Health Chem Corp - Current report filing (8-K)
28 Abril 2008 - 7:17AM
Edgar (US Regulatory)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of
Report (Date Earliest Event Reported): April 21, 2008
HEALTH-CHEM
CORPORATION
(Exact
Name of Registrant as Specified in its Charter)
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Delaware
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1-6787
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13-2682801
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(State
of other jurisdiction of
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(Commission
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(I.R.S.
Employer
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incorporation
or organization Number)
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File
Number)
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Identification
No.)
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101
Sinking Springs Lane, Emigsville, PA
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17318
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(Address
of principal executive offices)
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(Zip
code)
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Registrant's
telephone number, including area code:
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(717)
764-1191
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________________________________________________
(Former
name or former address, if changed since last report)
Item
1.01 Entry into a Material Definitive Agreement.
On
April
21, 2008, Health-Chem Corporation (“Health-Chem”), together with its subsidiary
Transderm Laboratories Corporation (“Transderm”) and Transderm’s subsidiary
Hercon Laboratories Corporation (“Hercon” and together Health-Chem and
Transderm, the “Company”), entered into a Settlement Agreement (“Settlement
Agreement”) with Key Pharmaceuticals, Inc. (“Key”) with respect to settling
outstanding controversies between the parties under the terms of a
Final
Judgment On Consent entered by the
United
States District Court, District of New Jersey,
on
May
23, 2007 (“Consent Judgment”). Any description herein of the contents of the
Settlement Agreement are qualified by the full text of such Settlement
Agreement, a copy of which is annexed hereto as Exhibit 99.1 and incorporated
herein by reference. The
Settlement
Agreement clears the way for the Company to continue manufacturing and selling
nitroglycerin
transdermal patches indefinitely.
Background.
By
letter
dated on April 26, 2007, Key notified Hercon that it was terminating a License
Agreement between Key and Hercon dated March 13, 2000 (the “License Agreement”)
which permitted Hercon to use certain technologies developed and patented by
Key
in Hercon’s transdermal patch products (the “Hercon Products”) based on Hercon’s
failure to pay royalties on sales of the Hercon Products. On April 27, 2007,
Key
served Hercon with a complaint filed in the United States District Court,
District of New Jersey (the “Court”), demanding payment of all royalties due
under the License Agreement (the “Action”). Hercon did not have the means to
repay the accrued royalties under the License Agreement. The products covered
by
the Key License represented the Company’s only products and without any other
meaningful source of continuing revenue.
On
May
23, 2007, the Court entered the Consent Judgment which set aside the Action
and
served as the basis for satisfaction by Hercon of the amount due to Key under
the License Agreement and govern the relationship between the parties after
such
date. The Consent Judgment was predicated on Hercon’s intention to wind down and
cease business operations by August 16, 2007 while remaining operational until
such date in order to maximize the value of its assets and inventory for the
benefit of its creditors. The terms of the Consent Judgment were described
in
detail in the Company’s quarterly report on Form 10-QSB for the three months
ended March 31, 2007.
Over
the
ensuing months, Key periodically extended the Company’s limited right to
manufacture and sell the Hercon Products under the Consent Judgment. The parties
have been negotiating to conclude a settlement of outstanding amounts due under
and certain other matters included in the Consent Judgment since January
2008.
The
Settlement Agreement.
Under
the
Settlement Agreement, the Company agreed to pay Key an aggregate of $1,425,000,
of which the Company paid Key $1,000,000 upon the execution of the Settlement
Agreement and agreed to pay the balance of $425,000 in seven equal installments
of $60,714.29, the first of which is due and owing on or before July 21, 2008
and the remaining installments to be due and owing on or before October 21,
2008, January 21, 2009, April 21, 2009, July 21, 2009, October 21, 2009 and
December 21, 2009. The amount paid and payable under the Settlement Agreement
was allocated as follows: $650,000 was applied to the purchase of the Consent
Judgment; $350,000 was applied to the satisfaction of all royalties due for
the
period October 1, 2007 through the execution of the Settlement Agreement; and
payments aggregating $425,000 will be applied to the satisfaction of all
royalties that may become due under the License Agreement from the date of
the
Settlement Agreement through the termination of the License
Agreement.
The
Settlement Agreement further provides that:
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·
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The
License Agreement will continue in effect until it expires on February
16,
2010 as modified by the Settlement Agreement so that all royalties
which
become due after April 21, 2007 under the License Agreement would
be
satisfied by the additional payments to be made in the future totaling
$425,000, as described above, and that the Company would no longer
be
required to account to Key for royalties due after April 21,
2008;
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·
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The
Consent Judgment, including Key’s right to receive $8,000,000 in past due
royalty payments thereunder, reduced by a credit of $1,150,000 in
respect
of payments by Hercon prior to entering into the Settlement Agreement,
would remain in full force and effect until Key received payment
of all
amounts owed under the Settlement
Agreement;
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·
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The
Company may not assign, delegate or otherwise transfer the License
Agreement or any of its rights or obligations arising under the License
Agreement without the prior written consent of
Key;
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·
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All
agents, officers, directors and stockholders of all parties to the
Settlement Agreement were released and all such parties agreed to
hold the
others harmless from any and all claims that were or could have been
asserted in the action brought by Key or in the Action or in relation
to
the Consent Judgment or any claims which would or could have been
asserted
by or against the parties prior to the execution of the Settlement
Agreement, provided, however, that if at any time, any of the monies
paid
to Key were set aside as a preference under the bankruptcy laws,
or were
otherwise ordered to be disgorged from Key in connection with legal
proceedings that involve the Company or any of its affiliates, Key’s
release would be deemed null and void, if the Company was unable
to cure
the setting aside of the monies paid. In the event the disgorgement
is not
cured, avoided, or otherwise recovered in connection with a bankruptcy
case involving any corporate constituent of the Company, Key would
have an
allowed claim in such bankruptcy case for the full amount of the
Consent
Judgment less any amounts previously paid to and retained by
it;
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·
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Any
breaches by the Company of its obligations under the Settlement Agreement
which were not cured within 25 days after written notice requesting
cure
would entitle Key to enforce the Consent Judgment, and any payments
made
by the Company to Key pursuant to the Settlement Agreement would
be
applied towards the satisfaction of the Consent Judgment;
and
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·
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Andrew
Levinson and Manfred Mayerfeld, directors of each constituent corporation
of the Company, agreed that they would be jointly and severally liable
to
Key, if within 90 days of the date that Key received the first payment,
a
proceeding were commenced against Hercon or Key and Key was thereafter
ordered in such proceeding, pursuant to a final, non-appealable order,
to
return or disgorge all or any portion of the initial $1,000,000 payment
under the Settlement Agreement. The amount for which either or both
would
be liable would be the lesser of the amount ordered to be returned
or
disgorged or the amount of that initial payment. Any obligations
of Mr.
Levinson or Mr. Mayerfeld would be deemed to be extinguished if within
90
days of the date Key received the first payment, it did not receive
notice
of an action, potential action or other proceeding requiring it to
return
or disgorge such payment or any portion thereof and such action or
proceeding is not commenced. At a meeting of the Board of Directors
of the
Company (the “Board”) held on April 16, 2008, at which the Board approved
the terms of settlement described above, the Board agreed to defer
consideration of appropriate collateral to be provided to Messrs.
Levinson
and Mayerfeld for their guarantee and appropriate compensation to them
therefor.
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Management
believes that, based upon historical operating results, the Company can satisfy
its financial obligations under the Settlement Agreement as they become
due.
By
entering into the Settlement Agreement, the Company has removed the substantial
doubt about its ability to continue manufacturing and selling the Hercon
Products, thereby allowing it to continue to pursue its business objectives
of
identifying clients for which it would manufacture transdermal patches and
conduct research and development activities.
Item
9.01 Financial Statements and Exhibits.
Exhibits
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99.1
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Settlement
Agreement dated April 21, 2008 between Hercon Laboratories Corporation
and
Key Pharmaceuticals, Inc.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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HEALTH-CHEM
CORPORATION
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Dated:
April 25, 2008
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By:
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/s/
Ronald J. Burghauser
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Ronald
J. Burghauser,
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Acting
Principal Executive Officer
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Health Chemical (CE) (USOTC:HCLC)
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