Exhibit
10.3


CryoLife,
Inc.

1655 Roberts Boulevard N.W.

Kennesaw, Georgia 30144


May 4, 2006


Re:          Grant of Incentive Stock
Option


Dear Ashley:


This letter sets forth the agreement (the “Agreement”)
between you and CryoLife, Inc., a Florida corporation (the “Company”),
regarding your option to acquire shares of the Company’s Common Stock.


1.             Grant of Option.  Subject to the terms set forth below, the
Company hereby grants to Employee the right, privilege, and option to purchase
up to 250,000 shares (of Common Stock the “Option Shares”) at the purchase
price of $5.03 per share.  The date of
grant (“Grant Date”) of the option is May 4, 2006  This option is intended to be and shall be
treated as an “Incentive Stock Option,” as that term is defined in
Section 422 of the Internal Revenue Code of 1986, as amended (“Section 422”).  Provided, however, that to the extent that
the option fails for any reasons to comply with the provisions of
Section 422, it shall be treated as a “Non-Qualified Stock Option” (as
defined in the Plan).  The Company shall
have no liability whatsoever to Employee in the event the option fails for any
reason to satisfy the requirements for Incentive Stock Options set forth in
Section 422.  This option is granted
pursuant to the CryoLife, Inc. 2004 Employee Stock Incentive ((the “Plan”).


2.             Time of Exercise of Option.


(a)           Prior
to its termination as set forth in Section 5 below, this option shall vest, and
the Employee may exercise the option granted 
herein on the following dates, or thereafter provided the option is
exercised prior to its termination:




	
  Exercise Date

  	
   

  	
  Number of Option

  Shares

  Exercisable

  	
   

  	
  Cumulative Percentage

  of Option Shares

  Exercisable

  	
   

  
	
  First Anniversary of
  Grant Date (05/04/07)

  	
   

  	
  50,000 shares

  	
   

  	
  20 percent

  	
   

  
	
  Second Anniversary of
  Grant Date (05/04/08)

  	
   

  	
  100,000 shares

  	
   

  	
  40 percent

  	
   

  
	
  Third Anniversary of
  Grant Date (05/04/09)

  	
   

  	
  150,000 shares

  	
   

  	
  60 percent

  	
   

  
	
  Fourth Anniversary of
  Grant Date (05/04/10)

  	
   

  	
  200,000 shares

  	
   

  	
  80 percent

  	
   

  
	
  Fifth Anniversary of Grant Date (05/04/11)

  	
   

  	
  250,000 shares

  	
   

  	
  100 percent

  	
   

  






 


(b)           As
described in the First Amendment to Employment Agreement dated as of
May 4, 2006, executed by the Company and you, and amending the Employment
Agreement between the Company and you dated September 5, 2005, all shares
subject to this option agreement shall vest and become immediately exercisable
if, during the Employment Period and 









 



during your continuous employment, (i) CryoLife terminates your
employment other than for Cause, Death or Disability, or (ii) you become
entitled to receive a Retention Payment under Section 4 of the amended
Employment Agreement.  The defined terms
in this Section 2(b) shall have the meanings ascribed to them in the
amended Employment Agreement.


3.             Method of Exercise.  The option shall be exercised by written
notice directed to the Compensation Committee (the “Committee”), at the Company’s
principal executive office, and except as set forth below, must be accompanied
by payment of the option price for the number of Option Shares purchased in
accordance with the Plan’s requirements. 
The payment for the number of Option Shares purchased may be payable in
cash or by tendering (by actual delivery of shares) shares of the Company’s
common stock in accordance with the Plan. 
To the extent permitted by applicable law, you may elect to pay for the
number of Option Shares purchased by irrevocably authorizing a third party to
sell shares of the Company’s common stock acquired upon exercise of the Option
Shares and remitting to the Company a sufficient portion of the sale proceeds
as payment of the entire option price for the number of Option Shares
purchased, including any tax withholding resulting from such exercise. The
Company shall make delivery of such shares in accordance with the Plan provided
that if any law or regulation requires the Company to take any action with
respect to the shares specified in such notice before the issuance thereof,
then the date of delivery of such shares shall be extended for the period
necessary to take such action.


4.             The Plan.  The Company’s 2004 Employee Stock Incentive
Plan, as amended from time to time by the Board of Directors of the Company, is
hereby incorporated in this Agreement and to the extent that anything in this
Agreement is inconsistent with the Plan, the terms of the Plan shall
control.  Employee acknowledges that the
Company has provided a copy of the Plan to Employee.


5.             Termination of Option.  Except as herein otherwise stated, the
option, to the extent not previously exercised, shall terminate in accordance
with the Plan and upon the first to occur of the following events:


(a)           Disability.  The expiration of 36 months after the date on
which Employee’s employment by the Company is terminated, if such termination
be by reason of Employee’s permanent and total disability, provided, however,
that (i) the option shall be exercisable only to the extent that Employee had
the right to exercise the option at the time of termination and (ii) if the
Employee dies within such 36 month period, any unexercised option held by such
Employee shall thereafter be exercisable in accordance with the provisions of
and shall terminate upon the first to occur of the events described in Sections
5(b) and (d);


(b)           Death.  In the event of Employee’s death while in the
employ of the Company, the expiration of 12 months following the date of his or
her death, provided that the option shall be exercisable following the Employee’s
death only to the extent that Employee had the right to exercise the option at
the time of his or her death.


(c)           Retirement.  In the event Employee’s employment with the
Company terminates by reason of normal or early retirement, any option held by
such Employee may be 









 



exercised by the Employee for a period of 36 months from the date of
such termination; provided, however, that if the Employee dies within such 36
month period any unexercised option held by Employee shall thereafter be
exercisable in accordance with the provisions of and shall terminate upon the
first to occur of the events described in Section 5(b) and (d); or


(d)           Other.  Upon the earlier to occur of (i) 66 months
following the Grant Date, or (ii) upon the expiration of ten (10) business days
after termination of Employee’s employment by the Company (except if such
termination be by reason of death, disability, or normal or early
retirement).  Notwithstanding the
foregoing, if the shares subject to this option become fully vested and
immediately exercisable pursuant to Section 2(b), then the right to
exercise this option shall terminate on the first to occur of sixty-six (66)
months following the Effective Date, or 24 months from the date of acceleration
pursuant to Section 2(b).  It is in
Compensation Committee’s sole discretion to determine whether the Employee’s
employment with the Company terminates by reason of disability, normal or early
retirement.


Except as set forth above, the option may not be
exercised unless Employee, at the time he or she exercises the option, is, and
has been at all times since the date of grant of the option, an employee of the
Company.  Employee shall be deemed to be
employed by the Company if he or she is employed by the Company or any of its
subsidiaries.  Notwithstanding the above,
in no event may the option be exercised after 66 months following the Grant
Date.


6.             Reclassification, Consolidation,
or Merger.  The number of Option
Shares may be adjusted in accordance with the Plan if certain events such as
merger, reorganization, consolidation, recapitalization, stock dividends, stock
splits, or other changes in the Company’s corporate structure affecting its
Common Stock occur.


7.             Rights Prior to exercise of
Option.  This Option is not
transferable by Employee, except by will or by the laws of descent and
distribution or as otherwise set forth in the Plan, and during Employee’s
lifetime shall be exercisable only by Employee. 
This option shall confer no rights to the holder hereof to act as
stockholder with respect to any of the Option Shares until payment of the
option price and delivery of a share certificate has been made.


8.             Employee’s Representations and
Warranties.  By execution of this
Agreement, Employee represents and warrants to the Company as follows:


(a)           The
entire legal and beneficial interest of the option and the Option Shares are
for and will be held for the account of the Employee only and neither in whole
nor in part for any other person.


(b)           Employee
resides at the following address:


3802 Wieuca Trace

Atlanta, Georgia  30342


(c)           Employee
is familiar with the Company and its plans, operations, and financial
condition.  Prior to the acceptance of
this option, Employee has received all information as he or she deems necessary
and appropriate to enable an evaluation of the financial risk 









 



inherent in accepting the option and has received satisfactory and
complete information concerning the business and financial condition of the
Company in response to all inquiries in respect thereof.


9.             Restricted Securities.  Employee recognizes and understands that this
option and the Option Shares are currently registered under the Securities Act
of 1933, as amended (the “Act”), but may not remain so registered, and are not
registered under any state securities law. 
Any transfer of the option (if otherwise permitted hereunder, and once
exercised, the Option Shares) will not be recognized by the Company unless such
transfer is registered under the Act, the Georgia Securities Act of 1973, as
amended, (the “Georgia Act”) and any other applicable state securities laws or
effected pursuant to an exemption from such registration which may then be
available.  If the Option Shares are not
registered, any share certificates representing the Option Shares may be
stamped with legends restricting transfer thereof in accordance with the
Company’s policy with respect to unregistered shares of its Common Stock issued
to employees as a result of exercise of options granted under the Plan.  The Company may make a notation in its stock
transfer records of the aforementioned restrictions on transfers and
legends.  Employee recognizes and
understands that the Option Shares may be restricted securities within the
meaning of Rule 144 promulgated under the Act; that the exemption from
registration under Rule 144 may not be available under certain circumstances
and that Employee’s opportunity to utilize such Rule 144 to sell the Option
Shares may be limited or denied.  The
Company shall be under no obligation to maintain or promote a public trading
market for the class of shares for which the option is granted or to make
provision for adequate information concerning the Company to be available to
the public as contemplated under Rule 144. 
The Company will be under no obligation to recognize any transfer or
sale of any Option Shares pursuant to Rule 144 unless the terms and conditions
of Rule 144 are complied with by the Employee. 
By acceptance hereof, Employee agrees that no permitted disposition of
any Option Shares shall be made unless and until (i) there is at the time of
exercise of the option in effect a registration statement under the Act, or
(ii) Employee shall have notified the Company of a proposed Option disposition
and shall have furnished to the Company a detailed statement of the
circumstances surrounding such disposition, together with an opinion of counsel
acceptable in form and substance to the Company that such disposition will not
require registration of the shares so disposed under the Act, the Georgia Act,
and any applicable state securities laws. 
The Company shall be under no obligation to permit such transfer or
disposition on its stock transfer books unless counsel for the Company shall
concur as to such matters.  Employee
recognizes and understands that as long as Employee remains a designated
Section 16 officer of the Company, and for up to six months thereafter, any
sales of Option Shares will be subject to Section 16 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) and the regulations promulgated
thereunder.  Employee also recognizes and
understands that any sale of the Option Shares will also be subject to Rule
10b-5 promulgated under the Exchange Act. 
Employee agrees that any disposition of the Option Shares shall be made
only in compliance with the Act, the Exchange Act, and the rules and regulations
promulgated thereunder.


10.           Tax Matters.  The Employee hereby agrees to comply with any
applicable federal, state, and local income and employment tax requirements
which might arise with regard to a disposition of any Option Shares and to
inform the Company of any such disposition which occurs prior to the expiration
of (i) two years from the date of grant of the option, and (ii) one 









 



year from the date of
transfer to him of Option Shares.  No
later than the date as of which an amount first becomes includable in the gross
income of the Employee for federal income tax purposes with respect to the
exercise of any option under the Plan, Employee shall pay to the Company, or
make arrangements satisfactory to the Committee regarding the payment of, any
federal, state, or local taxes of any kind required by law to be withheld with
respect to such amount.  The obligations
of the Company under the Plan are conditional on such payment or arrangements
and the Company shall have the right to deduct any such taxes from any payment
of any kind otherwise due to Employee.


11.           Payment.  Except as set forth below, the Option
Exercise Price shall be paid in cash in U.S. Dollars at the time the Option is
exercised or in shares of Common Stock of the Company held by the employee for
at least six months and having an aggregate value equal to the Option Exercise
Price.  If the Option Exercise Price is
paid by transfer of shares of Common Stock of the Company then the value of
such shares will be the fair market value as of the day the shares are
tendered, which is the closing sale price of the Stock on that day on the New
York Stock Exchange.  The Option Exercise
Price may be paid by a combination of cash and Common Stock.  Notwithstanding the foregoing, to the extent
permitted by applicable law, Employee may elect to pay the Option Exercise
Price by authorizing a third party to sell shares of stock (or a sufficient
portion of the shares) acquired upon exercise of the Option and remit to the
Company a sufficient portion of the sale proceeds to pay the entire Option
Exercise Price and any tax withholding resulting from such exercise.


12.           Binding Effect.  This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors, and permissible assigns.


13.           Miscellaneous.  This Agreement shall be governed by and
construed under the laws of the State of Georgia.  If any term or provision hereof shall be held
invalid or unenforceable, the remaining terms and provisions hereof shall
continue in full force and effect.  Any
modification to this Agreement shall not be effective unless the same shall be
in writing and such writing shall be signed by authorized representatives of
both of the parties hereto.  The terms of
paragraphs 8 and 9 hereof shall survive exercise of the option by Employee and
shall attach to the Option Shares.  The
option contained in this letter shall not confer upon Employee any right to
continued employment with the Company, nor shall it interfere in any way with
the right of the Company to terminate the employment of Employee at any
time.  This letter can be executed in two
or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.


Please signify your
acceptance of the option and your agreement to be bound by the terms hereof by
promptly signing one of the two original letters provided to you and returning
the same to the President of the Company.









 



Thank you for your
good work and service.


Sincerely,


 


	
  (SEAL)

  	
   

  	
  THE COMPANY:

  	 

	
   

  	
   

  	
   

  	 

	
  Attest:

  	
   

  	
  CRYOLIFE, INC.

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   Suzanne
  K. Gabbert, Secretary for the Company

  	
   

  	
  Steven G. Anderson, President and CEO

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  EMPLOYEE:

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  D. Ashley Lee

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Social Security No.: