Court rules that Med Gen in default of settlement payments to Global Healthcare in breach of contract case

By E. Janene Geiss

Philadelphia, Nov. 28 - Med Gen Inc. said it was found in breach of contract last Tuesday by a District Court after it was late in making payments to Global Healthcare Labs, Inc. in a previously settled matter.

And it warned that if it cannot reach a new settlement in a few weeks, it will be required to file a Chapter 11 bankruptcy petition, according to an 8-K filing with the U.S. Securities and Exchange Commission Friday.

Under the original settlement agreement, Med Gen was supposed to be making timely payments of $200,000 over a five-month period as part of a judgment for $2,489,418.19 with 7% annual interest and registration of 8 million shares of common stock. The two sides came to the agreement after Med Gen lost the jury verdict on a breach of contract dispute on Aug. 6, 2004, the filing said.

After Med Gen was two days late with the second payment, seven days late with the third payment and 13 days late with the fourth payment, Global Healthcare disaffirmed the settlement, the filing said. Med Gen noted that it was only able to make the fourth payment after the company president took out a home-equity loan.

The court ruled that because the settlement contract had a "time is of the essence clause," the untimely payments allowed Global Healthcare to disaffirm the agreement. The 13-day delay was not adequate performance, the court said, and the $75,000 in payments cashed by Global under the original settlement agreement would not be returned, but applied to the judgment.

Med Gen has 10 days to file written objections to the original trial judge or be barred from an appeal to this adverse ruling, according to the filing.

The company said in the filing that it has retained Furr & Cohen Esq. and notified its lender, whose outside counsel is working closely with the company's counsel to reach a new settlement with the judgment creditor.

The Boca Raton, Fla., developer of a snore-relief throat spray, has 5,788,777 shares outstanding and 1,022 shareholders of record. Management will explore and exhaust all options and remedies before making a Chapter 11 filing, the filing said.

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