ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") dated as of December 1,
2003, is among NICHOLS LABORATORIES, INC., an Illinois Corporation ("Buyer");
and UNITED STATES DRUG TESTING LABORATORIES, INC., an Illinois corporation
("Seller") and Avitar, Inc., a Delaware corporation ("Avitar").
RECITALS
Seller desires to sell, and Buyer desires to purchase, the certain
specified assets of Seller necessary and used in Seller's drug testing and
research business (the "Business") now owned and operated by Seller (the
"Assets", but excluding certain Assets specified in Section 1.02), and Buyer has
agreed to assume all liabilities of the Seller arising from or related to the
Business (the "Liabilities", but excluding certain Liabilities specified in
Section 1.04 and 1.04A), on the terms and conditions set forth in this
Agreement. As an integral part of the foregoing transaction, Avitar, as the
owner of all of the outstanding shares of the Seller, and the Buyer have agreed
to enter into a Service and Consulting Agreement by which Buyer will provide
certain laboratory, analytical, testing and consulting services to Avitar for a
period of three years, renewable for additional one-year terms absent notice by
either party as provided therein. It is mutually agreed that it is in the best
interests of the parties to this Agreement for all these transactions to occur.
In consideration of the above premises and of the mutual promises and
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
ARTICLE 1
Purchase and Sale of Assets
1.01 Purchase and Sale. Subject to all the terms and conditions of this
Agreement and for the consideration herein stated, on the Closing Date, Seller
agrees to sell, convey, assign, transfer and deliver to Buyer, and Buyer agrees
to purchase and accept from Seller, all of the Assets (but excluding certain
Assets specified in Section 1.02), which Assets shall include without
limitation:
1.01-2 To the extent transferable, the items of tangible personal
property of Seller, including furniture, fixtures, equipment, materials,
supplies, motor vehicles, inventory and spare and replacement items
therefor, listed on Schedule 1.01-2 ("Tangible Personal Property");
1.01-3 To the extent transferable, the leases of real or personal
property listed on Schedule 1.01-3 (collectively, the "Leases");
1.01-4 To the extent transferable, all rights, benefits and interests
of Seller under the contracts, agreements, commitments, understandings,
purchase orders, sales orders, distributor contracts, manufacturer's
representative contracts, documents and instruments listed on Schedule
1.01-4 hereto and under any contracts, agreements, commitments,
understandings, purchase orders, and sales orders arising from or related
to the Business, all of which shall be expressly assumed by Buyer in
writing on the Closing Date (collectively, the "Contracts");
1.01-5 To the extent transferable, the patents, trademarks, trade
names, copyrights and service marks of Seller, all registrations therefor,
all applications pending therefor and all other proprietary rights and
intangible property of Seller, listed on Schedule 1.01-5;
1.01-6 To the extent transferable, the approvals, authorizations,
consents, licenses, permits, franchises, tariffs, orders and other
registrations of any federal, state or local court or other governmental
department, commission, board, bureau, agency or instrumentality,
(collectively the "Permits") held by Seller and required for the conduct of
the Business, as listed on Schedule 1.01-6.
1.01-7 The specified accounts receivable listed on Schedule 1.01-7.
1.01-8 The specified prepaid and deferred items of Seller, including
prepaid rent, insurance, taxes and unbilled charges and deposits relating
to the Business, listed on Schedule 1-01-8;
1.01-9 Copies of all operating data and records relating to the
Business, including without limitation financial, accounting and credit
records, correspondence, budgets, engineering and laboratory records and
other similar documents and records;
1.01-10 All of Seller's right, title and interest in and to Seller's
name "United States Drug Testing Laboratories" and "Mecstat" and "Mecstat
Laboratories";
1.01-11 All of Seller's right, title and interest in and to Seller's
telephone, facsimile and telex numbers;
1.01-12 All of Seller's right, title and interest in and to Seller's
WebSite address, the Seller's WebSite and Seller's entire right, title and
interest in and to all current and archived content, including all web site
pages, currently used or previously developed in connection with the
Business, all media on which such content is stored and any inventory of
written materials, whether in printed form or on film, microfilm,
microfiche or other negative, and all lists of subscribers, customers and
content contributors.
1.02 Excluded Assets. The Assets shall not include the following:
1.02-1 Seller's corporate seal, minute books, charter documents and
corporate stock record books;
1.02-2 Seller's cash and bank accounts.
1.02-3 The assets identified on Schedule 1.02-3, if any.
1.03 Purchase Price; Payment of Purchase Price; Sublease Agreement. The
aggregate purchase price for the Assets (the "Purchase Price") shall be One
Million Dollars ($1,000,000.00), payable as follows:
1.03-1. The Buyer shall make a down payment to the Seller or its order
in the amount of Five Hundred Thousand Dollars ($500,000) in cash payable
in two equal installments of Two Hundred Fifty Thousand Dollars ($250,000),
with the first payment payable on the Closing Date and the second payment
payable on a date up to sixty days after the Closing Date, but not later
than December 31, 2003.
1.03-2. The balance of the purchase price of Five Hundred Thousand
Dollars ($500,000.00) shall be payable to the Seller or its order beginning
on March 1, 2005, on the following terms and conditions:
(a) Buyer shall pay to the Seller or its order annual payments, due on
March 1, 2005, and on the first day of March for each successive year
until the balance of the purchase price is paid, an amount equal to
ten percent (10%) of the Buyer's Annual Gross Sales (subject to the
adjustments as set forth below) in excess of One Million Five Hundred
Thousand Dollars ($1,500,000.00) for the immediately preceding twelve
month fiscal year ending on December 31st of each year. For purposes
of this Agreement, the foregoing annual payment shall be referred to
as the "Annual Percentage Payment". Buyer's obligations to Seller and
to Avitar shall cease when the aggregate Annual Percentage Payments
made to Seller and to Avitar reach Five Hundred Thousand Dollars
($500,000.00).
(b) For purposes of this Agreement, the Buyer's "Gross Sales" for each
Fiscal Year shall include the gross income to the Buyer from the sale
of drug testing materials, analytical services, drug testing services
and drug testing kits, less returns and allowances. Gross Sales shall
also include income from subcontracts for research services provided
to any third parties. Gross Sales shall not include: (i) the value or
amount of any sales by Buyer to Avitar which sales are subject to
offset or credit under this Agreement; (ii) any direct income or
direct grant award to the Buyer from the Small Business Innovative
Research Program (SBIR) or income or direct grant from the Small
Business Technology Transfer Program (STTR) Phase I, Phase II or Phase
III (the "Grant Income"); (iii) consulting or expert witness fees for
forensic toxicology matters; (iv) income from leases or sub-leases;
(iv) royalty income; or (v) ordinary or capital gain income from
investments. Notwithstanding the foregoing, the Grant Income shall be
included in and added to Gross Sales (i) to the extent that the
aggregate amount of the Grant Income exceeds one third (1/3) of the
Buyer's Gross Sales for any three consecutive calendar years during
the term of this Agreement, and (ii) provided that there is no Federal
or State law or regulation that would prohibit the sharing of the
Grant Income with the Seller and Avitar.
(c) The Annual Percentage Payment will be reduced annually by an
amount equal to the combined sums due annually from the Seller and
Avitar to the Buyer for the services and products ordered and used by
the Seller and Avitar under the terms of the Service and Consulting
Agreement, attached hereto as Exhibit A, pursuant to which the Buyer
shall provide consulting and testing services to Seller and to Avitar
following the Closing.
(d) Buyer agrees that in the event that the Buyer sells or transfers
all or a substantial portion of the Assets and the business operations
of the Business to a third party while any part of the balance of the
purchase price remains unpaid, that in such event the entire unpaid
balance then payable to Seller and Avitar shall be paid in full at the
time of the sale or transfer. For purposes of this section, a "third
party" refers to any person or separate business entity that is not
owned or controlled by the Buyer.
(e) Avitar and Seller shall have the right to conduct an annual review
or audit of Buyer's Gross Sales, which Gross Sales shall be reported
annually to Avitar and Seller by Buyer within 90 days after the end of
each year. Buyer shall, upon reasonable terms and at reasonable times,
provide access to such tax returns and financial records of Buyer as
may be necessary for the sole purpose to allow Avitar and/or Seller to
review or audit the Buyer's Gross Sales. Any such access to tax
returns and financial records shall be granted with due regard by
Avitar and Seller to the protection of Buyer's confidential and
private financial information and any requirement of confidentiality
of medical records or information as required by law. If the Gross
Sales as reported by Buyer in any year are more than 5% less than the
actual Gross Sales for such year as determined by Avitar and/or Seller
after review or audit, then (i) Buyer shall be obligated to reimburse
for all costs incurred in the review or audit and (ii) the Buyer shall
be obligated to increase the annual payments due to the Seller and
Avitar on the balance of the remaining purchase in an amount equal to
20% of the discrepancy between the Gross Sales as determined by the
audit and the Gross Sales as previously reported by Buyer.
1.03-3 From the Closing Date until such times as the balance of the
down payment is fully paid by Buyer, the Buyer agrees to deposit all of
Buyer's shares under a stock pledge escrow agreement to Avitar to secure
the balance of the down payment. The stock pledge escrow agreement shall be
in the form set forth in Exhibit A-1. Upon payment of the balance of the
down payment, the escrow under the stock pledge escrow agreement shall
release all shares to Buyer. In addition, until such time as the balance of
the down payment is made by Buyer, Buyer agrees not to encumber its assets
in excess of One Hundred Fifty Thousand Dollars ($150,000).
1.04 Assumption of Liabilities. Subject to the exceptions provided in the
following Section 1.04A, as of the Closing Date, the Buyer shall assume and
agree to perform and pay when due all debts, liabilities, obligations and
contracts of Seller of every kind, character or description, known or unknown,
existing at the time of the Closing Date, including contingent liabilities
("Assumed Liabilities").
1.04A Certain Liabilities Not Assumed. Notwithstanding the foregoing, the
assumption by Buyer of the foregoing debts, liabilities and obligations of
Seller shall expressly exclude the following: (a) the inter-company receivable
as of the Closing Date between Avitar and Seller (solely for identification
purposes the inter-company receivable as of 9/30/03 as reflected in the
September 30, 2003 Balance Sheet attached hereto was $881,000); (b) all
liability of any kind, including any transferee liability, for all taxes,
assessments, penalties, interest and fines in connection with any tax including
but not limited to unemployment tax, social security tax, withholding tax,
medicare tax, sales tax, use tax, income tax, corporate replacement tax, estate
tax, inheritance tax, or gift tax, due to any government or unit of government
related to or arising out of the operations or conduct of business by Avitar
(but expressly excluding from this Section 1.04A any operations or conduct of
business of Seller); (c) all liability for any lawsuit or legal claim of any
kind, whether or not covered by insurance, including claims for malpractice and
product liability, relating to or arising out of the conduct or operations of
Avitar's business (but expressly excluding from this Section 1.04A any
operations or conduct of business of Seller); and (d) liability for all debts,
security interests, claims and assessments not appearing on the September 30,
2003 Balance Sheet and arising out of the operations or conduct of business by
Avitar (but expressly excluding from this Section 1.04A any operations or
conduct of business of Seller).
1.05 LINC Credit LLC and Republic Finance Indebtedness and Security
Interest; Buyer's Right of Set-Off.
1.05-1 Seller represents to Buyer that: (a) there is an indebtedness
on a note and security agreement due to LINC Credit LLC in the amount of
less than $61,000.00 (the "LINC Indebtedness"); (b) the final payment due
on the LINC Indebtedness is due prior to December 5, 2003; (c) the LINC
Indebtedness is now owned and held by Republic Finance; and (d) the Assets
to be sold to the Buyer are encumbered by the security interest in favor of
LINC Credit LLC. True and correct copies of the three loan documents that
evidence the LINC Indebtedness are listed in Schedule 1.05 and copies
thereof have been delivered to Buyer.
1.05-2 Seller and Avitar agree to make timely payments due on the LINC
Indebtedness and use commercially reasonable efforts to obtain a release
and satisfaction of the LINC Indebtedness promptly after payment when due.
1.05-3 In the event that the LINC Indebtedness cannot be satisfied and
released on or before the Closing Date, and as an inducement to the Buyer
to Close notwithstanding the foregoing unpaid obligation of the Seller and
Avitar, Seller and Avitar agree as follows:
(a) Seller and Avitar agree to make timely payments due on the LINC
Indebtedness after the Closing Date. Seller and Avitar agree to
promptly provide Buyer with evidence of timely payment of all amounts
due under the LINC Indebtedness after the Closing Date; on the Closing
Date, Seller and Avitar shall provide Buyer with satisfactory evidence
of the balance due under the LINC Indebtedness and shall deliver a
written statement at Closing authorizing the delivery of copies of all
canceled loan documents and a termination statement or release to
Buyer.
(b) Notwithstanding any other provision of this Agreement, Seller and
Avitar agree to pay the LINC Indebtedness in full on or before
December 5, 2003 and to obtain a full release and satisfaction and
termination statements and promptly forward the same directly to
Buyer.
(c) Seller and Avitar agree to indemnify, protect and hold harmless
Buyer from and against any loss, claim, or expense (including
reasonable attorneys fees and court costs) incurred or expended by
Buyer as a result of Seller or Avitar's non-payment or late payment of
the LINC Indebtedness.
(d) Seller and Avitar agree that in the event of any non-performance
or breach of the foregoing provisions of this subsection 1.05-3 by
Seller or Avitar, or if Buyer becomes entitled to seek indemnification
under the preceding indemnification provision, then Buyer shall be
entitled to a full right of set-off against any amounts that would
otherwise be subsequently due to the Seller and/or to Avitar under
this Agreement.
1.06 Instruments of Conveyance and Transfer. The sale, conveyance,
assignment, transfer and delivery of the Assets shall be effected by Seller's
execution and delivery to Buyer, on the Closing Date, of a bill of sale in
substantially the form of the Assignment and Bill of Sale attached hereto as
Exhibit B, together with such other assignments and other instruments of
transfer and conveyance, in form and substance sufficient to vest in Buyer all
right, title and interest in and to the Assets, as reasonably requested by Buyer
or its counsel.
1.07 Further Assurances. Seller and Avitar agree that, at any time and from
time to time on and after the Closing Date, it will, upon the request of Buyer
and without further consideration, take all steps reasonably necessary to place
Buyer in possession and operating control of the Assets, and Seller and Avitar
will do, execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged and delivered, all further acts, assignments, conveyances,
transfers, powers of attorney or assurances as reasonably required to sell,
assign, convey, transfer, grant, assure and confirm to Buyer, or to aid and
assist in the collection of or reducing to possession by Buyer of, all of the
Assets, or to transfer to Buyer the entire right, title and interest now held by
Seller in and to the Assets. [Buyer gets what Seller has; no obligation of
Seller/Avitar to improve whatever Seller has now. Seller/Avitar is willing to
give the representation as to good title in Section 3.07 because it is qualified
by Buyer's representations in Section 2.05 and Section 5.05. ]
1.08 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Buyer's attorneys,
at 70 West Madison Street, Suite 1400, in Chicago, Illinois on December __, 2003
(the "Closing Date") on or before the hour of 11:00 a.m.
1.09 Deliveries at Closing.
1.09-1 At the Closing, the Buyer shall deliver the following: (a) Cash
down payment of Two Hundred Fifty Thousand Dollars ($250,000.00) by wire
transfer to Seller's account or Seller's legal representative's escrow or
special account pursuant to the Seller's written direction at or prior to
the Closing. (b) The Services and Consulting Agreement between Avitar and
Buyer in the form of Exhibit A. (c) Assumption Agreement in the form of
Exhibit C. (d) Corporate resolutions and certificates authorizing the
execution and performance of the Agreement. (e) Stock Pledge Escrow
Agreement in the form of Exhibit A-1. (f) Mutual General Releases (except
for obligations under this Agreement) by Avitar and Seller, on the one
side, and Buyer and Buyer's principals, Douglas Lewis and Veronica Lewis,
on the other side; in the form of Exhibit A-2(i) and Exhibit A-2(ii). (g)
Such other fully executed documents or instruments of conveyance or
transfer as are contemplated by Section 1.06, or as are otherwise
reasonably contemplated by the terms and provisions of this Agreement,
including without limitation a resignation letter from Douglas Lewis as an
employee of Seller and as an officer of Avitar.
1.09-2 At the Closing, the Seller and Avitar shall deliver to Buyer:
the executed Assignment and Bill of Sale in the form of Exhibit B; (b)
subject to the provisions of Section 1.05, full releases, termination
statements and proof of payment for any and all security interests in the
assets to be sold and transferred to the Buyer; (c) articles of amendment
to the articles of incorporation of Seller changing the Seller's name of
"United States Drug Testing Laboratories, Inc." to some other unrelated and
dissimilar name; trademark or trade name and patent assignments in the form
of Exhibit B-2; and Corporate resolutions and certificates authorizing the
execution and performance of the Agreement; and (f) such other documents or
instruments of conveyance or transfer as contemplated by Section 1.06,
above, and as contemplated by the other terms and provisions of this
Agreement.
1.09-3 At the Closing, Avitar shall deliver: (a) the Services and
Consulting Agreement between Avitar and Buyer in the form of Exhibit A; and
(b) such other fully executed documents or instruments and counterparts of
documents or instruments as contemplated by the other terms and provisions
of this Agreement.
ARTICLE 2 Representations and Warranties of Buyer
Buyer represents and warrants to Seller and Avitar as follows:
2.01 Authorization. Buyer is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Illinois has all
requisite corporate power and authority to own and operate its properties and to
carry on its business as now conducted. Buyer has taken all corporate action
necessary to authorize its execution, delivery and performance of this
Agreement. Buyer has full corporate power and authority to enter into this
Agreement and carry out the terms hereof. Buyer has duly executed and delivered
this Agreement and the other agreements and undertakings contemplated by this
Agreement. This Agreement is its valid and binding obligation enforceable in
accordance with its terms, except as enforceability may be limited by or subject
to any bankruptcy, insolvency, reorganization, moratorium or other similar laws,
now or hereafter in effect, relating to creditors' rights generally or by the
availability of equitable remedies.
2.02 Compliance. The execution, delivery and performance of this Agreement
by Buyer, the compliance by Buyer with the provisions of this Agreement and the
consummation of the transactions described in this Agreement will not conflict
with or result in the breach of any of the terms or provisions of or constitute
a default under:
2.02-1 the articles of incorporation or bylaws of Buyer;
2.02-2 any note, indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which Buyer is a party or by
which Buyer is bound; or
2.02-3 any statute or any order, rule, regulation or decision of any
court or regulatory authority or governmental body applicable to Buyer.
2.03 Consents. Except as set forth in Schedule 2.03, no consent, approval,
authorization, order, designation or declaration of any court or regulatory
authority or governmental body, federal or other, or third person is required to
be obtained by Buyer nor is any filing or registration required to be made
therewith by Buyer for the consummation of the transactions described in this
Agreement.
2.04 Brokers and Finders. Neither Buyer nor any officer, director or
employee of Buyer has employed any broker, finder or investment banker or
incurred any liability for any commission, brokerage or investment banking fee
or finder's fee in connection with the transactions contemplated by this
Agreement.
2.05 Representations and Warranties of Buyer In Regard To Seller. To the
best knowledge of Buyer and its officers and shareholders, the representations
and warranties of Seller and the schedules attached to this Agreement are
accurate and complete in all material respects.
ARTICLE 3
Representations and Warranties of Seller and Avitar
3.01 Corporate Existence. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois and Seller
has all necessary corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted. Seller is duly qualified or licensed to do business as
a foreign corporation and in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of its business or
activities or ability to perform the transaction completed by this agreement
makes such qualification or licensing necessary.
3.02 Authority. Seller and Avitar have full corporate power and authority
to enter into this Agreement and all other agreements, documents and instruments
executed and delivered in connection herewith and to carry out their terms.
Seller and Avitar have taken all corporate action necessary to authorize the
execution, delivery and performance of this Agreement. This Agreement has been
duly and validly executed and delivered by Seller, and is binding upon and
enforceable against Seller and Avitar in accordance with its terms, except as
enforceability may be limited or affected by applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
rights of creditors and except as enforceability may be limited by rules of law
governing specific performance, injunctive relief or other equitable remedies.
The Seller and Avitar are not now insolvent.
3.03 No Adverse Consequences. Neither the execution and delivery of this
Agreement by Seller and Avitar nor the consummation of the transactions
contemplated by this Agreement will:
3.03-1 result in the creation or imposition of any lien, charge or
encumbrance on any of Seller's assets or properties,
3.03-2 violate or conflict with any provision of Seller's articles of
incorporation or bylaws,
3.03-3 violate any law, judgment, order, injunction, decree, rule,
regulation or ruling of any governmental authority applicable to Seller or
Avitar, or
3.03-4 either alone or with the giving of notice or the passage of
time or both, conflict with, constitute grounds for termination or
acceleration of, result in the breach of the terms, conditions or
provisions of, result in the loss of any benefit to Seller and Avitar under
or constitute a default under any agreement, instrument, license or permit
to which either Seller and Avitar is a party.
3.04 Brokers and Finders. Seller and Avitar have not employed any broker,
finder or agent or dealt with anyone purporting to act in such capacity or
agreed to pay any brokerage fee, finder's fee or commission with respect to the
transaction contemplated by this Agreement.
3.05 Litigation. There is no material claim, litigation, proceeding or
investigation of any kind pending or threatened by or against Seller and Avitar
and, to the best knowledge of Seller and Avitar, there is no basis for any such
claim, litigation, proceeding or investigation.
3.06 Title to Assets. Seller has good and absolute title to the Assets to
be sold to Buyer. At the Closing, the Buyer will acquire good title to all the
Assets, free and clear of all mortgages, pledges, security interests, claims,
charges or other encumbrances or restrictions of any kind, except for the
encumbrances related to Assumed Liabilities and except for the LINC Indebtedness
referred to in Section 1.05, above.
3.07 Taxes.
3.08-1 Returns. Seller has timely filed all federal, state, local,
foreign and other returns, reports, information returns and declarations of
estimated tax required to be filed by Seller, including, without
limitation, returns or reports with respect to backup withholding and other
payments to third parties (collectively, the "Returns"), and has timely
paid all taxes shown to be due on (or required to have been shown on) the
Returns or otherwise required to be paid with respect to any period prior
to the date of this Agreement. Seller has not received any notice of audit
and there are no outstanding agreements or waivers extending the applicable
statutory periods of limitation for such taxes for any period. All Returns
filed are complete and accurate in all material respects and no additional
taxes are owed by Seller.
3.08 Effect of Transfer. Neither Seller nor Avitar are currently insolvent
or unable to pay their debts, liabilities and obligations as they become due,
and the transfer of the Assets to Buyer will not render Seller or Avitar
insolvent or unable to pay their debts, liabilities and obligations as they
become due.
3.09 No Interest in Other Entities. No shares of any corporation or any
ownership or other investment interest or business interest, either of record,
beneficially or equitably, in any association, partnership, joint venture or
other legal entity are included in the Assets.
3.10 Absence of Undisclosed Liabilities. To the best of the knowledge of
Seller and Avitar, the Seller has no liabilities or obligations with respect to
the Business, either direct or indirect, matured or unmatured or absolute,
contingent or otherwise, except for those liabilities or obligations of Seller:
(a) that are set forth on the Balance Sheet and not heretofore paid or
discharged; (b) that have arisen in the ordinary course of business; and (c)
that have been incurred consistently with past business practice in or as a
result of the normal and ordinary course of the Business. For purposes of this
Agreement, the term "liabilities" shall include, without limitation, any direct
or indirect indebtedness, guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, obligation or responsibility, fixed or unfixed, known
or unknown, asserted or unasserted, choate or inchoate, liquidated or
unliquidated, secured or unsecured.
3.11 Books of Account. To the best of the knowledge of Seller and Avitar,
the books, records and accounts of the Seller as maintained and approved by the
officers and agents of Avitar with respect to the Business accurately and fairly
reflect, in reasonable detail, the transactions and the assets and liabilities
of the Seller with respect to the Business. The Seller and Avitar have not
engaged in any transaction with respect to the Business, maintained any bank
account for the Business or used any of the funds of the Seller in the conduct
of the Business except for transactions, bank accounts and funds which have been
and are reflected in the normally maintained books and records of the Business.
3.12 Completeness of Disclosure. No representation or warranty by the
Seller or Avitar in this Agreement nor any certificate, schedule, statement,
document or instrument furnished or to be furnished to Buyer pursuant hereto, or
in connection with the negotiation, execution or performance of this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated herein or therein or
necessary to make any statement herein or therein not misleading.
ARTICLE 4
Employees and Audit Support
Buyer will offer, and use its best efforts, to employ effective as of the
Closing Date all current employees of Seller on substantially the same terms and
conditions as those upon which they were employed by Seller prior to the Closing
Date. Buyer will do whatever is customary or appropriate, or reasonably
required, to permit Avitar's auditors to complete the audit of the Business for
the fiscal year ended September 30, 2003.
ARTICLE 4A
Joint Covenants
Buyer, Seller and Avitar covenant and agree that they will use their
respective best efforts to effect the transactions contemplated by this
Agreement, to promptly execute or cause to be executed all related undertakings
and agreements required to be executed or contemplated by this Agreement, and to
fulfill the conditions of this Agreement. No party will take any action
inconsistent with its obligations under this Agreement or that could hinder or
delay the consummation of the transactions contemplated by this Agreement.
ARTICLE 5
Survival; Indemnification
5.01 Survival. All representations, warranties, covenants and
agreements made in this Agreement or in any exhibit, schedule, certificate or
agreement delivered in accordance with this Agreement shall survive any
investigation by or on behalf of any party, the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and any
termination or expiration of this Agreement. The representations, warranties,
covenants and agreements made in this Agreement shall continue in full force and
effect until the later of (a) a period of five years following the Closing Date
or (b) the date that all obligations due to Avitar and Seller are paid in full
by Buyer.
5.02 Indemnification by Seller and Avitar.
5.02-1 Notwithstanding any investigation by Buyer, from and after the
Closing, Seller and Avitar, jointly and severally, shall indemnify, hold
harmless and, defend Buyer, its subsidiaries, shareholders, affiliates,
officers, directors, employees, agents, successors and assigns
(collectively, "Buyer's Indemnified Persons") from and against, and
reimburse each of Buyer's Indemnified Persons with respect to, any and all
losses, damages, liabilities, costs and expenses, including interest from
the date of such loss to the time of payment, penalties and reasonable
attorneys' fees (collectively, "Damages") incurred by any of Buyer's
Indemnified Persons by reason of or arising out of or in connection with
the following, whether or not a claim is made against any of Buyer's
Indemnified Persons by any third party:
(a) any material breach or inaccuracy of any representation or
warranty of Seller or Avitar made in this Agreement (it being
understood and agreed that any liability of any kind, known or
unknown, contingent or otherwise, assumed by Buyer shall in no event
be deemed to be a breach or inaccuracy of any representation or
warranty of Seller or Avitar);
(b) any material failure by Seller or Avitar to perform any covenant
required to be performed by it or them pursuant to this Agreement; or
(c) any material liability or obligation of Seller or Avitar specified
in Section 1.04A . In connection with the foregoing indemnification,
the Buyer shall be entitled to enforce its right to indemnification by
a full right of offset against the balance due to Seller and to Avitar
under Section 1.03-2.
5.03 Indemnification by Buyer.
5.03-1 Notwithstanding any investigation by Seller or Avitar, from and
after the Closing, Buyer shall indemnify, hold harmless and defend Seller
and Avitar, their respective subsidiaries, shareholders, affiliates,
officers, directors, employees, agents, successors and assigns
(collectively, "Seller's and Avitar's Indemnified Persons") from and
against, and reimburse each of Seller's and Avitar's Indemnified Persons
with respect to, any and all Damages incurred by any of Seller's and
Avitar's Indemnified Persons by reason of or arising out of or in
connection with the following, whether or not a claim is made against any
of Seller's and Avitar's Indemnified Persons by any third party:
(a) any breach or inaccuracy of any representation or warranty of
Buyer made in this Agreement;
(b) any failure by Buyer to perform any covenant required to be
performed by it pursuant to this Agreement; or
(c) any liability or obligation of Seller or Avitar to any third party
expressly assumed by Buyer in accordance with the terms of this
Agreement.
In connection with the foregoing indemnification, the Seller and Avitar
shall be entitled to enforce its right to indemnification by a full right of
offset against any balance that may be due to Buyer under this Agreement or
otherwise.
5.04 Rights Not Exclusive. An indemnified party's rights to indemnification
under this article are in addition to, and not in lieu of, any other rights to
which the indemnified party may be entitled at law or in equity.
5.05 Buyer's Special Status and Waiver of Claims By Buyer. All parties
acknowledge that Douglas Lewis and Veronica Lewis previously sold the shares of
Seller to Avitar and that Douglas Lewis has served as President of Seller since
its inception and that Douglas Lewis will be the principal manager and
supervisor of the Seller's Business after it is acquired by the Buyer. Buyer
agrees not to assert any claim for damages or indemnification or maintain any
action or suit based on a breach of warranty or misrepresentation by Seller or
Avitar if Douglas Lewis or Veronica Lewis had knowledge or reason to know that
such warranty or representation was untrue or inaccurate when made. It is the
express understanding of the parties that Buyer cannot take advantage of
information that was known or should have been known by Douglas Lewis or
Veronica Lewis as of the date of this Agreement or the Closing Date.
ARTICLE 6
Confidentiality; Press Releases
6.01 Confidentiality.
6.01-1 No information concerning Seller or Avitar that has been
furnished to or obtained by Buyer in connection with this Agreement shall
be disclosed to any person other than in confidence to employees, legal
counsel, financial advisers or independent public accountants of Buyer who
Buyer reasonably determines have a need to know such information in
connection with this Agreement. If this Agreement is not consummated, Buyer
shall hold such information in confidence for a period of two years from
the date of termination of this Agreement.
6.01-2 No information concerning Buyer not previously disclosed to the
public or in the public domain that has been furnished to or obtained by
Seller or Avitar in connection with this Agreement shall be disclosed to
any person other than in confidence to the employees, legal counsel,
financial advisers or independent public accountants of Seller or Avitar or
used for any purpose other than as contemplated herein.
6.01-3 Notwithstanding the foregoing, such obligations of Buyer and of
Seller and Avitar shall not apply to information
(a) that is, or becomes, publicly available from a source other than
Buyer or Seller or Avitar;
(b) that was known and can be shown to have been known by Buyer at the
time of its receipt from Seller or Avitar, or by Seller or Avitar at
the time of its receipt from Buyer;
(c) that is received by Buyer from a third party without breach of
this Agreement by Buyer, or is received by Seller or Avitar from a
third party without breach of this Agreement by Seller or Avitar; (d)
that is required by law to be disclosed; or (e) that is disclosed in
accordance with the written consent of Buyer or of Seller or Avitar.
6.02 Press Releases. No press releases or other public announcements
concerning the transactions contemplated by this Agreement shall be made by
either party without the prior written consent of the other party which consent,
in either case, shall not be unreasonably withheld, except as required by law.
ARTICLE 7
Other Provisions
7.01 Benefit and Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns. No party hereto may voluntarily or involuntarily assign such party's
interest under this Agreement without the prior written consent of the other
parties.
7.02 Entire Agreement. This Agreement and the Schedules and Exhibits
referred to herein embody the entire agreement and understanding of the parties
and supersede any and all prior agreements, arrangements and understandings
relating to matters provided for herein.
7.03 Fees and Expenses. Each party shall be solely responsible for all
costs and expenses incurred by it in connection with the negotiation,
preparation and performance of and compliance with the terms of this Agreement.
7.04 Risk of Loss. The risk of any loss, damage, impairment, confiscation
or condemnation of any of the Assets from any cause shall be borne by Seller at
all times prior to the Closing. If any such loss, damage or impairment,
confiscation or condemnation occurs, Seller shall apply the proceeds of any
insurance policy, judgment or award with respect thereto to repair, replace or
restore the Assets as soon as possible.
7.05 Amendment, Waiver, Etc. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the party against
which enforcement of such amendment or waiver is sought. Any waiver of any term
or condition of this Agreement or any breach hereof shall not operate as a
waiver of any other such term, condition or breach, and no failure to enforce
any provision hereof shall operate as a waiver of such provision or of any other
provision hereof.
7.06 Governing Law. The construction and performance of this Agreement will
be governed in all respects by the laws of the State of Illinois (except for the
choice of law provisions thereof).
7.07 Notices. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing; shall be
delivered personally, including by means of telecopy, or mailed by registered or
certified mail, postage prepaid and return receipt requested; shall be deemed
given on the date of personal delivery or on the date set forth on the return
receipt; and shall be delivered or mailed to the addresses or telecopy numbers
set forth on the first page of this Agreement or to such other address as any
party may from time to time direct, with copies to:
In the case of Buyer: Nichols Laboratories, Inc.
--------------------
1700 South Mt. Prospect Road
Des Plaines, Illinois 60018
Attention: Douglas Lewis
With copies to: Paul F. Schofield
--------------
Schofield & Varde, LLP
30 W. Monroe St., Ste. 710
Chicago, IL 60603
Facsimile 312-372-1884
In the case of Seller
or Avitar: Avitar, Inc.
---------
65 Dan Road
Canton, MA 02021
Attention: CFO
With copies to: Dolgenos Newman & Cronin LLP
--------------
96 Spring Street
New York, NY 10012
Facsimile 212-925-0690
Attention: Eugene M. Cronin
7.08 Breach; Equitable Relief. The parties acknowledge that the Assets and
rights of the parties described in this Agreement are unique and that money
damages alone for breach of this Agreement would be inadequate. Any party
aggrieved by a breach of the provisions hereof may bring an action at law or
suit in equity to obtain redress, including specific performance, injunctive
relief or any other available equitable remedy. Time and strict performance are
of the essence in this Agreement.
7.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
7.11 Joint and Several Liability. All joint obligations under this
Agreement shall be joint and several obligations.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
BUYER: NICHOLS LABORATORIES, INC.
an Illinois Corporation
By:
---------------------------
Douglas E. Lewis, President
SELLER: UNITED STATES DRUG TESTING
LABORATORIES, INC.
an Illinois corporation
By:
--------------------------
Peter Phildius, Chairman
AVITAR, INC., a Delaware Corporation
By: ___________________________
Peter Phildius, Chairman & CEO