Other definitive proxy statements


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

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Check the appropriate box:

¨ Preliminary Proxy Statement
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x Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material under § 240.14a-12

CRYOLIFE, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LOGO

1655 ROBERTS BOULEVARD, NW

KENNESAW, GEORGIA 30144

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO THE STOCKHOLDERS OF CRYOLIFE, INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of CRYOLIFE, INC. (the “Annual Meeting”) will be held at CryoLife, Inc.’s Corporate Headquarters, 1655 Roberts Boulevard, NW, Kennesaw, Georgia 30144, on May 21, 2014 at 10:00 a.m., Atlanta time, for the following purposes:

1.

To elect as Directors the eight nominees named in the attached proxy statement to serve until the next Annual Meeting of Stockholders or until their successors are elected and have been qualified.

2.

To approve, by non-binding vote, the compensation paid to CryoLife’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion.

3.

To approve the CryoLife, Inc. Second Amended and Restated 2009 Stock Incentive Plan.

4.

To ratify the selection of Ernst & Young LLP as the independent registered public accounting firm for the company for the fiscal year ending December 31, 2014.

5.

To transact such other business as may be properly brought before the meeting or any adjournments thereof.

Only record holders of CryoLife’s common stock at the close of business on March 19, 2014, 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 card in the envelope provided or vote by telephone or internet as directed on the enclosed proxy card. If you attend the meeting, you may revoke your proxy and vote in person.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on May 21, 2014. Pursuant to rules promulgated by the Securities and Exchange Commission, we have elected to provide access to our proxy materials both by: (i) sending you this full set of proxy materials, including a proxy card; and (ii) notifying you of the availability of our proxy materials on the internet. This proxy statement, the related proxy card, and our 2013 Annual Report to Stockholders are available on our corporate website and may be accessed at www.cryolife.com by clicking on “About CryoLife,” then “Investor Relations” and then “Annual Meeting Materials.” In accordance with such rules, we do not use “cookies” or other software that identifies visitors accessing these materials on our website.

By Order of the Board of Directors:
LOGO

STEVEN G. ANDERSON

Chairman of the Board, President, and
Chief Executive Officer

Date: April 8, 2014

A copy of CryoLife’s 2013 Annual Report to Stockholders, which includes CryoLife’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, containing financial statements, is enclosed.


LOGO

1655 ROBERTS BOULEVARD, NW

KENNESAW, GEORGIA 30144

PROXY STATEMENT

FOR ANNUAL MEETING OF STOCKHOLDERS

This proxy statement is furnished for the solicitation of proxies by the Board of Directors of CryoLife, Inc. (“CryoLife,” the “company,” “we,” or “us”) for CryoLife’s Annual Meeting of Stockholders to be held on May 21, 2014, at 10:00 a.m., Atlanta time. The meeting will be held in the auditorium at CryoLife Corporate Headquarters, 1655 Roberts Boulevard, NW, Kennesaw, Georgia 30144. The sending in of a signed proxy will not affect a stockholder’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 stockholder sending in or completing a proxy may also revoke it at any time before it is exercised by giving timely notice to Suzanne K. Gabbert, Corporate Secretary, CryoLife, Inc., 1655 Roberts Boulevard, NW, Kennesaw, Georgia 30144 (770) 419-3355.

Holders of record of CryoLife’s common stock at the close of business on March 19, 2014 will be eligible to vote at the meeting. CryoLife’s stock transfer books will not be closed. At the close of business on March 19, 2014, CryoLife had outstanding a total of 28,071,815 shares of common stock, excluding a total of 495,394 shares of treasury stock held by CryoLife, which are not entitled to vote. Each outstanding share of common stock 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 be properly brought before the meeting, the persons named on the enclosed proxy card 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 card were first mailed to stockholders on behalf of CryoLife on or about April 8, 2014. Properly executed proxies, timely returned, will be voted as indicated by the stockholder where the person solicited specifies a choice with respect to any matter to be acted upon at the meeting. If the person solicited does not specify a choice with respect to election of Directors, approval of the compensation paid to CryoLife’s named executive officers, approval of the CryoLife, Inc. Second Amended and Restated 2009 Stock Incentive Plan, or ratification of the company’s independent registered public accounting firm, the shares will be voted for management’s nominees for election as Directors, for approval of the compensation paid to CryoLife’s named executive officers, for approval of the CryoLife, Inc. Second Amended and Restated 2009 Stock Incentive Plan, and for ratification of the company’s independent registered public accounting firm. 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, email, 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 names 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 Corporate Secretary of CryoLife, in consultation with the inspector 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 whether the name signed on each proxy card corresponds to the name of a stockholder of CryoLife. The Corporate Secretary, based on such consultation, shall also determine whether or not a quorum of the shares of common stock of CryoLife, consisting of a majority of the shares entitled to vote at the Annual Meeting, exists at the Annual Meeting. Abstentions from voting will be counted for the purpose of determining the presence or absence of a quorum for the transaction of business. Broker non-votes will be disregarded with respect to all proposals. A

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broker non-vote occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting authority and has not received voting instructions from the beneficial owner.

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 eight Directorships to be filled, this means that the eight individuals receiving the most votes will be elected. Abstentions and broker non-votes will therefore not be relevant to the outcome.

The advisory votes cast for the approval of the compensation paid to CryoLife’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, must exceed the votes cast against the approval of such compensation in order for it to be approved. Accordingly, abstentions and broker non-votes will not be relevant to the outcome.

The affirmative vote of a majority of the votes cast, either for, against, or abstain, by the holders of the shares of common stock voting in person or by proxy at the meeting is required to approve the CryoLife, Inc. Second Amended and Restated 2009 Stock Incentive Plan, in order to comply with the requirements of both Florida law, the company’s Bylaws, and the New York Stock Exchange (“NYSE”) rules. Accordingly, abstentions will have the effect of a vote against the proposal to approve the CryoLife, Inc. Second Amended and Restated 2009 Stock Incentive Plan, and broker non-votes will be disregarded.

The votes cast for the ratification of the appointment of Ernst & Young LLP as CryoLife’s independent registered accounting firm must exceed the votes cast against the ratification in order for it to be approved. Accordingly, abstentions and broker non-votes will not be relevant to the outcome.

Shares represented at the annual meeting in person or by proxy are counted for quorum purposes, even if they are not voted on one or more matters. Please note that brokers holding shares for a beneficial owner that have not received voting instructions with respect to the ratification of the appointment of Ernst & Young LLP will have discretionary voting authority with respect to this matter; however, such brokers who do not receive voting instructions with respect to the election of Directors, the approval of the compensation paid to CryoLife’s named executive officers, and the approval of the CryoLife, Inc. Second Amended and Restated 2009 Stock Incentive Plan may not vote the beneficial owner’s shares with respect to these matters.

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 stockholders as of the record date, their authorized proxy holders, and guests of CryoLife. Admission will be by ticket only. If you are a registered stockholder (your shares are held of record in your name) and plan to attend the meeting, please detach your Admission Ticket from the top portion of the proxy card and bring it with you to the meeting. If you are a beneficial owner (your shares are held in the name of a bank, broker, or other holder of record) and you plan to attend the meeting, you can obtain an Admission Ticket in advance by writing to Suzanne K. Gabbert, Corporate Secretary, CryoLife, Inc., 1655 Roberts Boulevard, NW, Kennesaw, Georgia 30144. Please be sure to enclose proof of ownership, such as a bank or brokerage account statement. Stockholders and proxy holders who do not obtain tickets in advance may obtain them upon verification of ownership or proxy authority at the reception desk on the day of the meeting. Tickets may be issued to others at the discretion of CryoLife. If you are a beneficial owner, in order to vote your shares at the meeting you must obtain a proxy from the record holder of your shares.

RECOMMENDATIONS OF THE BOARD OF DIRECTORS

The Board of Directors of CryoLife recommends a vote “FOR” the election of each nominee for Director named below, “FOR” approval of the compensation paid to CryoLife’s named executive officers, “FOR” approval of the CryoLife, Inc. Second Amended and Restated 2009 Stock Incentive Plan, and “FOR” ratification of the independent registered public accounting firm.

ELECTION OF DIRECTORS

Directors of CryoLife elected at the Annual Meeting to be held on May 21, 2014, will hold office until the next Annual Meeting or until their successors are elected and have been qualified.

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Each of the nominees is currently a Director of CryoLife and 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, it is the intention of the persons named on the proxy card, unless otherwise specifically instructed in the proxy, to vote for the election of such other person as the Board may recommend.

The following table sets forth the name and age of each nominee, the period during which each such person has served as a Director, the number of shares of CryoLife’s common stock beneficially owned, either 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 March 19, 2014, according to information received by CryoLife. None of the shares of stock noted below are subject to a pledge or similar arrangement.

Name of Nominee Service as Director Age

Shares of

CryoLife Stock

Beneficially Owned (1)

(#)

Percentage of

Outstanding
Shares

of CryoLife Stock

(%)

Steven G. Anderson

Since 1984

75 1,958,089 (2) 6.86

Thomas F. Ackerman

Since 2003

59 65,000 (3) *

James S. Benson

Since 2005

74 70,000 (3) *

Daniel J. Bevevino

Since 2003

54 65,000 (3) *

Ronald C. Elkins, M.D.

Since 1994

77 86,000 (3) *

Ronald D. McCall, Esq.

Since 1984

77 153,162 (4) *

Harvey Morgan

Since 2008

72 56,250 (5) *

Jon W. Salveson

Since 2012

49 45,000 (3) *

* Ownership represents less than 1% of the 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)

This amount includes 107,924 shares held by Ms. Ann B. Anderson, Mr. Anderson’s spouse, 471,083 shares subject to options that are either presently exercisable or will become exercisable within 60 days after March 19, 2014, and 125,001 shares of unvested restricted stock subject to forfeiture that Mr. Anderson holds as of March 19, 2014. This amount does not include 37,251 shares earned under 2012 and 2013 performance stock unit awards that had not vested as of March 19, 2014, and that will not vest within 60 days thereafter, or performance stock units granted in February 2014 (41,667 shares at target performance).

(3)

This amount includes 10,000 shares of unvested restricted stock.

(4)

This amount includes 16,000 shares of common stock owned of record by Ms. Marilyn B. McCall, Mr. McCall’s spouse, and 10,000 shares of unvested restricted stock.

(5)

This amount includes 23,000 shares held by Ms. Suzanne B. Morgan, Mr. Morgan’s spouse, and 10,000 shares of unvested restricted stock.

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 40 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 Boston Scientific Corp.), a manufacturer and distributor of pacemakers and other medical devices. Mr. Anderson is a graduate of the University of Minnesota.

The Board has determined that Mr. Anderson, a founder of the company, should serve as Director of CryoLife because of his business acumen and vast experience in the life sciences industry and personal knowledge of the company and its history. Further, the Board believes that it is appropriate and useful to have the Chief Executive Officer of CryoLife serve as a member of the Board.

Thomas F. Ackerman has served as a Director of CryoLife since December 2003. Mr. Ackerman is Executive Vice President and Chief Financial Officer of Charles River Laboratories International, Inc. (NYSE: CRL), a position he has held since 2005. Charles River Laboratories is a leading global provider of solutions that accelerate the early-stage drug discovery and development process, with a focus on in vivo biology, including research models and services required to enable in vivo drug discovery and development. From 1999 to 2005, he served as Senior Vice President and Chief Financial Officer, and from 1996 to 1999, he served as Vice President and Chief Financial Officer of Charles River Laboratories, where he has been employed since 1988. Mr. Ackerman is a Director of the University of Massachusetts Amherst Foundation. Mr. Ackerman received a B.S. in Accounting from the University of Massachusetts and became a certified public accountant in 1979 (his license is currently inactive).

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The Board has determined that Mr. Ackerman should serve as a Director of CryoLife because of his expertise in accounting and financial reporting, particularly in the biotechnology industry.

James S. Benson has served as a Director of CryoLife since December 2005. Mr. Benson retired from the Advanced Medical Device Association (“AdvaMed”, formerly known as The Health Industry Manufacturers Association, “HIMA”) in July 2002 as Executive Vice President for Technical and Regulatory Affairs. He was employed by AdvaMed from January 1993 through June 2002. Prior to that, he was employed by the Food and Drug Administration (“FDA”) for 20 years, where he held a number of senior positions. He retired from the FDA as Director of the Center for Devices and Radiological Health (“CDRH”) in December of 1992. Prior to his position as Center Director, he served as Deputy Commissioner from July 1988 through July 1991. During that period, he served as Acting Commissioner for one year, from December 1989 through November 1990. Prior to his position as Deputy Commissioner, he served as Deputy Director of the Center for Devices and Radiological Health from 1978 to 1982. In 2003, Mr. Benson was engaged by the law firm representing a Special Litigation Committee of the Board of Directors of the company to serve as an expert witness in connection with the Special Litigation Committee’s independent investigation into allegations made by the plaintiffs in the stockholder derivative lawsuit filed against the company’s Directors, which was settled in 2005. Mr. Benson also was engaged to serve as an expert witness by a different law firm representing the company in the securities class action stockholder lawsuit filed against the company, which was also settled in 2005. Mr. Benson received a B.S. in Civil Engineering from the University of Maryland in 1962 and an M.S. in Nuclear Engineering from the Georgia Institute of Technology in 1969.

The Board has determined that Mr. Benson should serve as a Director of CryoLife because of his past business experience in the biotechnology industry and his distinguished tenure with the FDA, as well as the particular knowledge and expertise he acquired in these positions with respect to regulatory issues in the healthcare field.

Daniel J. Bevevino has served as a Director of CryoLife since December 2003. From 1996 until March of 2008, Mr. Bevevino served as the Vice President and Chief Financial Officer of Respironics, Inc. (Nasdaq: RESP), a company that develops, manufactures, and markets medical devices used primarily for the treatment of patients suffering from sleep and respiratory disorders, where he was employed since 1988. In March 2008, Respironics was acquired by Royal Philips Electronics (NYSE: PHG), whose businesses include a variety of medical solutions including medical diagnostic imaging and patient monitoring systems, as well as businesses focused on energy efficient lighting and consumer products. From March 2008 to December 31, 2009, Mr. Bevevino was employed by Philips as the Head of Post-Merger Integration – Respironics, as well as in various operating capacities, to help facilitate the integration of the combined companies. He is currently an independent consultant providing interim chief financial officer services in the life sciences industry, and he currently serves as a director of one of those companies for which he provides services. He began his career as a certified public accountant with Ernst & Young (his license is currently inactive). Mr. Bevevino received a B.S. in Business Administration from Duquesne University and an M.B.A. from the University of Notre Dame.

The Board has determined that Mr. Bevevino should serve as a Director of CryoLife because of his expertise in accounting and financial reporting, particularly in the medical device industry.

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 Sciences 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.

The Board has determined that Dr. Elkins should serve as a Director of CryoLife because of his education and experience in the medical field, particularly with respect to cardiovascular surgery.

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; however, Mr. McCall has never been an employee of the company and did not receive any compensation for his service as Secretary and Treasurer of the company other than the company’s standard compensation provided to Directors. From 1985 to the present, Mr. McCall has been the owner of the law firm of Ronald D. McCall, P.A., based in Tampa, Florida. Mr. McCall was admitted to the practice of law in Florida in 1961. Mr. McCall received a B.A. and a J.D. from the University of Florida.

The Board has determined that Mr. McCall should serve as a Director of CryoLife because of his legal training and experience. Also, the Board believes that his long-standing involvement with CryoLife provides him with a unique perspective on current issues facing the company.

Harvey Morgan has served as a Director of CryoLife since May 2008. Mr. Morgan has more than 40 years of investment banking experience, with significant expertise in strategic advisory services, mergers and acquisitions, private placements, and underwritings. He served as a Managing Director of the investment banking firm Bentley Associates, L.P. from 2004 to December 31, 2012, and from 2001 to 2004 he was a Principal of Shattuck Hammond Partners, an independent investment banking and financial

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advisory firm. Mr. Morgan also serves on the Board of Family Dollar Stores, Inc. (NYSE: FDO) and previously served on the Board of Cybex International, Inc. (Nasdaq: CYBI). Mr. Morgan received his undergraduate degree from The University of North Carolina at Chapel Hill and an M.B.A. from The Harvard Business School.

The Board has determined that Mr. Morgan should serve as a Director of CryoLife because of his past business experience, particularly with respect to investment banking and capital markets.

Jon W. Salveson has served as a Director of CryoLife since May 2012. Mr. Salveson is the Vice Chairman, Investment Banking and Chairman of the Healthcare Investment Banking Group at Piper Jaffray Companies (NYSE: PJC). He joined Piper Jaffray in 1993 as an associate, was elected Managing Director in 1999, and was named the Group Head of Piper Jaffray’s international healthcare investment banking group in 2001. Mr. Salveson was appointed Global Head of Investment Banking and a member of the Executive Committee of Piper Jaffray in 2004, and has served in his present position as Vice Chairman, Investment Banking since July 2010. Mr. Salveson also serves on the Board of Sunshine Heart, Inc. (NASDAQ: SSH). Mr. Salveson received his undergraduate degree from St. Olaf College and an M.M.M. in finance from the Kellogg Graduate School of Management at Northwestern University.

The Board has determined that Mr. Salveson should serve as a Director of CryoLife because of his considerable experience in investment banking in the healthcare industry. Mr. Salveson has advised CryoLife in particular with respect to numerous transactions.

CORPORATE GOVERNANCE

Information about the Board of Directors

Our Board of Directors believes that the purpose of corporate governance is to maximize stockholder value in a manner consistent with legal requirements and the highest standards of integrity. The Board has adopted and adheres to corporate governance practices that the Board and senior management believe promote this purpose, are sound, and represent best practices. The Board reviews these practices on an ongoing basis.

Director Independence

The Board has adopted certain categorical standards that provide that the following relationships, if existing within the preceding three years, will be considered material relationships that would impact a Director’s independence, measured consistently with the NYSE’s interpretation of independence in Section 303A.02 of the NYSE’s listing standards:

•

The Director is or was employed by us, or an immediate family member of the Director is or was employed by us, as an executive officer

•

The Director or an immediate family member of the Director received or receives more than $120,000 per year in direct compensation from us, other than Director and committee fees and pension or other forms of deferred compensation for prior service, provided such compensation is not contingent in any way on continued service

•

The Director was employed by or affiliated with our present or former internal auditors or independent registered public accounting firm

•

An immediate family member of the Director was a partner at our present or former internal auditors or independent registered public accounting firm or, as an employee of our present or former internal auditors or independent registered public accounting firm, personally worked on our audit

•

The Director or an immediate family member of the Director is or was employed as an executive officer of another company where any of our current executive officers serve on that company’s compensation committee

•

The Director is an executive officer or employee, or an immediate family member of the Director is an executive officer, of another company that makes payments to or receives payments from us, for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or two percent of the other company’s consolidated gross revenues

The Board has adopted categorical standards that provide that the following commercial or charitable relationships will not be considered to be material relationships that would impair a Director’s independence:

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•

If a CryoLife Director is a partner, executive officer, or controlling stockholder of another company or business that does business with us, and the annual amount paid to, or received from, us in the preceding calendar year, or expected to be paid or received in the current calendar year, is less than $120,000 and is also less than fifteen percent of the annual revenues of the other company or business in that year

•

If a CryoLife Director provides professional services to CryoLife, such as legal, investment banking, or consulting services, either individually or through a personal corporation, and the annual amount received from us in the preceding calendar year, or expected to be received in the current calendar year, is less than $120,000 and is also less than fifteen percent of the gross annual income of the Director in the year received

•

If a CryoLife Director is an executive officer of another company that is indebted to us, or to which we are indebted, and the total amount of either company’s indebtedness to the other is less than five percent of the total consolidated assets of the other company

•

If a CryoLife Director serves as an officer, Director, or trustee of a charitable organization, and our discretionary charitable contributions to the organization are less than two percent of its total annual charitable receipts. Any automatic matching of employee charitable contributions will not be included in the amount of our contributions for this purpose

In connection with its annual review, and based on the information available to it, the Board determined that none of Messrs. Ackerman, Benson, Bevevino, McCall, and Morgan and Dr. Elkins has a material relationship with CryoLife, and that they each therefore qualify as independent Directors under the NYSE’s current Listing Standards.

Other than Mr. Ackerman and Dr. Elkins, none of the Directors who were determined to be independent has any relationships with us or our management other than his position on our Board of Directors.

Mr. Ackerman is the Executive Vice President and Chief Financial Officer of Charles River Laboratories. CryoLife has made purchases from Charles River Laboratories relating to supplies for certain of its clinical trials in each of the last several years and anticipates doing so in the current year. The amount of these purchases falls within the categorical standards for commercial relationships described above that are not considered to be material relationships that would impair a Director’s independence. The Board determined that Mr. Ackerman’s relationship with Charles River Laboratories is not a material relationship that could impair his independence as it relates to his Director relationship with CryoLife. Purchases from Charles River Laboratories were made on an arm’s length basis. It is the Board’s understanding that Mr. Ackerman’s compensation is in no way impacted by the size or amount of the business transacted between the two companies.

Dr. Elkins is a former Chief of the Section of Thoracic and Cardiovascular Surgery at the University of Oklahoma Health Sciences Center and is a Professor Emeritus of the Center. In 2013, the Center paid CryoLife for tissue preservation services and BioGlue ® provided by CryoLife. Dr. Elkins’ son, Charles Craig Elkins, M.D., is a cardiac surgeon who has implanted CryoLife preserved cardiac tissues at Integris Baptist Medical Center in Oklahoma City. Integris Baptist Medical Center, along with the Integris SW Medical Center, paid CryoLife for tissue preservation services and BioGlue in 2013, and we expect this relationship to continue. The Board considered these relationships and determined that they are not material relationships that could impair Dr. Elkins’s independence.

Right to Retain Advisors

The Board has authorized the independent members of the Board, as a group, to retain their own advisors to the extent they deem it appropriate, subject to the approval of the Presiding Director.

Board Leadership Structure

The Chief Executive Officer of CryoLife serves as the Chairman of the Board. We believe this structure provides for an appropriate level of continuity and fluid communication between the Board and management. Also, given Mr. Anderson’s longstanding role with CryoLife as founder and CEO and his extensive knowledge of our company, we believe he is well-suited to fill both roles and that the Board benefits from his leadership.

In order to foster Board independence from management, the Board’s leadership structure also includes a Presiding Director, a position held by an independent Director. Mr. McCall assumed the role of Presiding Director in December 2005. The Presiding

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Director has frequent contact with Mr. Anderson and other members of management on a broad range of matters and has additional corporate governance responsibilities for the Board, including:

•

Acting as chairman of, coordinating, developing agendas for, and moderating each of the non-management Director executive sessions

•

Presiding at Board meetings when the Chairman of the Board is not present

•

Receiving and processing communications from concerned parties wishing to contact the non-management Directors

•

Preparing the agenda for each Board and committee meeting

•

Coordinating the activities of the non-employee and independent Directors

•

Determining appropriate schedules for Board meetings

•

Encouraging the non-employee and independent Directors to perform their duties responsibly while not interfering with the flow of the company’s operations

•

Assessing the quality, quantity, and timeliness of the flow of information from the company’s management that is necessary for the non-employee and independent Directors to effectively and responsibly perform their duties

•

Directing the retention of consultants who report directly to the Board

•

Overseeing the Nominating and Corporate Governance Committee’s activities with respect to compliance with and implementation of the company’s corporate governance policies

•

Overseeing the Audit and Regulatory Affairs and Quality Assurance Policy Committees’ activities respecting compliance with and implementation of the company’s policies and procedures for the development and implementation of improved safety processes and procedures for new and existing products

•

Acting as principal liaison between the non-employee and independent Directors and the Chief Executive Officer on sensitive issues

•

Evaluating, along with the members of the Compensation Committee and the Nominating and Corporate Governance Committee, the Chief Executive Officer’s performance and meeting with the Chief Executive Officer to discuss the Board’s evaluation

•

Overseeing the recommendations regarding membership of the various Board committees, as well as selection of the committee chairpersons, by the Nominating and Corporate Governance Committee

•

Having the authority to retain such counsel or consultants as the Presiding Director deems necessary to perform his responsibilities

Risk Oversight

The Board believes that risk is a necessary component of a healthy company; however, one of the primary oversight functions of the Board is to ensure that CryoLife maintains an appropriate level of risk, commensurate with both the short and long-term goals of the company, and that we do not incentivize excessive or inappropriate risk taking in any area of our company. In order to effectively fulfill this role, the Board relies on various individuals and committees within management and among our Directors. Management is primarily responsible for risk management, and management reports directly to the Audit Committee and the Board with respect to risk management.

Because some hazards are more likely to be initially perceived by employees involved in the day-to-day aspects of our company, we have established within our Code of Business Conduct and Ethics a process by which employees can report violations of the Code or the law to our General Counsel, or if the violation involves the General Counsel, to the Chairman of the Board. Employees may also report violations or raise any questions or concerns to their supervisors, through the mail or online (including anonymously), or via a hotline. Other problematic issues may first be recognized by senior level management. In such instances, the

7


Presiding Director may be contacted directly by any concerned party, and he or she can act as a liaison with the non-management Directors.

While some problems will necessarily be “reported up” from employees and management, the Board also believes that its committees should function to eliminate inappropriate levels of risk within their respective areas of delegated authority. The Compensation Committee is responsible for ensuring that our executive compensation policies and practices do not incentivize excessive or inappropriate risk-taking by employees or Directors. The Audit Committee is primarily responsible for coordination with our independent registered public accounting firm, establishment and maintenance of our internal controls, the operation of our internal audit, and various regulatory and compliance functions. The Nominating and Corporate Governance Committee monitors risk by ensuring that proper corporate governance standards are maintained and that the Board is comprised of qualified Directors. The Regulatory Affairs and Quality Assurance Policy Committee assists the Audit Committee with its regulatory and compliance function. The Presiding Director coordinates the flow of information from each respective committee to the non-employee and independent Directors and participates in the preparation of the agenda for each Board and Committee meeting.

As part of the Board’s risk oversight function, the Compensation Committee has ongoing responsibilities with respect to our executive compensation policies and programs, and the Compensation Committee and management have reviewed our compensation policies and practices as they relate to all CryoLife employees, with particular focus on the incentives they may create and any mitigating factors that may reduce the likelihood of excessive risk taking. The purpose of our review and assessment was to determine whether any of our compensation policies or practices presents a material risk to our company. This assessment included an assessment of risks that we face, regardless of whether such risks are reasonably likely to have a material adverse effect on us, and how these risks may be affected by our compensation policies and practices. Although we reviewed base compensation paid to employees and how that compensation affected risk taking, the primary focus of the reviews was on incentive compensation paid to employees. Our goal was to determine whether the incentive plans and programs might encourage inappropriate behavior by employees, and if so, evaluate how that behavior related to our identified risks. We followed these reviews with an analysis of whether and to what extent the specific incentive compensation policies and procedures that we reviewed were subject to controls that monitored and/or mitigated any risk created. In addition, we reviewed other policies, procedures, and programs that we have in place to monitor and mitigate the identified risks, including training programs, internal controls, and other controls. Based on this review, management, in consultation with the Compensation Committee, has determined that CryoLife’s compensation policies and practices are not reasonably likely to have a material adverse impact on our company.

Board and Committee Meetings

During 2013, each Director attended, either in person or by telephone, all of the meetings of the Board of Directors and the committees of the Board on which he served. In general, members of the Board of Directors are appointed to committees at the meeting of Directors immediately following the Annual Meeting of Stockholders.

During 2013, the Board of Directors held five meetings. Board attendance at the Annual Meeting of Stockholders is encouraged, but not required. All eight of the current Board members who were nominated for election or re-election at the 2013 annual meeting attended the meeting.

Director Compensation

See Fiscal 2013 Director Compensation at page 64 for a discussion of compensation received by Directors during 2013.

Standing Committees of the Board of Directors

During 2013, the Board of Directors had four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee, and the Regulatory Affairs and Quality Assurance Policy Committee. In 2013, the Audit Committee met seven times, the Compensation Committee met six times, the Nominating and Corporate Governance Committee met four times, and the Regulatory Affairs and Quality Assurance Policy Committee met four times. These committees are described below, and the following table lists the members of each of the standing committees as of the date of this proxy statement:

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Standing Committees

Director

Audit

Committee

Compensation
Committee
Nominating and
Corporate
Governance
Committee
Regulatory Affairs
and Quality
Assurance Policy
Committee

Steven G. Anderson,

Chairman of the Board

Thomas F. Ackerman

X

James S. Benson

X Chair

Daniel J. Bevevino

Chair X

Ronald C. Elkins, M.D.

Chair X

Ronald D. McCall,

Presiding Director

X Chair X

Harvey Morgan

X X

Jon W. Salveson

X

Audit Committee —CryoLife’s Audit Committee currently consists of three non-employee Directors: Mr. Bevevino, Chairman, Mr. Ackerman, and Mr. Morgan, each of whom served on the Audit Committee for all of 2013. The Audit Committee reviews the general scope of CryoLife’s annual audit and the nature of services to be performed for CryoLife in connection with it, acting as liaison between the Board of Directors and the independent registered public accounting firm. 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 of CryoLife’s independent registered public accounting firm, for engaging or discharging CryoLife’s independent registered public accounting firm, and for assisting the Board in its oversight of risk management and legal and regulatory requirements. Each of the members of the Audit Committee meets the requirements of independence of Section 303A.02 of the current NYSE Listing Standards and also meets the criteria of Section 303A.06, as set forth in Rule 10A-3 promulgated under the Securities Exchange Act of 1934, regarding listing standards related to audit committees. No member of the Audit Committee serves on the Audit Committee of more than three public companies. In addition, the Board of Directors has determined that all of the current members of the Audit Committee satisfy the definition of an “audit committee financial expert,” as promulgated in Securities and Exchange Commission regulations.

The Audit Committee operates under a written charter. The charter gives the Audit Committee the authority and responsibility for the appointment, retention, compensation, and oversight of CryoLife’s independent registered public accounting firm, including pre-approval of all audit and non-audit services to be performed by CryoLife’s independent registered public accounting firm. The Audit Committee also oversees and must review and approve all significant related party transactions. See Policies and Procedures for Review, Approval, or Ratification of Transactions with Related Parties at page 12; see the Report of the Audit Committee at page 14.

Compensation Committee —The Compensation Committee operates under a written charter that sets out the committee’s functions and responsibilities. Our Compensation Committee currently consists of three non-employee Directors: Dr. Elkins, Chairman, Mr. Bevevino, and Mr. McCall, each of whom served on the Compensation Committee for all of 2013. Each member of the Compensation Committee meets the independence requirements of Sections 303A.02(a)(i) and (ii) of the current NYSE Listing Standards, and is a non-employee director within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 and a disinterested director within the meaning of Section 162(m) of the Internal Revenue Code of 1986.

Pursuant to the Compensation Committee Charter, the Compensation Committee is responsible for reviewing the performance of executive officers and setting the annual compensation for all senior officers, including the salary and the compensation package of executive officers. The committee, among its other responsibilities:

•

Reviews and approves the corporate goals and objectives upon which the compensation of CryoLife’s Chief Executive Officer is based

•

Determines the proper relationship of all executive compensation to the performance of CryoLife

•

Evaluates annually the performance of CryoLife’s CEO in a joint session with the Nominating and Corporate Governance Committee

•

Evaluates the performance of other executive officers by consulting with the CEO and reviewing officer evaluations

•

Recommends to the full Board the total amount and form of annual and other compensation paid to CryoLife’s non-employee Directors

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•

Establishes and periodically reviews CryoLife’s policies regarding management perquisites

•

Recommends executive compensation plans to the Board for approval, approves grants under CryoLife’s executive bonus plans, and approves grants of stock options, restricted stock awards, performance stock units, and other stock rights and cash incentives under CryoLife’s stock and incentive plans

•

Approves or recommends severance arrangements for the CEO and other senior officers

•

Reviews and approves all provisions for “clawback” of incentive compensation awarded to officers and Directors

•

Reviews and approves CryoLife’s peer companies and data sources used in evaluating executive and Director compensation competitiveness

•

Oversees CryoLife’s submissions to stockholders and engagement with proxy advisory firms on matters of executive compensation

•

Oversees management’s review and risk assessment of CryoLife’s compensation program and policies

Pursuant to its charter, the Compensation Committee has the authority to delegate any of its decisions to a subcommittee of the Compensation Committee, provided that a full report of any action taken is promptly made to the full Compensation Committee. Except as prohibited by applicable law or rules of the New York Stock Exchange, the Compensation Committee may delegate to a senior executive officer of CryoLife the authority to grant equity awards under CryoLife’s stock and incentive plans, provided that such awards are not made to officers or Directors of CryoLife. The Compensation Committee has delegated authority to the CEO to allow him to grant restricted stock units to non-officer employees, subject to specified limitations regarding the size and terms of the grants, the duration of the delegated authority, and the manner in which the authority may be exercised.

The committee consults with Mr. Anderson, the President and CEO of CryoLife, with respect to compensation for all officers. The CEO negotiates with candidates for employment as officers, and the negotiated compensation is reflected in each candidate’s employment arrangements, subject to approval by the committee. Management develops bonus and equity compensation plans at the direction of the committee and submits these plans to the committee for review and approval.

The committee has the power to retain, determine the terms of engagement and compensation of, and terminate any consulting firm that may assist it in the evaluation of compensation decisions. The committee engaged Pearl Meyer & Partners (“PM&P”), a compensation consultant, for evaluation of the compensation decisions made in 2013 for the named executive officers. In addition, PM&P prepared an executive compensation study in January 2014, which the committee evaluated in connection with decisions regarding executive compensation it made in February 2014. With respect to the work performed by PM&P as described in this paragraph, CryoLife has conducted a conflicts of interest assessment and has determined that no conflict of interest exists.

Nominating and Corporate Governance Committee —CryoLife’s Nominating and Corporate Governance Committee operates under a written charter that sets out the committee’s functions and responsibilities. The Nominating and Corporate Governance Committee currently consists of three non-employee Directors: Mr. McCall, Chairman, Mr. Benson, and Mr. Morgan, each of whom served on the committee for all of 2013. Each of these individuals meets the requirements of independence of Section 303A.02 of the current NYSE Listing Standards. The committee recommends potential candidates for the Board and oversees the annual self-evaluations of the Board and its committees. Each year the Nominating and Corporate Governance Committee evaluates the performance of CryoLife’s CEO in a joint session with the Compensation Committee. The Nominating and Corporate Governance Committee also recommends to the Board how the other Board committees should be structured and which Directors should be members of those committees. The committee also reviews and makes recommendations to the Board of Directors regarding the development of and compliance with the company’s corporate governance guidelines.

Regulatory Affairs and Quality Assurance Policy Committee —CryoLife’s Regulatory Affairs and Quality Assurance Policy Committee currently consists of four non-employee Directors: Mr. Benson, Chairman, Dr. Elkins, Mr. McCall, and Mr. Salveson, each of whom served on the Regulatory Affairs and Quality Assurance Policy Committee for all of 2013. Each of these individuals except Mr. Salveson meets the requirements of independence of Section 303A.02 of the current NYSE Listing Standards. The charter of the Regulatory Affairs and Quality Assurance Policy Committee requires that a majority of its members be independent. Among other things, the Regulatory Affairs and Quality Assurance Policy Committee assists the Audit Committee in its oversight of CryoLife’s regulatory affairs and quality assurance relating to its tissue processing, biologicals, and devices, both new and existing. Pursuant to its charter, the committee is directed to:

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•

Meet with CryoLife’s internal regulatory compliance auditors and regulatory affairs and tissue processing quality assurance administrators on a quarterly basis and receive updates concerning:

¡

CryoLife’s development and implementation of improved safety processes and procedures for tissue processing, biologicals, and devices

¡

CryoLife’s adherence to FDA and other regulatory bodies’ rules, regulations, and guidelines that are applicable to CryoLife

•

Become familiar with CryoLife’s internal policies concerning the development and implementation of improved safety processes and procedures for tissue processing, biologicals, and devices, and make recommendations of appropriateness to the Audit Committee regarding such processes and procedures

•

Keep adequate and proper records and/or minutes of all such discussions, meetings, and recommendations and make the same available to all Board members

Policies and Procedures for Stockholders Who Wish to Submit Nominations or Recommendations for Board Membership

Stockholders may submit the names of potential candidates for Director to the Nominating and Corporate Governance Committee. The policy of the Nominating and Corporate Governance Committee is to give the same consideration to nominees submitted by stockholders that it gives to individuals whose names are submitted by management or other Directors, provided that the nominees submitted by stockholders are submitted in compliance with Article XIV of CryoLife’s Bylaws, as discussed below.

Factors to be considered by the committee include:

•

Whether the committee sees a need for an additional member of the Board, or to replace an existing member

•

The overall size of the Board of Directors

•

The skills and experience of the nominee, as compared to those of the other members of the Board

•

Whether the nominee is the holder of or is associated with a holder of a large number of shares of CryoLife common stock

Stockholders may also directly nominate a candidate for election to the Board by complying with Article XIV of CryoLife’s Bylaws. The Nominating and Corporate Governance Committee also requires compliance with Article XIV as a prerequisite for its consideration of a potential nominee. A summary of certain provisions of Article XIV as it relates to nominations for Director at the 2015 annual meeting of stockholders is set forth below, but you should not rely on this summary as complete and are urged to read Article XIV in its entirety:

•

We must receive all required information no later than February 20, 2015, but no earlier than January 21, 2015, in order for it to be considered timely —see Stockholder Proposals at page 82 of this proxy statement

•

The sponsoring stockholder should provide information sufficient to inform us that the sponsor qualifies as a stockholder

•

The sponsoring stockholder should also provide disclosure, as described in the Bylaws, of certain underlying motives that may give rise to a Director nomination, such as any material monetary agreements, arrangements, or understandings between a stockholder and his or her nominee

•

The nominee should provide the candidate’s written consent to be considered and to serve if elected, a detailed questionnaire that includes questions regarding the background and qualification of the candidate, and a written representation and agreement disclosing certain arrangements that could prevent the candidate from acting in the best interests of CryoLife

Based on its review of the information provided, the committee may contact the candidate confidentially, and may require that the candidate:

•

Be available upon request to meet with the committee and management with reasonable notice

•

Execute a non-disclosure agreement

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•

Provide several references

The Board may from time to time identify nominees on its own and/or utilize a third party search firm to identify nominees. All nominees are evaluated according to the same criteria. The committee and the Board have determined that nominees to the Board should be of known integrity, have a good moral and ethical background, and have an appropriate level of education, training, or experience to be able to make a contribution to furthering the goals of CryoLife while being compatible with management and the other Board members. Special knowledge, education, training, and experience that complement the experience of other Board members will be considered. A candidate’s capacity for independent judgment will also be considered.

The current Board policy requires each Director to offer to voluntarily resign upon a change in such Director’s principal employment or line of business. The Nominating and Corporate Governance Committee will then review whether he or she continues to meet the needs of the Board and will make a recommendation to the Board regarding whether or not it should require the Director to tender his or her resignation.

Current Board policy also limits the number of other public company boards of directors on which CryoLife Directors may serve. Non-employee Directors may serve on no more than two public company boards of directors in addition to service on CryoLife’s Board. The CEO may serve on no more than one public company board of directors in addition to service on CryoLife’s Board.

The Board and the Nominating and Corporate Governance Committee have no formal policy with respect to the consideration of diversity in Board membership; however, in addition to the specific criteria the Board and the Committee consider with respect to individual nominees and Directors, the Board also seeks to maintain an overall mix of Board members with diverse talents and backgrounds in order to maximize the Directors’ aggregate contribution to the effective oversight of CryoLife. In considering nominees for election and reelection, the Board may consider one or more potential members of the Board who possess a background in the biotechnology or healthcare fields. Along with attracting and retaining Directors who are well-acquainted with our industry, the Board may also consider individuals with more general backgrounds in business, legal, and/or regulatory affairs. Also, because of the importance of evaluating our financial performance, capital needs, and potential acquisitions, the Board may also consider individuals with experience in accounting and financial reporting, investment banking, and corporate finance. The Board also considers the need to maintain the appropriate level of experienced membership on each of its committees as it fosters diversity within its ranks. The Board evaluates itself as a whole, however, and does not generally choose Directors in order to fill designated slots or positions.

The Nominating and Corporate Governance Committee has not received any recommended Director nominees for election at the 2014 Annual Meeting from any CryoLife security holder or group of security holders beneficially owning in excess of 5% of CryoLife’s outstanding common stock.

Stockholders may communicate the necessary information to the Nominating and Corporate Governance Committee or the Board by following the procedures set forth below at Communication with the Board of Directors and Its Committees on page 14.

Code of Business Conduct and Ethics

CryoLife has established a Code of Business Conduct and Ethics that clarifies the company’s standards of conduct in potentially sensitive situations; makes clear that CryoLife expects all employees, officers, and Directors to understand and appreciate the ethical considerations of their decisions; and reaffirms the company’s long-standing commitment to a culture of corporate and individual accountability and responsibility for the highest ethical and business practices.

This Code of Business Conduct and Ethics also serves as the code for the company’s Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller, and all other financial officers and executives. In the event that CryoLife amends or waives any of the provisions of the Code of Business Conduct and Ethics applicable to its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, or Controller, the company intends to disclose that information on the company’s website at http://phx.corporate-ir.net/phoenix.zhtml?c=80253&p=irol-govConduct

Policies and Procedures for Review, Approval, or Ratification of Transactions with Related Parties

The Board has adopted written policies and procedures for review, approval, or ratification of transactions with related parties.

12


Types of Transactions Covered

It is our policy to enter into or ratify related party transactions only when the Board of Directors, acting through the Audit Committee or as otherwise described herein, determines that the related party transaction in question is in, or is not inconsistent with, the best interests of CryoLife and its stockholders. We follow the policies and procedures below for any transaction in which we are, or are to be, a participant and the annual amount involved exceeds $50,000 and in which any related party, as defined below, had, has, or will have a direct or indirect interest. Pursuant to the policy, compensatory arrangements with an executive officer or Director that are approved or ratified by the Compensation Committee or compensation received under our employee benefit plans that are available to all employees do not require additional Audit Committee approval.

The company subjects the following related parties to these policies: Directors (and nominees), executive officers, beneficial owners of more than 5% of our stock, any immediate family members of these persons, and any entity in which any of these persons is employed, or is a general partner or principal, or has a similar position, or in which the person has a 10% or greater beneficial ownership interest.

Standards Applied and Persons Responsible for Approving Related Party Transactions

The CEO and the Corporate Secretary are responsible for maintaining a list of all related parties known to them and for submitting to the Audit Committee for its advance review and approval any related party transaction into which we propose to enter. If any related party transaction inadvertently occurs before the Audit Committee has approved it, the CEO or the Corporate Secretary shall submit the transaction to the Audit Committee for ratification as soon as he or she becomes aware of it. If the Audit Committee does not ratify the transaction, it shall direct for the transaction to be either rescinded or modified as soon as is practicable. The CEO or the Corporate Secretary may delegate his or her duties under the policy to another officer of CryoLife if he or she gives notice of the delegation to the Audit Committee at its next regularly scheduled meeting.

When reviewing a related party transaction, the Audit Committee shall examine all factors it deems relevant, including, among other things:

•

Whether the transaction has a business purpose

•

Whether the transaction is to be entered into on an arms’ length basis

•

The prior course of dealing between the parties, if any

•

Whether such a transaction would violate any provisions of the CryoLife Code of Business Conduct and Ethics or otherwise create the appearance of impropriety

•

The impact on a Director’s independence in the event the related party is a Director

•

Whether the terms are available to unrelated third parties or to employees generally

•

Management’s recommendations regarding the transaction

•

Advice of counsel regarding the legality of the transaction

•

The financial impact on CryoLife

•

Whether or not it is advisable for the approval to comply with Section 607.0832 of the Florida Business Corporation Act, which addresses Director conflict of interest transactions

If the CEO or the Corporate Secretary determines that it is not practicable or desirable to wait until the next Audit Committee meeting, they shall submit the related party transaction for approval or ratification to the chair of the Audit Committee, who possesses delegated authority to act between Audit Committee meetings. The Chairman shall report any action he or she has taken under this delegated authority to the Audit Committee at its next regularly scheduled meeting.

The Audit Committee, or the Chairman, shall approve only those related party transactions that they have determined in good faith are in, or are not inconsistent with, the best interests of CryoLife and its stockholders.

13


Review of Ongoing Transactions

At the Audit Committee’s first meeting of each fiscal year, the Audit Committee reviews all related party transactions, other than those approved by the Compensation Committee as contemplated in the policy, that remain ongoing and have a remaining term of more than six months or remaining amounts payable to or receivable from CryoLife of more than $50,000 annually. Based on all relevant facts and circumstances, taking into consideration the factors discussed above, the Audit Committee shall determine whether it is in, or not inconsistent with, the best interests of CryoLife and its stockholders to continue, modify, or terminate the related party transaction. See Certain Transactions on page 65 for a description of certain related party transactions.

Communication with the Board of Directors and Its Committees

Interested parties may communicate directly with the Board of Directors, the Presiding Director, the non-management Directors as a group, Committee Chairmen, Committees, and individual Directors by mail. CryoLife’s current policy is to forward all communications to the addressees, unless they clearly constitute unsolicited general advertising. Please send all communications in care of Suzanne K. Gabbert, Corporate Secretary, CryoLife, Inc., 1655 Roberts Boulevard, NW, Kennesaw, Georgia 30144.

Availability of Corporate Governance Documents

You may view current copies of the charters of the Audit, Compensation, Nominating and Corporate Governance, and Regulatory Affairs and Quality Assurance Policy Committees, as well as the company’s Corporate Governance Guidelines and Code of Business Conduct and Ethics, on the CryoLife website at http://phx.corporate-ir.net/phoenix.zhtml?c=80253&p=irol-govHighlights

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, neither of the following Reports of the Audit Committee and the Compensation Committee shall be incorporated by reference into any such filings.

REPORT OF THE AUDIT COMMITTEE

The Board of Directors maintains an Audit Committee comprised of three Directors. The Board of Directors and the Audit Committee believe that the Audit Committee’s current member composition satisfies the rules of the NYSE that govern audit committee composition, including the requirement that audit committee members all be “Independent Directors” as that term is defined by Sections 303A.02 and 303A.06 of the current NYSE Listing Standards and Rule 10A-3 promulgated under the Securities Exchange Act of 1934.

The Board and the Audit Committee have adopted a written Audit Committee charter. Pursuant to that charter, the Audit Committee oversees CryoLife’s financial processes 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 included in CryoLife’s Annual Report on Form 10-K for fiscal 2013 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. Since the first quarter of 2004, CryoLife has retained a separate accounting firm to provide internal audit services. The internal audit function reports directly to the Audit Committee and, for administrative purposes, to the Chief Financial Officer.

During the course of fiscal 2013, management completed the documentation, testing, and evaluation of CryoLife’s system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. The Audit Committee was apprised of the progress of the evaluation and provided oversight and advice to management during the process. In connection with this oversight, the Audit Committee received periodic updates provided by management and Ernst & Young LLP at each regularly scheduled Audit Committee meeting. The Audit Committee also reviewed the report of management on internal control over financial reporting contained in CryoLife’s Annual Report on Form 10-K for fiscal 2013, as well as Ernst & Young LLP’s Reports of Independent Registered Public Accounting Firm included in CryoLife’s Annual Report on Form 10-K for fiscal 2013 related to its audit of (i) CryoLife’s consolidated financial statements for fiscal 2013 and (ii) the effectiveness of CryoLife’s internal control over financial reporting. The Audit Committee continues to oversee CryoLife’s efforts related to its internal control over financial reporting and management’s preparations for the evaluation in fiscal 2014.

The Audit Committee reviewed with Ernst & Young LLP, which is responsible for expressing an opinion on the conformity

14


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. Ernst & Young LLP also provided to the Audit Committee the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young LLP’s communications with the Audit Committee concerning independence. The Audit Committee discussed with Ernst & Young LLP that firm’s independence from management and CryoLife.

The Audit Committee discussed with Ernst & Young LLP the overall scope and plans for its audit. The Audit Committee met with Ernst & Young LLP, with and without management present, to discuss the results of its examination, its evaluation of CryoLife’s internal controls, and the overall quality of CryoLife’s financial reporting.

Aggregate audit fees paid to Ernst & Young LLP for the year ended December 31, 2013, including audit-related fees paid in 2013 were $555,000. See Ratification of the Independent Registered Public Accounting Firm at page 80 for further details. The Audit Committee determined that the payments made to Ernst & Young LLP for non-audit services for 2013 were consistent with maintaining Ernst & Young LLP’s independence. In accordance with its Audit Committee Charter, CryoLife’s Audit Committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, specified tax services, and other services.

In reliance on the reviews and discussions referred to above, the Audit Committee members did not become aware of any material misstatement in the audited financial statements and recommended to the Board of Directors that the audited financial statements for fiscal 2013 be included in CryoLife’s Annual Report on Form 10-K for the year ended December 31, 2013 for filing with the Securities and Exchange Commission. The Audit Committee has selected Ernst & Young LLP as CryoLife’s independent registered public accounting firm for fiscal 2014.

Audit Committee
DANIEL J. BEVEVINO, CHAIRMAN
THOMAS F. ACKERMAN
HARVEY MORGAN

15


PROXY ITEM #2

ADVISORY VOTE ON EXECUTIVE COMPENSATION (SAY ON PAY)

CryoLife seeks a non-binding vote from its stockholders to approve the compensation paid to our named executive officers, as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion. This vote is commonly referred to as a “Say on Pay” vote because it gives stockholders a direct opportunity to express their approval or disapproval to the company regarding its pay practices.

As discussed in detail in the Compensation Discussion and Analysis that follows, our executive compensation programs are designed to attract, retain, and motivate highly talented individuals who are committed to CryoLife’s vision and strategy. We strive to link executives’ pay to their performance and their advancement of CryoLife’s overall performance and business strategies, while also aligning the executives’ interests with those of stockholders and encouraging high-performing executives to remain with CryoLife over the course of their careers. We believe that the amount of compensation for our current named executive officers reflects extensive management experience, continued high performance, and exceptional service to CryoLife and our stockholders.

We invite you to consider the details of our executive compensation as disclosed more fully throughout this proxy statement. Regardless of the outcome of this “Say on Pay” vote, CryoLife welcomes input from its stockholders regarding executive compensation and other matters related to the company’s success generally. We believe in a corporate governance structure that is responsive to stockholder concerns, and we view this vote as a meaningful opportunity to gauge stockholder approval of our executive compensation policies. Given the information provided in this proxy statement, the Board of Directors asks you to approve the following advisory resolution:

“Resolved, that CryoLife’s stockholders approve, on an advisory basis, the compensation paid to CryoLife’s named executive officers, as disclosed in this proxy statement.”

Required Vote - The votes cast for this proposal must exceed the votes cast against it in order for it to be approved. Accordingly, abstentions and broker non-votes will not be relevant to the outcome. As previously disclosed and approved by the stockholders, the Board intends to submit a say on pay proposal annually until the next required vote on the frequency of say on pay votes, currently expected to take place at the 2017 Annual Meeting.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE

COMPENSATION PAID TO CRYOLIFE’S NAMED EXECUTIVE OFFICERS

16


COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE SUMMARY

This Compensation Discussion and Analysis (“CD&A”) describes the principles, objectives, and features of our executive compensation program, which is generally applicable to each of our corporate officers. However, the CD&A focuses primarily on the compensation program as applied to our CEO and the other executive officers included in the Summary Compensation Table of this proxy statement (our “named executive officers”). For 2013, our named executive officers were:

•

Steven G. Anderson, Chairman of the Board, President, and Chief Executive Officer

•

D. Ashley Lee, Executive Vice President, Chief Operating Officer, and Chief Financial Officer

•

Jeffrey W. Burris, Vice President and General Counsel

•

David M. Fronk, Vice President, Regulatory Affairs and Quality Assurance

•

Scott B. Capps, Vice President, Clinical Research

The Compensation Committee, referred to herein as the committee, generally considers and approves executive compensation at its February meeting. These compensation decisions take into account a variety of information and analyses, including prior-year company and individual executive performance, current-year performance expectations, any changes in roles and responsibilities, competitive market data provided by the committee’s independent consultant and by management, and tally sheets highlighting historical total compensation levels for each executive.

2013 Say on Pay Vote and Program Changes

At CryoLife’s annual meeting of stockholders on May 15, 2013, over 97% of the stockholders’ votes cast were voted in favor of our named executive officers’ 2013 compensation. This advisory vote indicated strong support for the executive compensation program, as modified by comprehensive changes in 2012 to address the negative say on pay vote received at the company’s 2012 annual meeting and to orient the program more toward pay for performance.

The committee considered these 2013 advisory vote results, together with the individual executives’ 2012 performance, 2013 company and individual performance expectations, competitive market data provided by the committee’s independent compensation consultant and by management, and tally sheets highlighting historical total compensation levels for each executive. Based on these considerations, and after also considering recommendations from its consultant and management, the committee decided to not make significant changes to the executive compensation program for 2013.

•

Officers generally received minimal 2013 base salary merit increases of 1%, with certain officers receiving adjusted increases based on promotions and market positioning considerations

¡

This followed no salary increases in 2012 for the named executive officers, other than the CEO, who was provided a 3% salary increase per the terms of his prior employment contract

•

Officers’ 2013 target short-term incentive opportunities generally remained the same as for 2012, with certain officers receiving adjusted target opportunities based on internal equity and market positioning considerations

¡

The committee retained for 2013 maximum payout levels with respect to the company performance components (adjusted revenue and adjusted net income) of the annual bonus program, as well as the discretion to reduce payouts to target levels (regardless of whether or not the bonus formulas would have otherwise resulted in above-target payouts) if positive total stockholder return was not achieved

•

Officers’ 2013 long-term incentive award levels, based on number of shares subject to awards granted, generally remained the same as for 2012, with certain officers receiving awards at adjusted levels based on promotions and market positioning considerations

¡

The committee retained for 2013 the use of performance stock units as part of a more performance-based, long-term incentive mix (comprised of 1/3 stock options, 1/3 restricted stock, and, using target levels, 1/3 performance stock units)

17


¡

The committee retained for 2013 the use of adjusted EBITDA over a one-year performance period as the metric for determining the number of shares to be awarded under the performance stock units

Pay-for-Performance Alignment

With the changes it made to the executive compensation program in 2012 and 2013, the committee has developed a compensation program which ensures that the interests of the company’s executives are aligned with those of stockholders by rewarding corporate and individual performance at levels necessary to attain established business and individual goals. The key pay-for-performance aspects of the executive compensation program are described below:

•

Approximately 50% or more of each named executive officer’s target compensation is in the form of variable pay opportunities tied to individual and/or company performance and/or to stockholder value creation

•

Targets for short-term incentive opportunities are set at challenging levels that are designed to encourage business growth

•

Short-term incentive opportunities are tied significantly to adjusted revenue and adjusted net income performance, as defined below, both of which emphasize factors over which management is expected to have control and which are intended to incentivize management to achieve company performance that will further our strategic business plan and ultimately deliver value to our stockholders

•

Long-term incentive opportunities are equity-based and include stock options, which only provide value to executives if the stock price increases beyond the grant date price, and performance stock units, which are only earned if specified results for adjusted EBITDA, as defined below, are attained

•

Named executive officers are subject to minimum stock ownership requirements to ensure a strong alignment between executives and stockholders and to encourage a long-term view of performance

As described in detail in this proxy statement, in 2013, the executive compensation program effectively delivered pay-for-performance, as follows:

•

Our 2013 adjusted revenue and adjusted net income results were 98.0% and 94.1%, respectively, of target performance, which resulted in annual bonus payouts of 84.4% and 84.2%, respectively, of target award levels under those components of the bonus program

•

Our 2013 adjusted EBITDA was 108.2% of target performance, which resulted in shares earned under our performance stock units of 116.2% of the target award level

Throughout this proxy statement, we refer to adjusted revenue, adjusted net income, and adjusted EBITDA. These are non-GAAP financial measures that reflect adjustments to similar measures reported under U.S. GAAP. Appendix A to this proxy statement provides a reconciliation of these non-GAAP measures to our audited U.S. GAAP financial statement measures for 2013, as presented in our 2013 Form 10-K filed on February 21, 2014.

ROLES AND RESPONSIBILTIES

Compensation Committee

The committee determines and approves the compensation of CryoLife’s executive officers, including the named executive officers. The committee is supported by the CEO, executive management, an independent compensation consultant, and outside legal counsel. The committee regularly meets in executive session without the CEO or any members of management present.

Chief Executive Officer

The CEO regularly attends committee meetings and makes specific recommendations to the committee with respect to the compensation arrangements for executives, including the named executive officers, but excluding himself. The CEO is not present during executive sessions of the committee.

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Executive Management

The Chief Financial Officer, General Counsel, Chief Accounting Officer, and Corporate Secretary often provide data and information to the committee in advance of committee meetings. The General Counsel regularly attends committee meetings but is not present during executive sessions of the committee.

Independent Compensation Consultant

The committee has the authority to engage an independent compensation consultant to assist the committee with its responsibilities. The committee has engaged Pearl Meyer & Partners (“PM&P”) as its independent advisor. PM&P reports directly to the committee, is directed by the committee, and provides no other services to CryoLife. PM&P generally performs an annual review of executive and non-employee Director compensation, analyzes the relationship between executive pay and company performance, informs the committee of emerging practices and trends, assists with special projects at the request of the committee, and regularly attends committee meetings. Except as otherwise noted, all committee actions during 2013 and to date in 2014 were taken upon the recommendation of CryoLife senior management and following consultation with PM&P and committee deliberation and consideration, as appropriate.

PHILOSOPHY AND OBJECTIVES

The compensation philosophy of the committee is to provide competitive salaries and link the executive officers’ incentive compensation to the achievement of annual and long-term performance goals related to both personal and company performance without incentivizing excessive or inappropriate risk taking. Each primary component of compensation is intended to accomplish a specific objective, as summarized in the following chart:

Compensation

Component

Primary Purpose Form Performance Linkage

Base Salary Provide sufficiently competitive pay to attract and retain experienced and successful executives Cash

Salary adjustments are partially based on individual executive performance and partially based on other factors such as competitive market positioning and internal pay equity; in addition, company performance may impact the decision of whether or not any salary adjustments should be made

Short-Term Incentive

Encourage and reward individual contributions and aggregate company results with respect to meeting and exceeding our short-term financial and operating goals, and incentivize executives to meet or exceed individual performance standards

Cash Short-term incentive payouts are 100% performance-based, with 40% tied to adjusted revenue, 40% tied to adjusted net income, and 20% tied to individual executive performance
Long-Term Incentive Encourage and reward long-term stockholder value creation, create and sustain a retention incentive, and facilitate long-term stock ownership among our executive team to further align executive and stockholder interests

Performance

Stock Units

Stock

Options

Restricted

Stock

Performance stock units are not earned unless specific company performance is achieved during the relevant performance period; stock options deliver realizable value to executives only if the stock price increases beyond the grant date stock price; restricted stock awards are less performance-based, but their realizable value does change based on changes in CryoLife’s stock price after the grant date

COMPENSATION MIX

The committee approves the primary components of the executive compensation program and generally intends for it to provide more variable pay opportunities than fixed pay opportunities and to provide more long-term incentive opportunities than short-term incentive opportunities. These objectives result in a pay program that should and does provide alignment between pay and performance. The following chart summarizes the target pay mix for the named executive officers for fiscal 2013:

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Target Total Direct Compensation

Mix Summary

Compensation Component

Anderson

Lee

Burris

Fronk

Capps

Salary ($)

664,000 365,000 293,000 275,000 270,000

Short-Term Incentive (Target) ($)

398,400

219,000

117,200

110,000

108,000

Long-Term Incentive (Grant Date Fair Value) (3) ($)

606,669 242,669 169,869 169,869 145,600

Target Total Direct Compensation ($)

1,669,069

826,669

580,069

554,869

523,600

% Fixed (1)

40 44 51 50 52

%Variable (1)

60 56 49 50 48

% Short-Term Incentive (2)

40 47 41 39 43

% Long-Term Incentive (2)

60 53 59 61 57

(1) Percent of Target Total Direct Compensation.

(2)

Percent of Total Variable Pay Opportunity (Total Short-Term and Long-Term Incentive).

(3)

Long-term Incentive (Grant Date Fair Value) is based on a grant date closing share price of $6.01 for both restricted stock and performance stock units, with performance stock units included at target levels, and a Black-Scholes option value of $2.54.

COMPENSATION BENCHMARKING

As part of its decision-making process, the committee requests and reviews relevant and credible benchmark data regarding executive compensation levels, company performance, and the relative relationship between executive pay and company performance. However, the committee views this data as one of many inputs in its decision-making process, which also includes other assessments of the company’s performance, assessments of each executive’s performance, significant changes in roles and responsibilities, internal pay equity among executives, and retention considerations.

Each year, the committee reviews and considers an executive compensation study prepared by its independent compensation consultant, additional compensation survey data provided by management, internal equity information, and tally sheets of all compensation paid to the company’s officers. The executive compensation study is generally completed in the fourth quarter of the year and is used to inform the committee’s decisions regarding the subsequent year’s compensation. Accordingly, the relevant study and market information reviewed by the committee with regard to 2013 executive compensation was prepared in October 2012 and presented to the committee in the fourth quarter of 2012. We refer to this study, as updated in January 2013, as the “2012 Study.” As in prior years, the 2012 Study assessed both the competitiveness of pay levels and the alignment of pay with company performance.

The company’s 2013 compensation peer group, which is more particularly described below, had median revenues, based on the latest figures available at the time the 2012 Study was prepared, of $122 million and median market capitalization of $236 million. Survey data in the 2012 Study was drawn from five compensation surveys of U.S. biotech and healthcare companies with targeted revenues of $150 million, in order to approximate the company’s annual revenue. With respect to all named executive officers, the data in the 2012 Study was an even blend of the 2013 peer group and the survey information. In each case, PM&P trended the compensation data forward to January 1, 2013 by a factor of 3.1%. We refer to the blended 2013 peer group and survey compensation data for all named executive officers as the “2013 Peer Group Information.”

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The following peer companies were used for the 2012 Study:

Peer Company

FYE
Revenue (1)

($)

CryoLife’s annual revenue is positioned near the
median of the peer group’s annual revenue, and the
peer group includes an equal number of companies
that are larger and smaller than CryoLife based on
annual revenues.

The committee believes that the pay practices of these
companies provide a useful reference point for pay and
performance comparisons at CryoLife.

Merit Medical Systems, Inc. 359
Angiodynamics, Inc. 222
Exactech, Inc. 205
Alphatec Holdings, Inc. 198
RTI Biologics, Inc. 169
Spectranetics Corp 127
Abiomed, Inc. 126
Atrion Corp 118
Vascular Solutions, Inc. 87
Theragenics Corp 83
Cardiovascular Systems, Inc. 82
Anika Therapeutics, Inc. 65
Atricure, Inc. 64
Stereotaxis, Inc. 42
Median 122
CryoLife, Inc. 120

(1)

Latest FYE Revenue, in millions, at the time the peer group was developed; companies in bold were included in the 2011 study peer group

The following survey sources were used in the 2012 Study:

•

Mercer – U.S. Executive Compensation Database

•

Towers Watson – Report on Top Management Compensation

•

Radford Global Life Sciences Survey (July 2012 edition)

•

Confidential Executive Compensation Survey

•

Confidential Long-Term Incentive Survey

Both the peer companies and survey sources were recommended by the independent compensation consultant and approved by the compensation committee. In approving the peer group, the compensation committee considered the fact that each company operates in a similar industry, with significant research and development requirements, and is highly regulated. The committee also considered and reviewed the revenue size of each company and the overall median for the group, and concluded that it was within a reasonable range of CryoLife’s historical, current, and projected revenues. Nonetheless, the compensation committee reviews and considers changes to the peer group and survey sources in connection with each year’s study. This is done to ensure that the peer group and survey sources continue to reflect the most appropriate reference point for CryoLife.

2013 COMPENSATION COMPONENTS

The primary components of CryoLife’s executive compensation program are base salary, short-term incentives, and long-term incentives. CryoLife also provides executives with tax-deferred savings opportunities, participation in company-wide benefits programs, and limited perquisites. The CEO is also provided with a retirement benefit.

When reviewing and approving any changes to executive compensation levels, the committee generally requests, reviews, and considers the following primary information:

•

The performance of CryoLife, absolute and relative to industry peers

•

The performance of each individual executive

21


•

Each executive’s recent compensation history with CryoLife, as provided on a three-year tally sheet

•

Internal equity among the executive team members

•

Changes in the roles and responsibilities of the executives, including promotions

•

Each executive’s stock ownership level relative to the existing stock ownership guideline

•

The positioning of each executive’s compensation relative to benchmark data provided by the committee’s independent consultant and management

•

The extent of existing performance and retention incentives provided by outstanding equity awards

•

Any contractual guarantees or limitations

2013 Base Salary

The committee generally reviews base salary levels each February as part of its overall review and approval of the executive compensation program. Based on its review in late 2012 and early 2013, the committee approved the following with respect to named executive officer base salaries for 2013:

Comparison of 2013 and 2012 Base Salaries

Executive

2013

($)

2012

($)

% Increase

(%)

Anderson

664,000 656,940 1

Lee

365,000 361,424 1

Burris

293,000 290,000 1

Fronk

275,000 269,400 2

Capps

270,000 265,000 2

Analysis

In arriving at its decision to approve salary increases for the named executive officers, the committee primarily relied on the recommendations of management and its independent compensation consultant, as well as its review of the 2012 Study, which indicated that the aggregate pay positioning against market benchmarks for the named executive officers was within a competitive range of the 50 th percentile for each named executive officer, except Mr. Anderson, as set forth below:

Comparison of 2013 Base Salaries

to Peer Median

Executive

2013 Base
Salary

($)

Peer
Median (1)

($)

CRY vs.
Median

(%)

Primary Rationale

Anderson

664,000

505,000

131

Company founder with 40 years’ experience 2

Lee

365,000

340,000

107

Within a competitive range of the 50 th percentile 3

Burris

293,000

315,000

93

Within a competitive range of the 50th percentile 3

Fronk

275,000

310,000

89

Near a competitive range of the 50 th percentile 3

Capps

270,000

300,000

90

Within a competitive range of the 50 th percentile 3

(1) Based on the 2013 Peer Group Information.

(2) Discussion regarding the composition of Mr. Anderson’s pay, his cash-to-equity ratio, and the setting of his and the other officers’ target total cash compensation, is presented below under 2013 Short-Term Incentives .

(3) Competitive range recommended by PM&P and agreed to by the committee as 90-110% of the peer group 50th percentile.

2013 Short-Term Incentives

The committee generally establishes the short-term incentive program design, performance measures, and performance goals in the first quarter of each year as part of its overall review and approval of CryoLife’s executive compensation program. For the

22


2013 short-term incentive program, the compensation committee approved the following measures, weights, and performance goals (dollars in thousands):

2013 Performance Goals

Performance Measure

Weight

(%)

Threshold

($)

Target

($)

Maximum

($)

Adjusted Revenue

40 136,318 143,493 150,668

Adjusted Net Income

40 20,581 24,213 27,845

Individual Goals

20 |-------Performance Rating =  “Meets” or “Exceeds”-------|

See Appendix A to this proxy statement for further details regarding the adjusted revenue and adjusted net income performance measures and the reconciliation of those measures to revenue and net income as reported for purposes of U.S. GAAP.

For 2013, the performance measures and weights for the short-term incentive program remained the same as in 2012, with the following primary features:

•

Adjusted revenues:

¡

Threshold - 95% of target performance (60% payout)

¡

Maximum - 105% of target performance (140% payout)

•

Adjusted net income:

¡

Threshold - 85% of target performance (60% payout)

¡

Maximum - 115% of target performance (140% payout)

•

If total stockholder return for 2013 had been negative, the committee had discretion to reduce the actual payouts to target levels even if the adjusted revenue and/or adjusted net income formulas would otherwise have resulted in above-target payouts

•

Individual performance component that comprises 20% of the total award opportunity; earned for performance at “meets or exceeds” level of performance

The following tables show the award opportunities for the named executive officers as approved by the compensation committee for the 2013 short-term incentive program:

2013 Short-Term Incentive Opportunity Summary

2013 Award Opportunity (1)

(% of Salary)

2013 Award Opportunity

($ Value)

Executive Threshold Target Maximum Threshold Target Maximum

Anderson

41 60 79 270,912 398,400 525,888

Lee

41 60 79 148,920 219,000 289,080

Burris

27 40 53 79,696 117,200 154,704

Fronk

27 40 53 74,800 110,000 145,200

Capps

27 40 53 73,440 108,000 142,560

(1) The threshold, target, and maximum award opportunities as a percent of base salary were unchanged from 2012.

Analysis – Program Design

In arriving at its decision to approve the 2013 short-term incentive program design, measures, and goals, the committee took into consideration the following factors and analyses:

•

A general satisfaction with the core plan design and its pay-for-performance orientation

23


•

A belief that adjusted revenue and adjusted net income are key to incentivizing management to achieve company performance that will further our strategic business plan and ultimately deliver value to our stockholders, without encouraging excessive risk taking

•

The plan’s similarity to the short-term incentive plan designs of peer companies

•

CryoLife’s 2012 performance, and whether any performance improvements were required to achieve the 2013 goals

•

Recent historical payout levels that the committee believed indicated that performance goals over the last few years had been set at reasonably challenging, but attainable, levels

•

The resulting market competitiveness of target total cash compensation (i.e., base salary plus target short-term incentive opportunity), as set forth below:

Target Total Cash Compensation

as Compared to Peer Median

Executive

2013 Target Total
Cash
Compensation

($)

Peer Median (1)

($)

CRY vs. Median

(%)

Primary Rationale

Anderson

1,062,400

850,000

125

Company founder with 40 years’ experience (2)

Lee

584,000

510,000

115

Dual role/contribution as COO and CFO (3)

Burris

410,200

455,000

90

Within a competitive range of the 50 th percentile (4)

Fronk

385,000

435,000

89

Near a competitive range of the 50 th percentile (4)

Capps

378,000

440,000

86

Near a competitive range of the 50 th percentile (4)

(1) Based on data provided by the committee’s independent compensation consultant (2012 Study).

(2) See the analysis below for additional discussion of the committee’s rationale in allocating Mr. Anderson’s cash and equity compensation.

(3) See the analysis below for additional discussion of the committee’s rationale in determining Mr. Lee’s target total cash compensation.

(4) Competitive range recommended by PM&P and agreed to by the committee as 90-110% of the peer group 50 th percentile.

The committee sets short-term incentive opportunities, in conjunction with a review of base salaries, as part of executives’ overall “target total cash compensation.” Following consideration of the short-term incentive program, the committee decided to carry forward for 2013 the design of the 2012 short-term incentive program, as it believed that the performance measures of adjusted revenue and adjusted net income used in the 2012 program would continue to motivate management to achieve increases in 2013 revenues and net income (as adjusted). The committee also believed that these goals would drive the personal performance of the named executive officers and provide appropriate incentives to satisfy employee retention goals.

As it did for 2012, in defining adjusted revenue, the committee chose to include the revenue sources that most closely related to CryoLife’s ongoing operations. With respect to adjusted net income, the committee chose to include only those items over which it believed that management had control, while excluding items over which it believed that management had limited or no control, which might provide improper incentives, or which were volatile or difficult to predict. The use of these non-GAAP adjusted performance measures in the short-term incentive program was intended to focus management on factors that the committee and management believe would generate improvements in CryoLife’s core business revenues and its operating profits and cash flow. (See Appendix A to this proxy statement for further details regarding the adjusted revenue and adjusted net income performance measures and the reconciliation of those measures to revenue and net income as reported for purposes of U.S. GAAP.) In addition, the committee determined that the short-term incentive program did not require an equity component, as the long-term incentive component of the executive pay program provides for sufficient and appropriate focus on the company’s stock price.

The committee discussed management’s recommended 2013 performance targets and payout opportunities with its independent compensation consultant and with management and determined that the recommended program design, targets, and payout opportunities were consistent with its desire to ensure that no short-term incentives would be paid unless challenging performance was achieved and then only at levels commensurate with such performance. Management proposed increasing the performance target levels from 2012 short-term incentive program levels based on CryoLife’s projections provided to the public, but also proposed that the individual target incentive percentages and the criteria for receiving the personal performance component be carried forward from the 2012 short-term incentive program. Following review and deliberation regarding these proposals, the committee approved them for the 2013 short-term incentive program. The committee believed that the 2013 short-term incentive

24


program target percentages provided each executive with an appropriate incentive potential given his position with and importance to CryoLife, and that they were appropriately sized based on the 2013 Peer Group Information and the internal pay equity information reviewed by the committee.

The short-term incentive program design provides for payout ranges of 60% to 140% of target for performance levels of 95% to 105% of target adjusted revenues and 85% to 115% of target adjusted net income; no payment for performance below the thresholds; and no additional payment for performance in excess of the maximums. The performance ranges are narrow, relative to the payout ranges, in order to focus executives on achieving business performance goals in a manner consistent with business plans and communicated guidance. The payout ranges are wide, relative to the performance ranges, in order to reinforce the pay-for-performance nature of the program (for both above-target and below-target performance) and to translate potentially slight differences in performance into meaningful incentives.

The program also permitted the committee to reduce payouts to target levels if 2013 total stockholder return had been negative. For 2013, the plan defined “total stockholder return” as the quotient of (i) the closing price of CryoLife common stock on December 31, 2013 minus the closing price of CryoLife common stock on December 31, 2012, plus cash dividends per share paid in 2013, divided by (ii) the closing price of CryoLife common stock on December 31, 2012.

The 2013 Peer Group Information indicated that target total cash compensation for 2013 was above the 75 th percentile for Mr. Anderson, near the 75 th percentile for Mr. Lee, and near or within a competitive range of the 50 th percentile for the other named executive officers. The committee approved Mr. Lee’s target cash compensation near the 75 th percentile because his responsibilities significantly exceed those of the positions utilized for comparison purposes, and his target total direct compensation (including the value of equity awards) remained within a competitive range of the 50 th percentile. The committee approved Mr. Anderson’s target total cash compensation because the desired pay mix for Mr. Anderson intentionally emphasizes cash over equity compensation given his significant stock ownership, and his target total direct compensation (including the value of equity awards) remained within a competitive range of the 50 th percentile.

As described above, individual short-term incentive program target payout percentages and the criteria required to earn the incentive were carried forward from 2012. The committee continued to use a “meets or exceeds” standard, as it believes that this system simplifies the determination and minimizes the impact of subtle differences in performance. The committee also believes that the 2013 short-term incentive program target payout percentages provided each executive with an appropriate incentive opportunity given his position with and importance to CryoLife, and that the incentive opportunities were appropriately sized based on the 2013 Peer Group Information and the internal pay equity information reviewed and considered by the committee.

Analysis – Plan Payout

In arriving at its decision to approve the 2013 short-term incentive payouts in early 2014, the committee took into consideration the following:

•

The actual performance results of CryoLife relative to the pre-determined performance goals

•

In connection with the individual performance bonus for each named executive officer other than the CEO, the actual performance of each such officer, as assessed by the CEO

In addition to general subjective considerations, the committee members approved Mr. Anderson’s individual performance bonus, as part of the committee’s joint review conducted with the Nominating and Corporate Governance Committee, based on his performance with respect to certain pre-established performance goals, including the following:

•

Complete corporate development initiatives

•

Implement plan for surgeon training regarding the HeRO ® Graft

•

Meet or exceed revenue and profit objectives

•

Determine the feasibility of an Asia-Pacific distribution and sales center

The committee determined that Mr. Anderson’s performance with respect to achieving and taking positive steps to achieve the criteria described above resulted in his overall performance meeting or exceeding the committee’s expectations.

25


The following tables show the performance results for 2013 and the actual amount of short-term incentive paid to each named executive officer:

Annual Incentive Program

Actual vs. Target Performance

Performance Measure

Weight

(%)

Actual

Performance

($)

Target

Performance

($)

Performance

% of Target
(%)

Payout

% of Target
(%)

Adjusted Revenue

40

140,692,000

143,493,000

98.0

84.4

Adjusted Net Income

40

22,782,000

24,213,000

94.1

84.2

Individual Goals

20 Meets/Exceeds Executive-

specific

100 100

Weighted Avg Payout % of Target

87.4%

Annual Incentive Program

Actual vs. Target Payout

Executive

Actual

Payout

($)

Target

Payout

($)

Payout

% of Target

(%)

Anderson

348,399

398,400

87.4

Lee

191,514

219,000

87.4

Burris

102,491

117,200

87.4

Fronk

96,194

110,000

87.4

Capps

94,445

108,000

87.4

These tables demonstrate how the short-term incentive program design effectively aligned performance and compensation, as the company’s slightly below-target performance with respect to the adjusted revenue and adjusted net income performance measures yielded payouts at only 87.4% of the target payout.

2013 Long-Term Incentives

The committee generally determines the size, form, and provisions of any equity-based long-term incentive awards each February as part of its overall review and approval of CryoLife’s executive compensation program. As it did for 2012, the committee granted equity awards to officers for 2013 in the forms of stock options, restricted stock, and performance stock units, based on a fixed number of shares, with approximately one-third of the total shares granted allocated to each form. The committee allocated shares to performance stock units at their target numbers. See Plan-Based Awards beginning on page 44 of this proxy statement for a description of the terms of the performance stock units; and see Appendix A for a description of the underlying performance measure of adjusted EBITDA.

In determining the size of grants, the committee generally considers the number of shares outstanding and the percentage of the outstanding shares to be granted to employees. The committee continues to evaluate this model in light of changes in the company’s stock price, and it will continue to review the estimated value of all awards granted.

26


The following table sets forth the 2013 equity awards approved by the compensation committee, and how these award levels compare to the 2012 equity award levels:

Comparison of 2012 and 2013 Equity Grant Levels

2012 Grant Level 2013 Grant Level
Executive

Perf.
Stock

Units (1)

(#)

Stock

Options (2)

(#)

Restricted

Stock (3)

(#)

Total

(#)

Perf. Stock

Units (1)

(#)

Stock

Options (2)

(#)

Restricted

Stock (3)

(#)

Total

(#)

Anderson

41,667 41,666 41,667 125,000 41,667 41,666 41,667 125,000

Lee

16,667 16,666 16,667 50,000 16,667 16,666 16,667 50,000

Burris

11,667 11,666 11,667 35,000 11,667 11,666 11,667 35,000

Fronk

11,667 11,666 11,667 35,000 11,667 11,666 11,667 35,000

Capps

8,333

8,332

8,333

24,998

10,000

10,000

10,000

30,000

(1) Reflects the target performance stock unit award level. The actual number of shares earned under the performance stock units was based on adjusted EBITDA performance for the applicable year. Earned shares vested/will vest 50% on the first anniversary of the award date, 25% on the second anniversary, and the remaining 25% will vest on the third anniversary. The actual number of shares that could have been earned ranged from zero to 150% of target. We valued the 2012 and 2013 performance stock units using grant date closing prices of $5.24 and $6.01, respectively. Based on 2012 and 2013 adjusted EBITDA performance, the named executive officers earned 2012 and 2013 performance stock units at approximately 125.2% and 116.2%, respectively, of the target award levels.

(2) Stock options vest 1/3 per year following the grant date. Stock options were valued using a Black-Scholes Option Pricing Model with values for the 2012 and 2013 awards of $2.67 and $2.54, respectively.

(3) Restricted stock cliff vests three years following the grant date. We valued restricted stock using grant date closing stock prices for the 2012 and 2013 awards of $5.67 and $6.01, respectively.

Analysis – Plan Design

In approving the 2013 equity award levels, the committee considered the following primary factors:

•

The desire to have an even mix between stock options, restricted stock, and performance stock units

•

The objective of achieving performance and retention incentives through the use of annual equity grants, especially given CryoLife’s stock price volatility

•

The availability of shares under CryoLife’s various stockholder-approved equity plans

•

The resulting positioning of target total direct compensation (i.e., salary plus target short-term incentive value plus long-term incentive value) against market benchmarks, as follows:

2013 Target Total Direct Compensation

Compared to Peer Median

Executive 2013 Target
Total Direct
Compensation
Opportunity (1)
($)

Peer
Median (2)

($)

CRY
vs.
Median
(%)
Primary Rationale

Anderson

1,669,069 1,630,000 102 Within a competitive range of the 50 th percentile (3)

Lee

826,669

795,000 104 Within a competitive range of the 50 th percentile (3)

Burris

580,069

680,000 85 Within a competitive range of the 50 th percentile (3)

Fronk

554,869

680,000 82 Below a competitive range of the 50 th percentile (3)

Capps

523,600

710,000 74 Below a competitive range of the 50 th percentile (3)

(1) Equity grant value based on a grant date closing stock price of $6.01 for restricted stock and performance stock units, and a Black-Scholes Option Value of $2.54. Performance units are included at target award levels/values.

(2) Based on data provided by PM&P (the 2012 Study).

(3) Competitive range recommended by PM&P and agreed to by the committee as 85-115% of the peer group 50th percentile.

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The committee believes that the blend of stock options, restricted stock, and performance stock units appropriately balances the performance, stockholder alignment, and retention objectives of CryoLife’s long-term incentive program. The use of multiple award types is a prevalent practice among industry peers, and the use of performance stock units is an emerging practice that creates even stronger alignment between pay and performance. In addition, the annual grant frequency results in more continuous performance and retention strength by reflecting changes in the stock price year over year.

The committee believes that determining the size of grants based on an analysis of the number of shares and the percentage of the outstanding shares to be granted avoids the issues involved in valuing equity awards, focuses on an annual grant rate and number (which the committee believes is increasingly important to stockholders and proxy advisors), and allows the remaining share reserve to be estimated more precisely. The committee does, however, continue to evaluate the appropriateness of using numbers of shares, as opposed to a fixed value, in light of movements in the price of the company’s stock. For 2013, the committee generally retained long-term incentive opportunities for officers of the company at 2012 levels; however, it increased certain of the officers’ (including Mr. Capps’s) award levels for 2013 to bring their long-term incentive opportunities closer to the 50 th percentile of their respective peer group comparators.

The committee determined vesting schedules in consultation with PM&P and believes that they provide the appropriate long-term incentive for continued employment. The committee determined the terms of the performance stock unit grant based on input from management and in consultation with PM&P and believes that they provide similarly appropriate incentives. The committee believes that adjusted EBITDA is a reasonable proxy for CryoLife’s earnings performance, and it also effectively measures areas of performance that drive the future growth of the company while allowing for adjustments to eliminate items that might provide improper incentives and items over which management has little or no control. The committee also believed that the adjusted EBITDA threshold and target performance levels were challenging, but expected the threshold and target levels to be achieved. Based on management’s expectations, the 2013 adjusted EBITDA target performance level was consistent with the range of 2013 earnings per share guidance publicly announced by CryoLife. The committee believed that the stretch levels of adjusted EBITDA performance were sufficiently challenging.

The performance stock units’ design provides for shares to be earned in the range of 50% to 150% of target for performance levels of 85% to 115% of target adjusted EBITDA; no shares are earned for performance below the threshold; and no additional shares are earned for performance in excess of maximum performance. Shares are earned in “tiers” as set forth in the following table:

EBITDA
Performance Tier

(% of Target)

Payout

(% of Target)

< 85.0

0

85.0 - 89.9

50

90.0 - 94.9

75

95.0 - 106.9

100

107.0 - 115.0

110-150 (ratable)

The committee adopted this tiered/ratable approach to address the variability and volatility inherent in some of the adjusted EBITDA inputs. The performance range is narrow, relative to the shares-earned range, in order to focus executives on achieving business performance goals in a manner consistent with business plans and communicated guidance. The shares-earned range is wide, relative to the performance range, in order to reinforce the pay-for-performance nature of the program (for both above-target and below-target performance) and to translate potentially slight differences in performance into meaningful incentives.

Analysis – PSUs Earned

In arriving at its decision in February 2014 to certify the company’s adjusted EBITDA performance with respect to the 2013 performance stock units, the committee took into consideration the company’s actual adjusted EBITDA performance results relative to the pre-determined adjusted EBITDA performance goal. The following table presents the target, threshold, and maximum adjusted EBITDA performance levels associated with target, threshold, and maximum award opportunities under the 2013 performance stock unit grants. The table also provides the actual adjusted EBITDA performance level for 2013, as certified by the committee, together with the associated levels of shares that were earned. Pursuant to the terms of the performance stock unit grants, 50% of the shares earned vested in February 2014, 25% of the shares will vest on February 12, 2015, and the remaining 25% of the shares will vest on February 12, 2016, assuming the executive continues to be employed by the company on those dates. See Appendix A for further details regarding the adjusted EBITA performance measure and the reconciliation of that measure to net income as reported for purposes of U.S. GAAP.

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Performance Stock Units

Actual vs. Target/Threshold/Maximum Performance

Performance

Measure

Target
Performance
($)

Threshold

Performance($)

Maximum

Performance
($)

Actual

Performance
($)

Performance

% of Target
(%)

Adjusted EBITDA

26,025,000 22,125,000 29,929,000 28,171,000 108.2

Performance Stock Units

Actual vs. Target/Threshold/Maximum Payout

Executive

Target

Payout

(#)

Threshold

Payout

(#)

Maximum

Payout

(#)

Actual

Payout

(#)

Payout

% of Target
(%)

Anderson

41,667 20,834 62,500 48,427 116.226

Lee

16,667 8,334 25,000 19,371 116.226

Burris

11,667 5,834 17,500 13,559 116.226

Fronk

11,667 5,834 17,500 13,559 116.226

Capps

10,000 5,000 15,000 11,621 116.226

Amendment to Amended and Restated 2009 Stock Incentive Plan

In March 2014, the committee approved the CryoLife, Inc. Second Amended and Restated 2009 Stock Incentive Plan, contingent on stockholder approval, based on management’s recommendation and in consultation with PM&P regarding plan design, burn rate, and approval considerations.

2013 Deferred Compensation

The CryoLife, Inc. Executive Deferred Compensation Plan allows certain key employees of CryoLife, including the named executive officers, to defer receipt of some or all of his or her salary and/or the cash portion of any bonus awarded pursuant to the short-term executive incentive plan or in lieu thereof. The plan’s administrative committee, subject to ratification and approval of the compensation committee, establishes the maximum and minimum percentages of bonus awards that plan participants may defer in each plan year. These percentages were from zero to 75% for base salary and from zero to 100% for the annual cash bonus for 2013. Plan participants establish their respective deferral amounts for their base compensation prior to the beginning of each plan year, which is the calendar year, and prior to July for their short-term incentive compensation for that year, which is paid and calculated after the completion of the plan year.

The plan provides for tax-deferred growth of deferred compensation and, pursuant to the terms of the plan, CryoLife agrees to distribute to participants the deferred amounts, credited/debited with hypothetical gains and/or losses linked to the performance of investment options selected by participants from among the non-proprietary investment options available under the plan. The plan does not have investment options that provide for above-market or preferential earnings. Distribution of all deferred compensation, including any gains or losses, occurs upon death, disability, retirement, or termination. Also, a plan participant may elect to receive distributions while still employed by CryoLife if at least two years have elapsed from the plan year in which the deferred amounts would have otherwise been paid to the plan participant if not for the deferral. Distributions made while the plan participant is still employed by CryoLife and distributions made pursuant to termination will be paid in a lump sum to the plan participant. Plan participants may elect to receive the distribution in lump sum, quarterly, in annual installments for a specified period, or via a combination thereof upon death, disability, or retirement. Hardship withdrawals during any plan year may be made upon the occurrence of an unforeseeable emergency for a particular plan participant or if a plan participant receives a hardship distribution under CryoLife’s 401(k) plan. All deferred amounts and deemed earnings thereon are fully vested at all times. CryoLife has no current plans to match any contributions of any executive officer.

2013 Perquisites

It is CryoLife’s policy not to provide perquisites to its officers without prior approval of the committee. To the extent that perquisites are incidental to a business-related expense, such as personal use of a business club, the named executive officers are generally required to reimburse CryoLife for any incremental cost of such personal benefit. Other than these incidental personal benefits, none of our executives receive any perquisites that are not also provided on a non-discriminatory basis to all full-time

29


employees, except for Mr. Anderson, whose compensation is discussed at Employment and Change of Control Agreements—Employment Agreement with Mr. Anderson below, and except for supplemental disability insurance and airline club memberships provided to certain of the named executive officers. In keeping with CryoLife’s practice with respect to all full-time employees, executive officers are also eligible to receive certain one-time benefits upon achieving employment milestones, including receiving $5,000 towards a vacation and two weeks additional vacation upon reaching 15 years of service with CryoLife, $10,000 towards a vacation and two weeks additional vacation upon reaching 20 years of service with CryoLife, and two weeks additional vacation upon reaching 25 years of service with CryoLife.

CryoLife’s supplemental disability insurance is designed, in conjunction with CryoLife’s group disability benefits for most employees, to provide each of CryoLife’s officers, except Mr. Anderson, with approximately 67% income replacement, calculated based on the most currently available salary and bonus information at the time of the annual policy renewal. Mr. Anderson’s income replacement level is approximately 28%. The supplemental insurance provides for a maximum monthly benefit of $5,000 per officer other than for Mr. Lee, whose maximum monthly benefit is approximately $12,000, in addition to amounts paid by the generally available disability policy. The supplemental insurance also provides for a benefit payment period of up to two years for disabilities that occur between the ages of 65 and 75 and a benefit payment period of up to one year for disabilities that occur after age 75. The committee approved this supplemental insurance upon the recommendation of management and based on the committee’s belief that this insurance was appropriate, cost effective, and consistent with the benefits provided by CryoLife’s peers.

EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS

Mr. Anderson is party to an employment agreement with CryoLife that became effective January 1, 2013, and expires on December 31, 2015. The company has begun negotiations with Mr. Anderson to extend the term of his employment agreement for an additional year. Each of the other executive officers is currently party to a change of control agreement with CryoLife. For a description of Mr. Anderson’s employment agreement and the terms of the change of control agreements, see Grants of Plan Based Awards – Employment Agreement with Steven G. Anderson ; Change of Control Agreements with Other Executive Officers at pages 42 and 44, and for details regarding the potential payments that could result under various employment termination scenarios, see Potential Payments upon Termination or Change of Control — Employment and Change of Control Agreements beginning at page 55.

Employment Agreement with Mr. Anderson

In 2012, the committee began a formal review of Mr. Anderson’s employment agreement, which was scheduled to expire in December 2012 (the “Prior Agreement”). The committee and the Board approved a new agreement (the “2013 Agreement”), which was executed in October 2012 and became effective on January 1, 2013, following expiration of the Prior Agreement by its terms. The 2013 Agreement has a three-year term (through December 31, 2015), retains the same quantitative level of base salary and retirement and change of control benefits as the Prior Agreement, and differs from the Prior Agreement in the following material respects:

•

The 2013 Agreement contains no tax gross-ups

•

The 2013 Agreement’s change of control payment is a “double trigger,” such that Mr. Anderson is only entitled to the change of control payment if his employment is terminated following, or for specified reasons within twelve months prior to, a change of control of CryoLife

•

The 2013 Agreement does not provide for automatic annual salary increases

•

Mr. Anderson’s estate will receive his termination benefit in the event of his death during the term of the 2013 Agreement

•

Mr. Anderson’s termination benefit will be paid in a lump sum, subject to compliance with Section 409A of the Internal Revenue Code

•

Mr. Anderson received approximately $15,200 in 2012 as reimbursement for his legal expenses in negotiating the agreement

•

Mr. Anderson received a one-time cash payment of $100,000 in 2013 that was only payable in the event he remained employed by the company on January 1, 2013

In addition, the 2013 Agreement provides that Mr. Anderson will receive certain compensation upon termination of his employment. The potential payments that could result under each scenario are described at Potential Payments Upon Termination or Change of Control — Employment and Change of Control Agreements – Employment Agreement with Steven G. Anderson beginning on page 55.

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Analysis

In developing the 2013 Agreement for Mr. Anderson, the committee consulted with its independent compensation consultant, which prepared an analysis of potential terms and changes, as well as legal counsel and the consulting arm of Institutional Shareholder Services. Based on these consultations, as well as the committee’s analysis of, and development of an appropriate response to, the 2012 say on pay vote, the committee’s primary goals with respect to the 2013 Agreement were to continue to provide for fair compensation, retirement, and change of control benefits to Mr. Anderson while at the same time removing all tax gross-ups, single-trigger change of control provisions, and automatic salary increases based on increases in the cost of living.

Based on arms’-length negotiations with Mr. Anderson and his counsel, and following the consultation and review described above, the committee determined that continuation of the base salary, retirement, and change of control benefit levels contained in the prior agreement, together with the changes described above, were reasonable and appropriate in order to achieve the committee’s goals, as well as the Board’s goal of retaining Mr. Anderson for an additional three-year term. In light of the consultation described above, the committee believes that the material terms of Mr. Anderson’s employment agreement are customary, based on a review of CryoLife’s peers and taking into consideration Mr. Anderson’s position as the founder of CryoLife with approximately forty years of experience and thirty years of service to the company. The committee believes that the retirement and death benefits are appropriate in light of the fact that CryoLife does not provide any pension or similar retirement plan for Mr. Anderson. In approving the change of control benefit, the committee’s goal was for Mr. Anderson to have certainty regarding his treatment following a change of control so that he would be able to address a potential takeover attempt without concern as to whether it might negatively impact him personally. In addition, given his unique ability to influence whether or not a potential change of control is pursued, the committee wished to provide him with an appropriate incentive to further a change of control that might be in the best interests of the stockholders.

Change of Control Agreements with Other Named Executive Officers

Description and Analysis

As also noted in our 2013 proxy, CryoLife has entered into change of control agreements with each of the named executive officers other than Mr. Anderson. The material terms of those agreements are described in Potential Payments upon Termination or Change of Control – Change of Control Agreements with Other Named Executive Officers at page 57.

It is the committee’s intent that provisions in the change of control agreements regarding an executive’s termination in conjunction with a change of control, preserve executive morale and productivity and encourage retention in the face of the disruptive impact of an actual or rumored change of control of CryoLife. In addition, these provisions align executive and stockholder interests by allowing executives to consider corporate transactions that are in the best interests of CryoLife’s stockholders and other constituents without undue concern over whether the transactions may jeopardize the executives’ own compensation. The committee does not believe that the change of control agreements provide undue incentive for the executive officers to encourage a change of control. Finally, the provisions protect stockholder interests in the event of a change of control by helping increase the likelihood of management continuity through the time of the change of control, which could improve company performance and help maintain and enhance stockholder value.

In connection with the committee’s analysis of the 2012 say on pay vote, the committee determined, based on its consultations with the committee’s independent compensation consultant and legal counsel, that it was desirable to remove all tax gross-ups from the change of control agreements. Because the outstanding agreements were scheduled to expire in September 2014, and could not be unilaterally amended by CryoLife, the committee authorized CryoLife to offer estate planning services valued at up to $2,500 or a $50 cash payment to all officers party to the agreements. CryoLife entered into new change of control agreements with its named executive officers in December 2012; as a result, CryoLife is no longer party to any employment or change of control agreement containing a tax gross-up provision.

The change of control agreements are “double-trigger” agreements, as they require both a change of control and termination of employment to have occurred before CryoLife is required to make payments pursuant to the agreements. The committee approved a larger termination payment under the agreement for Mr. Lee than for Messrs. Burris, Fronk, and Capps based upon his senior officer status and his relatively greater ability to influence decisions regarding whether or not a change of control transaction should be pursued.

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ADDITIONAL POLICIES AND PRACTICES

Clawback Policy

The 2007 Executive Incentive Plan includes a clawback provision. This clawback allows CryoLife to recover bonus awards under the plan that were paid in the 12-month period prior to a significant financial statement restatement. The amounts may be recovered at the discretion of the committee and subject to applicable laws if the award was made on the basis of CryoLife having met or exceeded specific performance targets for performance periods affected by the restatement. In such an event, the committee may require participants to repay to CryoLife the difference between the bonus actually received by the participant and the amount of the recalculated bonus, using the restated financial results. In addition, Mr. Anderson’s employment agreement provides that in the event that CryoLife obtains a final, non-appealable judgment of a competent court declaring Mr. Anderson to have breached one or more of the non-compete or non-solicitation covenants contained in the agreement, Mr. Anderson must repay such portions of his change of control and termination payment as the court shall order.

To the extent not addressed by the provisions above, the committee continues to consider the appropriate structure for additional clawback provisions. These additional clawback provisions would, in specified instances, require executive officers to return to CryoLife incentive compensation paid if such compensation is based upon financial results that turn out to have been materially inaccurate when published. The committee intends to adopt and disclose such a policy in compliance with and to the extent required by the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010.

Stock Ownership Policy

CryoLife maintains a stock ownership policy for executives that has been recommended and approved by the committee along with the Nominating and Corporate Governance Committee, and approved by the Board of Directors. The stock ownership policy adopted in 2012 requires the following stock ownership levels for the named executive officers:

Stock Ownership Policy Summary
Executive

Required

Shares (1)

(#)

Required

Value (1)

($)

Owned
Shares (2)

($)

Value of
Owned Shares
at Assumed
Share Price (3)

($)

Compliance

Test

Anderson

420,000 2,100,000 1,524,257 14,831,021 Yes

Lee

100,000 500,000 235,109 2,287,611 Yes

Burris

58,000 290,000 93,576 910,494 Yes

Fronk

54,000 270,000 110,480 1,074,970 Yes

Capps

53,000 265,000 81,970 797,568 Yes

(1)

Policy requires the lesser of the “Required Shares” or the “Required Value.”

(2)

Owned Shares calculated per the policy and as of March 19, 2014. Ownership includes owned shares, restricted stock grants, and performance stock units (at actual, earned levels) with respect to which performance criteria have been satisfied.

(3)

Actual Value of Owned Shares at Assumed Share Price calculated based on an assumed share price of $9.73, the closing share price of CryoLife stock on March 19, 2014.

These guidelines will become effective for all currently employed named executive officers on February 18, 2015. Until February 18, 2015, the guidelines currently in effect require the ownership of 300,000 shares for Mr. Anderson, 100,000 shares for Mr. Lee, 30,000 shares for Mr. Burris (effective May 20, 2013), 20,000 shares for Mr. Fronk, and 20,000 shares for Mr. Capps.

The shares to be counted towards ownership under the revised guidelines will include shares owned directly or indirectly through the CryoLife, Inc. Employees’ Stock Purchase Plan or by a person’s spouse, as well as any other shares related to or underlying vested or unvested restricted stock or restricted stock units held by such person but do not include shares held through any other form of indirect beneficial ownership or shares underlying unexercised options. The committee requires that the named executive officers hold 50% of the net after-tax shares received from option exercises and stock vesting until the executive is in compliance with the required minimum stock ownership level.

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While the revised guidelines are not yet effective, as of March 19, 2014, all of the named executive officers were in compliance with the ownership levels set forth in the current guidelines and would also already be in compliance with the guidelines that will become effective in 2015.

Anti-Hedging Policy

CryoLife executive officers are prohibited from trading in publicly traded options, puts, calls, straddles, or similar derivative securities of CryoLife at any time, whether or not issued directly by CryoLife or by any exchange, and may not engage in put or call transactions involving CryoLife’s stock or purchase financial instruments designed to hedge or offset any decrease in the market value of CryoLife securities except for standard collars or prepaid forward transactions that have been pre-approved at least 90 days in advance by the independent directors of the Board or a committee consisting solely of independent directors and that are disclosed to stockholders on a Form 4 or by other means acceptable to the SEC. Furthermore, executive officers are prohibited from effecting short sales of the company’s securities at any time. The committee and the Board intend to adopt and disclose a policy on hedging by employees and Directors with respect to CryoLife securities in compliance with and to the extent required by the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010.

Equity Grants/Inside Information

The committee generally adheres to a policy of not granting equity-based compensation awards at times when insiders are in possession of material, non-public information. One notable exception to this policy is with respect to equity grants to new hires, which can be made as of the hire date, provided that management discloses to the committee at the time of grant any material, non-public information. In all other instances, if the committee approves the grant of an option or equity award at a time when it is in possession of material, non-public information, it is the committee’s general policy to delay the grant and pricing of the option and/or issuance of the equity award until a date after the public dissemination of all such material, non-public information.

2014 EXECUTIVE COMPENSATION ACTIONS

2013 Executive Compensation Study

During 2013, as in prior years, the committee directed its independent consultant to conduct a review and assessment of the executive compensation program at CryoLife. The 2013 executive compensation study was prepared in October 2013, updated in February 2014, and used as input for the committee’s considerations and decisions regarding 2014 compensation adjustments and plan design changes. The “2013 Study” assessed both the competitiveness of pay levels and the alignment of pay with company performance. The 2014 peer group, which is more particularly described below, had median revenues, based on the latest figures available at the time the 2013 Study was prepared, of $130 million and median market capitalization as of August 31, 2013 of $290 million. Survey data in the 2013 Study was drawn from five compensation surveys of biotech and healthcare companies with targeted revenues of $150 million in order to approximate the company’s annual revenue. With respect to all named executive officers, the data in the 2013 Study was an even blend of the 2014 peer group and the survey information. In each case, PM&P trended the compensation data forward to January 1, 2014 by a factor of 3.1%. We refer to the blended 2014 peer group and survey compensation data for all named executive officers as the “2014 Peer Group Information.”

33


The following peer companies were used for the 2013 Study:

Peer Company

FYE
Revenue (1)

($)

Merit Medical Systems, Inc. 394

The same companies were used for the 2013 Study peer group and the 2012 Study peer group. CryoLife’s annual revenue is positioned near the median of the peer group’s annual revenue, and the peer group includes an equal number of companies that are larger and smaller than CryoLife based on annual revenues.

The committee believes that the pay practices of these companies provide a useful reference point for pay and performance comparisons at CryoLife.

Angiodynamics, Inc. 342
Exactech, Inc. 224
Alphatec Holdings, Inc. 196
RTI Biologics, Inc. 178
Abiomed, Inc. 158
Spectranetics Corp. 140
Atrion Corp. 119
Cardiovascular Systems, Inc. 104
Vascular Solutions, Inc. 98
Theragenics Corp. 83
Anika Therapeutics, Inc. 71
Atricure, Inc. 70
Stereotaxis, Inc. 47
Median 130
CryoLife 132

(1) Latest FYE revenue, in millions, at the time the peer group was developed.

The following survey sources were used in the 2013 Study:

•

Mercer U.S. Executive Compensation Database

•

Towers Watson Report on Top Management Compensation

•

Radford Global Life Sciences Survey (July 2013 edition)

•

Confidential Executive Compensation Survey

•

Confidential Long-Term Incentive Survey

2014 Base Salary

The committee approved an approximate 3% increase for all currently employed named executive officers, except Mr. Capps, whose salary was increased by approximately 5%.

Analysis

Based on input from management and in consultation with PM&P, the committee approved the approximate 3% increase based on cost of living considerations and strong overall company performance in 2013. A portion of Mr. Capps’s base salary increase also represented a market-based adjustment.

2014 Short-Term Incentives

The committee approved the 2014 short-term incentive program in February 2014. The 2014 program provides for the same performance measures (adjusted for projected changes in adjusted revenue and adjusted net income) and same target incentive opportunity as the 2013 program.

Analysis

Upon review and consideration, the committee continues to believe that the performance measures of adjusted revenue and adjusted net income used in the 2013 short-term incentive program will motivate management to achieve increases in 2014 revenues and net income and operating cash flow goals, as well as to drive personal performance and provide appropriate incentives to satisfy

34


employee retention goals. As a result, the committee approved again the adjusted revenue and adjusted net income measures (as adjusted for 2014 forecast results) that it used with respect to 2013 for use in the 2014 short-term incentive program.

The committee believes that adjusted revenue threshold and target performance levels are challenging, but expects them to be achieved. The 2014 adjusted revenue target is within the range of 2014 product and service revenue guidance previously publicly announced by CryoLife. The committee believes that levels of adjusted revenue performance significantly above target are challenging, but achievable. Based on the range of 2014 product and service revenue guidance previously publicly announced by CryoLife, however, the committee does not expect these levels to be achieved unless CryoLife outperforms the lower end of this guidance. The named executive officers earned the 2013 adjusted revenue incentive at approximately 84% of target.

The committee believes that adjusted net income threshold and target performance levels are challenging, but expects them to be achieved. The 2014 adjusted net income target performance level is consistent with the range of 2014 earnings per share guidance previously publicly announced by CryoLife. The committee believes that levels of adjusted net income performance significantly above target are challenging, but achievable. Based on the range of 2014 earnings per share guidance previously publicly announced by CryoLife, however, the committee does not expect these levels to be achieved unless CryoLife outperforms the lower end of this guidance. The named executive officers earned the 2013 adjusted net income incentive at approximately 84% of target.

2014 Long-Term Incentives

Based on input from management and in consultation with PM&P, the committee considered the long-term incentive program and determined to maintain for 2014 the same mix of equity awards as for 2013 — an equal split among stock options, restricted stock, and performance stock units, based on number, with approximately one-third of the shares granted allocated to each. The committee allocates performance stock units at their target numbers. See Plan-Based Awards beginning on page 44 of this proxy statement for a description of the terms of the performance stock units; see Appendix A for further details regarding the adjusted EBITA performance measure and the reconciliation of that measure to net income as reported for purposes of U.S. GAAP.

The following table provides the 2013 and 2014 equity awards to the named executive officers, as approved by the compensation committee:

Comparison of 2013 and 2014 Equity Grant Levels

2013 Grant Level 2014 Grant Level
Executive

Perf. Stock

Units (1)

(#)

Stock

Options (2)

(#)

Restricted

Stock (3)

(#)

Total

(#)

Perf. Stock

Units (1)

(#)

Stock

Options (2)

(#)

Restricted

Stock (3)

(#)

Total

(#)

Anderson

41,667 41,666 41,667 125,000 41,667 41,667 41,667 125,001

Lee

16,667 16,666 16,667 50,000 16,667 16,666 16,667 50,000

Burris

11,667 11,666 11,667 35,000 11,667 11,666 11,667 35,000

Fronk

11,667 11,666 11,667 35,000 11,667 11,666 11,667 35,000

Capps

10,000 10,000 10,000 30,000 10,000 10,000 10,000 30,000

(1) Reflects the target performance stock unit award level. The actual number of shares earned under the performance stock units was/will be based on adjusted EBITDA performance for the applicable year. Earned shares vested/will vest 50% on the first anniversary of the award date, 25% on the second anniversary, and the remaining 25% will vest on the third anniversary. The actual number of shares that could have been earned ranged from zero to 150% of target. We valued the 2013 and 2014 performance stock units using grant date closing prices of $6.01 and $9.97, respectively.

(2) Stock options vest 1/3 per year following the grant date. Stock options were valued using a Black-Scholes Option Pricing Model with values for the 2013 and 2014 awards of $2.54 and $4.08, respectively.

(3) Restricted stock cliff vests three years following the grant date. We valued restricted stock using grant date closing stock prices for the 2013 and 2014 awards of $6.01 and $9.97, respectively.

Analysis

In approving the 2014 equity award levels, the committee considered the following primary factors:

•

The fact that the intention in 2014 was to continue the 2013 award levels, based on number of shares at target levels

•

The desire to have an even mix among stock options, restricted stock, and performance stock units

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• The objective of achieving performance and retention incentives through the use of annual equity grants, especially given CryoLife’s stock price volatility

•

The availability of shares under CryoLife’s various stockholder-approved equity plans

•

The company’s share price and its effect on the value of equity awards granted based on a number of shares, as opposed to a predetermined value

•

The resulting positioning of target total direct compensation against market benchmarks, as follows:

2014 Target Total Direct Compensation

Compared to Peer Median

Executive

Target Total
Direct
Compensation (1)

($)

Peer Median (2)

($)

CRY vs.

Median

(%)

Primary Rationale

Anderson

2,093,641

1,690,000

124

Above a competitive range of the 50th percentile (3)

Lee

1,001,937

860,000

117

Above a competitive range of the 50th percentile (3)

Burris

703,037

695,000

101

Within a competitive range of the 50th percentile (3)

Fronk

676,437

650,000

104

Within a competitive range of the 50th percentile (3)

Capps

636,400

640,000

99

Within a competitive range of the 50th percentile (3)

(1)

Includes 2014 salary and target bonus based on percentage of salary. Equity grant value based on an grant date stock price of $9.97 for performance stock units and restricted stock and a Black-Scholes Option Value of $4.08 for stock options. Performance units are included at target award levels/values.

(2)

Based on data provided by the committee’s independent consultant (the 2013 Study).

(3)

Competitive range recommended by PM&P and agreed to by the committee as 90-110% of the peer group 50th percentile.

Although the committee made only minor adjustments to the executive compensation program for 2014, the target total direct compensation for Messrs. Anderson and Lee exceeded the upper bounds of the competitive range for the 50 th percentile of peer group target total direct compensation. This shift in positioning relative to the peer group is primarily due to the increase in the company’s share price and the committee’s decision to make 2014 equity grants at the same levels (based on numbers of shares at target) as for 2013. As noted above, following deliberation and consultation with PM&P, the committee determined that it was appropriate to grant equity at the same levels for 2014 as for 2013 (notwithstanding an increased share price) in order to maintain continuity in its long-term incentive strategy and to reinforce the pay-for-performance, long-term characteristics of stock-based compensation. As also noted above, the committee will continue to evaluate its strategy of granting equity based on numbers of shares (as opposed to value) in light of changes in the company’s share price, and it will make adjustments in the strategy as appropriate.

The committee determined vesting schedules in consultation with PM&P and believes that they provide the appropriate long-term incentive for continued employment. The committee determined the terms of the performance stock unit grant based on input from management and in consultation with PM&P and believes that those terms provide similarly appropriate incentives. The committee believes that adjusted EBITDA is a reasonable proxy for CryoLife’s performance, but allows for adjustments to eliminate items that might provide improper incentives and items over which management has little or no control. The committee also believes that the adjusted EBITDA threshold and target performance levels are challenging, but expects them to be achieved. The 2014 adjusted EBITDA calculation methodology is the same as that used in 2013, and based on management’s expectations, the target performance level is consistent with the range of 2014 earnings per share guidance previously publicly announced by CryoLife. The committee believes that the stretch levels of adjusted EBITDA performance are very challenging, but achievable. Based on the range of 2014 earnings per share guidance previously publicly announced by CryoLife; however, the committee does not expect these levels to be achieved unless CryoLife outperforms the lower end of this guidance. Based on 2013 adjusted EBITDA performance, the named executive officers earned performance stock units at approximately 116.2% of target. See Appendix A for further details regarding the adjusted EBITA performance measure and the reconciliation of that measure to net income as reported for purposes of U.S. GAAP.

The committee approved the CryoLife, Inc. Second Amended and Restated 2009 Stock Incentive Plan based on management’s recommendation and following consultation with PM&P regarding plan design, burn rate, and approval considerations.

36


TAX IMPACT OF COMPENSATION DECISIONS

Section 162(m)

Section 162(m) of the Internal Revenue Code generally limits to $1 million the amount of compensation, other than certain “performance-based” compensation, that CryoLife may deduct for federal income tax purposes in any given year with respect to the compensation of each of the named executive officers other than the Chief Financial Officer. CryoLife has structured its stock option and performance stock unit grants to exempt them from the $1 million aggregate compensation calculation, and the committee currently intends to continue this practice. After careful consideration, the committee has determined that only Mr. Anderson might reasonably be expected to have any likelihood of exceeding the $1 million dollar deductibility limit of Section 162(m) in 2014 or 2015, and that the tax benefit that would be associated with such excess, if any, is not expected to be material to CryoLife. Accordingly, the committee has determined not to attempt to qualify compensation under the executive incentive plan and related bonus programs for an exemption from the $1 million deductibility limit of Section 162(m) at this time. The committee intends to separately consider the issue of deductibility under Section 162(m) with respect to all future executive bonus plans and other relevant compensation decisions. The application of Section 162(m) did not influence the committee’s allocation of compensation among the various short and long-term compensation components during 2013 or 2014 to date.

Section 409A

Since Section 409A of the Internal Revenue Code, which deals with deferred compensation arrangements, was enacted, the committee’s policy has been to structure all executive compensation arrangements to comply, to the extent feasible, with the provisions of Section 409A so that the executives do not have to pay additional tax and CryoLife does not incur additional withholding obligations. The committee intends to continue this practice and has amended all of the named executive officers’ currently outstanding employment agreements and/or change of control agreements in order to bring them into compliance with Section 409A.

FORWARD-LOOKING STATEMENTS

Statements made in this proxy statement that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include those regarding future plans and intentions of the committee and/or Board related to compensation decisions, and expectations that certain performance targets for management will be attained. These future events may not occur as and when expected, if at all, and, together with the company’s business, are subject to various risks and uncertainties. These risks and uncertainties include that the success of any of our products or services is subject to, among other things, market acceptance and regulatory approval and compliance. Competitors may develop or market products that are more effective or better received by the marketplace, and our recent strategic actions may not provide the expected benefits in a timely fashion, if at all. Actions taken by the FDA or other regulatory agencies could significantly delay anticipated revenues, increase the costs with respect to new and existing services and products, and otherwise cause expectations regarding future revenues and profits to be revised materially downward. Along with risks specific to our business, management’s ability to attain certain performance targets is subject to risks affecting the economy generally and other factors that are beyond our control. For additional risks impacting the company’s business, see the Risk Factors section of the company’s Annual Report on Form 10-K for the year ended December 31, 2013. The company does not undertake to update its forward-looking statements.

37


COMPENSATION COMMITTEE REPORT

The Compensation Committee reviewed and discussed the Compensation Discussion & Analysis with management. In reliance on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion & Analysis be included in CryoLife’s Annual Report on Form 10-K for the year ended December 31, 2013, and CryoLife’s 2014 proxy statement on Schedule 14A, for filing with the Securities and Exchange Commission.

Compensation Committee

RONALD C. ELKINS, M.D., CHAIRMAN

DANIEL J. BEVEVINO

RONALD D. MCCALL

38


SUMMARY COMPENSATION TABLE

The following table sets forth information with respect to each of the named executive officers — our Chief Executive Officer, our Chief Financial Officer, and the three most highly compensated of the other executive officers of CryoLife employed at the end of fiscal 2013.

Name and

Principal Position

Year

Salary

($)

Bonus

($)

Stock
Awards

($)

Option
Awards

($)

Non-Equity
Incentive Plan
Compensation
($)

Change in
Pension Value
and Non-
qualified
Deferred
Compensation
Earnings

($)

All Other
Compen-
sation

($)

Total

($)

(a)

(b) (c) (d) (e) (f) (g) (h) (i) (j)

Steven G. Anderson

Chairman of the Board, President, and Chief Executive Officer

2013

664,000

79,680

(1)

500,837

(2)

105,832

(3)

268,719

(4)

—

(5)

129,384

(6)

1,748,452

2012

656,940

78,833

(7)

454,587

(8)

111,248

(9)

354,333

(10)

6,558

(11)

43,751

(12)

1,706,250

2011

637,806

76,537

(13)

402,775

(14)

399,626

(15)

252,618

(16)

25,406

(17)

33,612

(18)

1,828,380

D. Ashley Lee

Executive Vice President, Chief Operating Officer, and Chief Financial Officer

2013

365,000

43,800

(1)

200,337

(2)

42,332

(3)

147,714

(4)

—

18,224

(19)

817,407

2012

361,424

43,371

(7)

181,837

(8)

44,498

(9)

194,941

(10)

—

20,208

(20)

846,279

2011

361,424

43,371

(13)

162,135

(14)

160,866

(15)

143,151

(16)

—

13,974

(21)

884,920

Jeffrey W. Burris

Vice President and General Counsel

2013

293,000

23,440

(1)

140,237

(2)

29,632

(3)

79,051

(4)

—

5,100

(22)

570,460

2012

290,000

23,200

(7)

127,287

(8)

31,148

(9)

104,278

(10)

—

11,189

(20)

587,102

2011

290,000

23,200

(13)

112,640

(14)

111,760

(15)

76,574

(16)

—

2,450

(22)

616,624

David M. Fronk

Vice President, Regulatory Affairs and Quality Assurance (23)

2013

275,000

22,000

(1)

140,237

(2)

29,632

(3)

74,194

(4)

—

5,100

(22)

546,163

2012

269,400

21,552

(7)

127,287

(8)

31,148

(9)

96,871

(10)

—

5,000

(22)

551,258

Scott B. Capps

Vice President, Clinical Research (23)

2013

270,000

21,600

(1)

120,200

(2)

25,400

(3)

72,845

(4)

—

5,021

(22)

515,066

2012

265,000

21,200

(7)

90,913

(8)

22,246

(9)

95,289

(10)

—

4,858

(22)

499,507

(1)

These amounts represent the personal performance component of the award that we made pursuant to the 2013 bonus program under the 2007 Executive Incentive Plan, which we paid 100% in cash in February 2014.

(2)

These amounts include the aggregate grant date fair value of the restricted stock awards granted in 2013, as calculated in accordance with FASB ASC Topic 718. We issued the awards on February 12, 2013, and we valued the awards at $6.01 per share, the fair market value on that date. See Notes 1 and 15 of the Notes to Consolidated Financial Statements filed with CryoLife’s annual report on Form 10-K for the year ended December 31, 2013 for assumptions we used in valuing restricted stock awards. For the number of shares of restricted stock granted to each named executive officer, see Grants of Plan-Based Awards at page 42.

These amounts also include the grant date fair value of the target number of performance stock unit awards granted in 2013, as calculated in accordance with FASB ASC Topic 718. We granted these awards on February 12, 2013, and we valued the awards at $6.01 per share, the fair market value on that date, based on the target number of shares. See Notes 1 and 15 of the Notes to Consolidated Financial Statements filed with CryoLife’s annual report on Form 10-K for the year ended December 31, 2013 for assumptions we used in valuing performance stock units. At the time of the grant, we believed that the probable outcome was the target level of performance. The number of shares of restricted stock that could be earned based on CryoLife’s adjusted EBITDA performance for fiscal 2013 ranged from 0% to 150% of the target number of shares. Actual 2013 adjusted EBITDA performance resulted in the performance stock units being

39


earned at approximately 116.2% of target. For information on the target and maximum performance stock units awarded to each named executive officer, and the number of shares actually earned, see the Grants of Plan-Based Awards table and related footnotes and the discussion and tables within Terms of Amended and Restated 2009 Stock Incentive Plan Awards . The following table shows the grant date fair value of each performance stock unit award based on probable outcome, or target level (which is reflected in column (e) above), and the value of the award at grant date assuming that the maximum level of performance conditions were achieved.

Grant Date Fair Value of 2013 Performance Stock Units

Executive Grant Date Fair Value
at Target Level
Grant Date Fair Value
at Maximum Level

Anderson

$250,419 $375,625

Lee

$100,169 $150,250

Burris

$70,119 $105,175

Fronk

$70,119 $105,175

Capps

$60,100 $90,150

(3) These amounts represent the aggregate grant date fair value of the stock option awards granted in 2013, as calculated in accordance with FASB ASC Topic 718. We issued the awards on February 15, 2013. See Note 15 of the Notes to Consolidated Financial Statements filed with CryoLife’s annual report on Form 10-K for the year ended December 31, 2013 for assumptions we used in valuing the stock option awards.
(4) These amounts represent the adjusted revenue and adjusted net income performance components of the awards earned pursuant to the 2013 short-term incentive program under the 2007 Executive Incentive Plan, which we paid 100% in cash in February 2014.

(5) For the period of December 31, 2012, to December 31, 2013, the sum of (a) the change in the actuarial present value of Mr. Anderson’s accumulated benefit under his post-employment medical plan, which is discussed further at Post-Employment Medical Plan for Steven G. Anderson under Pension Benefits on page 54, and (b) the change in the actuarial present value of Mr. Anderson’s accumulated benefit under his retirement severance benefit, which is discussed further at Retirement Severance Benefit under Pension Benefits on page 54, was negative. Accordingly, per applicable SEC regulations, no amount is provided.

(6) This amount includes a one-time payment of $100,000 in January 2013 associated with the termination of Mr. Anderson’s prior employment agreement and the entry into a new employment agreement effective January 1, 2013. This payment and Mr. Anderson’s prior and 2013 employment agreements are discussed further at Grants of Plan Based Awards – Employment Agreement with Steven G. Anderson beginning on page 42. This amount also includes the company matching contribution of $5,100 to Mr. Anderson’s account under the CryoLife 401(k) plan, as well as reimbursement of dues at certain private clubs, payment of premiums for a supplemental disability policy, and auto and gas expense reimbursement.

(7) These amounts represent the personal performance component of the award that we made pursuant to the 2012 bonus program under the 2007 Executive Incentive Plan, which we paid 100% in cash in February 2013.

(8) These amounts include the aggregate grant date fair value of the restricted stock awards granted in 2012, as calculated in accordance with FASB ASC Topic 718. We issued the awards on February 18, 2012, and we valued the awards at $5.67 per share, the fair market value on that date. See Notes 1 and 16 of the Notes to Consolidated Financial Statements filed with CryoLife’s annual report on Form 10-K for the year ended December 31, 2012 for assumptions we used in valuing restricted stock awards.

These amounts also include the grant date fair value of the target number of restricted performance stock unit awards granted in 2012, as calculated in accordance with FASB ASC Topic 718. We issued these awards on March 7, 2012, and we valued the awards at $5.24 per share, the fair market value on that date, based on the target number of shares. See Notes 1 and 16 of the Notes to Consolidated Financial Statements filed with CryoLife’s annual report on Form 10-K for the year ended December 31, 2012 for assumptions we used in valuing performance stock units. At the time of the grant we believed that the probable outcome was the target level of performance. The number of shares of restricted stock that could be earned based on CryoLife’s adjusted EBITDA performance for fiscal 2012 ranged from 0% to 150% of the target number of shares. The actual 2012 adjusted EBITDA performance resulted in the performance stock units being earned at approximately 125.2% of target.

(9) These amounts represent the aggregate grant date fair value of the stock option awards granted in 2012, as calculated in accordance with FASB ASC Topic 718. We issued the awards on February 18, 2012. See Note 16 of the Notes to Consolidated Financial Statements filed with CryoLife’s annual report on Form 10-K for the year ended December 31, 2012 for assumptions we used in valuing the option awards.

(10) These amounts represent the adjusted revenue and adjusted net income performance components of the awards earned pursuant to the 2012 bonus program under the 2007 Executive Incentive Plan, which we paid 100% in cash in February 2013.

(11) The amount shown represents the sum of the change in the actuarial present value from December 31, 2011, to December 31, 2012, of Mr. Anderson’s accumulated benefit under his post-employment medical plan, which is discussed further at Post-Employment Medical Plan for Steven G. Anderson under Pension Benefits on page 54 and the change in the actuarial present value of Mr. Anderson’s accumulated benefit under his retirement severance benefit, which is discussed further at Retirement Severance Benefit under Pension Benefits on page 54.

(12) This amount includes the company matching contribution of $5,000 to the CryoLife 401(k) plan. Also includes reimbursement of dues at certain private clubs, payment of premiums for a supplemental disability policy, auto and gas expense reimbursement, and legal expenses incurred in negotiating Mr. Anderson’s new employment agreement.

(13) These amounts represent the personal performance component of the award that we made pursuant to the 2011 bonus program under the 2007 Executive Incentive Plan, which we paid 100% in cash in February 2012.

40


(14) These amounts represent the aggregate grant date fair value of the restricted stock awards granted in 2011, as calculated in accordance with FASB ASC Topic 718. The awards were issued on February 23, 2011, and were valued at $5.12 per share, the fair market value on that date. See Note 13 of the Notes to Consolidated Financial Statements filed with CryoLife’s annual report on Form 10-K for the year ended December 31, 2011 for assumptions we used in valuing the restricted stock awards.

(15) These amounts represent the aggregate grant date fair value of the stock option awards granted in 2011, as calculated in accordance with FASB ASC Topic 718. The awards were issued on February 23, 2011. See Note 13 of the Notes to Consolidated Financial Statements filed with CryoLife’s annual report on Form 10-K for the year ended December 31, 2011 for assumptions we used in valuing the option awards.

(16) These amounts represent the adjusted revenue and adjusted net income performance components of the awards earned pursuant to the 2011 bonus program under the 2007 Executive Incentive Plan, which we paid 100% in cash in February 2012.

(17) The amount shown represents the sum of the change in the actuarial present value from December 31, 2010, to December 31, 2011, of Mr. Anderson’s accumulated benefit under his post-employment medical plan, which is discussed further at Post-Employment Medical Plan for Steven G. Anderson under Pension Benefits on page 54 and the change in the actuarial present value of Mr. Anderson’s accumulated benefit under his retirement severance benefit, which is discussed further at Retirement Severance Benefit under Pension Benefits on page 54.

(18) This amount includes our matching contribution of $2,450 to the CryoLife 401(k) plan. Also includes reimbursement of dues and business expenses at certain private clubs, payment of premiums for a supplemental disability policy, and auto and gas expense reimbursement.

(19) This amount includes our matching contribution of $5,100 to the CryoLife 401(k) plan. Also includes reimbursement of dues at certain private clubs and an airline club and payment of premiums for a supplemental disability policy.

(20) This amount includes our matching contribution of $5,000 to the CryoLife 401(k) plan, as well as reimbursement of dues at certain private clubs and an airline club, reimbursement of expenses related to estate planning services, and payment of premiums for a supplemental disability policy.

(21) This amount includes our matching contribution of $2,450 to the CryoLife 401(k) plan, as well as reimbursement of dues at certain private clubs and payment of premiums for a supplemental disability policy.

(22) These amounts represent our matching contributions to the CryoLife 401(k) plan. Perquisites and other personal benefits were less than $10,000 in the aggregate for each of these individuals and are not included.

(23) Messrs. Fronk and Capps were not named executive officers for fiscal year 2011. Accordingly, this table only includes compensation with respect to the 2012 and 2013 fiscal years.

41


GRANTS OF PLAN-BASED AWARDS (1)

Name

Grant

Date

Committee

Action

Date

Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards
Estimated Possible Payouts
Under Equity Incentive
Plan Awards
All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)

All Other
Option
Awards:
Number of
Securities
Underlying
Options

(#)

Exercise
or Base
Price of
Option
Awards

($/Sh)

Closing
Market
Price
on
Comm-
ittee
Action
Date
($/Sh)

Grant
Date
Fair
Value
of
Stock
and
Option
Awards

($)

Threshold

($)

Target

($)

Maximum

($)

Threshold

(#)

Target

(#)

Maximum

(#)

(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l)

Steven G. Anderson

2/12/13 (2) 2/12/13 191,232 318,720 446,208 n/a n/a n/a
2/12/13 (3) 2/11/13 n/a n/a n/a 41,667 250,419
2/15/13 (4)

2/12/13 (5)

2/11/13

2/11/13

n/a

20,834

n/a

41,667

n/a

62,500

41,666 6.12 5.99 105,832

250,419

D. Ashley Lee

2/12/13 (2) 2/12/13 105,120 175,200 245,280 n/a n/a n/a
2/12/13 (3) 2/11/13 n/a n/a n/a 16,667 100,169
2/15/13 (4)

2/12/13 (5)

2/11/13

2/11/13

n/a

8,334

n/a

16,667

n/a

25,000

16,666 6.12 5.99 42,332

100,169

Jeffrey W. Burris

2/12/13 (2) 2/12/13 56,256 93,760 131,264 n/a n/a n/a
2/12/13 (3) 2/11/13 n/a n/a n/a 11,667 70,119
2/15/13 (4)

2/12/13 (5)

2/11/13

2/11/13

n/a

5,834

n/a

11,667

n/a

17,500

11,666 6.12 5.99 29,632

70,119

David M. Fronk

2/12/13 (2) 2/12/13 52,800 88,000 123,200 n/a n/a n/a
2/12/13 (3) 2/11/13 n/a n/a n/a 11,667 70,119
2/15/13 (4)

2/12/13 (5)

2/11/13

2/11/13

n/a

5,834

n/a

11,667

n/a

17,500

11,666 6.12 5.99 29,632

70,119

Scott B. Capps

2/12/13 (2) 2/12/13 51,840 86,400 120,960 n/a n/a n/a
2/12/13 (3) 2/11/13 n/a n/a n/a 10,000 60,100
2/15/13 (4)

2/12/13 (5)

2/11/13

2/11/13

n/a

5,000

n/a

10,000

n/a

15,000

10,000 6.12 5.99 25,400

60,100

(1)

This table provides detail regarding stock options and other equity awards that we granted during fiscal 2013, as well as bonus plan awards that we made for fiscal 2013. The table does not include the stock option grants, restricted stock grants, and restricted performance stock unit grants that we made in February 2014, as more particularly discussed with respect to each named executive officer at Compensation Discussion & Analysis beginning on page 33.

(2)

We granted this award pursuant to the 2013 bonus program under the 2007 Executive Incentive Plan adopted by the Board on February 12, 2013. The award also included a personal performance component that is not included in the possible payouts set forth above, as we do not communicate the specific personal performance goals at the time of grant. See Annual Performance-Based Bonus Plans – 2013 Bonus Program beginning on page 48 for a discussion of 2013 bonus awards under the 2007 Executive Incentive Plan.

(3)

We issued these restricted shares pursuant to our 2004 Employee Stock Incentive Plan for each of the named executive officers except Mr. Capps, whose restricted shares were issued pursuant to our Amended and Restated 2009 Stock Incentive Plan. All shares vest on the third anniversary of the grant date, assuming continued employment with the company on each relevant vesting date.

(4)

We issued these stock options pursuant to our Amended and Restated 2009 Stock Incentive Plan. One-third of the shares became exercisable on the first anniversary of grant, and an additional one-third will become exercisable on each subsequent anniversary thereof until all shares of the option are exercisable on the third anniversary, assuming continuous employment. The exercise price of $6.12 per share is equal to the closing price of the company’s common stock on the New York Stock Exchange on the date of issuance, February 15, 2013. These options have a seven-year term.

(5)

We issued these performance stock units pursuant to our Amended and Restated 2009 Stock Incentive Plan. Each performance stock unit represents the right to receive one share of the company’s common stock, subject to adjustment up or down from the target level based upon the company’s adjusted EBITDA performance for fiscal 2013. In regard to the restricted shares of common stock earned pursuant to this grant, 50% vested on the first anniversary of grant date, 25% will vest on the second anniversary of the grant date, and the remaining 25% will vest on the third anniversary of the grant date, assuming continued employment with the company on each relevant vesting date.

Employment Agreement with Steven G. Anderson

Compensation and Basic Terms of Employment

On October 23, 2012, CryoLife entered into a new employment agreement with our chairman of the board, president, and chief executive officer, Steven G. Anderson (the “2013 Agreement”). Mr. Anderson’s prior employment agreement (the “Prior Agreement”) expired on December 31, 2012. The 2013 Agreement has a three-year term that became effective January 1, 2013, and runs through December 31, 2015. The 2013 Agreement provides for the following compensation:

42


•

An initial annual base salary of $656,900. During the first quarter of each year, the Compensation Committee will review Mr. Anderson’s salary and authorize adjustments, if any; provided, however, that Mr. Anderson’s base salary may not be reduced below its then-current level, other than pursuant to a general wage reduction applicable to all of CryoLife’s officers, in which case, Mr. Anderson’s base salary may only be reduced to the extent and up to the same percentage amount that the base salaries of all of CryoLife’s executive officers are reduced. Mr. Anderson’s base salary is not subject to an automatic annual increase

•

Bonus compensation on terms and in amounts no less favorable to him than those contained in CryoLife’s 2007 Executive Incentive Plan and the 2012 bonus program for Mr. Anderson approved thereunder, with such modifications as may reasonably be imposed for all executive officers and approved by at least two-thirds of CryoLife’s independent Directors; provided that if CryoLife’s CFO advises the Compensation Committee that it would materially and negatively impact CryoLife to pay all or a portion of the bonus in cash, the Compensation Committee may choose to pay all or a portion of the bonus in CryoLife common stock, but only to the extent that such action is taken with respect to all executive officers of CryoLife

•

Reimbursement of monthly car payments, auto expenses, and dues at certain social and business clubs, subject to an annual limitation equal to 10% of Mr. Anderson’s base salary

•

Enrollment in the standard CryoLife medical plan and contributory 401(k) plan, which in 2013 includes a CryoLife matching contribution of 40% of Mr. Anderson’s contribution with respect to up to 5% of his base salary, subject to the annual maximum allowed by the Internal Revenue Code

•

Life insurance coverage benefit, as with other employees, with a maximum benefit of $227,500 for 2013 (this maximum was reduced to $175,175 upon Mr. Anderson attaining age 75)

•

30 vacation days each year; provided, however, that vacations not taken during 2013 and thereafter will not be carried over to a subsequent year

•

A one-time lump sum cash payment of $100,000 that CryoLife paid to Mr. Anderson on January 7, 2013. In accordance with the terms of the 2013 Agreement, payment was contingent on Mr. Anderson’s continued employment with CryoLife until January 1, 2013. This payment is included in the “All Other Compensation” column of the Summary Compensation Table above for Mr. Anderson

Pursuant to the 2013 Agreement, Mr. Anderson will receive certain compensation upon termination of his employment, other than termination for cause. CryoLife will pay Mr. Anderson $1,985,000 if Mr. Anderson’s employment is terminated by expiration of the term of the agreement or if his employment is terminated during the term of the 2013 Agreement for any of the following reasons:

•

By CryoLife, other than for cause

•

Mr. Anderson’s death

•

By Mr. Anderson, for good reason or retirement

In the event of a change of control of CryoLife and Mr. Anderson’s termination of employment, he will receive a change of control payment equal to the sum of his annual salary and bonus compensation for the year in which the termination occurs. The 2013 Agreement also provides for reimbursement to Mr. Anderson up to $20,000 with respect to legal fees incurred in negotiating the agreement, although only $15,206 was incurred by Mr. Anderson and reimbursed with respect to such fees.

The 2013 Agreement also provides for a reduction of payments that would otherwise be made to Mr. Anderson pursuant to the terms of the 2013 Agreement, if and to the extent that doing so would result in greater net after-tax payments than if such payments were made and resulted in the application of the excise tax under Section 4999 of the Internal Revenue Code.

Non-Compete Commitment

During the term of his employment and for two years after any termination of his employment, Mr. Anderson has agreed not to accept a position as a CEO, President, or Chief Operating Officer with, or provide comparable level executive consultation to, any competitors of CryoLife in the cardiac or vascular tissue processing business; heart valve replacement business; or biological glue, hemostat, or protein hydrogel product business, or transmyocardial revascularization business within the U.S., the European Union, or Japan (with respect to the biological glue business only). Mr. Anderson must continue to comply with this non-compete commitment

43


as a condition of receiving any severance or change of control termination payments. If Mr. Anderson is found by a governing court to have breached this commitment, he must repay any such portion of the payments he received that will be so ordered by the court.

Agreement Not to Solicit

During the term of his employment and for two years after any termination of his employment, Mr. Anderson agrees not to solicit or hire away any person employed by CryoLife or any customer of CryoLife without CryoLife’s prior written consent. Mr. Anderson must continue to comply with this non-solicitation agreement as a condition of receiving any severance or change of control termination payments. If Mr. Anderson is found by a governing court to have breached this non-solicitation agreement, he must repay any such portion of the payments he received that will be so ordered by the court.

409A Compliance

The 2013 Agreement is intended to comply with Section 409A of the Internal Revenue Code.

Change of Control Agreements with Other Named Executive Officers

CryoLife is not party to agreements with Messrs. Lee, Burris, Fronk, or Capps that provide any guarantee of employment other than as at-will employees; however, CryoLife has entered into change of control agreements with each of them that provide that the company will pay him a severance payment if he is terminated by the company without cause or terminates his own employment for good reason during a period extending from six months before to two years after a change of control of CryoLife. This is a “double-trigger” provision that requires not only a change of control of CryoLife but also a termination of employment. See Potential Payments upon Termination or Change of Control beginning at page 55 for further details regarding these agreements.

Plan-Based Awards

CryoLife granted the awards disclosed in the Grants of Plan-Based Awards table pursuant to:

•

The Amended and Restated 2009 Stock Incentive Plan

•

The 2004 Employee Stock Incentive Plan

•

The 2007 Executive Incentive Plan and the 2013 bonus program

The material terms of these plans and CryoLife’s 2002 Stock Incentive Plan, under which awards previously granted to certain of the named executive officers remain outstanding, are as follows:

Amended and Restated 2009 Stock Incentive Plan . In February 2009, the Board adopted the 2009 Employee Stock Incentive Plan, which the stockholders approved in May 2009. In February 2012, the Board adopted the Amended and Restated 2009 Stock Incentive Plan, which the stockholders approved in May 2012. This plan authorizes us to grant the following type of equity awards to CryoLife’s employees, officers, and Directors:

•

Stock options

•

Stock appreciation rights

•

Restricted stock unit awards

•

Stock unit awards

•

Restricted stock awards

•

Performance stock units

•

Other stock-based awards

We currently may award a maximum of 4.1 million shares of common stock under the Amended and Restated 2009 Stock Incentive Plan, subject to certain adjustments. Of these 4.1 million shares, approximately 1,548,154 shares were available for grant as

44


of March 19, 2014 after reserving the maximum number of shares that may be issued for performance stock units granted in 2014. In addition, the Amended and Restated 2009 Stock Incentive Plan currently provides that:

•

We may issue a maximum of 4.1 million shares subject to options and stock appreciation rights, except as provided below

•

We may issue up to 500,000 as awards other than options and stock appreciation rights, including restricted stock and performance stock units; provided, however, that more than 500,000 shares may be issued pursuant to such other awards, but only to the extent that each share so issued above 500,000 reduces the total shares available under the Amended and Restated 2009 Stock Incentive Plan by 1.5 shares

•

We may issue no more than 400,000 shares relating to options and stock appreciation rights to any one individual in any given fiscal year

•

We may issue no more than 250,000 shares relating to awards other than options and stock appreciation rights to any one individual in any given fiscal year

The Amended and Restated 2009 Stock Incentive Plan currently terminates in May 2019, unless the Board terminates it before that date. If the Board terminates the Amended and Restated 2009 Stock Incentive Plan, although no further awards may be made, the plan will remain in effect as long as any options, stock appreciation rights, or other stock awards that we granted under the plan are outstanding.

The Board has adopted amendments to the Amended and Restated 2009 Stock Incentive Plan, subject to stockholder approval at the 2014 Annual Meeting, in the form of the CryoLife, Inc. Second Amended and Restated Stock Incentive Plan. See Approval of the CryoLife, Inc. Second Amended and Restated 2009 Stock Incentive Plan at page 68 for further details.

Terms of Amended and Restated 2009 Stock Incentive Plan Awards

We issued the stock options and PSUs that we granted to the named executive officers in 2013 pursuant to the Amended and Restated 2009 Stock Incentive Plan. In addition, we issued a portion of the restricted stock awards that we granted to the named executive officers in 2014 pursuant to the Amended and Restated 2009 Stock Incentive Plan.

The terms of the stock options granted to named executive officers pursuant to this plan are as follows:

•

All options vest over a three-year period at 33 1/3% per year, beginning on the first anniversary of the grant date

•

All options have a seven year term

•

All options have an exercise price equal to the closing price of the common stock on the NYSE on the grant date

•

All options expire upon termination of employment, except in the event of disability, death, or normal or early retirement, in which case, the term of the option may continue for some time thereafter, but in any event not beyond the original term of the option

The restricted stock awards granted to named executive officers pursuant to this plan have the following terms:

•

The restricted stock awards vest on the third anniversary of the grant date if the employee remains continuously employed by CryoLife

•

If an employee who was granted a restricted stock award ceases to be employed by CryoLife for any reason, he or she will automatically forfeit any portion of the award that has not vested at the time his or her employment was terminated

Each performance stock unit granted pursuant to this plan is based upon company performance in the year of grant, and is further subject to time-based vesting if the performance criteria are met. Performance stock units represent the right to receive one share of CryoLife common stock, subject to adjustment up or down from the target level based upon CryoLife’s adjusted EBITDA performance for the fiscal year during which the grant was made. (See Appendix A for further details regarding the adjusted EBITA performance measure and the reconciliation of that measure to net income as reported for purposes of U.S. GAAP.) Adjusted EBITDA is calculated as net income before interest, taxes, depreciation and amortization, as further adjusted by removing the impact of the following: stock-based compensation; research and development expenses (excluding salaries and related expense); grant revenue; litigation expense or revenue; acquisition, license, and other business development expense; integration costs (including any

45


litigation costs or revenue related to assumed litigation); and other income or expense, and by including the impact of the change in balances of deferred preservation costs, inventory, and trade receivables on the company’s balance sheet.

The performance stock units will vest based on a combination of the company attaining specified levels of adjusted EBITDA for the fiscal year in which the grant was made and the passage of time. Depending upon the adjusted EBITDA achieved for the relevant year, CryoLife will issue to the named executive officers from 0% to 150% of the target number of shares. Adjusted EBITDA performance at or above 107% of the target EBITDA level is required in order for more than 100% of the target number of shares to be issued. If the minimum adjusted EBITDA is attained, 50% of the shares earned will be issued on the first anniversary of the grant date of the performance stock units, 25% will be issued on the second anniversary of the grant date, and the remaining 25% will be issued on the third anniversary of the grant date.

The grant agreement for the performance stock units issued for fiscal 2013 and fiscal 2014 provides that even if CryoLife’s adjusted EBITDA for the relevant fiscal year exceeds target, the Compensation Committee has the discretion to reduce the payout for each named executive officer to 100% of the target number of shares if CryoLife’s total stockholder return for the relevant fiscal year is negative. The named executive officer must be an employee of CryoLife on each applicable vesting date to be entitled to vesting, and the vesting of the performance stock units may be accelerated upon a change of control of CryoLife, pursuant to the terms of the grant agreement and the plan.

2004 Employee Stock Incentive Plan . On February 24, 2004, the Board adopted the 2004 Employee Stock Incentive Plan, which the stockholders approved in June 2004. This plan authorizes us to grant the following to CryoLife’s employees and officers:

•

Stock options

•

Stock appreciation rights

•

Restricted stock unit awards

•

Stock unit awards

•

Restricted stock awards

•

Performance stock units

•

Other stock-based awards

We may award a maximum of 2 million shares of common stock under the 2004 Employee Stock Incentive Plan, subject to certain adjustments. Of these 2 million shares, approximately 25,114 shares were available for grant as of March 19, 2014. In addition, the 2004 Employee Stock Incentive Plan provides that:

•

We may issue a maximum of 2 million shares subject to options that we intend to be incentive stock options under Section 422 of the Internal Revenue Code

•

We may issue a maximum of 400,000 shares as options and stock appreciation rights to any one individual during any consecutive twelve-month period

•

We may issue a maximum of 2 million shares in the aggregate as stock awards

•

We may issue no more than 2 million shares to any one individual during any one fiscal year pursuant to awards that we intend to be “performance-based compensation” as that term is used for purposes of Section 162(m) of the Internal Revenue Code

The 2004 Employee Stock Incentive Plan terminates in June 2014, unless the Board terminates it before that date. If the Board terminates the 2004 Employee Stock Incentive Plan, although no further awards may be made under the plan, the plan will remain in effect as long as any options, stock appreciation rights, or other stock awards that we granted under the plan are outstanding.

Terms of 2004 Employee Stock Incentive Plan Awards

We issued restricted stock awards that we granted to certain of the named executive officers in 2013 and 2014 pursuant to the 2004 Employee Stock Incentive Plan.

46


These awards have the following terms:

•

The restricted stock awards vest on the third anniversary of the grant date if the employee remains continuously employed by CryoLife

•

If an employee who was granted a restricted stock award ceases to be employed by CryoLife for any reason, he or she will automatically forfeit any portion of the award that has not vested at the time his or her employment was terminated

The performance stock units granted pursuant to this plan contain the same terms as those described above under Terms of Amended and Restated 2009 Stock Incentive Plan Awards .

We did not make any stock option grants to named executive officers under this plan in 2013 or 2014. The terms of the outstanding options granted to named executive officers pursuant to this plan, are as follows:

•

Options vest over a three-year period at 33 1/3% per year, beginning on the first anniversary of the grant date

•

All options have terms of seven years

•

All options have an exercise price equal to the closing price of the common stock on the NYSE on the grant date

•

All options expire upon termination of employment, except in the event of disability, death, or normal or early retirement, in which case the term of the option may continue for some time thereafter, but in any event not beyond the original term of the option

2002 Stock Incentive Plan . In March 2002, the Board of Directors adopted the 2002 Stock Incentive Plan, contingent upon stockholder approval, which was obtained in May 2002. The 2002 Stock Incentive Plan terminated in May 2012, and we may not make any additional grants under it. Although no further awards may be made under the 2002 Stock Incentive Plan, the plan will remain in effect as long as any options, stock appreciation rights, or other stock awards that we granted under the plan are outstanding.

The 2002 Stock Incentive Plan allowed for grants to employees, officers or Directors of CryoLife, and consultants and advisers to CryoLife and its subsidiaries. CryoLife’s 2002 Stock Incentive Plan allowed grants of:

•

Options

•

Stock appreciation rights

•

Restricted stock unit awards

•

Stock units awards

•

Restricted stock awards

•

Performance stock units

•

Other stock-based awards

The terms of the outstanding stock options granted to named executive officers pursuant to this plan are as follows:

•

All options vest over a three-year period at 33 1/3% per year, beginning on the first anniversary of the grant date

•

All options have a seven year term

•

All options have an exercise price equal to the closing price of the common stock on the NYSE on the grant date

•

All options expire upon termination of employment, except in the event of disability, death, or normal or early retirement, in which case, the term of the option may continue for some time thereafter, but in any event not beyond the original term of the option

47


Annual Performance-Based Bonus Plans

2013 Bonus Program

The 2013 bonus program under the 2007 Executive Incentive Plan provided for bonuses based on a percentage of participants’ 2013 base salaries, varying among participants, based on three areas:

•

Adjusted revenues

•

Adjusted net income

•

Personal performance rating

All bonus criteria related to company and individual performance for the full 2013 fiscal year. We paid all bonuses in cash in February 2014. See the tables below for a description of the calculation of adjusted revenues and adjusted net income.

Adjusted Revenues

Each named executive officer could earn a bonus of up to a specified percentage of his 2013 base salary based on CryoLife achieving 2013 adjusted revenues of at least $136,318,000. The adjusted revenues target for this plan was $143,493,000, and the maximum performance level for the adjusted revenues component was $150,668,000. Actual 2013 adjusted revenues were $140,692,000. No bonus was payable for this category if the specified minimum adjusted revenues goal was not met. See Appendix A to this proxy statement for further details regarding the adjusted revenue performance measure and a reconciliation of that measure to revenue as reported for purposes of U.S. GAAP.

2013 Bonus Opportunity as Percentage of Base Salary

Name

Adjusted Revenues of
$136,318,000

(Minimum)

(%)

Adjusted Revenues
of $143,493,000

(Target)

(%)

Adjusted Revenues of
$150,668,000

(Maximum)

(%)

Steven G. Anderson

14.4

24

33.6

D. Ashley Lee

14.4

24

33.6

Jeffrey W. Burris

9.6

16

22.4

David M. Fronk

9.6

16

22.4

Scott B. Capps

9.6 16 22.4

2013 Bonus Earned Based on

Company Adjusted Revenues of $140,692,000

Name

Bonus Earned

($)

Bonus Earned as Percentage

of Base Salary

(%)

Steven G. Anderson

134,474

20.3

D. Ashley Lee

73,920

20.3

Jeffrey W. Burris

39,559

13.5

David M. Fronk

37,128

13.5

Scott B. Capps

36,453

13.5

Adjusted Net Income

Each named executive officer could earn a bonus of up to a specified percentage of his 2013 base salary based on the company achieving 2013 adjusted net income of at least $20,581,000. The adjusted net income target for this plan was $24,213,000, and the maximum performance level for the adjusted net income component was $27,845,000. Actual 2013 adjusted net income was $22,782,000. No bonus was payable for this category if the specified minimum adjusted net income goal was not met. See Appendix A to this proxy statement for further details regarding the adjusted net income performance measure and a reconciliation of that measure to net income as reported for purposes of U.S. GAAP.

48


2013 Bonus Opportunity

as Percentage of Base Salary

Name

Adjusted Net Income
of $20,581,000
(Minimum)

(%)

Adjusted Net Income
of $24,213,000
(Target)

(%)

Adjusted Net Income
of $27,845,000
(Maximum)

(%)

Steven G. Anderson

14.4 24 33.6

D. Ashley Lee

14.4 24 33.6

Jeffrey W. Burris

9.6 16 22.4

David M. Fronk

9.6 16 22.4

Scott B. Capps

9.6 16 22.4

2013 Bonus Earned Based on Company

Adjusted Net Income of $22,782,000

Name

Bonus Earned

($)

Bonus Earned as
Percentage of Base Salary

(%)

Steven G. Anderson

134,245 20.2

D. Ashley Lee

73,794 20.2

Jeffrey W. Burris

39,492 13.5

David M. Fronk

37,066 13.5

Scott B. Capps

36,392 13.5

Personal Performance

Each named executive officer could earn a bonus based on his personal performance rating. With respect to each named executive officer, the committee determined whether the individual did not meet or met and/or exceeded the personal performance expectations of the committee. Mr. Anderson provides performance reviews of the named executive officers, other than himself, to the committee to aid the committee in determining performance ratings. If the individual had not met the personal performance expectation, no bonus would have been payable to the named executive officer for this category. If the individual met and/or exceeded the personal performance expectation, the named executive officer would have received a specified bonus, as shown below:

2013 Bonus Opportunity as Percentage of Base Salary

Name Does Not Meet Personal Performance
Expectations

Meets or Exceeds Personal
Performance Expectations

(%)

Steven G. Anderson

-- 12

D. Ashley Lee

-- 12

Jeffrey W. Burris

-- 8

David M. Fronk

-- 8

Scott B. Capps

-- 8

49


2013 Bonus Earned Based on Actual Performance Rating

Name Performance Rating

Bonus Earned

($)

Bonus Earned as
Percentage of Base Salary
(%)

Steven G. Anderson

Meets or Exceeds Expectations 79,680 12

D. Ashley Lee

Meets or Exceeds Expectations 43,800 12

Jeffrey W. Burris

Meets or Exceeds Expectations 23,440 8

David M. Fronk

Meets or Exceeds Expectations 22,000 8

Scott B. Capps

Meets or Exceeds Expectations

21,600

8

2014 Bonus Program

The 2014 bonus program under the 2007 Executive Incentive Plan provides for bonuses based on a percentage of participants’ 2014 base salaries, varying among participants, based on same three areas as described directly above for the 2013 Bonus Program. Each of the named executive officers will receive the same percentage of his respective salary based upon the company’s attainment of specified minimum and target levels of adjusted revenues and adjusted net income. They will also receive the same percentage of their respective salaries if they meet or exceed their respective personal performance evaluations.

All bonus criteria relate to company and individual performance for the full 2014 fiscal year. We anticipate paying all bonuses in cash in February 2015.

50


OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2013 (*)

Option Awards

Stock Awards

Name

Number of
Securities
Underlying
Unexercised
Options
Exercisable

(#)

Number of
Securities
Underlying
Unexercised
Options

Unexercisable

(#)

Option
Exercise
Price

($)

Option
Expiration
Date

Number of
shares or
units of stock
that have not
vested

(#)

Market Value
of shares or
units of stock
that have not
vested

($)

Equity incentive
plan awards:
number of
unearned shares,
units or other
rights that have
not vested

(#)

Equity incentive
plan awards:
market or payout
value of unearned
shares, units or
other rights that
have not vested

($)

(a)

(b)

(c)

(e)

(f)

(g)

(h)

(i)

(j)

Steven G. Anderson

63,750 -- 9.730 2/25/2015
125,000 -- 4.830 2/23/2016
83,333 -- 7.010 2/22/2017
104,889 52,444 (1) 5.120 2/23/2018
13,889 27,777 (2) 5.670 2/18/2019
41,666 (3) 6.120 2/15/2020
78,667 (4) 872,417 (4)
41,667 (5) 462,087 (5)
41,667 (6) 462,087 (6)
26,077 (7) 289,194 (7)
62,500 (8) 693,125 (8)

D. Ashley Lee

37,500 -- 9.730 2/25/2015
37,500 -- 4.830 2/23/2016
33,333 -- 7.010 2/22/2017
42,222 21,111 (1) 5.120 2/23/2018
5,556 11,110 (2) 5.670 2/18/2019
16,666 (3) 6.120 2/15/2020
31,667 (4) 351,187 (4)
16,667 (5) 184,837 (5)
16,667 (6) 184,837 (6)
10,432 (7) 115,691 (7)
25,000 (8) 277,250 (8)

Jeffrey W. Burris

10,000 -- 7.000 2/4/2015
7,500 -- 4.830 2/23/2016
23,333 -- 7.010 2/22/2017
29,334 14,666 (1) 5.120 2/23/2018
3,889 7,777 (2) 5.670 2/18/2019
11,666 (3) 6.120 2/15/2020
22,000 (4) 243,980 (4)
11,667 (5) 129,387 (5)
11,667 (6) 129,387 (6)
7,302 (7) 80,979 (7)
17,500 (8) 194,075 (8)

David M. Fronk

15,000 -- 9.730 2/25/2015
15,000 -- 4.830 2/23/2016
23,333 -- 7.010 2/22/2017
29,334 14,666 (1) 5.120 2/23/2018
3,889 7,777 (2) 5.670 2/18/2019
11,666 (3) 6.120 2/15/2020
22,000 (4) 243,980 (4)
11,667 (5) 129,387 (5)
11,667 (6) 129,387 (6)
7,302 (7) 80,979 (7)
17,500 (8) 194,075 (8)

Scott B. Capps

15,000 -- 4.830 2/23/2016
16,667 -- 7.010 2/22/2017
20,889 10,444 (1) 5.120 2/23/2018
2,778 5,554 (2) 5.670 2/18/2019
10,000 (3) 6.120 2/15/2020
15,667 (4) 173,747 (4)

8,333

10,000

(5)

(6)


92,413

110,900

(5)

(6)

5,214 (7) 57,823 (7)
15,000 (8) 166,350 (8)

* This table does not include the performance stock units, restricted stock and stock options granted in February 2014. See Compensation Discussion and Analysis beginning on page 33 for further discussion of these grants. All values in this table are based on the closing price of the company’s common stock on the NYSE on December 31, 2013 of $11.09.

51


Type of Grant Grant Date Vesting Rate Vesting
Dates
Conditions

(1)

Service-based stock options 2/23/2011 33 1/3 % per year

2/23/2012

2/23/2013

2/23/2014

Continued employment through vesting date required

(2)

Service-based stock options 2/18/2012 33 1/3 % per year

2/18/2013

2/18/2014

2/18/2015

Continued employment through vesting date required

(3)

Service-based stock options 2/15/2013 33 1/3 % per year

2/15/2014

2/15/2015

2/15/2016

Continued employment through vesting date required

(4)

Service-based restricted stock 2/23/2011 100% cliff vesting

2/23/2014

Continued employment through vesting date required

(5)

Service-based restricted stock 2/18/2012 100% cliff vesting

2/18/2015

Continued employment through vesting date required

(6)

Service-based restricted stock 2/12/2013 100% cliff vesting 2/12/2016

Continued employment through vesting date required

(7)

Performance stock units 3/7/2012

• 50% on first anniversary of grant date

• 25% on second anniversary of grant date

• 25% on third anniversary of grant date

3/7/2013

3/7/2014

3/7/2015

Number of shares earned based on adjusted EBITDA performance for fiscal 2012, which the compensation committee determined in February 2013 to be 125.2% of the target award. Number of shares shown reflects the number of shares remaining after the first vesting tranche on 3/7/2013.

Continued employment through vesting date required

(8)

Performance stock units 2/12/2013

• 50% on first anniversary of grant date

• 25% on second anniversary of grant date

• 25% on third anniversary of grant date

2/12/2014

2/12/2015

2/12/2016

Number of shares that would have been earned upon attainment of the maximum level of adjusted EBITDA performance for fiscal 2013 (reported at maximum, as the company’s adjusted EBITDA results exceeded target levels for fiscal 2012). The actual number of shares awarded to each named executive officer for fiscal 2013 based on adjusted EBITDA performance (116.2% of target award) and the value such units would have had as of December 31, 2013, are represented in the table below:

Name

PSUs Earned

(#)

Value at
12/31/2013

($)

Anderson

48,427 537,055

Lee

19,371 214,824

Burris

13,559 150,369

Fronk

13,559 150,369

Capps

11,621 128,877

52


OPTION EXERCISES AND STOCK VESTED (1)

Option Awards

Stock Awards

Name

Number of

Shares

Acquired

on Exercise

(#)

Value Realized

on Exercise (2)

($)

Number of

Shares

Acquired

on Vesting

(#)

Value Realized

on Vesting (3)

($)

(a)

(b)

(c)

(d)

(e)

Steven G. Anderson

63,750 142,800 67,746 413,562

D. Ashley Lee

37,500 19,326 27,097 165,416

Jeffrey W. Burris

27,500 72,322 18,968 115,792

David M. Fronk

15,000 18,223 18,968 115,792

Scott B. Capps

25,000

37,849

13,549

82,711

(1)

This table provides information regarding stock option exercises and vesting of restricted stock and performance stock units during 2013.

(2)

Value Realized on Exercise is equal to the number of shares acquired multiplied by the difference between the exercise price and the share price on the NYSE at the time of exercise, as detailed in the following table, without regard to any proceeds that may have been received upon any sale of the underlying shares.

STOCK OPTION EXERCISE DETAIL

Name

Option
Shares
Exercised

(#)

Exercise
Price

($)

Exercise
Date

Share Price
on the
NYSE at the
Time of
Exercise

($)

Steven G. Anderson

63,750 8.700 12/30/2013 10.940

D. Ashley Lee


25,000

591

11,909


8.700

8.700

8.700


10/29/2013

11/04/2013

11/04/2013



9.000

9.500

9.653


Jeffrey W. Burris


7,500

5,000

5,000

5,000

5,000


4.830

7.000

7.000

7.000

7.000


7/12/2013

10/29/2013

11/04/2013

11/11/2013

11/26/2013



7.280

8.940

9.470

9.940

10.440


David M. Fronk


4,868

690

9,442


8.700

8.700

8.700


11/08/2013

11/12/2013

11/12/2013



9.900

10.000

9.916


Scott B. Capps

25,000 9.060 11/27/2013 10.574

(3)

Value Realized on Vesting is equal to the number of shares acquired as a result of the vesting (a) on March 7, 2013, of the first 50% of shares earned under the 2012 performance stock unit awards, and (b) on February 22, 2013 of shares of restricted stock awarded on February 22, 2010, multiplied by the market value of CryoLife common stock on the NYSE as of the applicable vesting date ($6.08 for the performance stock units, and $6.12 for the restricted stock awards), as detailed in the following table.

STOCK AWARD VESTING DETAIL

Name

2012

PSU
Award

(#)

2012
PSU

Value

($)

2010
Restricted
Stock
Award

(#)

2010
Restricted
Stock
Value

($)

Aggregate
Value

($)

Steven G. Anderson

26,079 158,560 41,667 255,002 413,562

D. Ashley Lee

10,430 63,414 16,667 102,002 165,416

Jeffrey W. Burris

7,301 44,390 11,667 71,402 115,792

David M. Fronk

7,301 44,390 11,667 71,402 115,792

Scott B. Capps

5,216

31,713

8,333

50,998

82,711

53


PENSION BENEFITS AT DECEMBER 31, 2013 (1)

All calculations in the following table are as of December 31, 2013, the last business day of CryoLife’s 2013 fiscal year.

Name Plan Name

Number of Years
Credited Service

(#)

Present Value of
Accumulated Benefit

($)

Payments During

Last Fiscal Year

($)

(a)

(b)

(c)

(d)

(e)

Steven G. Anderson

Post-Employment Medical Plan N/A 114,610 (2) --

Retirement Severance Benefit

N/A 1,943,337 (3) --

(1)

CryoLife does not maintain any plans providing for payments or other benefits at, following, or in connection with retirement for any named executive officer other than Mr. Anderson.

(2)

The amount shown represents the actuarial present value of Mr. Anderson’s accumulated benefit under the Post-Employment Medical Plan included in the 2013 Agreement, computed as of December 31, 2013, which is the measurement date used for financial statement reporting purposes with respect to the company’s audited financial statements for 2013. See Post-Employment Medical Plan for Steven G. Anderson below for the assumptions applied in quantifying the present value of the current accrued benefit. See Grants of Plan-Based Awards – Employment Agreement with Steven G. Anderson at page 42 for a description of the 2013 Agreement.

(3)

The amount shown represents the actuarial present value of Mr. Anderson’s accumulated benefit under the Retirement Severance Benefit included in the 2013 Agreement (a lump-sum payment of $1,985,000), computed as of December 31, 2013, which is the measurement date used for financial statement reporting purposes with respect to company’s audited financial statements for 2013. The amount shown assumes a lump-sum distribution as of July 1, 2014, to account for the six-month distribution delay that would have been required by Section 409A of the Internal Revenue Code had Mr. Anderson separated from service with CryoLife as of December 31, 2013. Consistent with the methodology customarily applied to present value calculations for accounting, we discounted Mr. Anderson’s lump-sum payment based on our incremental borrowing rate of 4.25% at December 31, 2013. See Grants of Plan-Based Awards – Employment Agreement with Steven G. Anderson at page 42 for a description of the 2013 Agreement.

Post-Employment Medical Plan for Steven G. Anderson

The 2013 Agreement provides that upon certain kinds of employment termination events, including retirement, CryoLife will continue to provide medical benefits to Mr. Anderson and his wife, Ann B. Anderson, for the remainder of their lives. In quantifying the present value of the current accumulated benefit for the Post-Employment Medical Plan for Mr. Anderson, CryoLife used a measurement date of December 31, 2013. To calculate mortality, CryoLife used the Uninsured Pension 1994 Table with mortality improvements projected using Scale AA. The applicable discount rate was 4.06%. CryoLife assumed that Mr. Anderson would retire at the expiration of the 2013 Agreement, December 31, 2015. CryoLife assumed no possibility of termination prior to that time. Salary increase was irrelevant since the benefits are not salary-related. CryoLife developed the starting claims cost using the Reden & Anders Commercial Comprehensive Pricing Model. The starting claims cost for a 75 year old participant is approximately $13,667 before taking Medicare into account.

See Potential Payments upon Termination or Change of Control – Employment Agreement with Steven G. Anderson at page 55 for further discussion of the material terms and conditions of payments and benefits payable under this plan.

Retirement Severance Benefit

Pursuant to the 2013 Agreement, Mr. Anderson may voluntarily terminate his employment at any time for reason of retirement. The 2013 Agreement defines retirement as cessation by Mr. Anderson of full-time employment of any kind. Upon retirement, CryoLife will pay Mr. Anderson a severance payment equal to $1,985,000. See Potential Payments upon Termination or Change of Control – Employment Agreement with Steven G. Anderson at page 55 for further discussion of the material terms and conditions of payments and benefits payable under this retirement severance benefit.

54


NONQUALIFIED DEFERRED COMPENSATION

The following table presents components of nonqualified deferred compensation under the Executive Deferred Compensation Plan for each named executive officer other than Mr. Anderson, who does not participate in the plan. For a description of the terms of the Executive Deferred Compensation Plan, see 2013 Deferred Compensation beginning at page 29.

Name

Executive
Contributions
in Fiscal
2013 (1)

($)

Company
Contributions
in Fiscal 2013

($)

Aggregate
Earnings in
Fiscal 2013 (2)

($)

Aggregate
Withdrawals and
Distributions in
Fiscal 2013

($)

Aggregate
Balance at
December 31,
2013 (3)

($)

(a) (b) (c) (d) (e) (f)

Steven G. Anderson

- - - - -

D. Ashley Lee

118,312 - 35,602 - 324,752

Jeffrey W. Burris

62,230 - 43,431 - 224,462

David M. Fronk

13,500 - 10,952 - 54,558

Scott B. Capps

10,800 - 8,581 - 45,032

(1)

Contributions to the deferred compensation plan that relate to an executive’s deferrals from salary and/or annual short-term incentives are included in the amounts reflected in the “Salary,” “Bonus,” and/or “Non-Equity Incentive Plan Compensation” columns, as applicable, of the Summary Compensation Table for fiscal 2013 on page 39.

(2)

A participant’s account under the Executive Deferred Compensation Plan is deemed to be invested in hypothetical investment options selected by the participant from among a menu of non-proprietary mutual funds. The account is credited/debited with gains and/or losses linked to the performance of those hypothetical investment options. The plan does not have investment options that provide for above-market or preferential earnings; accordingly, the amounts provided in this column are not included in column (h) of the Summary Compensation Table for fiscal 2013 on page 39.

(3)

Amounts shown include the executive’s contributions and associated hypothetical gains/losses during 2013, as well as deferrals of salary and annual incentives (together with associated hypothetical earnings) from prior years’ participation in the plan. The amounts shown in this column, with the exception of aggregate earnings, have been reported in the “Salary,” “Bonus,” and/or “Non-Equity Incentive Plan Compensation” columns, as applicable, of the Summary Compensation Table of prior company proxy statements as noted in the table below:

Name

Amount
Previously
Reported

($)

Steven G. Anderson

-

D. Ashley Lee

160,521

Jeffrey W. Burris

110,974

David M. Fronk

28,269

Scott B. Capps

23,850

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

We have entered into certain agreements and maintain certain plans that will require us to provide compensation to the named executive officers in the event of specified terminations of their employment or upon a change of control of CryoLife.

Employment and Change of Control Agreements

Employment Agreement with Steven G. Anderson

As described in Grants of Plan Based Awards – Employment Agreement with Steven G. Anderson beginning at page 42, pursuant to the 2013 Agreement, Mr. Anderson will receive certain compensation upon termination of his employment, other than termination for cause.

Termination of Employment by Mr. Anderson for Good Reason or Retirement or by CryoLife for any Reason Other than Cause

The 2013 Agreement provides that Mr. Anderson may terminate his employment for “good reason” if any of the following events occur during the term of the agreement:

•

He is assigned duties inconsistent with his current position or duties

•

CryoLife takes any other action resulting in diminution of his position or duties, unless the action was inadvertent and was promptly remedied

55


•

CryoLife fails to pay the base salary, bonus, or all reasonable expenses under the agreement

•

CryoLife threatens to terminate Mr. Anderson for reasons other than for cause

•

CryoLife fails to require any successor to all or substantially all of the business of CryoLife to honor the 2013 Agreement

•

CryoLife requires Mr. Anderson’s employment to be based anywhere other than within 25 miles of the company’s current principal business location

If Mr. Anderson terminates his employment for good reason or retirement (i.e., cessation by Mr. Anderson of full-time employment of any kind), or if we terminate his employment for any reason other than for cause, we will be required to pay him (or his estate in the event of his death) a severance payment equal to $1,985,000. We will also continue to provide major medical benefits to Mr. Anderson and his wife, Ann B. Anderson, for the duration of their lives, provided that our cost is limited to $32,153.90 per year, as increased by the Consumer Price Index using August 2012 as the base date.

The 2013 Agreement provides that generally, we would pay any severance payment due in a lump sum in cash within 30 days following Mr. Anderson’s termination of employment. However, we would delay payment of the severance payment until six months after Mr. Anderson’s termination of employment if necessary to prevent Mr. Anderson from having to pay additional tax under Section 409A of the Internal Revenue Code. The 2013 Agreement also provides that we will subject any severance payment to normal payroll tax withholding.

Upon termination of Mr. Anderson’s employment, we would also pay him at a rate per day equal to his annual base salary then in effect divided by 260 for all accumulated vacation days that he had not taken.

Change of Control

In the event of a change of control of CryoLife and the (i) subsequent termination at any time of Mr. Anderson’s employment by the company for any reason or by Mr. Anderson for good reason, or (ii) termination of Mr. Anderson’s employment, within the twelve months prior to the change of control event, by the company for any reason other than for cause or by Mr. Anderson for good reason, he will receive a change of control payment equal to the sum of his annual salary and bonus compensation for the year in which the termination occurs (or if the termination of employment occurs before bonuses are awarded for the year in which the termination occurs, such bonus payment will be based on the immediately preceding year’s bonus).

The following events would constitute a change of control requiring a termination payment:

•

Any person or group, other than a group of which Mr. Anderson is a member, acquires, over a period of 12 months or less, 35% or more of the total voting power (or 50% or more of the total fair market value) of CryoLife stock

•

A majority of the members of CryoLife’s Board are replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority of the Board before the date of such appointment or election, or

•

Any person or group, but excluding any group of which Mr. Anderson is a member, acquires, over a period of 12 months or less, assets from CryoLife having a value equal to at least 40% of the total gross fair market value of all of CryoLife’s assets immediately prior to such acquisition; however, it will not be considered a change of control if the assets are transferred to a CryoLife stockholder in return for CryoLife stock, or if the assets are transferred to an entity which is at least 50% owned by CryoLife or to a person or group that owns at least 50% of the total voting power of our stock.

Death

The 2013 Agreement would terminate automatically upon Mr. Anderson’s death. However, the 2013 Agreement provides that upon Mr. Anderson’s death, we would pay the Severance Payment to his estate and continue to provide major medical benefits to Mr. Anderson’s wife, Ann B. Anderson, for the duration of her life, provided that our cost is limited to $32,153.90 per year, as increased by the Consumer Price Index using August 2012 as the base date. We would not be required to make any other payments except for payments we owe under any obligations which accrued through the date of death.

56


Disability

The 2013 Agreement provides that incapacity due to physical or mental illness is not a basis for termination of Mr. Anderson’s employment by the company for cause. Termination of Mr. Anderson’s employment due to disability would be treated as a termination not for cause, if initiated by the company, or a retirement, if initiated by Mr. Anderson or his legal representatives, and the provisions of the 2013 Agreement with respect to such termination events would apply accordingly.

Termination for Cause

If we determined that Mr. Anderson had willfully and continually failed to substantially perform his duties, other than due to disability as discussed above, the 2013 Agreement provides that we may terminate his employment for cause after first delivering a written demand for substantial performance. The written demand would specifically identify why we believe Mr. Anderson had not substantially performed his duties. We could also terminate Mr. Anderson’s employment for cause if he willfully engaged in illegal conduct or gross misconduct that we can demonstrate materially injured CryoLife. If we terminate Mr. Anderson for cause, we would not have to make any other payments except for payments we owed under any obligations which accrued through the date of his termination of employment.

Change of Control Agreements with Other Named Executive Officers

Messrs. Lee, Burris, Fronk, and Capps do not have agreements that provide any guarantee of employment other than as at-will employees; however, CryoLife has entered into change of control agreements with each of them that provide that the company will pay severance payments if they are terminated by the company without cause or terminate their employment for good reason during a period extending from six months before to two years after a change of control of CryoLife. This is a “double trigger” provision that requires not only a change of control of CryoLife but also a termination of employment.

Terms of the Change of Control Agreements

•

The initial term of each agreement ends September 1, 2014, but will renew on September 1, 2014 for an additional three-year term. Each agreement will continue to renew every three years thereafter, for an additional three-year term, unless CryoLife provides notice at least thirty days prior to the end of the then-current term that the agreement will not be extended.

•

The severance payment is an amount equal to a multiple of the sum of the executive’s base salary as of the date of termination and his bonus compensation for the year in which the termination of employment occurs, or if the bonus for that year has not yet been awarded, the most recently awarded bonus compensation. The multiple for Mr. Lee is two times salary and bonus, and the multiple for Messrs. Burris, Fronk, and Capps is one times base salary and bonus.

•

Change of control, as defined in the agreement, means a change in the ownership of CryoLife, a change in the effective control of CryoLife, or a change in the ownership of a substantial portion of the assets of CryoLife. Specifically, any of the following types of events would constitute a change of control under the agreements:

¡

Any person, including a syndicate or group, acquires ownership of CryoLife stock that, taken together with CryoLife stock held by such person or group, constitutes more than 50% of the total voting power of the stock of CryoLife

¡

Any person, including a syndicate or group, acquires ownership of stock of CryoLife possessing 30% or more of the total voting power of CryoLife stock

¡

A majority of the members of CryoLife’s Board are replaced during any 12-month period by individuals whose appointment or election is not endorsed by a majority of the Board prior to the date of appointment or election

¡

Any person, including a syndicate or group, acquires assets from CryoLife that have a total gross fair market value equal to more than 40% of the total gross fair market value of all CryoLife assets immediately prior to such acquisition

•

The agreements are not employment agreements, and each respective officer’s employment is “at will.”

We will not be required to make a severance payment in connection with the change of control agreements if an executive is terminated by us for cause, which means:

57


•

An intentional act of fraud, embezzlement, theft, or any other material violation of law that occurs during or in the course of the executive’s employment with CryoLife

•

Intentional damage by the executive to CryoLife assets

•

Intentional disclosure by the executive of CryoLife’s confidential information contrary to CryoLife policies

•

Material breach of the executive’s obligations under the agreement

•

Intentional engagement by the executive in any activity that would constitute a breach of his duty of loyalty or of his assigned duties

•

Intentional breach by the executive of any of CryoLife’s policies and procedures

•

The willful and continued failure by the executive to perform his assigned duties, other than as a result of incapacity due to physical or mental illness

•

Willful conduct by the executive that is demonstrably and materially injurious to CryoLife, monetarily or otherwise

An executive may terminate his employment for good reason in connection with a change of control without forfeiting his severance pay if any of the following events occur during the term of the agreement:

•

The assignment to the executive, without his consent, of any duties materially inconsistent with his position, authority, duties, or responsibilities, including changes in status, offices, or titles and any change in the executive’s reporting requirements that would cause him to report to an officer who is junior in seniority to the officer to whom he previously reported

•

Any other action by CryoLife that results in a material diminution in his position, authority, duties, responsibilities, or aggregate compensation, excluding for this purpose an isolated, insubstantial, and inadvertent action taken in good faith and which is remedied by CryoLife within thirty (30) days after receipt of notice from the executive

The change of control agreements provide that we will pay any severance payment due in a lump sum not later than 30 days following the date of termination, or 30 days following a change of control in the event of an anticipatory termination. We will delay payment of the severance payment until six months after the executive’s termination if necessary to prevent him from having to pay additional tax under Section 409A of the Internal Revenue Code. We will also subject any severance payment to normal payroll tax withholding.

Agreement Not to Solicit

Messrs. Lee, Burris, Fronk, and Capps agree not to solicit any actual or prospective customers of CryoLife with whom they have had contact for a competing business or to solicit employees of CryoLife to leave CryoLife and join a competing business during the term of the agreement and for a period of one year following the termination of the agreement. CryoLife is not required to make the severance payment, and the officer is required to repay any portion of the severance payment already received if he solicits customers or employees of CryoLife during the term of the agreement and for a period of one year following the termination of the agreement.

Tables by Named Executive Officer

The amount of compensation we would be required to pay to each named executive officer in each specified situation is listed in the tables provided below. Amounts we have included in the tables are estimates and are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, any actual amounts paid or distributed may differ materially. Factors that could affect the actual payment amounts include the timing during the year of any such event, the amount of future bonuses, the future stock price of CryoLife, and with respect to Mr. Anderson, his and his spouse’s ages and life expectancies. All of the tables provided in this section assume that the relevant termination or change of control event occurred on December 31, 2013, the last business day of CryoLife’s 2013 fiscal year.

58


Steven G. Anderson, Chairman of the Board, President, and Chief Executive Officer (1)

Executive Benefits and Payments Upon Termination ($)

Voluntary
Retirement
Good Reason or
Involuntary Not
for Cause
Termination
For Cause
Termination
Death Disability Change of
Control
Without
Regard to
Termination

Certain
Termination
Events
Following/

Preceding a
Change of
Control (10)

Cash Compensation

1,985,000 (2) 1,985,000 (2) -- 1,985,000 (2) 1,985,000 (2) -- 3,082,166 (3)

Accelerated Stock Option Exercisability

-- -- -- -- -- 670,722 (4) 670,722 (4)

Accrued Vacation Pay

11,492 (5) 11,492 (5) 11,492 (5) 11,492 (5) 11,492 (5) -- 11,492 (5)

Medical Benefits

179,274 (6) 179,274 (6) -- 99,580 (7) 179,274 (6) -- 179,274 (6)

Accelerated Vesting of Stock Options

1,910,664 (8) 1,910,664 (8) 1,910,664 (8) 1,910,664 (8) 1,910,664 (8) 1,910,664 (8) 1,910,664 (8)

Accelerated Vesting of Restricted Stock and Performance Stock Units

-- -- -- -- -- 2,547,872 (9) 2,547,872 (9)

Total

4,086,430 4,086,430 1,922,156 4,006,736 4,086,430 5,129,258 8,402,190

(1) This table assumes that all termination and change of control events occurred as of December 31, 2013. See Employment and Change of Control Agreements above for a description of Mr. Anderson’s employment agreement, which became effective on January 1, 2013 (the “2013 Agreement”).

(2)

The 2013 Agreement provides for a severance payment equal to $1,985,000 upon termination of Mr. Anderson’s employment by the company without cause or upon his voluntary retirement or termination of employment for good reason, to be paid in a lump sum within 30 days following the employment termination date (subject to any delay in payment necessary to comply with Section 409A of the Internal Revenue Code). Mr. Anderson’s estate would receive this severance payment upon his death.

(3)

The amount shown is the sum of (i) the lump-sum severance payment of $1,985,000 and (ii) the sum of Mr. Anderson’s 2013 salary and 2012 bonus, which was paid in cash in February 2013. This amount assumes that following the change of control, Mr. Anderson retired or terminated his employment for good reason, or we terminated his employment without cause. Mr. Anderson would also receive the amount shown if we terminated his employment without cause at any time within the 12 months prior to the change of control.

(4)

The 2002 Stock Incentive Plan, the 2004 Employee Stock Incentive Plan, and the Amended and Restated 2009 Stock Incentive Plan provide that the exercisability of outstanding options accelerates upon a change of control. The accelerated options had value as of December 31, 2013 because the exercise prices of the options were lower than the closing price of our common stock on the NYSE as of December 31, 2013 of $11.09. The value for each option is calculated as the difference between the exercise price of the option and the closing price of our common stock at the end of the fiscal year ($11.09).

(5) The amount shown represents payment of $319.23 per hour of 2013 vacation pay that Mr. Anderson had not taken as of December 31, 2013. Mr. Anderson had 36 accumulated hours of vacation as of December 31, 2013 for which the company was obligated to make payment as of that date.

(6)

Under the terms of the 2013 Agreement, if Mr. Anderson voluntarily retires, terminates his employment for good reason, or we terminate his employment without cause, we would continue to provide major medical insurance benefits to him and his wife, Ann B. Anderson, for the duration of their lives, not to exceed $32,153.90 per year, increased by the Consumer Price Index using August 2012 as the base date. We used the assumptions discussed at Post-Employment Medical Plan for Steven G. Anderson under Pension Benefits on page 54 when valuing this benefit, except that we did not apply a discount rate.

(7)

Under the terms of the 2013 Agreement, in the event of his death, CryoLife would continue to provide major medical insurance benefits to his wife, Ann B. Anderson, for the duration of her life, not to exceed $32,153.90 per year, increased by the Consumer Price Index using August 2012 as the base date. We used the assumptions discussed at Post-Employment Medical Plan for Steven G. Anderson under Pension Benefits on page 54 when valuing this benefit, except that we did not apply a discount rate.

(8) The value for each stock option is calculated as the difference between the exercise price of the option and the closing price of our common stock at the end of the fiscal year ($11.09).

(9)

As of December 31, 2013, we had issued all outstanding shares of restricted stock and all performance stock units under the 2004 Employee Stock Incentive Plan and the Amended and Restated 2009 Stock Incentive Plan. Both plans provide that all unvested shares of restricted stock and performance stock units become fully vested upon a change of control. The accelerated restricted stock and performance stock units are valued at the closing price of our common stock on the NYSE on December 31, 2013 ($11.09), and the 2013 performance stock units are assumed to have been earned at target level.

59


(10)

Under the terms of the 2013 Agreement, amounts shown that are otherwise payable to Mr. Anderson would be reduced if and to the extent that doing so would cause payments that are contingent on a change of control to not be subject to the excise tax under Section 4999 of the Internal Revenue Code and thereby produce a greater net after-tax amount to him.

D. Ashley Lee, Executive Vice President, Chief Operating Officer, and Chief Financial Officer (1)

Executive Benefits and Payments Upon Termination ($)

Voluntary
Termination

Good Reason

or Involuntary
Not for Cause
Termination

For Cause
Termination
Death Disability Change of
Control
Without
Regard to
Termination

Certain
Termination
Events
Following/

Preceding a
Change of
Control

Cash Compensation

-- -- -- -- -- -- 1,206,624 (2)

Accelerated Stock Option Exercisability

-- -- -- -- -- 269,079 (3) 269,079 (3)

Accrued Vacation Pay

-- (4) -- (4) -- (4) -- (4) -- (4) -- -- (4)

Accelerated Vesting of Stock Options

703,928 (5) 703,928 (5) 703,928 (5) 703,928 (5) 703,928 (5) 703,928 (5) 703,928 (5)

Accelerated Vesting of Restricted Stock and Performance Stock Units

-- -- -- -- -- 1,021,389 (6) 1,021,389 (6)

Total

703,928 703,928 703,928 703,928 703,928 1,994,396 3,201,020

(1) This table assumes that all termination and change of control events occurred as of December 31, 2013.

(2)

The amount shown is equal to two times the sum of Mr. Lee’s 2013 salary and his bonus for 2012 that was paid in cash in February 2013. This amount assumes that following a change of control Mr. Lee terminated his employment for good reason, or we terminated his employment without cause. Mr. Lee would also receive the amount shown if we terminated his employment without cause at any time within the six months prior to the change of control.

(3)

The 2002 Stock Incentive Plan, the 2004 Employee Stock Incentive Plan, and the Amended and Restated 2009 Stock Incentive Plan provide that the exercisability of outstanding options accelerates upon a change of control. The accelerated options had value as of December 31, 2013 because the exercise prices of the options were lower than the closing price of our common stock on the NYSE as of December 31, 2013 of $11.09. The value for each option is calculated as the difference between the exercise price of the option and the closing price of our common stock at the end of the fiscal year ($11.09).

(4) Mr. Lee had no accumulated hours of vacation as of December 31, 2013 for which the company was obligated to make payment as of that date.

(5) The value for each stock option is calculated as the difference between the exercise price of the option and the closing price of our common stock at the end of the fiscal year ($11.09).

(6)

As of December 31, 2013, we had issued all outstanding shares of restricted stock and all performance stock units under the 2004 Employee Stock Incentive Plan and the Amended and Restated 2009 Stock Incentive Plan. Both plans provide that all unvested shares of restricted stock and performance stock units become fully vested upon a change of control. The accelerated restricted stock and performance stock units are valued at the closing price of our common stock on the NYSE on December 31, 2013 ($11.09), and the 2013 performance stock units are assumed to have been earned at target level.

60


Jeffrey W. Burris, Vice President and General Counsel (1)

Executive Benefits and Payments Upon Termination ($)

Voluntary
Termination
Good Reason or
Involuntary Not
for Cause
Termination
For Cause
Termination
Death Disability Change of
Control
Without
Regard to
Termination

Certain
Termination
Events Following/

Preceding a
Change of Control

Cash Compensation

-- -- -- -- -- -- 420,478 (2)

Accelerated Stock Option Exercisability

-- -- -- -- -- 187,687 (3) 187,687 (3)

Accrued Vacation Pay

563 (4) 563 (4) 563 (4) 563 (4) 563 (4) -- 563 (4)

Accelerated Vesting of Stock Options

379,251 (5) 379,251 (5) 379,251 (5) 379,251 (5) 379,251 (5) 379,251 (5) 379,251 (5)

Accelerated Vesting of Restricted Stock and Performance Stock Units

-- -- -- -- -- 713,120 (6) 713,120 (6)