ASSET PURCHASE AGREEMENT
Between
CDEX INC.
("Buyer")
and
LOCH HARRIS, INC.
And
CHEM TECH, INC.
(jointly, "Company")
Dated as of
August 4, 2001
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement") dated August 4, 2001,
between CDEX Inc., a Nevada corporation ("Buyer"), and Loch Harris, Inc., a
Nevada corporation ("Loch") and Chem Tech, Inc., a subsidiary of Loch
("ChemTech") (jointly and severally, "Company").
RECITALS
A. Company is or has been engaged in the Business, as that term is
defined herein below.
B. ChemTech is a wholly owned subsidiary of Loch, having been
created for the purpose of assisting Loch in the Business.
C. The Business is carried on by Company at one or more facilities
operated by Company and by contractors (the "Contractors") performing services
on behalf of Company.
D. Buyer desires to purchase from Company, and Company desires to
sell to Buyer, all of the property and assets of Company that are related to the
Business, as are more particularly set forth herein.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows.
1. PURCHASE AND SALE OF ASSETS
1.1. Definition of "Business". As used herein, "Business" shall mean
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(i) any and all research, development, manufacture, production, marketing,
distribution, exploitation, use, and sale of any and all proprietary
technologies, processes and related products in all fields of use of chemical
detection and nanometrology, and technical processes related thereto, which the
Company and its affiliates, including all Contractors acting on behalf of the
Company, have at any time undertaken, investigated, performed, conducted,
planned to conduct or perform, or attempted to conduct or perform, (ii) the
technical/business services and various operations carried on by or related to
the chemical detection technologies, nanometrology technologies, processes and
related products and associated by trade name or otherwise with the Company on
the date hereof; and (iii) any and all research, development, manufacture,
production, marketing, distribution, exploitation, use, and sale of any and all
proprietary technologies, processes and related products in all fields of use in
which Wade Poteet, Harold Cauthen, and Henry Blair, acting as independent
contractors for Company and the Operations Team as defined in the June 1, 2001
Agreement with Loch Harris had been performing for Company at any time. Where
the context allows, the term "Business" shall also mean Company insofar as the
operation of the Business, as above defined, is concerned.
1.2. Assets to be Transferred. Subject to the terms and conditions of
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this Agreement, on the Closing Date (as hereinafter defined) Company shall sell,
transfer, convey, assign, and deliver to Buyer, and Buyer shall purchase and
accept, all of the business, rights, and assets (of every kind, nature,
character and description, whether real, personal or mixed, tangible or
intangible, accrued, contingent or otherwise, and wherever situated) of Company,
used, held for use or acquired or developed for use in the Business, or
developed by Company in the course of conducting the Business or by persons
employed in the Business or by Contractors for the Business (collectively the
"Purchased Assets"). The Purchased Assets include those noted in Exhibit A to
this document.
2. NO ASSUMPTION OF LIABILITIES
2.1. No Liabilities to be Assumed. As used in this Agreement, the term
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"Liability" shall mean and include any direct or indirect indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, penalty,
obligation or responsibility, fixed or unfixed, known or unknown, asserted or
unasserted, liquidated or unliquidated, secured or unsecured. Buyer is not
assuming and shall not assume or perform or discharge any Liability of Company,
and all such Liabilities shall be and remain the responsibility of Company,
expressly including but not limited to (i) any and all Liabilities in relation
to any agreement between Company and Henry Blair or any person or entity
affiliated with Henry Blair (Henry Blair and any person or entity affiliated
with Henry Blair shall be referred to herein collectively as the "Blair
Affiliates"); (ii) any and all taxes applicable to, imposed upon or arising out
of the sale or transfer of the Purchased Assets to Buyer and the other
transactions contemplated by this Agreement, including but not limited to any
income, transfer, sales, use, gross receipts or documentary stamp taxes relating
to the transaction contemplated herein; (iii) any and all Liabilities of Company
for federal income taxes and any state or local income, profit or franchise
taxes (and any penalties or interest due on account thereof); (iv) any and all
Liabilities with respect to any action, suit, proceeding, arbitration,
investigation or inquiry, whether civil, criminal or administrative, including
any third-party claims for personal injury or property damage, now or hereafter
asserted, relating to or arising out of the operation of the Business by Company
prior to the Closing or Company's use of, or Company's ability to transfer the
use of, any of the Purchased Assets ("Litigation"); (v) any and all Liabilities
to a third party for infringement of such third party's rights; (vi) any and all
Liabilities of Company for any violation of or failure to comply with any
statute, law, ordinance, rule or regulation (collectively, "Laws") or any order,
writ, injunction, judgment, plan or decree (collectively, "Orders") of any
court, arbitrator, department, commission, board, bureau, agency, authority,
instrumentality or other body, whether federal, state, municipal, foreign or
other; (vii) any and all Liabilities arising under or related in any way to any
contract or agreement between Company and a Contractor or between Company and a
vendor, or to the performance of services for, or the providing of material or
equipment to, Company by a Contractor or other third party, and (viii) any and
all Liabilities arising under agreements between Loch Harris and/or Chem. Tech.
related to ownership interests in the Business in any form.
2.2. Independent Contractors. Company acknowledges that Company
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entered into Independent Contractor Agreements dated September 1, 1999, with
Harold Cauthen and Wade Poteet (the "Independent Consultants"), who serve as
independent consultants to the Company. Company affirms that the Independent
Contractor Agreements have been terminated by mutual agreement as of July 24,
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2001. Company expressly affirms and agrees that Buyer may engage the
Independent Consultants to perform services for Buyer without any liability to
Company or Consultants for such engagement. Company expressly agrees that each
Independent Consultant shall be permitted to enter into agreements with Buyer
without having any liability to Company under any agreements between such
Independent Consultant and Company, it being the intent of this provision to
allow Buyer and each Independent Consultant to freely enter into such agreements
as they may desire without any interference from Company, without any
restrictions imposed by Company, and without any liability to Company therefore.
The Independent Consultants are intended as third-party beneficiaries of this
provision as to their ability to freely enter into an agreement with Buyer.
3. PURCHASE PRICE - PAYMENT
3.1. Purchase Price.
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The purchase price (the "Purchase Price") for the Purchased Assets
shall be the payment by Buyer to Loch of the shares of Buyer's Common Stock, par
value $0.001 per share, in the amount set forth below and payable in accordance
herewith:
3.2. Payment of Purchase Price.
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At the Closing (as that term is hereinafter defined), Buyer shall
deliver to Loch 35,000,000 shares of Buyer's Restricted Common Stock. Buyer had
previously delivered to Loch 13,000,000 shares of Buyer's Restricted Common
Stock, which is affirmed by Buyer and Company to be included in the overall
consideration received by Company. The 35,000,000 and 13,000,000 shares of
Buyer's Restricted Common Stock are collectively referred to as the
"Shareholders Shares". In addition at the Closing, Buyer shall deliver to Loch
13,000,000 shares of Buyer's Restricted Common Stock ("Loch's Shares"). The
61,000,000 shares being collectively called the "Loch and Shareholders Shares".
The Shareholders Shares shall be made available to the transfer agent
for distribution to the Loch shareholders on a one for ten pro-rata basis
described below as soon as practical. If the delivery to the transfer agent has
not occurred by October 1, 2001, the voting rights of these shares, unless
waived by Buyer at its discretion from time to time, shall be assigned in a
proxy to the Board of Directors of Buyer until such shares have been distributed
to shareholders of Loch on a one for ten pro-rata basis described below. After
October 1, 2001, if the Shareholders Shares have not been distributed to the
Loch shareholders and it is determined that it is legally impossible or
economically impractical to do so, the voting proxy for those shares shall
remain with the Board of Directors of CDEX until those shares are sold,
transferred or assigned to parties not controlled in any fashion by Loch or its
Officers or Directors. If the number of shares of Shareholder Shares are not
sufficient to accomplish a distribution of one share of Buyer's stock for each
ten shares of Loch stock, then shares shall be taken from the Loch Shares to
accomplish that objective. If the number of shares of Shareholders Shares
exceeds the number of shares required to accomplish a one for ten distribution,
such excess shall be added to the Loch Shares.
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In addition, Buyer shall provide a combined total of 8,325,000 shares
of Buyer's Restricted Common Stock to those listed in Exhibit B (the "Obligation
Stock"), as directed by the Company as part of the compensation for assets
transferred under this Agreement. The Obligation Stock is provided to discharge
certain loans and other obligations of the Company related to the Business and
Purchased Assets, to obtain a release of any lien or claim of whatever nature to
the technology by such persons who had provided funds, property or services in
connection with the development of the technology, Business and Purchased Asset,
and to acquire the entire interest, if any (including but not limited to
ownership percentage and royalty rights) in the Business or Purchased Assets
originally acquired by Coldwater Capital, LLC and its affiliates. Buyer did not
and was not required to review the underlying bases for these payments of stock,
other than to understand that Company warrants that the payments are necessary
and adequate to secure clear and unencumbered title (including complete
ownership interest with no royalty rights) to the Business and Purchased Assets.
Company shall indemnify Buyer against all claims to the contrary.
Buyer and Loch shall make every effort to complete the prompt
registration of these shares (the Loch and Shareholders Shares and the
Obligation Stock) as soon as practical and pursuant to appropriate filings with
the Securities and Exchange Commission (the "SEC"). The Loch Shares are to be
used by Loch Harris for the benefit of Loch Harris as it sees fit. However, it
is agreed that as long as Loch owns these Loch Shares the voting rights of these
shares shall be assigned in a proxy to the Board of Directors of Buyer.
Further, the voting rights of all stock provided to any of the current Board of
Directors of Loch or persons or parties under their control pursuant to this
Agreement shall be assigned in a proxy to the Board of Directors of Buyer until
the stock is sold, transferred, assigned or conveyed to persons or parties not
controlled by such Board Member. Applicable restrictions shall be placed on
these stock certificates to this effect. Loch agrees to comply strictly with
all applicable federal and state laws, rules and regulations relating to the
Shares. Loch shall provide and deliver to Buyer all information, certifications,
and other documentation as may be requested by Buyer as part of Buyer's
compliance with any applicable laws and regulations relating to the issuance
and/or registration of any of the Shares. All certificates for shares of CDEX
prior to registration by the SEC shall bear an appropriate legend indicating
the restriction. Filing Costs. Company shall reimburse Buyer for all costs and
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expenses relating to the preparation, filing and processing of a statements to
secure registration of the Registered Shares, as may be applicable, including
but not limited to filing fees, attorneys' fees, accountants' fees, and printing
expenses, except that Buyer shall be responsible for providing financial
auditing of Buyer.
3.3. Prorations. The parties shall make such prorations, if any, as
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of the Closing Date hereunder as shall be normally adjusted in connections with
similar transactions, with Company liable to the extent such items relate to any
time period up to and including the Closing Date and Buyer liable to the extent
such items relate to periods subsequent thereto.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY
Company makes the following representations and warranties to Buyer,
each of which is true and correct on the date hereof, shall remain true and
correct to and including the Closing Date, shall be unaffected by any
investigation heretofore or hereafter made by Buyer, or any knowledge of Buyer,
and shall survive the Closing of the transactions provided for herein; provided
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however and notwithstanding the foregoing, if Buyer had actual knowledge that a
representation or warranty of Company is false, Buyer shall be estopped from
asserting a claim based on such representation or warranty.
4.1. Loch Corporate. Loch represents that it is a corporation duly
---------------
organized, validly existing and in good standing under the laws of the State of
Nevada; it has all requisite corporate power and authority to own its
properties, to carry on its business as and where such is now being conducted,
to enter into this Agreement and the other documents and instruments to be
executed and delivered by Loch pursuant hereto and to carry out the transactions
contemplated hereby; and no portion of the Business is conducted by Company by
means of any subsidiary or any other interest in any corporation, partnership or
other entity.
4.2. ChemTech Corporate. ChemTech represents that it is a corporation
-------------------
duly organized, validly existing and in good standing under the laws of the
State of Nevada; it has all requisite corporate power and authority to own its
properties, to carry on its business as and where such is now being conducted,
to enter into this Agreement and the other documents and instruments to be
executed and delivered by ChemTech pursuant hereto and to carry out the
transactions contemplated hereby; and no portion of the Business is conducted by
Company by means of any subsidiary or any other interest in any corporation,
partnership or other entity.
4.3. Authority. The execution and delivery of this Agreement and the
---------
other documents and instruments to be executed and delivered by Company pursuant
hereto and the consummation of the transactions contemplated have been duly
authorized by the Board of Directors of Loch and ChemTech, respectively. This
Agreement constitutes, and when executed and delivered the other documents and
instruments to be executed and delivered by Company pursuant hereto will
constitute, valid binding agreements of Loch and ChemTech, respectively,
enforceable in accordance with their respective terms.
4.4. Disclosure of Liabilities. The Business does not have any
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Liabilities, other than (i) the Liabilities discussed with Buyer, and (ii)
commercial liabilities and obligations incurred in the ordinary course of
business and consistent with past practice, and none of which has or will have a
material adverse effect on the financial condition or results of Buyer's
development, marketing, sales, and use of the Purchased Assets after the
Closing. Other than as set forth in clauses (i) and (ii) in the immediately
preceding sentence, Company has no knowledge of any basis for the assertion
against Company of any liability in connection with or affecting the Business or
the Purchased Assets, and there are no circumstances, conditions, happenings,
events or arrangements, contractual or otherwise, which may give rise to such
Liabilities, except commercial liabilities and obligations incurred in the
ordinary course of the Business and consistent with past practice. Company
agrees that it shall indemnify, defend, and hold harmless Buyer, and its
directors, officers, employees, agents, contractors, and controlled and
controlling persons (hereinafter "Buyer's affiliates"), from and against all
Claims (as that term is defined in Section 7.1 herein) asserted against,
resulting to, imposed upon, or incurred by Buyer and Buyer's affiliates or the
Purchased Assets, directly or indirectly, by reason of, arising out of or
resulting from in any way claims against the Company, the Purchased Assets or
Business resulting from actions occurring prior to Closing, in accordance with
the provisions of Section 7.
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4.5. Pending Investigations and Litigation. Except as set forth in the
-------------------------------------
Schedule of Disclosed Pending Investigation and Litigation (Schedule C), the
Company is not aware of any Litigation or Investigations pending or threatened
against Company or its directors (in such capacity) that in any way involves the
Business or the Purchased Assets, nor does Company know, or have grounds to
know, of any basis for any Investigations or Litigation. Except as set forth in
the Schedule C, neither Company nor the Purchased Assets are subject to any
Order of any Government Entity. Company agrees that it shall indemnify, defend,
and hold harmless Buyer, and its directors, officers, employees, agents,
contractors, and controlled and controlling persons (hereinafter "Buyer's
affiliates"), from and against all Claims asserted against, resulting to,
imposed upon, or incurred by Buyer and Buyer's affiliates or the Purchased
Assets, directly or indirectly, by reason of, arising out of or resulting from
in any way the pending Investigations and Litigation set forth in the Schedule
of Disclosed Pending Investigations and Litigation, or any aspect thereof, in
accordance with the provisions of Section 7.
4.6. Title to Properties.
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Except as to claims which are to be released and resolved by payment
of the Obligation Stock at Exhibit B, Company is the owner of, has sole and
exclusive possession of, and has good and marketable title to all the Purchased
Assets, free and clear of all mortgages, liens (statutory or otherwise),
security interests, claims, pledges, licenses, equities, options, conditional
sales contracts, assessments, levies, easements, covenants, reservations,
restrictions, rights-of-way, exceptions, limitations, claims, actions, charges
or encumbrances of any nature whatsoever, whether pending, threatened, or actual
(collectively, "Liens"). Company knows of no basis for the assertion of any
Lien. None of the Purchased Assets are subject to any restrictions with respect
to the transferability thereof. None of the Trade Rights, as that term is
defined in Exhibit A, infringes or conflicts with any proprietary rights or
other rights of any other person, and neither the use of the Trade Rights nor
the development, use, manufacture or sale of any product related to the Trade
Rights will infringe or conflict with any proprietary right or other right of
any person. Company has complete and unrestricted power and right to sell,
assign, convey and deliver the Purchased Assets to Buyer as contemplated hereby.
At Closing, Buyer will receive good and marketable title to all the Purchased
Assets, free and clear of all Liens of any nature whatsoever.
4.7. No Brokers or Finders. Neither Company nor any of its directors,
----------------------
officers, employees, shareholders or agents have retained, employed or used any
broker or finder in connection with the transaction provided for herein or in
connection with the negotiation thereof.
4.8. Disclosure. No representation or warranty by Company in this
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Agreement contains or shall contain any untrue statement of material fact or
omits or shall omit a material fact necessary to make the statements contained
therein not misleading.
4.9. Restricted Securities. Company acknowledges that the Shares have
----------------------
not been registered under Securities Act of 1933 and constitute "restricted
securities" pursuant to Rule 144 thereunder. Company represents that Buyer has
given Company the opportunity to ask questions and receive answers from Buyer
regarding the Shares and the terms of the issuance thereof.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
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Buyer makes the following representations and warranties to Company,
each of which is true and correct on the date hereof, shall remain true and
correct to and including the Closing Date, shall be unaffected by any
investigation heretofore or hereafter made by Company or any notice to Company,
and shall survive the Closing of the transactions provided for herein; provided,
however and notwithstanding the foregoing, if Company had actual knowledge that
a representation or warranty of Buyer is false, Company shall be estopped from
asserting a claim based on such representation or warranty.
5.1. Corporate. Buyer represents that it is a corporation duly
---------
organized, validly existing and in good standing under the laws of the State of
Nevada, and that it has all requisite corporate power to enter into this
Agreement and the other documents and instruments to be executed and delivered
by Buyer and to carry out the transactions contemplated hereby.
5.2. Authority. The execution and delivery of this Agreement and the
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other documents and instruments to be executed and delivered by Buyer pursuant
hereto and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by the Board of Directors of Buyer. This Agreement
constitutes, and when executed and delivered the other documents and instruments
to be executed and delivered by Buyer pursuant hereto will constitute, valid and
binding agreements of Buyer, enforceable in accordance with their respective
terms, except as such may be limited by bankruptcy, insolvency, reorganization
or other laws affecting creditors' rights generally, and by general equitable
principles.
5.3. No Brokers or Finders. Neither Buyer nor any of its directors,
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officers, employees or agents have retained, employed or used any broker or
finder in connection with the transaction provided for herein or in connection
with the negotiation thereof.
5.4. Validity of Shares. Buyer represents that the Shares have been
--------------------
duly authorized, and that when issued under the terms of this Agreement, the
Shares will be validly issued, fully paid, and nonassessable shares.
5.5. Disclosure. No representation or warranty by Buyer in this
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Agreement contains or shall contain any untrue statement of material fact or
omits or shall omit a material fact necessary to make the statements contained
therein not misleading.
6. OTHER MATTERS
6.1. Non-Disclosure and Noncompetition Agreements. Within twenty days
---------------------------------------------
of the Closing, Company shall cause to be delivered to Buyer two Non-Disclosure
Agreements and Noncompetition Agreements, acceptable to Buyer, one of each duly
executed by Rodney A. Boone and by Mark E. Baker.
6.2. Noncompetition; Confidentiality. Subject to the Closing, and as
--------------------------------
an inducement to Buyer to execute this Agreement and complete the transactions
contemplated hereby, and in order to preserve the goodwill associated with the
Business, and in addition to and not in limitation of any covenants contained in
any agreement executed and delivered pursuant to Section 6.1 hereof, Company
hereby covenants and agrees as follows:
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6.2.1. Covenant Not to Compete. For a period of five (5) years
--------------------------
from the Closing Date, Company will not, directly or indirectly:
(i) engage in, continue in or carry on any business which
competes with the Business or is substantially similar thereto, including owning
or controlling any financial interest in any corporation, partnership, firm or
other form of business organization which is so engaged;
(ii) consult with, advise or assist in any way, whether or
not for consideration, any corporation, partnership, firm or other business
organization which is now or becomes a competitor of Buyer in any aspect with
respect to the Business or Purchased Assets which Buyer is acquiring hereunder,
including, but not limited to, advertising or otherwise endorsing the products
of any such competitor; soliciting customers or otherwise serving as an
intermediary for any such competitor; loaning money or rendering any other form
of financial assistance to or engaging in any form of business transaction on
other than an arms' length basis with any such competitor;
(iii) offer employment to any employee of the Business,
without the prior written consent of Buyer; or
(iv) engage in any practice the purpose of which is to evade
the provisions of this covenant not to compete or to commit any act which
adversely affects the Business, Purchased Assets or Assumed Liabilities;
provided, however, that except as provided for in this Agreement the
foregoing shall not prohibit the Company's ownership of securities of Buyer or
of any corporations which are listed on a national securities exchange or traded
in the national over-the-counter market in an amount which shall not exceed 5%
of the outstanding shares of any such corporation. The parties agree that the
geographic scope of this covenant not to compete shall extend worldwide. The
parties agree that Buyer may sell, assign or otherwise transfer this covenant
not to compete, in whole or in part, to any person, corporation, firm or entity
that purchases all or part of the Business or the Purchased Assets. In the
event a court of competent jurisdiction determines that the provisions of this
covenant not to compete are excessively broad as to duration, geographical scope
or activity, it is expressly agreed that this covenant not to compete shall be
construed so that the remaining provisions shall not be affected, but shall
remain in full force and effect, and any such over broad provisions shall be
deemed, without further action on the part of any person, to be modified,
amended and/or limited, but only to the extent necessary to render the same
valid and enforceable in such jurisdiction.
6.2.2. Covenant of Confidentiality. Company shall not at any time
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subsequent to the Closing, except as explicitly requested by Buyer, (i) use for
any purpose, (ii) disclose to any person, expressly including any of the Blair
Affiliates or to any Independent Contractor, or (iii) keep or make copies of
documents, tapes, discs or programs containing, any Confidential Information.
For purposes hereof, "Confidential Information" shall mean and include, without
limitation, all Trade Rights, trade secrets, confidential business or commercial
information, business plans, marketing strategies, customer lists, vendor lists,
technical information, know-how, inventions, patents, discoveries (whether or
not patentable), copyrights, trademarks, service marks, techniques, data,
8
systems, methods, processes, improvements, developments, enhancements, and
modifications, and other proprietary rights, whether oral or written, or in
recorded form, tangible or intangible, that relate in any way or manner to, or
arise out of, the Business and the Purchased Assets. The Confidential
Information shall also include (i) all right, title and interest to the
Confidential Information arising under any laws of any country, and (ii) all
right, title and interest in all causes of action relating to the Confidential
Information arising under the patent, copyright, trademark, service mark, trade
secret, or other laws of any jurisdiction, which causes of action have not been
asserted as of the Effective Date, that have not previously been disclosed to
the public directly by Company. The obligations of Company with respect to this
Section 6.2.2 shall not apply to Confidential Information:
(i) which at the time of disclosure is, or thereafter
becomes, available to the trade or the public without restriction other than
through the fault, negligence, or other acts of Company; or
(ii) which is lawfully and in good faith obtained by Company
from an independent third party without breach of this Agreement, as shown by
documentation sufficient to establish the third party as a source of the
Confidential Information, and not obtained by the third party from Buyer or by
unlawful or improper means; or
Notwithstanding the above, however, Company and Buyer further agree
that individual elements of the Confidential Information may be or become
available to the general public or a third party through no fault of Company,
but that such availability of individual elements of knowledge may not produce
cognizant appreciation of the value of elements of knowledge and may not render
known an integrated package of information having the value of Buyer's
integrated package of know-how with its various parameters already reconciled
and optimized in substantial part. Accordingly, Company understands that public
availability, or the availability from a third party, of the individual parts of
the Confidential Information does not release its obligation of confidence for
Confidential Information that is not already publicly available. Further,
Company will not be permitted to justify disregard of the obligations of
confidence by use of the Confidential Information or parts thereof to guide a
search to piece together a series of items of knowledge from unconnected
sources, fitting them together by use of Buyer's package of Confidential
Information to make a showing of nonsecrecy of such information. The foregoing
provisions of this Section 6.2.3 notwithstanding, Company shall not be more
burdened against use of information from public sources or third party sources
than a third party competitor would be, had it not received disclosure of either
the Confidential Information or the value of the Confidential Information or any
of its parts, and had it not had its interest therein sponsored or initiated by
knowledge of the Confidential Information or any part thereof or its value.
Accordingly, subject to the restrictions set forth herein, Company remains free
to act on and use available information from public sources or from third party
sources when and to the extent a competitor of Buyer, otherwise disinterested,
would in the natural course of business learn of, appreciate the value of, and
use such public source or third party source information without having
responded to initiative or interest suggested by knowledge of the Confidential
Information, its parts or the value thereof.
6.2.3. Equitable Relief for Violations. Company agrees that the
---------------------------------
provisions and restrictions contained in this Article 6 are necessary to protect
the legitimate continuing interests of Buyer in acquiring the Purchased Assets,
9
and that any violation or breach of these provisions will result in irreparable
injury to Buyer for which a remedy at law would be inadequate and that, in
addition to any relief at law which may be available to Buyer for such violation
or breach and regardless of any other provision contained in this Agreement,
Buyer shall be entitled to injunctive and other equitable relief as a court may
grant after considering the intent of this Article 6, without the necessity of
posting bond.
6.3. Use of Name. Following the Closing, neither Company nor any
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Affiliate shall, without the prior written consent of Buyer, make any use of the
names "Chemical Detection Technology," "Chemical Detection Technology
Excellence", "CDEX", "ChemTech" or any other names confusingly similar thereto,
except as may be necessary for Company to pay its liabilities, prepare tax
returns and other reports, and to otherwise wind up and conclude its operation
of the Business.
7. INDEMNIFICATION
7.1. By Company. Subject to the terms and conditions of this Article
-----------
7, Company hereby agrees to indemnify, defend and hold harmless Buyer and
Buyer's affiliates from and against all Claims asserted against, resulting to,
imposed upon, or incurred by Buyer, Buyer's affiliates, or the Purchased Assets,
directly or indirectly, by reason of, arising out of or resulting from (a) the
inaccuracy or breach of any representation or warranty of Company contained in
or made pursuant to this Agreement (regardless of whether such breach is deemed
"material"); (b) the breach of any covenant of Company contained in this
Agreement (regardless of whether such breach is deemed "material"); or (c) any
Claim of or against Company, the Purchased Assets or the Business resulting from
actions prior to closing. As used in this Agreement, the term "Claim" shall
include (i) all Liabilities; (ii) all losses, damages (including, without
limitation, consequential damages), judgments, awards, settlements, costs and
expenses (including, without limitation, interest (including prejudgment
interest in any litigated matter), penalties, court costs and attorneys fees and
expenses), whether arising from or related to a Liability or Litigation or
otherwise; and (iii) all demands, claims, actions, costs of investigation,
causes of action, proceedings and assessments, whether or not ultimately
determined to be valid, and whether arising from or related to a Liability or
Litigation or otherwise.
7.2. By Buyer. Subject to the terms and conditions of this Article 7,
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Buyer hereby agrees to indemnify, defend and hold harmless Company, its
directors, officers, employees and controlling persons, from and against all
Claims asserted against, resulting to, imposed upon or incurred by any such
person, directly or indirectly, by reason of or resulting from (a) the
inaccuracy or breach of any representation or warranty of Buyer contained in or
made pursuant to this Agreement (regardless of whether such breach is deemed
"material"); (b) the breach of any covenant of Buyer contained in this Agreement
(regardless of whether such breach is deemed "material") and (c) claims relating
to use or operations of the Purchased Assets or Business after Closing .
7.3. Limitation on Indemnification and Liability. Except for claims
----------------------------------------------
based on intentional fraud, the period of liability of Company to Buyer and
Buyer to Company for any loss or claim, by way of indemnification or for any
other loss, claim or remedy in connection with any matter related to this
Agreement shall begin on the Closing Date and terminate on the earlier to occur
10
of the expiration of the applicable statute of limitations or three (3) years
following the Closing. For a claim based on intentional fraud, the three-year
period shall be extended pursuant to the applicable tolling provisions, if any,
in effect in Maryland (all the foregoing in the previous two sentences is
referred to as the "Survival Period"). The parties agree that any claim for
indemnification or liability of whatever nature shall be pursued exclusively as
provided in Section 7.4 or 7.5. The parties agree that the representations,
warranties and covenants contained in this Section 7.3 between the parties is a
significant inducement for them to approve and consummate this Agreement.
7.4. Notice and Arbitration of Claims for Indemnification Among the
------------------------------------------------------------------
Parties.
7.4.1 Notice. The Person or Persons seeking indemnification under
------
this Article7 (the "Indemnified Party") shall notify the Person or Persons from
whom indemnification is sought (the "Indemnifying Party") in writing of its
claim for indemnification (including the amount thereof) within the applicable
Survival Period. Notices shall be sent as provided for in this Agreement.
7.4.2 Objection to Notice. The Indemnifying Party shall have
---------------------
thirty (30) Business Days (the "Arbitration Review Period") after receipt of a
notice under this section within which to accept such claim or to reasonably
object thereto in writing. Failure of the Indemnifying Party to so object in
writing within the Arbitration Review Period shall conclusively be deemed its
approval to the claim for indemnification submitted by the Indemnified Party.
In the event the Indemnifying party timely objects in writing, the Indemnifying
Party and the Indemnified Party shall attempt to agree upon the appropriate
amount, if any, of such claim for indemnification using their best good faith
efforts. If the parties fail to reach agreement within fifteen (15) Business
Days following the Arbitration Review Period (the "Outside Agreement Date") then
the parties shall submit the dispute to arbitration as provided herein.
7.5 Indemnification for Matters Involving Third Parties.
--------------------------------------------------------
7.5.1 Each of the parties shall promptly notify the other parties
of any matter asserted by any Person other than a party to this Agreement (a
"Third Party") which may give rise to a claim for indemnification under this
Article 7 (a "Third Party Claim"); provided that any delay by the Indemnified
Party in providing notice shall not affect the right of indemnification unless
the Indemnifying Party's interests have been materially prejudiced by the delay,
and any such notice shall comply with Section 7.4.1.
7.5.2 An Indemnifying Party may defend an Indemnified Party
against any Third Party Claim giving rise to a right of indemnification under
this Article 7 provided (i) the Indemnifying Party notifies the Indemnified
Party in writing within fifteen (15) days after receipt of the notice required
in Section 7.5.1 that the Indemnifying Party will indemnify the Indemnified
Party as required by this Agreement, (ii) the Indemnifying Party provides the
Indemnified Party with reasonable evidence that the Indemnifying Party will have
the financial resources to both undertake the defense and fulfill its
indemnification obligations, (iii) the Third Party Claim involves only money
damages and does not seek equitable relief, (iv) the settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business interests of
11
the Indemnified Party, and (v) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently. The Indemnifying Party's choice
of legal counsel for a defense under this Section 7.5.2 shall be reasonably
satisfactory to the Indemnified Party.
7.5.3 At any time an Indemnifying Party is conducting the defense
of a Third Party Claim in accordance with Section 7.5.2, the Indemnified Party
may retain separate co-counsel at its own expense and participate in its own
defense. If both the Indemnifying Party and the Indemnified Party are
participating in the defense, neither will consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim without the
other's prior written consent, which shall not be withheld unreasonably.
7.5.4 If, however, at any time an Indemnifying Party is conducting
the defense of the Third Party Claim but not in accordance with Section 7.5.2,
the Indemnified Party may conduct its own defense and may consent to the entry
of any judgment or enter into any settlement with respect to the Third Party
Claim in any manner it may reasonably determine without consulting with the
Indemnifying Party or obtaining its approval, in which case the Indemnifying
Party shall promptly and at reasonable intervals periodically reimburse the
Indemnified Party for the costs of its defense.
8. CLOSING
The closing of this transaction ("the Closing") shall take place on August
4, 2001. Such date is referred to in this Agreement as the "Closing Date".
8.1. Documents to be Delivered by Company.
-----------------------------------------
At the Closing at a later time specified below, Company shall
deliver to Buyer the following documents, in each case duly executed or
otherwise in proper form:
8.1.1. Bill of Sale. Bill of sale and such other instruments of
--------------
assignment, transfer, conveyance and endorsement as will be sufficient to
transfer, assign, convey and deliver to Buyer the Purchased Assets as
contemplated hereby.
8.1.2. Non-Disclosure and Noncompetition Agreements. Within
-----------------------------------------------
twenty days of the Closing, the Non-Disclosure Agreements and the Noncompetition
Agreements referred to in Section 6.1, duly executed by the persons referred to
in such Section.
8.1.3. Certified Resolutions. Within twenty days of the Closing,
----------------------
a certified copy of the resolutions of the Board of Directors of Company
authorizing and approving this Agreement and the consummation of the
transactions contemplated by this Agreement.
8.1.4. Other Documents. All other documents, instruments or
----------------
writings required to be delivered to Buyer at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Buyer may reasonably request.
8.2. Documents to be Delivered by Buyer.
---------------------------------------
12
At the Closing or a later time specified below, Buyer shall
deliver to Company the following documents, in each case duly executed or
otherwise in proper form:
8.2.1. Purchase Price. Within twenty days of Closing, to the
---------------
Chief Financial Officer of Loch Harris for disposition, one or more certificates
representing, in the aggregate, the Shares as required by Section 3.2 hereof.
8.2.2. Other Documents. All other documents, instruments or
----------------
writings required to be delivered to Company at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Company may reasonably request.
8.2.3. Certified Resolutions. Within twenty days of Closing, a
----------------------
certified copy of the resolutions of the Board of Directors of Buyer authorizing
and approving this Agreement and the consummation of the transactions
contemplated by this Agreement.
9. TERMINATION
9.1. Right of Termination Without Breach.
---------------------------------------
This Agreement may be terminated without further liability of any
party at any time prior to the Closing:
9.1.1. by mutual written agreement of Buyer and Company; or
9.1.2. by either Buyer or Company if the Closing shall not have
occurred on or before August 15, 2001, provided the terminating party has not,
through breach of a representation, warranty or covenant, prevented the Closing
from occurring on or before such date.
9.2. Effect of Termination. Termination of this Agreement shall not in
---------------------
any way terminate, limit or restrict the rights and remedies of any party hereto
against any other party which has violated, breached or failed to satisfy any of
the representations, warranties, covenants, agreements, conditions or other
provisions of this Agreement prior to termination hereof. In addition to the
right of any party under common law to redress for any such breach or violation,
each party whose breach or violation has occurred prior to termination shall
jointly and severally indemnify each other party for whose benefit such
representation, warranty, covenant, agreement or other provision was made
("indemnified party") from and against all losses, damages (including, without
limitation, consequential damages), costs and expenses (including, without
limitation, interest (including prejudgment interest in any litigated matter),
penalties, court costs, and attorneys fees and expenses) asserted against,
resulting to, imposed upon, or incurred by the indemnified party, directly or
indirectly, by reason of, arising out of or resulting from such breach or
violation. Subject to the foregoing, the parties' obligations under Articles 3,
4, 5, 6, and 7 and Sections 10.1 and 10.6 of this Agreement, and any other
provision for which survivorship is expressly provided, shall survive
termination.
10. MISCELLANEOUS
10.1. Further Assurance. From time to time, at Buyer's request and
------------------
without further consideration, Company will execute and deliver to Buyer such
documents and take such other action as Buyer may reasonably request in order to
13
consummate more effectively the transactions contemplated hereby and to vest in
Buyer good, valid and marketable title to the business and assets being
transferred hereunder. And, from time to time, at Company's request and without
further consideration, Buyer will execute and deliver to Company such documents
and take such other action as Company may reasonably request in order to
consummate more effectively the transactions contemplated hereby. If any Trade
Rights can be protected by copyrights, patents, trademarks, or service marks,
then such copyright, patent, trademark, or service mark, as may be applicable,
shall be owned solely, completely and exclusively by Buyer, and Company shall
each execute such assignments and other documents and provide such assistance as
Buyer may reasonably request in order to protect Buyer's ownership of the Trade
Rights. Company hereby appoints Buyer as its attorney-in-fact to execute any
document that the U.S. Patent and Trademark Office, the U.S. Copyright Office,
or any other similar governmental or quasi-governmental entity in any state or
foreign country shall require in order to establish, protect, and record Buyer's
ownership of all of the rights, title and interests in and to the Trade Rights.
This appointment of Buyer as the attorney-in-fact for Company to act hereunder
is irrevocable. The terms of this Section 10.1 shall survive the termination of
this Agreement and shall continue for fifty (50) years after the termination
hereof.
10.2. Assignment; Parties in Interest.
----------------------------------
10.2.1. Assignment. Except as expressly provided herein, the
----------
rights and obligations of a party hereunder may not be assigned, transferred or
encumbered without the prior written consent of the other party.
Notwithstanding the foregoing, Buyer may, without consent of the other party,
cause one or more subsidiaries of Buyer to carry out all or part of the
transactions contemplated hereby; provided, however, that Buyer shall,
nevertheless, remain liable for all of its obligations, and those of any such
subsidiary, to Company hereunder.
10.2.2. Parties in Interest. This Agreement shall be binding
---------------------
upon, inure to the benefit of, and be enforceable by the respective successors
and permitted assigns of the parties hereto. Nothing contained herein shall be
deemed to confer upon any other person any right or remedy under or by reason of
this Agreement.
10.3. Law Governing Agreement. This Agreement may not be modified or
------------------------
terminated orally, and shall be construed and interpreted according to the
internal laws of the State of Maryland , excluding any choice of law rules that
may direct the application of the laws of another jurisdiction.
10.4. Amendment and Modification. Buyer and Company may amend, modify
---------------------------
and supplement this Agreement in such manner as may be agreed upon by them in
writing.
10.5. Notice. All notices, requests, demands and other communications
------
hereunder shall be given in writing and shall be (a) personally delivered, or
(b) sent to the parties at their respective addresses by registered or certified
U.S. mail, return receipt requested and postage prepaid, or by private overnight
mail courier service. If personally delivered, such communication shall be
deemed delivered upon actual receipt; if sent by overnight courier pursuant to
this paragraph, such communication shall be deemed delivered upon receipt; and
if sent by U.S. mail pursuant to this paragraph, such communication shall be
14
deemed delivered as of the date of delivery indicated on the receipt issued by
the relevant postal service, or, if the addressee fails or refuses to accept
delivery, as of the date of such failure or refusal.
10.6. Expenses.
--------
Regardless of whether or not the transactions contemplated hereby are
consummated:
10.6.1. Expenses of Transaction. Except as otherwise provided
-------------------------
herein, each of the parties shall bear its own expenses and the expenses of its
counsel and other agents in connection with the transactions contemplated
hereby.
10.6.2. Costs of Litigation or Arbitration. The parties agree
--------------------------------------
that the prevailing party in any action brought with respect to or to enforce
any right or remedy under this Agreement, regardless of whether suit has
actually been filed, shall be entitled to recover from the other party or
parties all reasonable costs and expenses of any nature whatsoever incurred by
the prevailing party in connection with such action, including without
limitation attorneys' fees and prejudgment interest, unless ordered otherwise by
an applicable court or arbitrating authority
10.7. Entire Agreement. This instrument embodies the entire agreement
-----------------
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
10.8. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9. Headings. The headings in this Agreement are inserted for
--------
convenience only and shall not constitute a part hereof.
10.10. Disclosures and Announcements. Both the timing and the content
------------------------------
of all disclosures to third parties and public announcements concerning the
transactions provided for in this Agreement by either Company or Buyer shall be
subject to the prior disclosure to and approval of the other in all essential
respects, except that Buyer's approval shall not be required as to any
statements and other information which the Company is required submit to the
SEC, or the Company's stockholders, or be required to make pursuant to any rule
or regulation of the SEC or otherwise required by law, provided that such
statement or other information may not include any of the Confidential
Information.
10.11. Severability. The invalidity or unenforceability of any one or
------------
more provisions of this Agreement shall not affect the validity or
enforceability of the other provisions of this Agreement, which shall remain in
full force and effect.
10.12. Funding and Expenses. The Company and Buyer agree that subject
---------------------
to the Company securing certain funding acceptable to Buyer, as has been
discussed between Buyer and the Company, Buyer will pay and reimburse certain
15
expenses as have been discussed related to the Business, the Purchased Assets
and registration of Buyer's stock that has been or will be provided in relation
to this Agreement.
11. Arbitration.
Any failure to perform, controversy or claim arising out of or relating to this
Agreement or the breach, termination or validity thereof, shall be determined
exclusively by arbitration in accordance with the provisions of this Section and
in accordance with the rules of the American Arbitration Association for
arbitrating commercial matters. The arbitration shall be held in Washington,
D.C., the surrounding metropolitan area of Maryland, or such other location as
the parties shall mutually agree. The arbitrators shall base their award on
applicable Maryland law and judicial precedent, and shall accompany their award
with written findings of fact and conclusions of law. The decision of the
arbitrators shall be binding on the parties, except that any party may appeal
the arbitrators' decision by filing an action to reconsider the decision of the
arbitrators in a court having jurisdiction hereunder. In any such action the
arbitrators' findings of fact shall be conclusive and binding on both parties
and the sole questions to be determined by the court shall be (i) whether or not
the arbitrators' decision was contrary to Maryland law and judicial precedent,
and (ii) if the court determines that the arbitrators' decision was contrary to
Maryland law and judicial precedent, then how the dispute shall be resolved
based on the arbitrators' findings of facts and Maryland law and judicial
precedent. The decision of the court as to the resolution of the dispute under
Maryland law and judicial precedent shall supercede the arbitrators' decision.
Judgment upon the award rendered by the arbitrators, as modified by the court,
if applicable, may be entered in any court having jurisdiction in accordance
herewith.
11.1 Selection of Arbitrators. One arbitrator shall be selected by
--------------------------
the Company and one by the Consultant, and the arbitrators shall mutually select
another arbitrator to serve with them so that there shall be an odd number of
arbitrators. Alternatively, the parties may agree to accept a single arbitrator
to be mutually agreed upon by the parties. Each person serving as an arbitrator
hereunder shall be a professional with excellent academic and professional
credentials who has had experience as an arbitrator and at least ten years
experience in the field of resolving commercial disputes in the Washington
Metropolitan area.
11.2 Discovery. Each party shall, upon the written request of the
---------
other party, provide the other with copies of documents relevant to the issues
raised thereby. Other discovery may be ordered by the arbitrators to the extent
the arbitrators deem additional discovery appropriate, and any dispute regarding
discovery, including disputes as to the need therefor or the relevance or scope
thereof, shall be determined by the arbitrators, which determination shall be
conclusive.
11.3 Expenses. Each party shall pay its own expenses incurred in any
--------
arbitration proceeding, except as may be otherwise provided by the rules of the
American Arbitration Association.
11.4 Confidentiality of Proceedings. The arbitrators, expert witnesses,
------------------------------
stenographic reporters and any other third parties shall sign appropriate
nondisclosure agreements in the event that any confidential or proprietary
information is or may be disclosed in the arbitration proceedings.
16
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
CDEX INC.
By: ____________________________
Malcolm H. Philips, Jr.
Chief Executive Officer
LOCH HARRIS, INC.
By: ____________________________
Rodney A. Boone
Chief Executive Officer
CHEM TECH, INC.
By: ____________________________
Rodney A. Boone
Chief Executive Officer
17
EXHIBIT A
---------
PURCHASED ASSETS
1. All Company's rights, title and interests in and to any and all
Trade Rights. As used herein, the term "Trade Rights" shall mean and include,
in relation to the Business, whether operated or conducted by Company or by
Contractors on behalf of Company: (i) all trademark rights, business
identifiers, trade dress, service marks, trade names, and brand names, all
registrations thereof and applications therefor and all goodwill associated with
the foregoing; (ii) all copyrights, copyright registrations and copyright
applications, and all other rights associated with the foregoing and the
underlying works of authorship; (iii) all patents and patent applications and
all international proprietary rights associated therewith; (iv) all contracts or
agreements granting any right, title, license or privilege under the
intellectual property rights of any third party; (v) all inventions, mask works
and mask work registrations, know-how, improvements, designs, trade secrets,
shop and royalty rights, employee covenants and agreements respecting
intellectual property and non-competition trade secrets, confidential business
or commercial information, business plans, marketing strategies, customer lists,
vendor lists, technical information, inventions, discoveries (whether or not
patentable), techniques, data systems, methods, processes, developments,
enhancements, and modifications, and all other proprietary rights, whether oral
or written, or in recorded form, tangible or intangible, and all other types of
intellectual property which are or have been conceived, reduced to practice,
developed, designed or otherwise created, modified or improved by Company or by
employees and agents of Company; and (vi) all claims for infringement or breach
of any of the foregoing. The Trade Rights shall expressly include, but shall not
be limited to, the technology described in Attachment 1, which is attached
hereto and incorporated herein as a part hereof.
2. All the rights, title and interest in and to those assets
listed in Sections 1.1 and 1.2 of that certain agreement dated September 1, 1999
between and among System Specialists, Inc., Harold Cauthen, and Wade Poteet, and
Company (the "SSI Agreement") except for any equipment already transferred to
the Buyer or sold or transferred or discarded by mutual agreement of Buyer and
Company, which assets are referred to therein as the Purchased Assets.
3. All the rights, title and interest in and to the Intellectual
Property Rights purchased by and assigned to Company pursuant to all agreements
between Company and Henry Blair and/or HM Blair Consulting including that
certain Purchase and Assignment of Intellectual Property Rights dated February
22, 1998 by and between Dr. Henry Blair and HM Blair Consulting and Company (the
"1998 Blair Agreement").
4. All the rights, title and interests in and to the Intellectual
Property Rights purchased by and assigned to Company pursuant to that certain
Purchase and Assignment of Intellectual Property Rights dated June 25, 1999 by
and between Dr. Henry Blair and HM Blair Consulting and Company (the "1999 Blair
Agreement").
18
5. All the rights, title and interests in and to the Intellectual
Property Rights purchased by and assigned to Company pursuant to that certain
Agreement dated June 1, 2001 by and among Loch Harris and Operating Team, as
defined in that Agreement.
19
EXHIBIT B
---------
STOCK RELATING TO UNDERLYING OBLIGATIONS OF COMPANY REGADING THE TECHNOLOGY
---------------------------------------------------------------------------
This Exhibit B sets forth the listing of the recipients of the Obligation Shares
of Buyer to be provided at the direction of the Company to fulfill underlying
obligations of the Company with respect to establishing complete ownership and
clear title to the Business and Purchased Assets, referenced herein. Buyer did
not conduct an independent investigation of the underlying obligations and
claims. However, Company provided information that was sufficient to establish
the desirability of satisfying the claims.
1. Frank Jakovac, or his designee -- 325,000 shares of restricted common
stock:
2. Mark E. Baker, or his designee - 2,500,000 shares of restricted common
stock:
3. Rodney A. Boone, or his designee - 1,600,000 shares of restricted
common stock.
4. Coldwater Capital - 3,900,000 shares of restricted common stock.
20
EXHIBIT C
---------
SCHEDULE OF DISCLOSED PENDING INVESTIGATIONS AND LITIGATION
(The Company does not imply or infer that any of the matters listed below have
any merit.)
Pending Investigations:
-----------------------
Company represents to the best of its knowledge that there is a pending
investigation against Loch, certain of its Officers and Directors, Henry Blair,
and possibly others by the Securities and Exchange Commission, the Federal
Bureau of Investigation and the Department of Justice. The nature of these
investigations involves both questions related to the validity of the ELF and
VAAMP technologies that were being demonstrated and/or reported by Loch in the
past and the actions of Loch Harris and its Officers and Affiliates with respect
to information provided to the public relating to the technologies and issuance
and sale of securities.
Pending Litigation:
-------------------
Gary Murphy and David Jones v. Loch Harris, Inc., Cause No. GN0033151, in the
---------------------------------------------------
District Court of Travis County, Texas
21