey complaints and report back to the Board with its
recommendations for action in response to the shareholders' demands. The
independent committee has engaged independent legal counsel to assist in the
investigation. The committee is in the process of its investigation of the
claims.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
MEETINGS OF THE BOARD OF DIRECTORS--During 2002, there were eleven meetings
of the Board of Directors.
DIRECTOR COMPENSATION - During 2002, all non-employee Directors of the
Board of Directors of CryoLife were paid $1,500 for each Board meeting attended.
In addition, Directors are reimbursed for expenses incurred in connection with
their services as a Director. In December 1997, CryoLife adopted the CryoLife,
Inc. Amended and Restated Non-Employee Directors Stock Option Plan, which
replaced CryoLife's 1995 Non-Employee Directors Plan. The Amended and Restated
Non-Employee Directors Stock Option Plan provides that an annual grant will be
made each year immediately following CryoLife's Annual Meeting of Shareholders
of an option to purchase 7,500 shares of common stock to each individual
elected, reelected or continuing as a non-employee Director of CryoLife. All
options granted pursuant to this plan are granted at a purchase price equal to
the last closing price of CryoLife's common stock on the New York Stock Exchange
on the day immediately prior to the grant of the option and vest and become
exercisable on the option's grant date. No option granted pursuant to this plan
may be exercised later than five years following the date of grant.
Pursuant to the 2002 Plan, options to purchase 10,000 shares of common
stock were granted to each of Drs. Elkins and Van Dyne, Messrs. Cook and McCall
and Ms. Lacy immediately following the 2002 Annual Meeting of Shareholders.
Also, on August 31, 2002 each of Drs. Elkins and Van Dyne, Messrs. Cook and
McCall, and Ms. Lacy received an option pursuant to the 2002 Plan to purchase
30,000 shares of CryoLife common stock. The exercise price of each of the
options granted under the 2002 Plan discussed above was based on the closing
price of CryoLife's Common Stock on the date of grant as reported on the New
York Stock Exchange.
In addition to the foregoing, Dr. Elkins received approximately $100,000 in
consulting fees in 2002, Dr. Van Dyne received approximately $7,500 in
consulting fees in 2002 and Mr. McCall received approximately $89,820 in legal
fees, including reimbursement for expenses, from CryoLife in 2002. The paid
consulting arrangements between Drs. Elkins and Van Dyne and CryoLife terminated
in 2002.
AUDIT COMMITTEE - CryoLife's Audit Committee consists of three non-employee
Directors: Ms. Lacy, Chairman, Dr. Elkins, and Mr. Cook. The Audit Committee met
thirteen times in 2002. The Audit Committee reviews the general scope of
CryoLife's annual audit and the nature of services to be performed for CryoLife
in connection therewith, acting as liaison between the Board of Directors and
the independent auditors. The Audit Committee also formulates and reviews
various company policies, including those relating to accounting practices and
internal control systems of CryoLife. In addition, the Audit Committee is
responsible for reviewing and monitoring the performance by CryoLife's
independent auditors and for engaging or discharging CryoLife's independent
auditors. Each of the members of the Audit Committee is "independent" as defined
in Sections 303.01(B)(2)(a) and (3) of the New York Stock Exchange's Listing
Standards. The Audit Committee charter is attached hereto as Appendix A.
COMPENSATION ADVISORY COMMITTEE--CryoLife's Compensation Advisory Committee
consisted of three non-employee Directors during 2002: Mr. McCall, Chairman, Ms.
Lacy, and Dr. Van Dyne. The Compensation Advisory Committee met five times in
2002. The Compensation Advisory Committee is responsible for evaluating the
performance of Officers and setting the annual compensation for all Officers,
including the salary and the compensation package of Executive Officers. A
portion of the compensation package includes a bonus award. The Compensation
Advisory Committee also administers CryoLife's benefit plans, except that the
Compensation Advisory Sub-Committee approves grants of stock options to
Executive Officers under CryoLife's benefit plans. Currently, the Compensation
Advisory Sub-Committee consists of two non-employee Directors: Ms. Lacy, and Dr.
Van Dyne. The Compensation Advisory Sub-Committee met two times in 2002.
5
NOMINATING COMMITTEE - CryoLife's Nominating Committee was formed in
December 2002 and has not met yet. The Nominating Committee consists of three
non-employee Directors, Dr. Elkins, Chairman, Ms. Lacy and Dr. Van Dyne. The
committee's responsibilities include the selection of potential candidates for
the Board and the development and annual review of our governance principles. It
will also annually review Director compensation and benefits, and oversee the
annual self-evaluations of the Board and its committees. The committee also
makes recommendations to the Board concerning the structure and membership of
the other Board committees. The Nominating Committee will consider nominees
recommended by shareholders to the extent that such shareholders provide timely
written notice to the Company of nominations as provided for in the Company's
Bylaws, and provide in such notice all information required by the Bylaws,
including all information that would be required to be disclosed in
solicitations of proxies for the election of such nominees as Directors pursuant
to Regulation 14A under the Securities Exchange Act of 1934 (the "Exchange
Act"), as amended, including the nominee's written consent to serve as a
Director if elected. A shareholder's notice of nomination of Directors for
election at the Company's 2004 annual meeting of shareholders will be considered
timely if such notice is received by the Secretary of the Company not later than
January 31, 2004, nor earlier than November 2, 2003. See also "Shareholder
Proposals." Shareholders who wish the Nominating Committee to consider their
recommendations for nominees for the position of Director should submit their
recommendations in writing to the Nominating Committee in care of Suzanne
Gabbert, the Corporate Secretary of CryoLife at CryoLife's principal executive
offices at 1655 Roberts Blvd., N.W., Kennesaw, Georgia 30144.
During 2002, no Director attended fewer than 75% of the aggregate of the
total number of meetings of the Board of Directors and the total number of
meetings held by all committees of the Board on which he or she served. Members
of the Board of Directors are appointed to committees at the annual meeting of
Directors immediately following the annual meeting of shareholders.
Notwithstanding anything to the contrary set forth in any of CryoLife's
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that might incorporate other CryoLife filings,
including this proxy statement, in whole or in part, the following Reports and
Performance Graph shall not be incorporated by reference into any such filings.
REPORT OF THE AUDIT COMMITTEE
The Board of Directors maintains an Audit Committee comprised of three of
CryoLife's outside Directors. The Board of Directors and the Audit Committee
believe that the Audit Committee's current member composition satisfies the rule
of the New York Stock Exchange ("NYSE") that governs audit committee
composition, including the requirement that audit committee members all be
"independent directors" as that term is defined by Section 303.01(B)(2)(a) and
(3) of the New York Stock Exchange Listing Standards.
The Audit Committee oversees CryoLife's financial process on behalf of the
Board of Directors. Management has the primary responsibility for the financial
statements and the reporting process, including the systems of internal
controls. In fulfilling its oversight responsibilities, the Audit Committee
reviewed the audited financial statements in the Annual Report with management,
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments and the
clarity of disclosures in the financial statements. The Board and the Audit
Committee have adopted a written Audit Committee Charter.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of CryoLife's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under generally accepted auditing standards, including
statement on Auditing Standards No. 61. In addition, the Audit Committee has
discussed with the independent auditors the auditors' independence from
management and CryoLife, including the matters in the written disclosures and
the letter from the independent auditors required by Independence Standards
Board Standard No. 1.
The Audit Committee discussed with CryoLife's independent auditors the
overall scope and plans for their audit. The Audit Committee meets with the
independent auditors, with and without management present, to discuss the
6
results of their examination, their evaluation of CryoLife's internal controls
and the overall quality of CryoLife's financial reporting. CryoLife incurred the
following fees for services performed by Deloitte & Touche LLP and Arthur
Andersen LLP in 2002:
AUDIT FEES
Fees to Deloitte & Touche LLP for the year 2002 audit and the review of
Forms 10-Q in 2002 were $203,000, of which an aggregate amount of $88,000 had
been billed through December 31, 2002.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Neither Deloitte & Touche LLP nor Arthur Andersen LLP rendered any services
related to financial information systems design and implementation for the year
ended December 31, 2002.
ALL OTHER FEES
Aggregate fees billed for all other services rendered by Deloitte & Touche
LLP for the year ended December 31, 2002 were $122,000. Aggregate fees billed
for all other services rendered by Arthur Andersen LLP for the year ended
December 31, 2002 were $96,000.
The Audit Committee determined that the payments made to its independent
accountants for non-audit services for 2002 were consistent with maintaining
Deloitte & Touche LLP's and Arthur Andersen LLP's independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee members did not become aware of any misstatement in the audited
financial statements and recommended to the Board of Directors (and the Board
has approved) that the audited financial statements be included in CryoLife's
Annual Report on Form 10-K for the year ended December 31, 2002 for filing with
the Securities and Exchange Commission. The Audit Committee also approved the
selection of CryoLife's independent auditors.
AUDIT COMMITTEE
VIRGINIA C. LACY, CHAIRMAN
JOHN M. COOK
RONALD C. ELKINS, M.D.
7
REPORT OF THE COMPENSATION ADVISORY COMMITTEE ON
EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Advisory Committee of the Board of Directors of CryoLife,
Inc. is composed of non-employee Directors and approves the compensation of
CryoLife's Executive Officers at least annually. The Committee believes the
actions of Executive Officers of CryoLife have a profound impact on the
short-term and long-term profitability of CryoLife. Therefore, the Committee
gives significant attention to the design of CryoLife's compensation package.
CryoLife's compensation package consists of three parts and is relatively
simple in design. The three primary parts are a base salary, a cash bonus and
stock-based incentive compensation. No significant perquisites are provided to
Executive Officers.
BASE SALARY
The Committee believes it is important for Executive Officers and other
employees of CryoLife to receive acceptable salaries so that CryoLife can
recruit and retain the talent it needs. For several years, the Committee has
obtained a salary survey report. This survey, which is entitled the "Radford
Salary Survey for U.S. Biotech Companies," contains information regarding
salaries paid to various biotech executives in the United States. The Committee
reviews this salary survey primarily for information regarding salaries, as
opposed to bonus and stock incentive information. In setting salaries, the
Committee takes into consideration the individual employee's performance, length
of service to CryoLife, and the information provided by the Radford Survey. The
Committee seeks to set compensation at levels which are reasonable under the
circumstances and near the midrange for U.S. biotech companies. For 2002, the
Compensation Advisory Committee considered it advisable to make significant
increases in salaries in order to provide its Executive Officers with
compensation in the same range as that of executives employed by other companies
in the industry. Salaries for Executive Officers were raised by 12.5%, on the
average, as compared to 2001. The range of increases was from 0% to 20.9%. The
base salary for each Executive Officer is set on a subjective basis, bearing in
mind an overall impression of that Executive's relative skills, experience and
contribution to CryoLife. The Committee does not attempt to address the relative
weight assigned to the various factors, which are evaluated on a subjective
overall basis by each individual member of the Committee. Salaries of all
Executive Officers are reviewed annually by the Committee. In accordance with
this procedure, the Committee consults with Mr. Anderson, the President and
Chief Executive Officer of CryoLife, and an appropriate range of base salary,
bonus, and stock options is subjectively considered, based upon the range of
compensation received by the other Executive Officers and the requirements of
the particular positions to be filled. The Chief Executive Officer negotiates
with candidates for employment, subject to acceptance and ratification by the
Committee, and this negotiated base salary is reflected in each candidate's
employment agreement.
CASH BONUSES
Cash bonuses are the next component of Executive Officer compensation. In
determining the amount to be paid as bonuses to Executive Officers, the
Compensation Advisory Committee ordinarily considers the performance of CryoLife
in reaching goals for increased revenues and pre-tax profit as well as the
performance of each Executive Officer. For 2002, the Compensation Advisory
Committee based its decision that bonuses should be awarded to CryoLife's
Executive Officers upon its subjective determination that due to the unusual
nature of the year 2002, the performance of each Officer was of particular
importance to the Company. The action by the FDA in ordering a recall of certain
products so adversely affected CryoLife's ability to compete that no comparison
to other companies' levels of compensation was satisfactory. The amount of the
bonus paid to individual Executive Officers was determined based upon the
Committee's subjective analysis of the performance of each such Officer.
Excluding the cash bonus paid to the Chief Executive Officer, 2002 Executive
Officer bonuses ranged from $60,000 to $120,000 and were paid in 2002 and 2003.
On August 14, 2002 the Compensation Committee determined to pay a bonus to
Sidney B. Ashmore, Vice President Marketing, of $15,000. On August 16, 2002 the
Compensation Committee determined to pay a bonus to James Vander Wyk, then Vice
President Regulatory Affairs and Quality Assurance, of $60,000. In each case the
Compensation Committee determined to grant the mid-year bonus in recognition of
the Officer's efforts on behalf of the Company in addressing important Company
8
issues in difficult times, the Officer's long-term service to the Company, and
to accommodate the economic needs of the Officers arising from their desire to
retain Company shares rather than permit them to be sold pursuant to margin
calls. These Officers now have no margin loans against their shares. The amounts
paid in August 2002 were taken into consideration when the bonuses paid in 2003
were determined.
STOCK-BASED INCENTIVES
Stock-based incentives have been a supplemental component of compensation
for CryoLife's Executive Officers, and certain other employees, since the
formation of CryoLife. CryoLife adopted formal incentive stock option plans in
1984, 1989, 1993, 1998 and 2002. CryoLife has also made grants of non-qualified
options under an informal stock option program. A Sub-Committee composed of Ms.
Lacy and Dr. Van Dyne, each of whom is an outside, non-employee Director, as
such terms are defined in Rule 16b-3 under the Exchange Act and regulations
promulgated under Section 162(m) of the Internal Revenue Code of 1986, approves
grants of stock options to Executive Officers under CryoLife's option plans and
its informal stock option program.
Historically, grants made by CryoLife have generally vested at a rate of
20% per year and have had a term of five and one-half years. These options also
usually expire upon termination of employment, except in the event of disability
or death, in which case the term of the option may continue for some time
thereafter.
The Sub-Committee believes that CryoLife's stock option program has been
effective in focusing attention on shareholder value since the gain to be
realized by Executive Officers upon exercise of options will change as the stock
price changes. The Sub-Committee also believes that the long-term nature of the
options encourages CryoLife's Executive Officers to remain with CryoLife.
Finally, the Sub-Committee has found it appropriate to grant options to newly
employed Executive Officers in order to encourage such Officers to identify
promptly with CryoLife's goal of increased shareholder value. The number of
shares to be granted is established utilizing the procedure described above at
"--Base Salary." The Sub-Committee subjectively determines the number of shares
to be granted based on its analysis of the number, which would provide an
adequate incentive to the new Executive Officer to accept a position with
CryoLife.
In general, following initial employment, the granting of stock-based
incentives to Executive Officers is considered by the Sub-Committee to be
justified when CryoLife's revenues and earnings, coupled with the individual
Executive's performance, warrant supplemental compensation in addition to the
salary and bonus paid with respect to a given year. Each of these factors is
weighed subjectively by Sub-Committee members in determining whether or not a
stock-based incentive should be granted, and such incentives are not granted
routinely. Stock-based incentives were granted under the 2002 Plan to seven
Executive Officers to purchase in the aggregate, 270,850 shares during 2002. In
addition, in January 2002, stock-based incentives were granted to six Executive
Officers to purchase in the aggregate, 57,959 shares outside of any plan. These
option grants were made with respect to 2001 performance. The Committee thinks
it unlikely that any participants in CryoLife's stock plans will, in the
foreseeable future, receive in excess of $1 million in aggregate compensation
(the maximum amount for which an employer may claim a compensation deduction
pursuant to Section 162(m) of the Internal Revenue Code of 1986 unless certain
performance-related compensation exemptions are met) during any fiscal year,
other than those individuals with respect to whom the performance-based
compensation exemption has been satisfied or severance payments are made.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Committee fixed the 2002 salary of Mr. Steven G. Anderson, Chief
Executive Officer of CryoLife, at $600,000 and awarded Mr. Anderson aggregate
cash bonuses of $300,000, paid in 2002 and 2003, for his performance and
significant service to CryoLife in 2002. This exhibits the philosophy of the
Committee as set forth at "--Base Salary" and "--Cash Bonuses" above. In 2002,
Mr. Anderson was granted stock options under the 2002 Plan to purchase 40,000
shares of common stock. Also, in January 2002, stock-based incentives were
granted to Mr. Anderson to purchase 10,000 shares outside of any plan, these
option grants were made with respect to 2001 performance. The Committee and
Sub-Committee believe the compensation of Mr. Anderson, a founder of CryoLife,
reflects their subjective opinions that Mr. Anderson has provided superlative
leadership and fulfilled the functions of an Executive Officer of CryoLife at
the highest level. Included in Mr. Anderson's $300,000 bonus is a $225,000 bonus
awarded on August 14, 2002. The Compensation Committee determined to grant the
9
mid-year bonus in recognition of Mr. Anderson's efforts on behalf of the Company
in addressing important Company issues in difficult times, his long-term service
to the Company, and to accommodate the economic needs of Mr. Anderson arising
from his desire to retain Company shares rather than permit them to be sold
pursuant to a margin call. Mr. Anderson now has no margin loans against his
shares. The amount of this mid-year bonus was taken into consideration when
determining the amount of Mr. Anderson's bonus paid in 2003.
CONCLUSION
The Committee and Sub-Committee believe that the mix of a cash salary and
bonuses and a long-term stock incentive compensation program represents a
balance that has motivated and will continue to motivate CryoLife's management
team to produce the best results possible given overall economic conditions and
the difficulty of predicting CryoLife's performance in the short term.
COMPENSATION ADVISORY
COMMITTEE:
RONALD D. McCALL, CHAIRMAN
VIRGINIA C. LACY
BRUCE J. VAN DYNE, M.D.
COMPENSATION ADVISORY
SUB-COMMITTEE:
VIRGINIA C. LACY
BRUCE J. VAN DYNE, M.D.
10
PERFORMANCE GRAPH
Set forth below is a line-graph presentation comparing the cumulative
shareholder return on CryoLife's common stock, on an indexed basis, against
cumulative total returns of the Russell 2000 Index, and a "peer group" selected
by management of CryoLife. The peer group selected for inclusion in this proxy
statement includes Advanced Tissue Sciences, Inc., Osteotech, Inc., Closure
Medical Corp. and LifeCell Corporation. Each of these companies has securities
traded on the Nasdaq Stock Market. Advanced Tissue and Osteotech were selected
because they had been utilized as a basis for comparison with CryoLife in
reports by analysts for each of the two co-managers of CryoLife's initial public
offering. Management selected LifeCell to be included in the peer group based on
the fact that LifeCell, a developer of tissue engineered products, is also a
biomedical company, and selected Closure Medical based on the fact that Closure
Medical markets tissue adhesive products. The returns for the peer group are
weighted according to each issuer's market capitalization. The performance graph
shows total return on investment for the period beginning December 31, 1997 and
ending December 31, 2002.
[Graph Intentionally Omitted]
VALUE OF $100 INVESTED ON DECEMBER 31, 1997 AT:
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
----------- ---------- ---------- --------- --------- ----------
CRYOLIFE $ 100.00 $ 87.16 $ 86.24 $ 332.86 $ 330.11 $ 75.15
PEER GROUP $ 100.00 $ 86.15 $ 45.17 $ 61.13 $ 52.06 $ 23.47
RUSSELL 2000 INDEX $ 100.00 $ 97.20 $ 116.24 $ 111.22 $ 112.36 $ 88.11
Total return assumes reinvestment of dividends.
11
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by
CryoLife to CryoLife's Chief Executive Officer and the four other most highly
paid Executive Officers of CryoLife in 2002 (the "Named Executives"). The
information presented is for the years ended December 31, 2002, 2001 and 2000.
SUMMARY COMPENSATION TABLE
LONG -TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- ------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) (1) ($) (#) (2) ($) (3)
-------------------------------------- ------- -------------------------- ------------------ -----------------
Steven G. Anderson 2002 $ 600,000 $ 300,000 50,000 $ 29,974
Chairman of the Board of 2001 600,000 300,000 10,000 47,662
Directors, President and Chief 2000 520,000 300,000 30,000 27,638
Executive Officer
Kirby S. Black, Ph.D. 2002 225,000 120,000 48,276 20,975
Senior Vice President, Research 2001 203,000 80,000 9,224 4,250
and Development 2000 176,165 70,000 22,500 10,912
Albert E. Heacox, Ph.D. 2002 225,000 120,000 24,800 16,194
Senior Vice President, 2001 200,000 80,000 10,000 19,807
Laboratory Operations 2000 184,800 60,000 15,000 14,985
David Ashley Lee 2002 220,000 120,000 62,500 5,000
Vice President, Chief Financial 2001 182,000 80,000 22,500 4,250
Officer and Treasurer 2000 132,359 35,000 30,000 3,515
James C. Vander Wyk, Ph.D. 2002 240,000 60,000 25,000 20,975
Vice President, Product Integrity 2001 203,000 80,000 317 16,659
2000 174,625 60,000 15,000 13,429
-----------------
(1) Includes base salary earned by the Named Executives for the periods
presented and includes compensation deferred under CryoLife's 401(k)
plan, and amounts such officers elected to apply to CryoLife's
supplemental life insurance program. Amounts for perquisites and other
personal benefits extended to the Named Executives are less than the
lesser of $50,000 or 10% of the total of annual salary and bonus of such
Named Executive. Accordingly, the column for "Other Annual Compensation"
has been omitted.
(2) During the periods presented, the only form of long-term compensation
utilized by CryoLife has been the grant of stock options. CryoLife has
not awarded restricted stock or stock appreciation rights, or made any
long-term incentive payouts. Accordingly, the columns for "Restricted
Stock Award(s)" and "Long Term Incentive Payouts" have been omitted.
(3) Since the inception of CryoLife's 401(k) plan, CryoLife has made matching
contributions to the plan subject to certain limitations and vesting
requirements. In 1992, CryoLife adopted its supplemental life insurance
program for certain Executive Officers.
12
The following table sets forth, for each of the Named Executives, the
amount of CryoLife's contributions to the 401(k) plan and the supplemental life
insurance program:
2002 2001 2000
--------------------------------- --------------------------------- ------------------------------------
SUPPLEMENTAL SUPPLEMENTAL SUPPLEMENTAL
401(K) LIFE LIFE LIFE
CONTRI- INSURANCE 401(K) INSURANCE 401(K) INSURANCE
NAME TOTAL BUTION PROGRAM TOTAL CONTRIBUTION PROGRAM TOTAL CONTRIBUTION PROGRAM
---- ----- ------- ------------ ----- ------------ ------------ ----- ------------ ------------
Steven G. Anderson $20,974 $5,000 $24,974 $47,662 $ 4,250 $43,412 27,638 $ 5,250 $ 22,388
Kirby S. Black, Ph.D 20,975 5,000 15,975 4,250 4,250 0 10,912 1,741 9,171
Albert E. Heacox, Ph.D 16,194 5,000 11,194 19,807 4,250 15,557 14,985 4,235 10,750
David Ashley Lee 5,000 5,000 0 4,250 4,250 0 3.515 3,515 0
James C. Vander Wyk, Ph.D 20,975 5,000 15,975 16,659 4,250 12,409 13,429 4,299 9,130
Wyk, Ph.D.
Grant of Options. During 2002, options were granted to Steven G. Anderson,
Kirby S. Black, Ph.D., Albert E. Heacox, Ph.D., David Ashley Lee, and James C.
Vander Wyk, Ph.D. No stock appreciation rights (SARs) have been granted by
CryoLife. The following table sets forth information regarding the grants of
options in 2002:
OPTION/SAR GRANTS IN LAST FISCAL YEAR (2002)
NUMBER OF POTENTIAL REALIZABLE
SECURITIES VALUE AT ASSUMED ANNUAL RATES
UNDERLYING % OF TOTAL OF APPRECIATION FOR
OPTIONS/ OPTIONS/SARS OPTION TERM
SARS GRANTED TO EXERCISE -----------------------------
GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH)(1) DATE(2) 5%($) 10%($)
-------------------------------- ---------- --------------- ----------- ----------- -----------------------------
Steven G. Anderson.............. 3,584 5.89% 27.90 5-29-12 62,885.44 159,364.05
1,465 2.20 2-29-08 991.76 2,220.31
10,000 29.25 7-9-07 85,378.26 195,463.69
6,416 27.90 11-29-07 55,145.01 123,474.83
28,535 2.20 2-29-08 19,317.24 43,246.86
Kirby S. Black, Ph.D. .......... 8,276 5.69% 29.25 7-9-07 70,659.05 161,765.75
31,508 2.20 2-29-08 21,329.86 47,752.66
8,492 2.20 2-29-08 5,748.80 12.870.24
Albert E. Heacox, Ph.D. ........ 17,056 2.93% 2.20 2-29-08 11,546.34 25,849.61
7,794 2.20 2-29-08 5,276.28 11,812.37
David Ashley Lee ............... 50,000 8.54% 2.20 2-29-08 33,848.32 75,778.63
10,000 29.25 7-9-07 85,378.26 195,463.69
12,500 2.20 2-29-08 8,462.08 18,944.66
James C. Vander Wyk, Ph.D....... 5,096 4.09% 2.20 2-29-08 3,449.82 7,723.36
19,904 2.20 2-29-08 13,474.34 30,165.96
9,683 29.25 7-9-07 82,671.77 189.267.49
-------------
(1) The exercise price was fixed as the closing price on the date of grant.
(2) Options are subject to earlier termination in the event of death,
disability, retirement, or termination of employment.
Options Exercised. The following table sets forth information regarding the
exercise of options in 2002 and the number of options held by the Named
Executives as listed in the Summary Compensation Table, including the value of
unexercised in-the-money options, as of December 31, 2002. The closing price of
CryoLife's common stock on December 31, 2002 used to calculate such values was
$6.83 share.
13
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR (2002)
AND FISCAL YEAR-END OPTION/SAR VALUES (AS OF DECEMBER 31, 2002)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT YEAR END (#) AT YEAR END ($)
SHARES VALUE ------------------------------- --------------------------------
ACQUIRED ON REALIZED
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------- -------------- ----------- -------------- ------------- --------------- --------------
Steven G. Anderson......... 12,000 $240,000 25,052 152,698 $0 $138,900
Kirby S. Black, Ph.D....... 0 0 10,508 69,492 0 $185,200
Albert E. Heacox, Ph.D..... 0 0 7,850 41,850 0 $115,055
David Ashley Lee........... 0 0 27,579 112,421 0 $289,375
James C. Vander Wyk, Ph.D.. 0 0 12,362 52,638 0 $115,750
2002 Stock Incentive Plan. On March 7, 2002, the Board of Directors
adopted, subject to approval of shareholders, the 2002 Stock Incentive Plan.
Options may be granted under the 2002 Stock Incentive Plan to employees,
Officers or Directors of and consultants and advisors to CryoLife and its
subsidiaries. Unless sooner terminated by the Board, the 2002 Stock Incentive
Plan terminates in March 2012. CryoLife's 2002 Stock Incentive Plan provides for
the grant of options ("Options"), stock appreciation rights ("SARs") and stock
units, performance shares and restricted stock awards (collectively referred to
as "Stock Awards"). Options, SARs and Stock Awards are collectively referred to
herein as "Awards." Awards may be granted under the 2002 Stock Incentive Plan to
acquire up to a maximum of 974,000 shares of common stock. In addition, the
following limitations are imposed under the 2002 Stock Incentive Plan: (i) a
maximum of 974,000 shares may be issued pursuant to Options intended to be
Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), (ii) a maximum of 100,000 shares may be issued
under Options and SARs to any one individual during any consecutive twelve month
period, (iii) a maximum of 100,000 shares in the aggregate may be subject to
Stock Awards, and (iv) a maximum payment under Stock Awards of $400,000 may be
made to any one individual for any performance goals established for any
performance period (including the fair market value of stock subject to Awards
denominated in shares).
1998 Long-Term Incentive Plan. On December 19, 1997, the Board of Directors
adopted, subject to approval of shareholders, the CryoLife 1998 Long-Term
Incentive Plan. As amended in 2000, the 1998 Long-Term Incentive Plan provides
for the grant of options, stock appreciation rights and other awards to acquire
up to a maximum of 900,000 shares of common stock, subject to certain
adjustments. As of March 21, 2003, options for 840,666 shares were outstanding
and options for 66,075 shares had been exercised pursuant to the 1998 Long-Term
Incentive Plan.
CryoLife Amended and Restated Non-Employee Directors Stock Option Plan. The
CryoLife Amended and Restated Non-Employee Directors Stock Option Plan provides
for the grant of options to non-employee Directors of CryoLife. This plan
provides for the grant of options to acquire up to a maximum of 262,500 shares
of common stock. At each Annual Meeting of Shareholders, each non-employee
Director elected, re-elected or continuing as a non-employee Director of
CryoLife receives an annual grant of options to purchase 7,500 shares on the
first business day after such Annual Meeting, which options shall vest and
become exercisable on the date of grant. Except as set forth below, options
granted under this plan are not transferable other than by will or the laws of
descent and distribution. Notwithstanding the foregoing, the optionee may
transfer the option for no consideration to or for the benefit of a member of
the optionee's immediate family (including, without limitation, to a trust or
IRA) subject to such limits as the Board may establish, and the transferee shall
remain subject to all the terms and conditions that were applicable to such
option prior to the transfer. Upon the death of a non-employee Director, options
that were exercisable on the date of death are exercisable by his or her legal
representatives or heirs, but in no event may the option be exercised after the
last day on which it could have been exercised by the non-employee Director. As
of December 31, 2002, options for 195,000 shares had been granted under this
plan and options to purchase 7,500 shares of common stock had been exercised.
14
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2002 with
respect to shares of CryoLife common stock that may be issued under existing
equity compensation plans.
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE NUMBER OF SECURITIES REMAINING
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING AVAILABLE FOR FUTURE ISSUANCE
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND UNDER EQUITY COMPENSATION
WARRANTS AND RIGHTS RIGHTS PLANS (EXCLUDING SECURITIES
REFLECTED IN COLUMN (A))
(A) (B) (C)
--------------------------- --------------------------- --------------------------------
Plans Approved by 1,926,855 $11.26 969,799
Shareholders
Plans Not Approved by 459,209 $15.60 0
Shareholders
TOTAL 2,386,064 $12.10 969,799
Employment Agreements. In September 2002, CryoLife entered into employment
agreements with each of the Named Executive Officers. Except for the length of
employment and position specific terms, such as duties of employment and
compensation, and except as otherwise disclosed below, these employment
agreements are substantially identical. Under Messrs. Anderson, Lee, Vander Wyk,
and Heacox's employment agreements, CryoLife has agreed to employ, and each
Officer has agreed to remain employed by CryoLife, for two years after the
effective date of the employment agreement. Under Mr. Black's employment
agreement, CryoLife has agreed to employ, and the Officer has agreed to remain
employed by CryoLife, for one year after the effective date of the employment
agreement. These employment agreements provide that employment may be terminated
by either party with or without cause. Each Officer may terminate his employment
for good reason, which includes among other things, termination by the Officer
for any reason, at least 90, but not more than 120 days following a Change of
Control (as defined in the employment agreements) or during the 30 day period
immediately following the first anniversary of a Change of Control. The annual
salaries for Messrs. Black, Heacox, Lee and Vander Wyk are $225,000, $225,000,
$220,000 and $240,000, respectively.
Under the employment agreements, upon termination by the employee for good
reason or termination by the Company other than for cause, death or disability,
CryoLife will pay an agreed upon severance payment. The severance payments are
$337,500, $337,500, $330,000 and $360,000 for Messrs. Black, Heacox, Lee and
Vander Wyk, respectively. Upon termination by the Company for cause or by the
employee for any reason other than for good reason, the employment agreements
will terminate and CryoLife will not be obligated to pay any severance amount.
The employment agreements automatically terminate upon death. Each employee is
required to devote his full and exclusive time and attention to his employment
duties. Under the employment agreements, CryoLife has agreed to require any
successor to all or substantially all of the business and/or assets of CryoLife
to assume the employment agreements.
The Compensation Advisory Committee approved the inclusion of a provision
in Mr. Anderson's agreement pursuant to which Ms. Ann B. Anderson, the spouse of
Mr. Anderson, will be provided with health care coverage throughout her life,
regardless of whether the agreement is terminated. This provision is consistent
with the terms of Mr. Anderson's employment agreements negotiated in 1995 and in
1999. In the event CryoLife terminates employment other than for cause, death or
disability or Mr. Anderson terminates employment for good reason, then Mr.
Anderson will be entitled to be paid $900,000 as severance compensation. The
annual salary for Mr. Anderson is $600,000.
Compensation Advisory Committee Interlocks and Insider Participation. The
following three Directors serve on the Compensation Advisory Committee of
CryoLife's Board of Directors: Mr. McCall, Ms. Lacy, and Dr. Van Dyne. Mr.
McCall was the Secretary and Treasurer of CryoLife from 1984 until 2002.
CryoLife has engaged Ronald D. McCall, P.A., a law firm of which Mr. McCall is
the sole shareholder to perform legal services on an ongoing basis. For the year
ended December 31, 2002, CryoLife paid Ronald D. McCall, P.A. approximately
$89,820 for such legal services, including expense reimbursements. Management
15
believes that these services were provided on terms no less favorable to
CryoLife than terms available from unrelated parties for comparable services.
See "Information about the Board of Directors and Committees of the Board -
Director Compensation" regarding consulting fees paid by CryoLife to Dr. Elkins
and Dr. Van Dyne during fiscal 2002.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires CryoLife's
Executive Officers and Directors and persons who beneficially own more than 10%
of CryoLife's stock to file initial reports of ownership and reports of changes
in ownership with the Securities and Exchange Commission. Executive Officers,
Directors and greater than 10% beneficial owners are required by SEC regulations
to furnish CryoLife with copies of all Section 16(a) forms they file.
Based solely on its review of copies of forms received by it pursuant to
Section 16(a) of the Securities Exchange Act of 1934 or written representations
from reporting persons, CryoLife believes that with respect to 2002, all Section
16(a) filing requirements applicable to its Executive Officers, Directors and
greater than 10% beneficial owners were complied with.
CERTAIN TRANSACTIONS
CryoLife employs Mr. Anderson's son, Bruce G. Anderson, 36, as Director of
Cardiovascular Field Services in the Marketing Department. He has held various
positions within the Company since 1994. His salary during 2002 was $122,092.
16
OWNERSHIP OF PRINCIPAL SHAREHOLDERS, NAMED EXECUTIVES,
AND EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP
The name and address of each person or entity who owned beneficially 5% or
more of the outstanding shares of common stock of CryoLife on April 21, 2003,
together with the number of shares owned and the percentage of outstanding
shares that ownership represents is set forth in the following table. The table
also shows information concerning beneficial ownership by each of the Named
Executives and by all Directors and Executive Officers as a group. The number of
shares beneficially owned is determined under the rules of the SEC, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual has sole or shared voting power or investment power and also any
shares that the individual has the right to acquire within 60 days after the
date hereof through the exercise of any stock option or other right. Unless
otherwise indicated, each person has sole investment and voting powers, or
shares such powers with his or her spouse, with respect to the shares set forth
in the following table:
NUMBER OF SHARES OF PERCENTAGE OF
CRYOLIFE STOCK OUTSTANDING SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED OF CRYOLIFE STOCK
-------------------------------------------------------------------- ---------------------- ----------------------
Steven G. Anderson................................................ 1,660,967 (1) 8.43%
Kirby S. Black, Ph.D.............................................. 61,632 (2) *
Albert E. Heacox, Ph.D............................................ 128,396 (3) *
David Ashley Lee.................................................. 52,964 (4) *
James C. Vander Wyk, Ph.D. ....................................... 43,762 (5) *
Private Clients and Asset Management Business Group of Deutsche 1,415,548 (6) 7.20%
Bank AG and its subsidiaries and affiliates
All current Directors and Executive Officers
as a group (13 persons)...................................... 3,486,018 (7) 16.98%
------------------
* Ownership represents less than 1% of outstanding CryoLife common stock.
(1) Includes 107,899 shares held of record by Ms. Ann B. Anderson, Mr.
Anderson's spouse. Also includes 38,387 shares subject to options which are
presently exercisable or will become exercisable within 60 days after the
date of this proxy statement. The business address for Mr. Anderson is: c/o
CryoLife, Inc., 1655 Roberts Blvd., N.W., Kennesaw, Georgia 30144.
(2) Includes 18,500 shares subject to options which are either presently
exercisable or will become exercisable within 60 days after the date of
this proxy statement. Also includes 225 shares held by Dr. Black's minor
children.
(3) Includes 10,850 shares subject to options which are either presently
exercisable or will become exercisable within 60 days after the date of
this proxy statement. Also includes 45,000 shares owned by Dr. Heacox's
spouse as trustee of a living trust, 72,346 shares owned by Dr. Heacox as
trustee of a living trust, 100 shares owned by Albert E. Heacox C/F Rachel
K. Heacox, UTMA/GA and 100 shares owned by Albert E. Heacox C/F Daniel A.
Heacox, UTMA/GA. Dr. Heacox disclaims beneficial ownership of all shares
owned by his son and daughter.
(4) Includes 39,474 shares subject to options which are either presently
exercisable or will become exercisable within 60 days after the date of
this proxy statement. Also includes 1,700 shares held in Mr. Lee's parents'
account over which Mr. Lee has signing authority. Also includes 1,500
shares held by Mr. Lee's minor children.
(5) Includes 14,362 shares subject to options which are either presently
exercisable or will become exercisable within 60 days after the date of
this proxy statement.
(6) Based upon information included in a Schedule 13G/A filed on February 11,
2003. The business address of Private Clients and Asset Management Business
Group of Deutsche Bank AG and its subsidiaries and affiliates is:
Taunusanlage 12, D-60325, Frankfurt am Main, Federal Republic of Germany
based on the Schedule 13G/A.
(7) See "Election of Directors" for information as to the beneficial ownership
of shares attributed to Directors who are not also Named Executives.
Includes 869,410 shares subject to options which are presently exercisable
or will become exercisable within 60 days after the date of this proxy
statement. Includes 117,346 shares held as trustees by an Executive Officer
and his spouse. Includes 355,280 shares held as beneficiary of three
trusts, and 165,879 shares held as beneficiary of an IRA, of Ms. Lacy's
deceased spouse. Includes 22,500 shares held as administrator of a pension
plan. Includes 19,500 shares held by CT Investments, LLC of which Mr. Cook
owns 90% of the membership interests. Includes 123,899 shares held of
record by the spouses of Executive Officers and Directors. Includes 1,925
shares held of record by the minor children of Executive Officers and
Directors. Includes 1,700 shares held by Mr. Lee's parents.
17
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, CryoLife's independent accountants for fiscal year
2002, are expected to be engaged to audit the financial statements of CryoLife
for the fiscal year ended December 31, 2003. It is expected that a
representative of Deloitte & Touche LLP will be present at the Annual Meeting to
respond to any appropriate questions and to make a statement on behalf of his or
her firm, if such representative so desires.
At a meeting held on April 5, 2002, the Audit Committee recommended and the
Board approved the dismissal of Arthur Andersen LLP ("AA"), as independent
auditors of CryoLife effective April 9, 2002.
The reports of AA on CryoLife's financial statements for the two fiscal
years ended December 31, 2001 and December 31, 2000 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
During the Company's fiscal years ended December 31, 2001 and 2000, and in
the subsequent interim period through April 9, 2002, there were no disagreements
with AA on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of AA would have caused AA to make reference to the matter in their
report. CryoLife requested AA to furnish it a letter addressed to the Commission
stating whether it agrees with the above statements. A copy of that letter,
dated April 10, 2002 is filed as Exhibit 16 to the Company's Form 8-K filed on
April 11, 2002.
There were no "reportable events" as that term is described in Item
304(a)(1)(v) of Regulation S-K for the two fiscal years ended December 31, 2001
and December 31, 2000 or for the subsequent interim period through April 9,
2002.
On May 3, 2002, the Audit Committee recommended and the Board approved the
engagement of Deloitte & Touche LLP as its independent auditor for the fiscal
year ending December 31, 2002 effective immediately.
During CryoLife's fiscal years ended December 31, 2001 and 2000, and in the
subsequent interim period through May 3, 2002, neither CryoLife nor anyone
acting on its behalf consulted Deloitte & Touche LLP with respect to either (i)
the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
CryoLife's consolidated financial statements, or (ii) any matter that was either
the subject of a disagreement or any other matters or reportable events as set
forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
TRANSACTION OF OTHER BUSINESS
As of the date of this Proxy Statement, the Board is not aware of any
matters other than those set forth herein and in the Notice of Annual Meeting of
Stockholders that will come before the meeting. Should any other matters arise
requiring the vote of stockholders, it is intended that proxies will be voted in
respect thereto in accordance with the best judgment of the person or persons
voting the proxies.
SHAREHOLDER PROPOSALS
Appropriate proposals of shareholders intended to be presented at
CryoLife's 2004 Annual Meeting of Shareholders pursuant to Rule 14a-8
promulgated under the Securities Exchange Act of 1934 must be received by
CryoLife by January 1, 2004 for inclusion in its proxy statement and form of
proxy relating to that meeting. In addition, all shareholder proposals submitted
outside of the shareholder proposal rules promulgated pursuant to Rule 14a-8
under the Exchange Act must be received by CryoLife by no later than January 31,
2004 but no earlier than November 2, 2003, in order to be considered timely. If
such shareholder proposals are not timely received, proxy holders will have
discretionary voting authority with regard to any such shareholder proposals
which may come before the 2004 Annual Meeting. If the month and day of the next
annual meeting is advanced or delayed by more than 30 calendar days from the
18
month and day of the annual meeting to which this proxy statement relates,
CryoLife shall, in a timely manner, inform its shareholders of the change, and
the date by which proposals of shareholders must be received.
UPON THE WRITTEN REQUEST OF ANY RECORD OR BENEFICIAL OWNER OF COMMON STOCK
OF CRYOLIFE WHOSE PROXY WAS SOLICITED IN CONNECTION WITH THE 2003 ANNUAL MEETING
OF SHAREHOLDERS, CRYOLIFE WILL FURNISH SUCH OWNER, WITHOUT CHARGE, A COPY OF ITS
ANNUAL REPORT ON FORM 10-K WITHOUT EXHIBITS FOR ITS FISCAL YEAR ENDED DECEMBER
31, 2002. REQUESTS FOR A COPY OF SUCH ANNUAL REPORT ON FORM 10-K SHOULD BE
ADDRESSED TO SUZANNE GABBERT, CORPORATE SECRETARY, CRYOLIFE, INC., 1655 ROBERTS
BOULEVARD, N.W., KENNESAW, GEORGIA 30144.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO SIGN, COMPLETE, DATE AND
RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE, TO WHICH NO POSTAGE NEED BE
AFFIXED.
By Order of the Board of Directors
/s/ Steven G. Anderson
STEVEN G. ANDERSON, Chairman
of the Board, President and Chief
Dated: April 30, 2003 Executive Officer
19
APPENDIX A
AUDIT COMMITTEE CHARTER
ORGANIZATION
There shall be a committee of the Board of Directors to be known as the
Audit Committee. The Audit Committee shall be composed of at least three
Directors who are free of any relationship that, in the opinion of the Board of
Directors, would interfere with their exercise of independence from management
and the company as a committee member, and who otherwise meet The New York Stock
Exchange's definition of "independent" and the definition of "independence"
contained in Section 10A(m)(3) of the Securities Exchange Act of 1934, as
amended. In addition, each Audit Committee member shall be financially literate,
as such qualification is interpreted by the Company's Board of Directors in its
business judgment. Committee members cannot serve on the audit committees of
more than two other companies.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the corporate Directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community relating to corporate accounting, reporting practices of
the corporation, and the quality and integrity of the financial reports of the
corporation. In so doing, it is the responsibility of the Audit Committee to
maintain free and open means of communication between the Directors, the
independent auditors, and the financial management of the corporation. The Audit
Committee shall have full access, without restriction, to all information, which
it believes, in the members' judgment, is required to fulfill its
responsibilities. The independent auditors are accountable to the Audit
Committee as shareholder representatives.
RESPONSIBILITIES
In carrying out its responsibilities, the Audit Committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the Directors and shareholders that the
corporate accounting and reporting practices of the corporation are in
accordance with all requirements and are of the highest quality. The Audit
Committee shall meet at least four times annually.
In carrying out these responsibilities, the Audit Committee will:
1. Select and oversee the independent auditors to audit the financial
statements of the corporation and its divisions and subsidiaries. The
accountability of the independent auditors is to the Audit Committee,
and the Audit Committee shall have the sole power to dismiss the
independent auditors. The Audit Committee is responsible for
evaluating auditor independence.
2. Meet with the independent auditors and financial management of the
corporation to review the scope of the proposed audit for the current
year and the audit procedures to be utilized, and at the conclusion
thereof review such audit, including any comments or recommendations
of the independent auditors.
3. Review at least annually with the independent auditors, and the
financial and accounting personnel of the company, the quality and
adequacy of financial statements and financial disclosures and
effectiveness of the accounting and financial controls of the
corporation, and elicit any recommendations for the improvement of
such internal control procedures or particular areas where new or more
detailed controls or procedures are desirable. Significant major costs
and expenses should be discussed, along with the steps management has
taken to monitor and control such expenses. Particular emphasis should
be given to the adequacy of such internal controls to expose any
payments, transactions, or procedures that might be deemed illegal or
otherwise improper. Further, the committee periodically should review
company policy statements to determine their adherence to the code of
conduct.
A-1
4. Obtain and review on a periodic basis statements of the outside
auditor delineating all relationships between the auditor and the
company and actively engage the outside auditor in a dialogue with
respect to any relationships or services that may impact on the
objectivity and independence of the outside auditor and recommend that
the Board of Directors take appropriate action in response to the
outside auditors' report to satisfy itself of the outside auditors'
independence.
5. Approve fee arrangements with the independent auditors for audit and
non-audit services and annually review fees paid to the firm.
6. Review the experience and qualifications of the senior members of the
independent auditors' team.
7. Pre-approve the retention of the independent auditors for any audit
(including comfort letters and statutory audits) or non-audit
services.
8. Review and discuss with the independent auditors and with management
the annual audited financial statements and management's discussion
and analysis contained in the annual report to shareholders and Form
10-K prior to release to the public or filing with the appropriate
agencies.
9. Review and discuss with the independent auditors and with management,
the earnings press releases prior to release to the public.
10. Require that the independent auditors conduct an SAS 71 Interim
Financial Review before the Company files its Form 10-Q.
11. Meet with the independent auditors at the conclusion of the audit to
review the results. Discuss the independent auditors' evaluation of
CryoLife's financial, accounting, and auditing personnel, the level of
cooperation that the independent auditors received during the course
of the audit, accounting adjustments, significant auditing or
accounting issues, and any management or internal control letters
issued or proposed to be issued.
12. Review and discuss with management and independent auditors the
Company's quarterly financial statements and management's discussion
and analysis prior to filing Form 10-Q, including the results of the
auditors' review of the quarterly financial statements.
13. Obtain and review at least annually a written report from the
independent auditors describing their internal quality control
procedures; any material issues raised by the most recent internal
quality control review, or peer review, of them, or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits
carried out by them and any steps taken to deal with any such issues;
and all relationships between the independent auditor and the Company.
After reviewing this report, the Committee should evaluate the
independent auditors' qualifications, performance and independence and
present its conclusions to the full Board.
14. Obtain and review at least annually a written report from the
independent auditors describing all critical accounting policies and
practices to be used by CryoLife; all alternative treatments of
financial information within generally accepted accounting principles
that have been discussed with CryoLife management; ramifications of
the use of such alternative disclosures and treatments, and the
treatments preferred by the independent auditors; and other material
written communications between the independent auditors and
management, such as any management letter or schedule of unadjusted
differences.
15. Provide sufficient opportunity for the independent auditors to meet
with the members of the Audit Committee without members of management
present. Among the items to be discussed in these meetings are the
independent auditors' evaluation of the corporation's financial,
accounting, and auditing personnel, and the cooperation that the
A-2
independent auditors received during the course of the audit.
16. Submit the minutes of all meetings of the Audit Committee to, or
discuss the matters discussed at each committee meeting with, the
Board of Directors.
17. Meet separately, at least quarterly with internal operations review,
with the independent auditors, and with management.
18. Review the adoption, application and disclosure of the Company's
critical accounting policies and any changes thereto.
19. Periodically review CryoLife's Code of Business Conduct, including the
results of the review by internal operations review of compliance with
the Code.
20. Review CryoLife's internal operations review function including its
performance, independence and authority, its proposed audit plans and
scope for the ensuing year, and the coordination of such plans with
the independent auditors.
21. Receive, prior to each meeting as appropriate, from the internal
operations review function and the independent auditors, reports
summarizing the findings of completed internal reviews, and a progress
report of accomplished versus planned activities. Any deviations from
planned activities should be adequately explained.
22. Review and approve the Committee's report required by the SEC to be
included in the Company's annual Proxy Statement.
23. Review and approve significant related party transactions.
24. Determine that the disclosures and content of the financial statements
are satisfactory for submission to the shareholders and for filing
with the Securities and Exchange Commission. Such determination will
be made through discussions with independent auditors and executive
and financial management.
25. Establish procedures for the receipt, retention and treatment of
complaints received by CryoLife regarding accounting, internal
accounting controls or auditing matters, and the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
26. Review public reports and articles brought to the Committee's
attention by the auditors or management in which CryoLife accounting
practices are mentioned.
27. Review the quality and sufficiency of the accounting and financial
resources required to meet the financial and reporting objectives as
determined by the Committee. Review the succession planning process
for the accounting and financial areas.
28. Review and determine appropriateness of the Company hiring any
employee or former employee of the Company's independent auditors and
set clear hiring policies with respect thereto.
29. Review all allegations brought to the Committee's attention,
regardless of source, of inappropriate or improper accounting
practices.
30. Investigate any matter brought to its attention within the scope of
its duties. The Committee shall have the power to retain outside
counsel and/or advisors, including a public accounting firm other than
A-3
the current independent auditor, if in its judgment that is
appropriate, and shall have appropriate funding to compensate such
advisors.
31. Discuss financial information and earnings guidance provided to
analysts and rating agencies.
32. Establish a standard of conduct concerning relationships of
management, the Committee, and individual Board members with the
independent auditors and review those relationships on an annual
basis.
33. Evaluate annually the performance of the Audit Committee.
34. Review and assess the adequacy of this Charter annually and recommend
any changes to the Board for approval.
A-4
ANNEX
CRYOLIFE, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR USE AT THE ANNUAL MEETING ON JUNE 19, 2003
The undersigned shareholder hereby appoints STEVEN G. ANDERSON and SUZANNE
K. GABBERT, or any of them, with full power of substitution, to act as proxy
for, and to vote the stock of, the undersigned at the Annual Meeting of
Shareholders of CRYOLIFE, INC. to be held on June 19, 2003, and any adjournments
thereof.
The undersigned acknowledges receipt of Notice of the Annual Meeting and
Proxy Statement, each dated April 30, 2003, and grants authority to said
proxies, or their substitutes, and ratifies and confirms all that said proxies
may lawfully do in the undersigned's name, place and stead. The undersigned
instructs said proxies to vote as indicated below and on the reverse hereof.
|X| Please mark your votes
as in this example.
FOR election of the REFRAIN FROM
individuals set forth at VOTING FOR election
right (except as marked to of the nominees set forth
the contrary) at right
1. ELECTION OF |_| |_| Nominees:
DIRECTORS
Steven G. Anderson
THE PROXIES SHALL VOTE AS
John M. Cook SPECIFIED ABOVE, OR IF NO
DIRECTION IS MADE, THIS
(INSTRUCTIONS: To withhold authority Ronald C. Elkins, M.D. PROXY WILL BE VOTED FOR
to vote for any individual nominee(s), write EACH OF THE LISTED
those persons' names on the space provided Virginia C. Lacy NOMINEES.
below):
Ronald D. McCall, Esq.
------------------------------------------
Bruce J. Van Dyne, M.D PLEASE VOTE, SIGN, DATE
AND RETURN THIS PROXY
CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
2. Upon such other matters as may properly come before the meeting.
Signature_________________________ Date__________________ Signature______________________ Date_______________
NOTE:(Shareholders should sign exactly as name appears on stock. When there is
more than one owner each should sign. Executors, Administrators, Trustees
and others signing in a representative capacity should so indicate.)
-------------------------------------------------------------------------------
ADMISSION TICKET
[CRYOLIFE LOGO]
2003 ANNUAL MEETING OF STOCKHOLDERS
NON-TRANSFERABLE June 19, 2003 NON-TRANSFERABLE
10:00 a.m.
CryoLife, Inc.
1655 Roberts Blvd. N.W.
Kennesaw, Georgia 30144
--------------------------------------------------------------------------------
24
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
Please date and sign your proxy card and mail it
back as soon as possible!
Annual Meeting of Shareholders of
CRYOLIFE, INC.
June 19, 2003
at
CRYOLIFE, INC.
1655 ROBERTS BOULEVARD, NW
KENNESAW, GEORGIA 30144
10:00 A.M.
25