EXHIBIT (2.0)
PURCHASE AND SALE AGREEMENT
AMONG
AVITAR, INC.
DOUGLAS LEWIS
VERONICA LEWIS
AND
UNITED STATES DRUG TESTING LABORATORIES, INC.
WITH RESPECT TO THE
ACQUISITION OF ALL THE OUTSTANDING
CAPITAL STOCK OF
UNITED STATES DRUG TESTING LABORATORIES, INC.
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Dated as of June 30, 1999
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AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF PURCHASE AND SALE (the "Agreement") is made as of
the 30th day of June, 1999 among Avitar, Inc. ("Avitar" or the "Buyer"), a
corporation organized and existing under the laws of Delaware, with its
principal offices at 65 Dan Road, Canton, Massachusetts, 02021, United States
Drug Testing Laboratories, Inc. ("USDT"), a corporation organized and existing
under the laws of Illinois, with its principal offices at 1700 S. Mt. Prospect
Road, Des Plaines, Illinois, 60018 and Douglas Lewis and Veronica Lewis,
individuals (and husband and wife) with an address at 53 Yorkshire Woods, Oak
Brook, Illinois 60521 (Mr. and Mrs. Lewis are sometimes hereinafter referred to
as the "Sellers").
W I T N E S S E T H
WHEREAS, Veronica Lewis owns 550 shares and Douglas Lewis owns 450
shares, in each case of common stock, par value $1.00 per share, of USDT,
collectively constituting all of the issued and outstanding shares of USDT (the
"Shares"); and
WHEREAS, Sellers desires to sell and Buyer desires to purchase the
Shares for the consideration and on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements, and in reliance on the representations and warranties
herein set forth, Buyer and Sellers and USDT hereby agree, subject to the terms
and conditions hereof, as follows:
ARTICLE 1
Purchase and Sale
1.1 Purchase of Shares. At the Closing, as defined herein, for the
Consideration set forth in Section 1.2 hereof, Sellers shall sell, transfer,
assign, convey and deliver to Buyer, and Buyer shall acquire from Sellers, the
Shares, representing all of the issued and outstanding shares of capital stock
of USDT, free and clear of all liens, encumbrances, pledges and claims of any
kind. At the Closing, Sellers shall deliver to Buyer, against delivery of the
Consideration, certificates evidencing the Shares accompanied by duly executed
stock powers or other instruments of transfer satisfactory to Buyer and
sufficient to transfer the Shares to Buyer, together with any required stock
transfer tax stamps or cash in the appropriate amount in lieu thereof.
1.2 Consideration for the Shares; Issuance of Avitar Shares. The
consideration ("Consideration") for the Shares, constituting payment in full
therefor, shall consist of the issuance and delivery by Buyer to Sellers of
2,062,570 shares of common stock of Avitar, Inc. (collectively the "Avitar
Shares"), which include 31,570 shares for conversion of debt due to Sellers from
USDT with 1,123,243 shares issued to Veronica Lewis, 919,017 shares issued to
Douglas Lewis, and 20,310 shares issued to Christine Moore, all duly authorized
by Buyer. (The Avitar Shares will be issued in certificates as follows: three
certificates in the name of Veronica Lewis representing 449,297, 449,297 and
224,649 shares; three certificates in the name of Douglas Lewis representing
367,607, 367,607 and 183,803 shares; and two certificates in the name of
Christine Moore, representing 10,155 shares each.) At Closing, Buyer will
deliver to Seller, free and clear of all liens, encumbrances, pledges and claims
of any kind, the above-described certificates for the Avitar Shares which
constitute the Consideration; provided, however, that the Avitar Shares are
subject to all applicable securities laws and regulations and that the Avitar
Shares may not be sold or otherwise transferred for one year after the Closing
Date and 50% of the Avitar Shares may not be sold or otherwise transferred for,
two years after the Closing Date. Further, twenty (20%) percent of the Sellers'
Avitar Shares will be held pursuant to the Escrow Agreement referred to in
Section 5.10.
1.3 Sellers' Investment Representations. Sellers acknowledge that the
Avitar Shares will not be registered under the 1933 Act or any state securities
law. Sellers are acquiring all the Shares for investment and not with a view to
distribution. Any certificates representing the Shares may be endorsed with
appropriate legends to reflect federal and state securities law restrictions on
transfers.
ARTICLE 2
Representations and Warranties
USDT and Sellers represent and warrant to Buyer and agree with Buyer
as follows, as of the date hereof and as of the Closing Date:
2.1 Organization and Qualification. USDT is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois. USDT has all corporate power and authority required for it to own (or
lease, as the case may be) and operate its properties and carry on its business
as presently conducted. USDT is duly qualified or licensed to do business as a
foreign corporation in each of the jurisdictions in which the character and
location of its assets or the nature of its business make such qualification or
license necessary. There is no pending or threatened proceeding for the
dissolution, liquidation, insolvency or rehabilitation of USDT, whether
voluntary or involuntary.
2.2 Corporate Instruments and Records. All accounts, books, ledgers
and other records material to the business of USDT of whatsoever kind have been
fully, properly and accurately kept and completed in all material respects, and
there are no material inaccuracies or discrepancies of any kind contained or
reflected thereon, and they give and reflect a true and fair view of the
financial position of USDT. The copy of USDT's articles of organization
certified by the Secretary of State of the State of Illinois, and of its by-laws
certified by its Secretary, furnished to Buyer, are correct and complete and
each reflects all amendments made through the date of this Agreement. USDT's
books, stock certificate books and stock ledgers as made available to Buyer for
inspection, were correct and complete as of the date of such inspection and no
further entries have been made in any of same through the date of this
Agreement, and each contains the true signatures of the persons purporting to
have signed them. All material corporate actions taken by USDT since its
incorporation have been duly authorized or ratified by all appropriate action.
There have been no material corporate actions which, consistent with customary
corporate practice, should be but have not been reflected in the corporate
minutes books and stock transfer records of USDT delivered or made available to
Buyer prior to the Closing.
2.3 Capitalization. USDT has an authorized capital of 1,000,000 shares
of common stock, no par value, of which 1010 shares are outstanding and owned of
record by Sellers, and no shares are held in the treasury of USDT. All issued
and outstanding shares of USDT are fully paid and non-assessable and have not
been issued in violation of any pre-emptive or other rights of any person. No
other class of capital stock of USDT is authorized or outstanding. There are
neither outstanding nor authorized any options, warrants, rights, calls,
commitments, convertible securities, subscription rights, rights of exchange, or
other rights, plans or other agreements of any nature which will or may result
in the future in USDT being or becoming obligated to purchase, issue or sell
additional shares of capital stock to any individual or entity (corporate or
otherwise) (collectively, "Person"). There are no voting agreements or voting
trusts respecting shares of USDT's capital stock. There are no shares of USDT's
capital stock reserved for issuance for any purpose.
2.4 Subsidiaries. Except as disclosed on the Disclosure Schedule, USDT
does not, directly or indirectly, have any equity interest in any corporation,
partnership, association, trust, joint venture or other entity.
2.5 Authorization; Valid and Binding Obligation. USDT has full
corporate power and authority to execute and deliver this Agreement, and to
consummate the transactions contemplated hereby and perform its obligations
hereunder. All corporate action required of USDT in order to authorize such
execution, delivery and performance has been taken. Sellers have full capacity
to execute and deliver this Agreement, and to consummate the transactions
contemplated hereby and perform their respective obligations hereunder. This
Agreement constitutes the valid and binding obligation of each of Sellers and
USDT enforceable against each in accordance with its terms, assuming the due
authorization, execution and delivery hereof by Buyer.
2.6 Title to Shares. On the Closing Date, Sellers will own
beneficially and of record the Shares which will constitute all of the issued
and outstanding equity securities of USDT. Sellers have good, valid and
marketable title to the USDT Shares, free and clear of all liens, restrictions,
proxies, voting trusts, voting agreements, encumbrances and claims of any kind.
At the Closing, Buyer will acquire good, valid and marketable title to and
beneficial and record ownership of the Shares.
2.7 No Violation. USDT is not in default under or in violation of any
provision of its articles of organization or by-laws. Seller and USDT are not in
default under or in violation of any agreement, indenture, contract, lease,
sublease, loan agreement, note restriction, obligation or liability
(collectively, "Contracts") to which any of them is a party, or by which any of
them is bound or to which any of their assets are subject, in any respect that
could have a materially adverse effect on the assets, business, prospects or
financial condition of USDT, or the ability of Sellers or USDT to perform their
respective obligations hereunder. The execution and delivery of this Agreement
by Sellers and USDT, and consummation by each of them of the transactions
contemplated by this Agreement will not (i) conflict with or breach or cause or
amount to any default or violation of any of USDT's articles of organization,
by-laws or Contracts, or (ii) cause an acceleration or cancellation of, or
permit any Person to accelerate, terminate, modify or cancel any or all rights
under any such Contracts or (iii) result in the creation of any Lien on the
assets or properties of Sellers or USDT. Such execution, delivery and
consummation will not violate or breach or constitute a default under any
federal, state or local laws, rules or regulations or any judgments, decrees,
injunctions or other order of any Regulatory Authority (collectively,
"Applicable Laws") to which Sellers or USDT or any of their assets is subject.
"Regulatory Authority" shall mean any court, arbitrator or federal, state or
local government or any department, commission, board, agency or taxing
authority thereof.
2.8 Consents and Approvals. No consent or approval of any Person or
Regulatory Authority, and no approval, order, license, permit, franchise,
declaration or filing of any nature is required as a result of or in connection
with the execution and delivery or this Agreement or performance hereunder by
Sellers or USDT.
2.9 Financial Statements. USDT and Sellers have delivered to Buyer (i)
the balance sheet of USDT as at December 31,1998, and the related profit and
loss statement and supporting schedules and (ii) the balance sheet of USDT as at
May 31, 1999, and the related profit and loss statement and supporting schedules
(the "Financial Statements"). The Financial Statements are correct and complete,
and were prepared in accordance with generally accepted accounting principles,
applied on a basis consistent with prior periods, except as noted therein. The
balance sheets and related notes of USDT included in the Financial Statements
fairly and accurately present the financial condition of USDT as at their
respective dates and the profit and loss statements fairly and accurately
present the results of USDT's operations for the respective periods then ended.
The books and records of USDT reflect all income and expense items (including
accruals) and all assets and liabilities in accordance with generally accepted
accounting principles applied on a basis consistent with past practice.
2.10 Absence of Undisclosed Liabilities. USDT has no liabilities of
any nature, whether absolute, contingent or otherwise, and whether due or to
become due, which are material, singularly or in the aggregate, to its assets,
business, operations, prospects or financial condition, except (i) those
disclosed or reserved against in the Financial Statements, (ii) those arising in
the ordinary course of business after the date of the Financial Statements, and
(iii) those specifically identified on the Disclosure Schedule, together with a
good faith estimate of the amount thereof.
2.11 No Adverse Changes. Except for events contemplated by this
Agreement or disclosed on the Disclosure Schedule, since December 31, 1998,
there has been no material adverse change in the condition (financial or
otherwise), properties, assets, liabilities, rights, obligations, operations,
business or prospects of USDT.
2.12 Guaranties and Security. USDT has no liability as guarantor or
contingent obligor for any obligation of any Person. Except as set forth on the
Disclosure Schedule, no assets of USDT are pledged, hypothecated, or have been
delivered for safekeeping or subjected to a security interest or made available
in any way to secure payment or performance of any obligation of USDT or any
other Person.
2.13 Tax Matters.
2.13.1 Tax Returns and Tax Payments. (I) All tax returns,
including estimated tax returns and information returns, required to be filed by
or on behalf of USDT and Sellers for any period ending on or before the Closing
Date, taking into account any extension or waiver of time to file granted or
obtained on behalf of USDT (all of which extensions and waivers are set forth on
the Disclosure Schedule) have been timely filed or will be timely filed; (ii)
all Taxes shown as due on those returns as well as all Taxes due to or claimed
due by federal, state, local or foreign taxing authorities, with respect to
periods ending on or before the Closing Date, have been paid or adequate
provision therefor has been made; (iii) the filed returns are complete and
correct in all respects and USDT is not required to pay, for the periods
represented by such tax returns, any Taxes other than those shown in those
returns; and (iv) the provisions for taxes in the Financial Statements are
adequate to cover all accrued and unpaid Taxes as of the date thereof. "Tax" or
"Taxes" means all federal, state or local income, gross receipts, excise, sales,
use, employment, payroll, franchise, capital, profits, business, property,
transfer, intangibles or other taxes, fees, stamp taxes and duties, assessments
or charges of any kind whatsoever (whether payable directly, pursuant to a tax
sharing agreement and arrangement or by withholding), together with any interest
and any penalties, additions to tax or additional amounts imposed by any taxing
authority with respect to the ownership, operations, business or properties of
USDT.
2.13.2 Audits. The federal income tax returns of or including
USDT have never been audited by the Internal Revenue Service, and there are no
pending unresolved issues with respect to any Taxes payable to any federal,
state or local tax authority. USDT is not currently the subject of a tax audit
and neither has it been notified by any taxing authority that it is to be the
subject of an impending tax audit. No extension or waiver of limitation periods
applicable to audits or claims by any taxing authority with respect to USDT has
been granted or will be requested.
2.13.3 Tax Liens. There are no tax liens imposed by any federal,
state or local taxing authorities outstanding against any assets of USDT.
2.14 Litigation. Except as set forth on the Disclosure Schedule, there
are no actions, suits, proceedings or investigations pending or threatened
against or affecting USDT, at law or in equity, or by or before any Regulatory
Authority.
2.15 Title to Properties. Except for those Liens set forth on the
Disclosure Schedule and also reflected on the Financial Statements, USDT has
good, valid and marketable title to all properties and assets (tangible and
intangible) used in its business, except for leased properties and assets. The
fixed assets and all tangible personal property owned by USDT are in a state of
good maintenance and repair and are adequate and suitable for the purposes for
which they are presently being used. "Lien" shall mean any interest in property
(real, personal or mixed) which either: (a) secures an obligation owed to, or a
claim by, a Person or Regulatory Authority, whether such interest is based on
the common law, statute or contract, and including without limitation the
security interest or lien arising from a mortgage, encumbrance, pledge,
conditional sale, transfer receipt, security agreement or other preference,
priority or preferential arrangement or from a lease, consignment or bailment
for security purposes, or (b) gives any Person or Regulatory Authority a right
in or claim to any property.
2.16 Real Property. The Disclosure Schedule sets forth a description
of each parcel of real property which USDT uses in its business or in which USDT
has an interest ("Real Property"), specifying the nature of the right and a
brief description of the buildings, equipment and fixtures located thereon, and
the relation to USDT's business. USDT has, and after the Closing shall continue
to have, the legal right to use the Real Property as presently used.
2.16.1 Compliance. Except as set forth on the Disclosure Schedule,
neither USDT nor the Seller has received any notices of violations of law or
municipal ordinances, orders or requirements issued by any Regulatory Authority,
including without limitation any environmental notices or orders against or
affecting the Real Property. All such notices of violation of law have been
complied with prior to the Closing Date.
2.17 Receivables. The aggregate amount of USDT's accounts receivable
outstanding for more than ninety (90) days as of the May 31, 1999 Financial
Statements was $59,293, and as of the Closing Date, will not exceed $59,293, and
payments by obligors on all USDT's notes receivable (none of which evidence
trade receivables except as disclosed on the Disclosure Schedule) are current in
all cases as of the date of this Agreement and as of the Closing Date. The
allowance for doubtful and uncollectible accounts reflected on the May 31, 1999
balance sheet is and will be sufficient on the basis of USDT's past experience
to provide for losses that may arise in collection of those accounts or notes
receivable. Subject to this reserve and except as disclosed on the Disclosure
Schedule, USDT's accounts receivable are good and collectible in the ordinary
course of business. There is no reason to believe that any of USDT's accounts
receivable or notes receivable is subject to any counterclaim or right of
set-off.
2.18 Contracts. All Contracts to which USDT is a party and which are
material to its business, assets, properties or prospects are duly and validly
executed by all parties, and are in full force and effect as of the date of this
Agreement and the Closing Date and, except as set forth on the Disclosure
Schedule, no party other than USDT has the right to terminate any such Contract
prior to its scheduled expiration. No event has occurred which constitutes, or
after notice or the passage of time, or both, would constitute, a material
default by USDT under any such Contract and to the best of each Seller's and
USDT's knowledge, no such event has occurred which constitutes or would
constitute a material default by any other party. USDT is not subject to any
liability or payment resulting from renegotiation of amounts paid it under any
Contract. None of such Contracts has or will involve access to, or the creation
of, classified information, or requires United States government security
clearance for USDT's facilities or personnel. The Disclosure Schedule contains a
detailed description of each Contract of the types referred to below, to which
USDT is a party or by which it or its properties or assets is bound, as to each
of which the following representations are made:
2.18.1 Purchase Orders. Unfilled purchase orders or commitments
(i) obligating USDT to pay a total amount in excess of Five Thousand Dollars
($5,000), or (ii) regardless of amount, that are not to be fully performed
within one (1) year after the date of this Agreement. None of those purchase
orders or commitments materially exceeds USDT's normal requirements, or requires
a payment materially in excess of market price (current at the time the order
was placed or the commitment was made) for the goods or services being
purchased.
2.18.2 Sales or Service Agreements. Unfilled agreements or
commitments obligating USDT to provide products or services (i) under which USDT
will receive a gross payment in excess of Five Thousand Dollars ($5,000), or
(ii) regardless of amount, that are not to be fully performed within one (1)
year after the date of this Agreement.
2.18.3 Leases. Leases of real property, and leases of personal
property not cancellable without penalty on notice of sixty (60) days or less,
and calling for payment of an annual gross rental exceeding Five Thousand
Dollars ($5,000).
2.18.4 Loan Agreements; Security Agreements. Loan agreements,
indentures, mortgages, pledges, hypothecations, deeds of trust, conditional sale
or title retention agreements, security agreements, equipment financing
obligations or guaranties, agreements of guarantee or indemnification or letters
of intent or commitment letters with respect to same.
2.18.5 Distribution Agreements. Distribution, sales agency or
franchise or similar agreements, or agreements providing for an independent
contractor's services, or letters of intent with respect to same.
2.18.6 Joint Venture Agreements. Partnership agreements,
shareholder agreements or joint venture agreements of any kind, or letters of
intent with respect to same.
2.18.7 Employment and Consulting Agreements. Employment
agreements, consulting agreements, confidentiality agreements and
non-competition agreements.
2.18.8 Intellectual Property Agreements. Licenses, assignments or
transfers of trademarks, trade names, service marks, patents, copyrights, trade
secrets or know how, or other agreements regarding proprietary rights or
intellectual property.
2.18.9 Construction Agreements. Land purchase agreements,
building or construction agreements, or other agreements relating to additions
or improvements to Real Property or any leased property of USDT.
2.18.10 Non-Competition Agreements. Any agreements, contracts or
commitments containing any covenant limiting the right of USDT to engage in any
line of business or to compete with any person or entity.
2.18.11 Other Agreements. Other material contracts, agreements or
understandings, irrespective of subject matter and whether or not in writing,
not entered into in the ordinary course of business and not otherwise disclosed
on the Disclosure Schedule.
2.19 Bank and Brokerage Accounts and Safe Deposit Boxes. The
Disclosure Schedule lists the title and number of each bank account and
securities brokerage account of USDT, the bank or broker, and office location at
or with which the account is maintained, and the names of the persons authorized
to draw against the account or otherwise have access to it or direct its
disposition. The Disclosure Schedule also contains the same information for each
(i) safe deposit box leased by USDT, and (ii) credit institution at which USDT
has established a corporate credit card or similar account.
2.20 Labor and Employment Matters. Except as set forth on the
Disclosure Schedule, USDT (i) is not a party to any collective bargaining
agreement or discussions or negotiations with any individual or group looking
toward any such agreement, and (ii) has not experienced any strike, grievance or
unfair labor practice claim, suit or administrative proceeding, and (iii) has no
reason to believe that any employee or employee group has filed seeking
recognition as a collective bargaining representative or unit, and USDT has no
reason to believe that any former employer of any of its employees is
contemplating remedial action of any nature against that employee or USDT, based
on the employee having terminated the former employment and having become an
employee of USDT, or based on the employee having misappropriated proprietary
information or intellectual property of the former employer. The Disclosure
Schedule contains detailed information about each contract, agreement or plan of
the following nature, whether formal or informal, and whether or not in writing,
to which USDT is a party or under which USDT has an obligation: (i) employment
agreements, (ii) noncompetition agreements, (iii) consulting agreements, (iv)
pension and profit-sharing plans, (v) bonus plans, (vi) stock purchase plans,
(vii) hospitalization, disability and other insurance plans, (viii) severance or
termination pay plans and policies, and (ix) other employee benefit, welfare or
fringe benefit plans, whether or not described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each plan of the
nature referred to above has been administered in accordance with its terms, all
presently anticipated payments thereunder have been properly accrued, and USDT
has never terminated or withdrawn from a plan of that nature under circumstances
resulting (or that might result) in liability to the Pension Benefit Guaranty
Corporation ("PBGC"), the fund by which such plan is funded, or the employees
(or beneficiaries) for whose benefit the plan is maintained. USDT has complied
in all material respects with Applicable Laws relating to employment, civil
rights and equal employment opportunities. USDT has no obligation or liability
to pay medical or death benefits with respect to any employee or former employee
after such employee's termination of employment.
2.21 Termination of Business Relationships. No supplier or licensor of
USDT, and no Person presently a customer or licensee of USDT, has evidenced to
USDT any intention to cancel or otherwise terminate its business relationship
with USDT. Except as set forth on the Disclosure Schedule, no employee (with the
exception of clerical employees), agent or independent contractor of USDT has
notified USDT of its intent or desire to terminate that employment or other
relationship.
2.22 Condition of Buildings and Personal Property. Except as set forth
on the Disclosure Schedule, all of the buildings, fixtures, machinery and
material equipment owned or used by USDT is in good operating condition and
repair, and is of a quality usable in the ordinary course of business. The
Disclosure Schedule contains specific information about each building, and each
item of personal property that has an initial cost, or current book value, in
excess of Five Thousand Dollars ($5,000), and each building and each such item
of personal property is covered by one of the insurance policies referred to in
section 2.23 hereof.
2.23 Insurance. USDT is covered by valid, outstanding and enforceable
policies of insurance issued by reputable insurers covering its properties,
assets and business against risks of the nature normally insured against by
corporations in the same or similar lines of business in coverage amounts
normally carried by such Persons and in any event sufficient to avoid being
liable as co- insurer under the terms of such policies, each such policy being
described on the Disclosure Schedule. The Disclosure Schedule also contains a
detailed description of any pending insurance policy claim that relates to loss
or damage to the assets or business of USDT. USDT has not failed to give, in a
timely manner, any notice required under any such policies to preserve USDT's
rights thereunder.
2.24 Compliance with Laws.
2.24.1 Laws. USDT and its officers, directors, agents and
employees, have complied in all material respects with all Applicable Laws
relating to the business conducted by USDT or to the properties owned or leased
and used by USDT. USDT is not in default under any order, writ, injunction or
decree of any governmental authority or agency, or of any court or commission or
other administrative agency in any proceeding to which USDT is a party and has
not received notice of any claims, violation of, or failure to comply with any
law, rule, regulation, ordinance, judgment, arbitration, award or order, and
insofar as Seller and USDT are aware, no such claim has been threatened or is
anticipated, nor is any investigation in respect thereof contemplated.
2.24.2 Permits. The Disclosure Schedule lists all material
permits, licenses, registrations, filings, authorizations, consents, approvals
or other indicia of authority necessary for the conduct of USDT's business and
its operations on the Real Property, including the operation, use and
maintenance of any fixture, equipment, machinery, vessel, tank or installation
used in or relating to its business or located on the Real Property or to
handle, transport, dispose or transfer, discharge, market or sell any goods or
any substance used, handled, produced, stored, disposed of, discharged or sold
in its business ("Permits"). USDT has all material Permits necessary for the
conduct of its business and operation of its facilities as presently conducted
or operated, all Permits are in full force and effect, and there is no
condition, nor has any event occurred which constitutes, or with the giving of
notice or passage of time would constitute, a violation of the terms of any
Permit. All applications for renewal of the Permits have been timely filed and
there is no required modification of any Permit or application for renewal of
any Permit.
2.25 Absence of Questionable Payments. None of USDT or any of its
officers, directors, agents or employees purporting to act on their behalf has
made or agreed to make any payment or other use of USDT's assets (i) to or on
behalf of an official of any government, or for any purpose related to political
activity, except as permitted by Applicable Laws, (ii) for any of the purposes
described in Code section 162(c) or (iii) for establishment or maintenance of
any concealed fund or concealed bank account.
2.26 All Business Conducted by USDT. Except as set forth and described
on the Disclosure Schedule, the business and operations of USDT are conducted
exclusively by USDT, and not by any other business entity whether or not
affiliated with USDT.
2.27 Environmental Protection and Occupational Safety.
2.27.1 Compliance. Except as set forth on the Disclosure
Schedule, there is no claim, suit, action, judgment or proceeding (contingent or
otherwise) pending against or involving USDT on account of any hazardous waste
(as that term is defined in 42 U.S.C. section 6903(5)) or toxic substance or
based on any violation of any applicable federal, state or local occupational
health or safety law, environmental protection law, or hazardous waste or toxic
substance management, handling or disposal law, including but not limited to (i)
any claim for damages or clean-up or (ii) a liability in the form of any
restrictions, specifications or requirements pertaining to (A) products that
USDT manufactures, processes or sells or pertaining to the services it performs,
or (B) the use, maintenance or operation of the real and personal properties
owned or occupied by USDT. There exists no basis for any such claim, suit,
action, judgment or proceeding. All material filings required to be made with
any Regulatory Authority with respect to laws relating to the protection of the
environment, occupational health or safety or hazardous waste or toxic substance
management, handling or disposal have been timely made.
2.27.2 Disposal. Except as set forth on the Disclosure Schedule,
there has not been (i) any material release or threatened release of any
hazardous waste or toxic substance from or on (A) any of the Real Property or
(B) any site, whether or not located on any of the Real Property, at which there
has been any disposal of any hazardous waste or solid waste (as that term is
defined in 42 U.S.C. section 6903(27)) for which USDT is or may be (contingently
or otherwise) liable, or (ii) any enforcement order or notice of violation
issued by any Regulatory Authority to USDT or the owners, operators or users of
any facilities in which order or notice USDT is named with reference to an
alleged USDT act or omission. USDT and its predecessors in interest have not,
directly or indirectly, disposed of hazardous or solid wastes except through the
contractors and at the facilities set forth on the Disclosure Schedule.
2.28 Intellectual Property. Except as set forth on the Disclosure
Schedule, USDT has full legal right, title and interest in and to all patents,
patent applications, trademarks, service marks, trade names, copyrights,
know-how, trade secrets and other material intellectual property, including
without limitation confidential information, invented, developed or in which any
interest was held at any time by USDT or used in the conduct of USDT's business
("Intellectual Property"). The conduct of USDT's business as presently conducted
and the unrestricted use and exploitation of the Intellectual Property does not
infringe or misappropriate any rights held or asserted by any Person. Except as
set forth on the Disclosure Schedule, no payments are required for the continued
use of the Intellectual Property. None of the Intellectual Property is or ever
has been declared invalid or unenforceable, or is the subject of a pending or
threatened action for opposition, cancellation, declaration of invalidity,
unenforceability or misappropriation or like claim, action or proceeding. USDT's
trade secrets and proprietary information are, and have at all times been,
maintained on a "need-to-know" basis, and, in all material respects, disclosed
to third parties only pursuant to confidentiality agreements sufficient to
ensure their protection under applicable trade secret law. Except as set forth
on the Disclosure Schedule, persons who are, or were, employees, officers or
agents of USDT have signed confidentiality agreements with USDT sufficient to
maintain the confidentiality of trade secrets or other proprietary information.
The Disclosure Schedule contains detailed information about the Intellectual
Property as indicated below:
2.28.1 A list identifying with particularity (but as far as trade
secrets and proprietary information are concerned, not such particularity as
will amount to disclosure of the same) all patents, trademarks, service marks,
trade names, copyrights, know how, trade secrets and other material proprietary
information developed by USDT or used in its business, giving the proprietor of
each and a description of the contractual or other rights of USDT in the same;
2.28.2 A list of pending applications by USDT for patents or for
registration of any trademark, service mark, trade name or copyright developed
by USDT or used in USDT's business;
2.28.3 A list of all grants of rights in any of the foregoing to
any Person from USDT.
2.29 Regulatory Filings. USDT has made all of the filings required to
be made with all Regulatory Authorities with respect to its properties or
business on a timely basis. None of such filings contains any misstatement of a
material fact, or omits to state a material fact necessary in order to make any
such filing not misleading.
2.30 Disclosure. All copies of documents supplied to Buyer and its
agents and counsel by Sellers or USDT in connection with the investigation of
USDT, are true, correct and complete copies of the documents they purport to
represent. No representation or warranty of Sellers or USDT in this Agreement or
in any other document, certificate, exhibit, statement or schedule furnished or
to be furnished to Buyer under this Agreement or in connection with the
transactions contemplated thereby contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact necessary to
make the factual statements contained therein, in light of the circumstances
under which they were made, not misleading. Disclosures on the Disclosure
Schedule shall refer to the applicable section numbers of this Agreement and
shall be appropriately cross- referenced to indicate any matter constituting a
disclosure under more than one section of this Agreement.
2.31 Broker or Finders Fees. Neither Sellers nor USDT has negotiated
or contracted with, or obligated itself to, any Person for a broker's or
finder's fee in connection with any of the transactions contemplated by this
Agreement. Sellers will jointly and severally indemnify and hold harmless Buyer
and its Affiliates (including USDT) from and against any claim of any broker,
agent, finder or other person for a commission or fee based upon alleged
dealings with Seller or USDT with respect to this Agreement or the transactions
contemplated hereby. An "Affiliate" of, or person or entity "Affiliated" with,
another person or entity, shall mean any person or entity that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such person or entity.
2.32 Powers of Attorney. No power of attorney given by USDT is
currently outstanding.
ARTICLE 3
Representations and Warranties of Buyer
Buyer represents and warrants to Seller as follows:
3.1 Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Delaware.
3.2 Authorization; Valid and Binding Obligation. Buyer has full
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. All corporate action required in order to
authorize such execution, delivery and performance has been taken. This
Agreement constitutes the valid and binding obligation of Buyer, enforceable
against it in accordance with its terms, assuming the due authorization,
execution and delivery hereof by the other parties hereto.
3.2A Capitalization. Avitar has an authorized capital of 80,000,000
shares of stock, of which 75,000,000 shares are common stock, and 5,000,000
shares are preferred stock, of which 21,416,656 shares of common stock, 157,300
shares of Series A preferred stock and 1,694,137 shares of Series B preferred
stock are outstanding. Each share of Series A preferred stock is convertible
into three shares of common stock and each share of Series B preferred stock is
convertible into 10 shares of common stock. No shares are held in the treasury
of Avitar. All issued and outstanding shares of Avitar are fully paid and
non-assessable and have not been issued in violation of any pre-emptive or other
rights of any person. No other class of capital stock of Avitar is authorized or
outstanding. There are neither outstanding nor authorized any options, warrants,
rights, calls, commitments, convertible securities, subscription rights, rights
of exchange, or other rights, plans or other agreements of any nature which will
or may result in the future in Avitar being or becoming obligated to purchase,
issue or sell additional shares of capital stock to any individual or entity,
except there are 10,826,000 shares of common stock reserved for outstanding
warrants and options exercisable within 60 days. There are no voting agreements
or voting trusts respecting shares of Avitar's capital stock.
3.3 No Violation. The execution and delivery of this Agreement by
Buyer, and consummation by it of the transactions contemplated thereby, will not
(i) conflict with or breach the certificate of incorporation or By-laws of Buyer
or any Contracts to which Buyer is a party or by which it is bound or to which
it or its assets are subject, (ii) cause or amount to any default or violation
of any such Contracts, or (iii) accelerate or permit any Person to accelerate,
terminate, modify or cancel any rights under any such Contracts. Such execution,
delivery and consummation will not violate, breach or constitute a default under
any Applicable Law to which Buyer (or its assets) is subject.
3.4 Consents and Approvals. No consent or approval of any Person or
Regulatory Authority, and no approval, order, license, permit, franchise,
declaration or filing of any nature is required as a result of or in connection
with Buyer's execution, delivery or performance of its obligations under this
Agreement.
3.5 Litigation. Omitted.
3.6 Disclosure. No representation or warranty of Buyer in this
Agreement or in any other document, financial statement, certificate, exhibit,
statement or schedule furnished or to be furnished to the other parties hereto
under this Agreement or in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the factual statements
contained therein, in light of the circumstances under which they are made, not
misleading.
3.7 Investment Representation. Buyer acknowledges that the Shares will
not be registered under the 1933 Act or any state securities law. Buyer is
acquiring all the Shares for investment and not with a view to distribution. Any
certificates representing the Shares may be endorsed with appropriate legends to
reflect federal and state securities law restrictions on transfers.
3.8 Broker. Buyer has not negotiated or contracted with, or obligated
itself to, any person for a broker's or finder's fee in connection with any of
the transactions contemplated by this Agreement. Buyer will indemnify and hold
harmless Sellers from and against any claim of any broker, agent, finder or
other person for a claim of any broker, agent, finder or other person for a
commission or fee based upon alleged dealings with Buyer with respect to this
Agreement or the transactions contemplated hereby.
3.9 Title to Avitar Shares. On the Closing Date, the Avitar Shares to
be transferred to Seller are authorized and they have been authorized by the
Board of Directors to be issued to the Sellers. At the Closing, Seller will
acquire good, valid and marketable title to and beneficial and record ownership
of the Avitar Shares to be transferred to the Seller free and clear of all
liens, restrictions, proxies, voting trusts, voting agreements, encumbrances and
claims of any kind, other than as provided in Sections 1.2 and 1.3 of this
Agreement.
3.10 Absence of Undisclosed Liabilities. Avitar has no liabilities of
any nature, whether absolute, contingent or otherwise, and whether due or to
become due, which are material, singularly or in the aggregate, to its assets,
business, operations, prospects or financial condition, except (i) those
disclosed or reserved against in the financial statements or reports filed with
the Securities and Exchange Commission and (ii) those arising in the ordinary
course of business after the date of the financial statements.
3.11 No Adverse Changes. Except for events contemplated by this
Agreement, since December 31, 1998, there have been no material adverse change
in the condition (financial or otherwise), properties, assets, liabilities,
rights, obligations, operations, business, shareholders equity or financial or
prospects of Avitar and no such matters or events are contemplated.
3.12 Litigation. Except as set forth in its financial statements or
reports filed with the Securities and Exchange Commission, there are no actions,
suits, proceedings or investigations pending or threatened against or affecting
Avitar, at law or in equity, or by or before any governmental or regulatory
agency or department.
3.13 Compliance with Laws. Avitar and its officers, directors, agents
and employees, have complied in all material respects with all laws and
ordinances relating to the business conducted by Avitar and all securities
issued by Avitar. Avitar is not in default under any order, writ, injunction or
decree of any governmental authority or agency, or of any court or commission or
other administrative agency in any proceeding to which Avitar is a party and has
not received notice of any claims, violation of, or failure to comply with any
law, rule, regulation, ordinance, judgment, arbitration, award or order, and
insofar as Avitar is aware, no such claim has been threatened or is anticipated,
nor is any investigation in respect thereof contemplated.
3.14 Absence of Questionable Payments. None of Avitar or any of its
officers, directors, agents or employees purporting to act on their behalf has
made or agreed to make any payment or other use of Avitar's assets (i) to or on
behalf of an official of any government, or for any purpose related to political
activity, except as permitted by law, (ii) for any of the purposes described in
Code section 162(c) or (iii) for establishment or maintenance of any concealed
fund or concealed bank account.
ARTICLE 4
Covenants and Undertakings
Sellers and USDT, jointly and severally, covenant to Buyer and agree
to comply, or to cause compliance, with the provisions of this Article 8, as
applicable, except as compliance may be waived in writing in a particular
instance by Buyer:
4.1 Non-Competition; Confidentiality.
4.1.1 Non-Competition by Sellers. Absent prior written consent by
Buyer, for a period of five years from the Closing Date, neither Seller nor any
child or child-in-law, shall directly or indirectly be engaged in or affiliated
(including as principal, agent, investor, guarantor or lender) with any Person
engaged in the drug testing business. Notwithstanding the foregoing, nothing in
this subsection 4.1.1 shall restrict Sellers, or any child or child-in-law of
Sellers from holding, solely for investment purposes, stock in publicly-held
companies, not exceeding five percent (5%) of the issued and outstanding stock
of any one company. Sellers acknowledge that breach of this subsection would
entail an irreparable injury to Buyer and USDT and that, in addition to the
other remedies available to Buyer, Buyer or USDT shall be entitled to injunctive
and other equitable relief to prevent any actual, intended or likely breach.
4.1.2 Confidentiality. In furtherance of the acquisition by Buyer
of USDT from and after the date of this Agreement (and subject to the
consummation of the Closing), each Seller covenants and agrees that, except as
compliance may be waived in writing in a particular instance by Buyer, all
Confidential Information in the possession of either Seller shall be held in
strict confidence and shall never be used (except as, and limited to the extent
that, may be required for tax reporting or under other Applicable Laws) or
disclose any Confidential Information to others without Buyer's prior written
consent unless the information in question (i) is, or becomes, generally known
in the drug testing industry in the combination and form known to USDT and
without fault of Seller or (ii) is rightfully obtained from a third party with
no restriction on disclosure. "Confidential Information" shall mean all
proprietary information relating to USDT's business not generally known in the
drug testing industry in the combination and form known to USDT including,
without limitation, know-how, lines of research and development previously
undertaken, in process or planned and the results thereof, identities of sources
of supply, identities of customers, special customer needs, operating and cost
data, sales and pricing data, and marketing, financial and other business plans.
4.1.3 No Enticement; No Raiding. None of Sellers or their
Affiliates shall entice, induce or encourage any unaffiliated third party or any
of its employees or agents to engage in any activity which, if engaged in by the
party to this Agreement in question, would violate the provisions of section 4.2
hereof.
4.1.4 Termination for "Good Reason". The foregoing provisions of
Section 4.1 shall not be enforceable by Buyer in the event that Douglas Lewis
(the "Executive" for the purposes of this subsection 4.1.4) shall terminate his
employment with USDT (the "Employer" for the purposes of this subsection 4.1.4)
for "Good Reason" in accordance with the terms of the Employment Agreement
between Executive and Employer referred to in Section 5.11 hereof. As provided
in the Employment Agreement, resignation by the Executive for "Good Reason"
shall mean a resignation by the Executive in the event that the Employer shall
be in material breach of its obligations under this Agreement or the Employment
Agreement (subject to any right of setoff in respect of such obligations under
this Agreement) and such material breach continues for thirty (30) or more days
after the Executive gives written notice of such material breach to the Board of
Directors of Employer.
4.2 Conduct of Business Prior to Closing. From the date of this
Agreement to the Closing Date, USDT shall preserve intact the business
organization of USDT and each Seller and USDT shall use their respective best
efforts to retain the services of USDT's present officers, employees and agents
and keep them available to Buyer, and preserve USDT's relationships with its
customers, distributors, suppliers and others, all so as to retain the good will
of USDT. USDT shall carry on its business in the ordinary course and
substantially the same manner as conducted on the date of this Agreement, except
as may be approved by Buyer in writing or as contemplated by this Agreement
(which shall include the use of Sellers' best efforts to obtain any consents or
approvals necessary for the consummation of this Agreement).
4.3 No Other Business Combination. From and after the date of this
Agreement, none of Sellers or USDT shall take any action looking toward USDT
becoming a party or subject to any business combination transaction (such as a
merger, consolidation or sale of assets) or agreement of sale, option, pledge or
other disposition or encumbrance of the assets of its business, other than as
contemplated by this Agreement.
4.4 Filings and Authorizations. Each party, as promptly as
practicable, shall take, or cause to be taken, all other actions necessary,
proper or advisable in order for it to fulfill its obligations hereunder. Each
of the parties shall coordinate and cooperate with one another in exchanging
such information and supplying such reasonable assistance as may be reasonably
requested by each in connection with the foregoing.
4.5 Public Announcements. Each party shall consult with each other
before issuing any press release or otherwise making any public statement or
disclosure to any Person (other than those of their officers, employees and
agents who have a need to know for purposes of this Agreement) with respect to
this Agreement and the state of the transactions contemplated hereby and shall
not issue any such press release or make any such public statement or disclosure
without prior approval thereof by the other party, which approval shall not be
unreasonably withheld or delayed. Nothing in this section shall prevent such
public disclosure with respect to this Agreement and the transactions
contemplated hereby as a party may be required to make by applicable law,
provided it shall have attempted, to the extent reasonably possible, to clear
such disclosure with the other party.
ARTICLE 5
Conditions Precedent to Buyer's Obligations
The obligation of Buyer to acquire the Shares and to deliver the
Consideration at the Closing is subject to the fulfillment of the following
conditions (except to the extent waived in writing by Buyer) and Sellers shall
use their best efforts to cause each such condition to be so fulfilled:
5.1 Accuracy of Representations and Warranties. All representations
and warranties of Sellers and USDT contained herein shall be true, correct and
complete in all material respects when made and as of the Closing Date.
5.2 Obligations Performed. All covenants, agreements and obligations
required by the terms of this Agreement to be performed by Sellers and USDT at
or before the Closing shall have been performed in all material respects.
5.3 Consents. All consents, waivers, permits, authorizations and
government or regulatory approvals required to be obtained prior to the Closing
shall have been received.
5.4 Government Approvals. Any prescribed waiting periods under
Applicable Laws with respect to the transactions contemplated by this Agreement,
shall have expired; and there shall be no pending governmental action or
proceeding to, and no injunction which does, restrain or prohibit the
transactions contemplated by this Agreement.
5.5 Compliance with Laws. Buyer shall be reasonably satisfied that the
Closing shall be in compliance with all Applicable Laws.
5.6 Litigation. No action or proceeding shall be pending or threatened
before any court or Regulatory Authority which in the reasonable opinion of
Buyer and its counsel may result in the restraint, prohibition or obtaining of
substantial damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated by it.
5.7 Material Adverse Change. No material adverse change shall have
occurred in the assets, operations, prospects or financial condition of USDT.
5.8 Other Matters. All legal and other proceedings, and all documents
or instruments required in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in form and substance to Buyer and
its legal counsel.
5.9 Officers and Directors. If Buyer shall have specified, Sellers
shall have caused such specified officers and directors of USDT to resign.
5.10 Escrow Agreement. Buyer shall have received an escrow agreement
duly executed by Sellers, in the form attached hereto as Exhibit 5.10 (the
"Escrow Agreement") and such Escrow Agreement shall be in full force and effect.
5.11 Employment Agreements. Buyer shall have received the Employment
Agreements duly executed by (a) Douglas Lewis and (b) Christine Moore, in each
case in form satisfactory to Buyer.
ARTICLE 6
Conditions Precedent to Sellers' Obligations
The obligation of Sellers to sell the USDT Shares at the Closing is
subject to the fulfillment of the following conditions (except to the extent
waived in writing by Sellers) and Buyer shall use its best efforts to cause each
such condition to be so fulfilled:
6.1 Accuracy of Representations and Warranties. All representations
and warranties of Buyer contained herein shall be true, correct and complete in
all material respects when made and as of the Closing Date.
6.2 Obligations Performed. All covenants, agreements and obligations
required by the terms of this Agreement to be performed by Buyer at or before
the Closing shall have been performed in all material aspects.
6.3 Consents. All consents, waivers, permits, authorizations and
government or regulatory approvals required to be obtained prior to the Closing
or listed shall have been received.
6.4 Compliance with Laws. Sellers and USDT shall be reasonably
satisfied that the Closing shall be in compliance with Applicable Laws.
6.5 Litigation. No action or proceeding shall be pending or threatened
before any court or Regulatory Authority which in the reasonable opinion of
Sellers and their counsel may result in the restraint, prohibition or obtaining
of substantial damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated by it or which would be reasonably
likely to impair the value of the Avitar Shares to be delivered to Sellers.
6.6 Escrow Agreement. Sellers shall have received an escrow agreement
duly executed by Buyer, in the form attached hereto as Exhibit 6.6 (the "Escrow
Fund Agreement") and such Escrow Fund Agreement shall be in full force and
effect.
6.7 Material Adverse Change. No material adverse change shall have
occurred in the assets, operations, prospects or financial condition of Avitar.
6.8 Other Matters. All legal and other proceedings, and all documents
or instruments required in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in form and substance to Sellers and
USDT and their legal counsel.
ARTICLE 7
Other Agreements
7.1 General Indemnification. (a) Sellers hereby jointly and severally
indemnify and hold and save Buyer and USDT and its officers, directors,
employees and agents (the "Indemnified Parties") harmless from and against any
and all liability, loss, cost, damages, expenses (including attorney's fees and
expenses and court costs) or deficiency or obligation of, or claim against, USDT
or Buyer of every kind, nature and description, absolute or contingent:
(i) accrued in respect of, or measured by, or otherwise
arising from the income, operations, franchises, properties or assets of USDT,
for any period or periods ending on or prior to the Closing Date or existing or
outstanding against USDT prior to the Closing Date, or thereafter coming into
being or arising by reason of any state of facts existing prior to the Closing
Date including, without limitation, claims relating to Taxes, assessments,
deficiencies, penalties and interest, except (A) to the extent that the same
have been provided for, reflected or reserved against in the Financial
Statements, (B) to the extent disclosed in the Disclosure Schedule, and/or (C)
to the extent of contractual obligations incurred in the ordinary course of the
business of USDT since the date of the May 31, 1999 Financial Statements;
(ii) resulting from or relating to any misrepresentation,
omission, breach of warranty, covenant or representation by either of Seller or
USDT in connection with the transactions contemplated hereby; and
(iii) all actions, suits, proceedings, assessments,
judgments, costs and expenses (including reasonable legal fees) incident to the
foregoing and including such legal fees, expenses and costs incurred in
enforcing this indemnity.
(b) In the event that any legal proceeding shall be instituted or
any claim or demand shall be made against any Indemnified Party in respect of
which such Indemnified Party shall have the right to indemnification or payment
from the Sellers under this Section 7.1, the party seeking such payment or
indemnification will promptly cause written notice thereof to be given to
Sellers, provided that failure to give such notice shall not relieve the Sellers
of their indemnification obligations, except where, and solely to the extent
that, the failure to notify actually and materially prejudices the rights of the
Sellers. Sellers shall be entitled to participate, at Sellers' own expense and
by employing counsel selected by them subject to approval by Buyer, in any such
legal proceeding or the negotiation and settlement of any such claim or demand;
provided, however, that such participation shall not relieve Sellers from the
obligation to reimburse the Indemnified Parties for their reasonable legal fees
and expenses incurred by them in defending against any such proceeding, claim or
demand. Sellers and Buyer mutually agree to cooperate fully in the conduct of
any such legal proceeding, negotiation or settlement, and any Indemnified Party
will not compromise or settle any such proceeding, claim or demand without the
prior written consent or approval of Sellers, such written consent or approval
not to be unreasonably withheld by Sellers. Any Indemnified Party shall not in
the defense of any such claim, except with the prior written consent of each
Seller affected, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term the release by the claimant or
plaintiff of the Indemnified Party from all further liability in respect of such
claim. In the event that any such legal proceeding, claim or demand shall arise
out of a transaction or transactions covering or relating to, or arising during,
any period or periods wherein Sellers on the one hand, and Buyer on the other
hand, shall each be responsible for a portion of such liability or obligation
arising therefrom under the terms hereof, then the parties shall, each selecting
its own counsel and bearing its own expense for their respective portions of
such liability or obligations, defend against or respond to such action,
proceeding, claim or demand, and no settlement or compromise may be made without
the joint consent or approval of all such parties, such consent or approval not
be unreasonably withheld by Sellers.
(c) After any final judgment or final award shall have been
rendered by a court, arbitration board, or administrative agency, or a
settlement shall have been agreed upon, with respect to or by reason of which
any Indemnified Party shall be entitled to be indemnified hereunder, or any item
of cost or expense has been incurred with respect to which an Indemnified Party
is entitled to be indemnified hereunder, then the Indemnified Party shall
forward to Sellers notice of any sums due and owing by Sellers under this
paragraph with respect to such matter, whereupon, all of the sums so owing by
Sellers shall be paid by or on behalf of Sellers to Indemnified Parties within
thirty (30) days after the date of such notice.
(d) In the event that Buyer receives indemnification from Seller
pursuant to this Section 7.1, such event shall not be deemed to constitute an
election by Buyer to rescind this Agreement nor in any manner to affect the
title of Buyer to all of the Shares being acquired by Buyer hereunder.
(e) The indemnification provisions contained in this Section 7.1
shall be in addition to, and not in lieu of, any other rights or remedies which
Buyer may have at law or in equity under this Agreement or otherwise.
(f) Notwithstanding the foregoing indemnification provisions of
this Section 7.1, the Seller and Buyer agree that no claims may be brought
against Seller under this Section 71. unless and until Buyer's claim or claims
against Seller exceed, in the aggregate, the sum of Fifty Thousand Dollars
($50,000.00).
(g) The maximum liability of Sellers to Buyer under the foregoing
indemnification provision or this Section 7.1 shall not exceed the Escrowed
Shares deposited pursuant to the Escrow Agreement dated as of June 30, 1999. In
no event shall Douglas Lewis or Veronica Lewis become personally liable to
Avitar, Inc. pursuant to the foregoing indemnification provisions of this
Section 7.1. It is expressly understood and agreed that, as provided above in
subsection 7.1 (e), the indemnification provisions contained in this Section 7.1
shall be in addition to, and not in lieu of, any other rights or remedies which
Buyer may have at law or in equity under this Agreement or otherwise.
7.2 Buyer's Indemnification for Seller's Contingent Liabilities. (a)
Buyer hereby indemnifies and holds and saves each Seller (the "Indemnified
Party" or, jointly, the "Indemnified Parties") harmless from and against any and
all liability, loss, cost, damages, expenses (including attorney's fees and
expenses and court costs) or deficiency or obligation of, or claim against,
Seller, or either of them, of every kind, nature and description arising from
and after the Closing Date with respect to:
(i) The equipment finance agreement dated March 16, 1999 between USDT
and American Express Capital Finance, LLC., and the guaranty or guaranties
thereof;
(ii) The promissory note dated February 5, 1999 from USDT to LaSalle
Bank, N.A. in the original principal amount of $100,000.00, and any guaranty or
guaranties thereof;
(iii) The promissory note dated September 26, 1997 from USDT to
LaSalle Bank, N.A. in the original principal amount of $25,000.00 and any
guaranty or guaranties thereof;
(iv) The equipment lease dated May 5, 1999 between USDT and Copeilco
and any guaranty or guaranties thereof, and
(v) The lease of the real estate between institute of Gas Technology
and USDT dated December 1, 1996, for the office and laboratory space occupied by
USDT at 1700 S. Mt. Prospect, Des Plaines, Illinois, and any guaranty or
guaranties thereof.
(b) In the event that any legal proceeding shall be instituted or
any claim or demand shall be made against any Indemnified Party in respect to
which such Indemnified Party shall have the right to indemnification or payment
from the Buyer under this Section 7.2, the party seeking such payment or
indemnification will promptly cause written notice thereof to be given to Buyer,
provided that failure to give such notice shall not relieve the Buyer of its
indemnification obligations. Buyer shall be entitled to participate, at Buyer's
own expense and by employing counsel selected by it, in any such legal
proceeding or the negotiation and settlement of any such claim or demand;
provided, however, that such participation shall not relieve Buyer from the
obligation to reimburse the Indemnified Parties for their reasonable legal fees
and expenses incurred by them in defending against any such proceeding, claim or
demand. Sellers and Buyer mutually agree to cooperate fully in the conduct of
any such legal proceeding, negotiation or settlement, and any Indemnified Party
will not compromise or settle any such proceeding, claim or demand without the
prior written consent or approval of Buyer, such written consent or approval not
to be unreasonably withheld by Buyer. Any Indemnified Party shall not, in the
defense of any such claim, except with the prior written consent of Buyer,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term the release by the claimant or plaintiff of the
Indemnified Party from all further liability in respect to such claim.
(c) After any final judgment or final award shall have been
rendered by a court, arbitration board, or administrative agency, or a
settlement shall have been agreed upon, with respect to or by reason of which
any Indemnified Party shall be entitled to be indemnified hereunder, or any item
of cost or expense has been incurred with respect to which an Indemnified Party
is entitled to be indemnified hereunder, then the Indemnified Party shall
forward to Buyer notice of any sums due on and owing by Buyer to the Indemnified
Parties to be paid to the Indemnified Parties within thirty (30) days after the
date of such notice.
(d) The indemnification provisions contained in this Section 7.2
shall be in addition to, and not in lieu of, any other rights or remedies which
Sellers or Buyer may have at law or in equity under this Agreement or otherwise.
(e) Buyer shall deposit with the Escrow Agent identified in the
separate Escrow Fund Agreement, the sum of Two Hundred Seventy Thousand Dollars
($270,000.00) at or prior to closing to guaranty Buyer's indemnification of
Sellers pursuant to this Section 7.2. The Escrow Fund Agreement shall be in the
form attached hereto as Exhibit 6.6 .
ARTICLE 8
Closing
8.1 Closing. The Closing ("Closing") of the sale and purchase of the
Shares shall take place at the office of Buyer located at 65 Dan Road, Canton,
Massachusetts on July 9, 1999, at 10:00 a.m. local time, or at such other time
and place as may be mutually agreed upon by the parties hereto. The date and
time of the Closing is referred to herein as the "Closing Date". All
transactions at the Closing shall be deemed to take place simultaneously and
none shall be deemed to have taken place unless and until all shall have taken
place. Buyer, on the one hand, and Sellers and USDT, on the other hand, shall
have the right to waive any conditions of the Closing or receipt of documents at
the Closing.
8.2 Deliveries by Sellers at the Closing. At the Closing, Sellers and
USDT shall deliver, or cause to be delivered, as applicable, to Buyer:
8.2.1 Shares. Certificates representing all of the Shares, free
and clear of all liens, encumbrances, pledges and claims of any kind accompanied
by duly executed stock powers or other instruments of transfer satisfactory to
Buyer and sufficient to transfer the Shares to Buyer, together with required
stock transfer tax stamps or cash in the appropriate amount in lieu thereof.
8.2.2 Opinion of Counsel. The opinion of Siebel, Schofield &
Varde, counsel to Sellers and USDT, dated the Closing Date and addressed to
Buyer.
8.2.3 Other Documents. Such other documents, certificates and
instruments as are specified in this Agreement (including, without limitation,
the Escrow Agreement and the Escrow Fund Agreement) or reasonably requested by
Buyer to consummate this transaction.
8.3 Deliveries by Buyer at the Closing. At the Closing, Buyer shall
deliver, or cause to be delivered, as applicable, to Sellers:
8.3.1 Purchase Price. The Avitar Shares as
provided in Section 1.
8.3.2 Opinion of Counsel. The opinion of Dolgenos Newman & Cronin
LLP, counsel to Buyer, dated the Closing Date and addressed to Sellers.
8.3.3 Other Documents. Such other documents, certificates and
instruments as are specified in this Agreement (including, without limitation,
the Escrow Agreement and the Escrow Fund Agreement) or reasonably requested by
Seller or USDT to consummate this transaction.
ARTICLE 9
Survival of Representations
9.1 Survival of Representations, Warranties and Covenants. (a) The
respective representations, warranties, agreements and covenants made by any
party in this Agreement shall survive execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby for a period of two
(2) years after the Closing Date notwithstanding any investigation, audit or
review made at any time by any party to this Agreement and notwithstanding the
delivery of any documents, exhibits, schedules or certificates pursuant to this
Agreement. Each of the representations, warranties and covenants relating to
Taxes, and those contained in Section 2.27 (Environmental Protection) shall
survive for six (6) years from the Closing Date.
(b) In the event of any dispute arising hereunder, any party
hereto may pursue, in addition to any rights specifically granted hereunder, any
and all legal rights available and may at any time seek such equitable remedies
as are available or necessary to preserve the rights granted hereby, it being
understood that remedies hereunder shall be deemed cumulative and nonexclusive.
9.2 Arbitration of All Disputes. The parties agree that in the event
of any dispute arising out of or in connection with this Agreement or any
related agreements or contracts, including any employment agreements or escrow
agreements referred to herein or attached as exhibits hereto, the parties agree
to submit all such disputes to binding arbitration before three arbitrators in
accordance with the commercial arbitration rules of the American Arbitration
Association. Each party shall designate one arbitrator and the two designated
arbitrators shall, jointly, designate the third arbitrator. The parties agree
that the arbitration may be commenced by either party by means of a written
notice of intention to arbitrate to the other party ninety (90) days in advance
of the commencement to the arbitration proceedings. All such arbitrations shall
be conducted at Chicago, Illinois. Each party shall bear his, her or its own
costs, expenses and fees in any such arbitration.
ARTICLE 10
Cooperation; Further Assurances
10.1 Cooperation; Further Assurances. Each party will at any time and
from time to time execute, acknowledge, deliver and perform all such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may be necessary or appropriate to carry out the provisions and
intent of this Agreement.
ARTICLE 11
Notices
11.1 Notices. Each notice, request, waiver, demand or other
communication required or permitted under this Agreement shall be in writing,
and shall be deemed duly given (i) when delivered by hand or by courier against
receipt therefor or (ii) when five (5) days have elapsed after its transmittal
by registered or certified mail, postage prepaid, return receipt requested, to
the addresses set forth below, in each case with a copy provided in the same
manner and at the same time to the Persons shown below.
If to Buyer:
Avitar Inc.
65 Dan Road
Canton, MA 02021
Attn: Chief Financial Officer
with a copy to:
Dolgenos Newman & Cronin LLP
96 Spring Street
New York, NY 10012
Attn: Eugene M. Cronin, Esq.
If to Sellers:
Douglas Lewis and Veronica Lewis
53 Yorkshire Woods
Oak Brook, Illinois 60521
with a copy to:
Siebel, Schofield & Varde
Three First National Plaza
70 West Madison, Suite 460
Chicago, Illinois 60602
Attn: Paul F. Schofield, Esq.
or to such different addresses and Persons as to which a party has given notice
in the manner provided in this Article 12. Notwithstanding the previous
sentence, notices of change of address shall be effective only upon receipt.
ARTICLE 12
Miscellaneous
12.1 Entire Agreement. This Agreement, including the Exhibits and
Disclosure Schedule attached hereto and other documents delivered at the Closing
pursuant to this Agreement, contains the entire understanding of the parties in
respect of its subject matter and supersedes all prior agreements and
understandings between or among the parties with respect to such subject matter.
The Exhibits and Disclosure Schedule constitute a part hereof as though set
forth in full above.
12.2 Expenses; Taxes. The parties shall pay their own fees and
expenses, including their own counsel fees, incurred in connection with this
Agreement or any transaction contemplated by this Agreement. Any sales tax,
stamp duty, transfer or other tax arising out of the sale of the Shares and
consummation of the transactions contemplated by this Agreement shall be for the
account of Sellers. Notwithstanding the foregoing all of the legal and
accounting fees incurred by Sellers and USDT prior to closing may be paid by
USDT from USDT at the time of closing, but not in excess of $5,000.00.
12.3 Amendment; Waiver. This Agreement may not be modified, amended,
supplemented, cancelled or discharged, except by written instrument executed by
all of the parties. No failure to exercise, and no delay in exercising, any
right, power or privilege under this Agreement shall operate as a waiver, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude the exercise of any other right, power or privilege. No waiver of any
breach of any provision shall be deemed to be a waiver of any preceding or
succeeding breach of the same or any other provision, nor shall any waiver be
implied from any course of dealing between or among the parties. No extension of
time for performance of any obligations or other acts hereunder or under any
other agreement shall be deemed to be an extension of the time for performance
of any other obligations or any other acts. The rights and remedies of the
parties under this Agreement are in addition to all other rights and remedies,
at law or equity, that they may have against each other.
12.4 Binding Effect; Assignment. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and legal assigns. The rights and obligations of this
Agreement may not be assigned by any of the parties without the prior written
consent of the other parties.
12.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12.6 Headings. The headings contained in this Agreement are for
convenience of reference only and are not to be given any legal effect and shall
not affect the meaning or interpretation of this Agreement.
12.7 Governing Law; Interpretation. This Agreement shall be construed
in accordance with and governed for all purposes by the laws and public policy
of Delaware applicable to contracts executed and to be wholly performed within
such State.
12.8 Severability. The parties stipulate that the terms and provisions
of this Agreement are fair and reasonable as of the date of this Agreement.
However, if notwithstanding that stipulation the terms and provisions of Section
4.1 relating to non-competition and confidentiality shall be determined by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated. If, moreover, any of those provisions shall for any reason be
determined by a court of competent jurisdiction to be unenforceable because
excessively broad or vague as to duration, geographical scope, activity or
subject, it shall be construed by limiting, reducing or defining it, so as to be
enforceable.
Execution
The parties, intending to be legally bound, have executed this
Agreement or have caused this Agreement to be executed by their duly authorized
representatives as of the date first above written.
AVITAR, INC.
By
UNITED STATES DRUG TESTING
LABORATORIES, INC.
By
SELLERS:
DOUGLAS LEWIS
VERONICA LEWIS