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LabChem, Inc. v. Reagents

June 11, 2010

LABCHEM, INC. PLAINTIFF,
v.
REAGENTS, INC., ET AL. DEFENDANTS.



The opinion of the court was delivered by: David Stewart Cercone United States District Judge

Electronic Filing

OPINION

Plaintiff commenced this action seeking injunctive relief for an alleged breach of contract. Presently before the court is plaintiff's motion for preliminary injunction. A hearing was held on March 8, 2010, wherein each side presented witnesses and exhibits. The matter is ripe for adjudication. For the reasons set forth below, the motion will be denied.

The record contains the background that follows. Defendants Reagents, Inc., and C.W. Holdings of Charlotte, LLC, are North Carolina companies that entered into negotiations with plaintiff, LabChem, Inc., a Pennsylvania corporation, regarding plaintiff's purchase of the assets of Reagents and C.W. Holdings, which included the sale of a parcel of commercial real estate. Alexander Beranak, Chief of Board of Directors for plaintiff, discussed merging LabChem and Reagents with Charles Waits, the owner of Reagents and C.W. Holdings, in late 2007 and into 2008. Negotiations were ongoing. In September of 2008 Waits advised that he wanted to put things on hold and revisit the negotiations in a year. Waits passed away unexpectedly in December of 2008. Thereafter, William Garnett was hired by Waits' estate to negotiate the sale of the Waits' companies. Garnett telephoned Beranek in early 2009 and inquired about negotiating a sale of the companies to plaintiff, and the parties entered into a confidentiality agreement in February 2009.

Over approximately a two month period the parties negotiated the principal terms that would govern the sale. At the end of this initial process Waits' estate, which held the real estate and assets of both companies, mailed a document entitled "Reagents, Incorporated & C.W. Holdings, Term Sheet, Sale of Business and Manufacturing Facility Principal Terms and Conditions" ("Term Sheet") to plaintiff. The Term Sheet was executed by the parties on May 7, 2009.

The Term Sheet indicated the entire transaction would be consummated for $4.3 million. Plaintiff would purchase all of the assets of Reagents and C.W. Holdings for $2.3 million. Plaintiff was to provide "$1.25 million at closing and $1.05 million over six years and one month against a Seller Note." Term Sheet at 1, Plaintiff's Exhibit 1 (electronically available at Doc. No. 8-1). The Term Sheet further provided that plaintiff would pay $2 million at closing for the ".real estate owned and controlled by Reagents, Inc. and C.W. Holdings[.]" Id. It also provided that an appraisal of the real estate would be completed and if the appraisal were to come in between $2 million and $2.1 million, then the purchase price would be adjusted upward by fifty percent of the value above $2 million, but the adjustment could not exceed $50,000.00 Id.

The Term Sheet referenced a seller note to be provided by defendants that would require plaintiff to pay $1.05 million in 73 monthly installments. Id. The same provision also stated that "[t]he Seller Note will be subordinated to any bank debt financing needed to consummate the transaction." Id. A detailed payment schedule was attached to the Term Sheet specifying the principal and interest to be paid to defendants.

The Term Sheet also stated:

Buyer and Seller will enter into a Purchase Agreement.reflecting the Principal Terms and Conditions of this Agreement.and any additional requirements for a transaction of this nature based upon the results of due diligence ... as mutually agreed to by Buyer and Seller.

Id. at 2. Plaintiff had 60 days to perform due diligence and declare the ability to close. Id. It also was required to identify any material condition that would prevent it from closing within that same period. Id. Additionally, plaintiff was required to deposit $300,000 with an escrow agent. Id.

In the weeks that followed the parties began negotiating the terms of a final asset purchase agreement. Matters to be finalized included warranties, indemnifications, insurance coverages, procedures for accounting, inventory, receivables and taxes, and so forth. Defendants sent the first draft of an asset purchase agreement on May 28, 2009. Thereafter, at least six asset purchase agreements were exchanged, but the parties never reached final agreement on one.

Defendants submitted the first draft of an asset purchase agreement to plaintiff on May 28, 2009. Plaintiff returned its counter-proposed agreement on June 4, 2009. It contained several pages of additional terms and conditions inserted throughout the document. See Defendant's Exhibit 3 (redline version of June 4, 2009, counter-proposal). Among other areas, the June 4, 2009, counter-proposal changed the name of the purchaser, modified the terms of the seller note to permit prepayment with only a penalty equal to the interest that would have been earned had prepayment not occurred, permitted plaintiff to offset any claims of indemnity against the note, sought to limit the insurance plaintiff was required to maintain for defendant's benefit, and expanded defendants' indemnity obligations. On June 19, 2009, the attorney for the estate, Robert Gunst, submitted revisions to the June 4, 2009, version which were also extensive. The revisions included provisions making $100,000 of the $300,000 placed in escrow "hard" money that would be retained by the sellers in the event closing did not occur, making time of the essence, making taxes prorated, and changing/adding additional terms in the areas of indemnification and assignment of the rights to indemnification.

Plaintiff seemingly performed all of its obligations under the Term Sheet, including depositing the $300,000 into escrow, performing the real estate appraisal, conducting environmental assessments and obtaining third-party financing to cover the transaction. Plaintiff incurred approximately $150,000 in due diligence costs, which included analysis of defendants' operations. The real estate appraisal was completed on June 26, 2009, and the results were sent to defendants on July 10, 2009. That appraisal revealed that the real estate was in fact worth $2.33 million, not $2 million as the parties originally assumed. Garnett testified that defendants were pleased with the appraisal because the purchase price would be adjusted upward by $50,000.

Plaintiff's bank submitted a mark-up of the June 19, 2009, asset purchase agreement, deed of trust and balloon note on July 6, 2009, which was forwarded to defendants on July 7, 2009. This version contained proposed changes and additional terms and introduced a number of new documents as part of the transaction. Included in the changes was a provision in the Balloon Note that indicated it would be governed by an inter-creditor agreement that would be required by the bank. Garnett requested a copy of the inter-creditor agreement and received a copy of it on ...


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