CryoLife (CRY) And Medafor In Fight Over Hemostase

CryoLife, Inc. and Medafor, Inc. are parties to an exclusive distribution agreement whereby CryoLife distributes Hemostase, an absorbable blood clotting agent manufactured and developed by Medafor.

On September 18, 2009, Medafor informed CryoLife of its belief that CryoLife has materially breached its duties and obligations under the Agreement and gave CryoLife notice of its intent to terminate the Agreement if the breach is not cured within 30 days. While Medafor contends that a material breach has occurred because CryoLife has pursued regulatory approval to distribute Hemostase in Hong Kong, CryoLife believes a court would find that a material breach of the Agreement has not occurred, and that, in the event a breach has occurred, that CryoLife would be able to cure it within 30 days of CryoLife’s receipt of notice. As such, CryoLife does not believe the Agreement will terminate on October 18, 2009.
The Agreement has a three-year term from its effective date of May 1, 2008 and will automatically renew for an additional three-year period if

CryoLife makes minimum purchases as designated under the Agreement; however,

there is no contractual obligation for CryoLife to make minimum purchases. Per the terms of the Agreement, CryoLife is the exclusive distributor of Hemostase in the U.S. for cardiac and vascular surgery (excluding Department of Defense hospitals) and the exclusive distributor internationally (excluding China and Japan) for cardiac, vascular, and general surgery, other than orthopaedic and ear, nose and throat surgery.

As previously discussed in the Company’s Forms 10-Q for the quarters ended March 31, 2009 and June 30, 2009, CryoLife has filed a lawsuit against Medafor alleging that Medafor has violated the Agreement by, among other things, entering into exclusive distribution agreements with other companies with respect to distribution territories reserved for CryoLife per the terms of the Agreement.

Legally embroiled Medafor's issue with SMI (manufacturer of PerClot) was recently dismissed pending review, the court commenting "As a result, the court dismissed Medafor's trade secret claims ...."