EXECUTION COPY

 

STOCK PURCHASE AGREEMENT

 BY AND BETWEEN

 ARGAN, INC.

a Delaware corporation

and

WESTERN FILTER CORPORATION

a California corporation

dated as of October 31, 2003

 

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TABLE OF CONTENTS

                                                                                                                                                 
Page

ARTICLE I. Purchase of Shares. 1

> 1.1       Purchase and Sale of
> Shares.                                                                                     
> 1

ARTICLE II. Purchase Price and
Closing.                                                                                        
2

> 2.1       Purchase
> Price.                                                                                                          
> 2
> 2.2       Payment at
> Closing.                                                                                                   
> 2
> 2.4        Deliveries at Closing/Deliveries by Seller and
> Buyer.                                                   2
> 2.5      
> Closing.                                                                                                                     
> 2
> 2.6       Deliveries at Closing/Deliveries by Seller and
> Buyer.                                                    2

ARTICLE III. Representations and
Warranties.                                                                                
3

> 3.1       Representations and Warranties of
> Seller.                                                                    3
> 3.2       Representations and Warranties of
> Buyer.                                                                  20

ARTICLE IV. Certain
Covenants.                                                                                                  
21

> 4.1       Covenants of
> Seller.                                                                                                  
> 21
> 4.2       Covenants of
> Buyer.                                                                                                 
> 27

ARTICLE V. Conditions to
Closing.                                                                                               
28

> 5.1       Conditions Precedent to Obligation of Buyer to
> Close.                                               28
> 5.2       Conditions Precedent to Obligation of Seller to
> Close.                                                30

ARTICLE VI.
Indemnification.                                                                                                       
31

> 6.1       Indemnification by
> Sellers.                                                                                        
> 31
> 6.2       Indemnification by
> Buyer.                                                                                         
> 31
> 6.3       Procedures for
> Indemnification.                                                                                
> 32
> 6.4       Certain
> Limitations.                                                                                                  
> 33

ARTICLE VII.
Termination.                                                                                                          
33

> 7.1      
> Termination.                                                                                                            
> 33
> 7.2       Effect of
> Termination.                                                                                              
> 34
> 7.3       Refund of
> Deposit.                                                                                                  
> 34

ARTICLE VIII.
Miscellaneous.                                                                                                     
34

> 8.1       Survival of Representations and
> Warranties.                                                              34
> 8.2      
> Expenses.                                                                                                                
> 34
> 8.3      
> Notices.                                                                                                                  
> 34
> 8.4      
> Amendments.                                                                                                          
> 36
> 8.5      
> Waiver.                                                                                                                   
> 36
> 8.6      
> Publicity.                                                                                                                 
> 36
> 8.7      
> Headings.                                                                                                                
> 36
> 8.8       Assignment of
> Agreement.                                                                                       
> 36
> 8.9       Parties in
> Interest.                                                                                                    
> 36
> 8.10    
> Counterparts.                                                                                                          
> 36
> 8.11     Governing
> Law.                                                                                                      
> 36
> 8.12    
> Severability.                                                                                                            
> 36
> 8.13    
> Remedies.                                                                                                               
> 37
> 8.14     Entire
> Agreement.                                                                                                    
> 37
> 8.15     Further
> Assurances.                                                                                                 
> 37
> 8.16     Consent to Jurisdiction and
> Waivers.                                                                        
> 37
> 8.17     Waiver of Jury
> Trial.                                                                                                
> 37

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STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as of
______ day of October 2003, by and among Western Filter Corporation, a
California corporation ("Buyer"), and Argan, Inc. previously, Puroflow
Incorporated, a Delaware corporation, ("Seller").

WHEREAS, Seller recently transferred all of the assets, properties, business and
liabilities of Seller's business of designing, manufacturing and selling
industrial aerospace and automotive filters (the "Business") to Seller's newly
formed, wholly owned subsidiary, Puroflow, Inc., a Delaware corporation (the
"Company").

WHEREAS, Seller has agreed to sell to Buyer all of the outstanding capital stock
of the Company (the "Shares") and Buyer has agreed to purchase the Shares, in
the manner and upon the terms and conditions stated herein;

NOW, THEREFORE, in consideration of the foregoing, the respective
representations, warranties, covenants and agreements set forth herein and such
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:

ARTICLE I.
Purchase of Shares

1.1       Purchase and Sale of Shares.  Subject to the terms and conditions of
this Agreement, at the Closing on the Closing Date (as defined in Section 2.2
below), Seller shall sell, transfer and assign the Shares to Buyer, and Buyer
shall purchase the Shares from Seller, in each case on the terms and conditions
stated in this Agreement.

1.2       Retained Assets.  Notwithstanding anything to the contrary in this
Agreement, on the Closing Date, Seller shall retain title to those corporate
records that do not directly relate to the Business or the Company's assets.

1.3       Excluded Liability.  Notwithstanding anything to the contrary in this
Agreement, Buyer is not assuming (or deemed to have assumed), taking subject to,
or in any way becoming liable for, and shall not be deemed to take subject to,
or in any way become liable for, and Seller shall remain fully responsible for,
any liability or obligation pursuant to Seller's employment agreement with
Michael Figoff, including, without limitation, any liability or obligation for
vacation pay, sick pay, salary, bonuses, expense reimbursements, other payments
or any other benefit for Michael Figoff, whether unaccrued or accrued.

 

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ARTICLE II.
Purchase Price and Closing

2.1       Purchase Price.  The purchase price for the Shares is Three Million
Five Hundred Thousand Dollars ($3,500,000), subject to adjustment as hereinafter
provided (the "Purchase Price").  Buyer has heretofore paid to Seller the sum of
Two Hundred Thousand Dollars ($200,000) as a deposit to be applied to the
Purchase Price.

2.2       Payment at Closing.  At the Closing the following cash payments shall
be made by Buyer:

(a)        Three Million Dollars ($3,000,000) to Seller.

(b)        Three Hundred Thousand Dollars ($300,000) to the Escrow Agent, as
defined in the escrow agreement attached as Exhibit A to this Agreement (the
"Escrow Agreement") to be held in accordance with the terms of the Escrow
Agreement.

2.3       Closing.  The closing of the sale and purchase of the Shares (the
"Closing") pursuant to this Agreement shall take place at the offices of
Sheppard, Mullin, Richter & Hampton LLP located at 333 South Hope Street, Suite
4800, Los Angeles, California 90071 at 10:00 a.m. local time on October 31, 2003
(the "Closing Date"), or at such other time and place as the parties may agree. 
No action taken or delivery made at the Closing shall be effective until all
actions taken and deliveries made at the Closing are completed (the "Effective
Time").

2.4       Deliveries at Closing/Deliveries by Seller and Buyer.  At the Closing,
Buyer and Seller shall make the following deliveries.

(a)        At Closing, Seller shall deliver to Buyer:

(i)         a certificate representing the Shares, accompanied by a stock power
in form reasonably acceptable to Buyer;

(ii)        the Escrow Agreement provided for by Section 2.2(b), duly executed
by Seller and Escrow Agent;

(iii)       releases of all existing security interests of record in the assets
of the Company in a form reasonably satisfactory to Buyer;

(iv)        a certificate of the Secretary of the Company attesting to the
Bylaws of the Company, as amended to date, and the incumbency and signature of
each officer of the Company who shall execute any Company document delivered to
Buyer;

 

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(v)       good standing certificates for Seller and the Company issued by the
Secretary of State of Delaware, dated no more than ten (10) business days prior
to the Closing Date;

(vi)      Seller's schedules to this Agreement in form reasonably acceptable to
Buyer and Seller, taking into account the due diligence materials previously
provided by Seller to Buyer;

(vii)      certificates of officers of Seller and the Company referred to in
Section 5.1(m);

(viii)       a certified copy of the Company's Certificate of Incorporation, as
amended to date, issued by the Delaware Secretary of State no more than ten (10)
days prior to the Closing Date; and

(ix)        all other books, records, documents, instruments and writings
required by this Agreement to be delivered by Seller to Buyer at or prior to
Closing.

(b)        Deliveries by Buyer.  At Closing, Buyer shall deliver the following:

(i)         to Seller, the sum of $3,000,000;

(ii)        to Escrow Agent, the sum of $300,000;

(iii)       to Seller, the Escrow Agreement, duly executed by Buyer;

(iv)       the certificates referred to in Section 5.2(e);

(v)        a certificate of the Secretary or Assistant Secretary of Buyer,
attesting to the incumbency and signature of each officer of Buyer who shall
execute this Agreement and the other documents delivered to Seller.

(vi)       A good standing certificate for Buyer issued by the State of
California no more than ten (10) days prior to the Closing Date; and

(vii)      all other documents, instruments and writings required by this
Agreement to be delivered by Buyer to Seller at or prior to Closing.

ARTICLE III.
Representations and Warranties

3.1       Representations and Warranties of Seller.  Seller hereby represents
and warrants to Buyer as to the matters set forth below. 

(a)        Organization, Qualification and Corporate Power of Seller. 

(i)         Seller is a corporation duly organized and validly existing under
the laws of the State of Delaware;

 

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(ii)        Seller is duly qualified to do business in jurisdictions other than
Delaware as a foreign corporation (a "foreign entity") and is in good standing
under the laws of each jurisdiction where the nature of its activities or of its
properties owned or leased makes such qualification necessary, except any
jurisdiction in which the failure to be so qualified and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect on Seller;

(iii)       Seller has all requisite power and authority to own the Shares; and

(iv)       True and correct copies of the Certificate of Incorporation and the
Bylaws of Seller, as amended to date, have been heretofore delivered to Buyer.

(b)        Organization, Qualification and Corporate Power of the Company.  The
Company is a corporation duly organized and validly existing under the laws of
the State of Delaware.  The Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each jurisdiction
where the nature of its activities or of its properties owned or leased makes
such qualification necessary, except any jurisdiction in which the failure to be
so qualified and in good standing would not, individually or in the aggregate,
have a Material Adverse Effect on the Company.  Set forth in Schedule 3.1(b)
hereto is a list of each jurisdiction in which the Company is qualified to do
business as a foreign corporation.  The Company has all requisite organizational
power and authority to own and operate its properties and to carry on its
business as now being conducted.  True and correct copies of the Certificate of
Incorporation of the Company, as amended to date, the Bylaws of the Company, and
all minutes and actions of the members and board of managers of the Company have
been delivered or made available to Buyer, and all actions taken and required to
be taken prior to the date hereof are properly reflected in such minutes and
actions.  Set forth in Schedule 3.1(b) hereto is a list of the officers and
directors of the Company as of the Closing Date.  The Company does not have any
direct or indirect interest in any firm, corporation, partnership, limited
liability company, joint venture, association or other business organization.

(c)        Authorization; Binding Agreement.  The execution and delivery of this
Agreement by Seller, and the consummation of the transactions contemplated
hereby, have been duly authorized by all necessary action on the part of
Seller.  This Agreement and all other instruments required hereby to be executed
and delivered by Seller have been, or will be, duly executed and delivered by
Seller and are, or when delivered will be, binding obligations of Seller,
enforceable against Seller in accordance with their terms, subject as to
enforceability, bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity.

 

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(d)        No Conflicts with Other Instruments.  Except as set forth in Schedule
3.1(d) hereto, neither the execution and delivery of this Agreement by Seller
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any government, governmental
agency regulatory authority or court to which Seller or the Company, or their
respective affiliates is subject, or any provision of the articles or
certificate of incorporation, organization or formation or bylaws or operating
agreement of Seller or the Company or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which the Company or Seller is a party or by which the Company or Seller is
bound or to which any of the assets of the Company are subject or result in the
imposition of any lien or other encumbrance upon any of the assets of the
Company or the Shares.

(e)        Notices, Consents and Approvals.  Except as set forth in Schedule
3.1(e) hereto, neither Seller nor the Company is required to give any notice to,
make any filing with, or obtain any authorization, consent or approval of any
governmental agency or regulatory authority or other entity in order for the
parties hereto to consummate the transactions contemplated by this Agreement. 
No notices have been issued and served upon the Company or Seller by any
governmental authority having jurisdiction over the Company or its assets
ordering the Seller or Company to make any alterations or repairs to any of its
assets alleged by such governmental authority to be required by any Law, or to
correct any condition of such assets alleged by such governmental authority not
to comply with any Law, which have not been made or corrected.

(f)         Capitalization of the Company.  There are 3,000 shares of common
stock of the Company (the "Shares") issued and outstanding, all of which are
owned beneficially and of record by Seller.  All of the Shares have been duly
and validly authorized and issued and are fully paid and nonassessable, and none
of the Shares was issued in violation of the Certificate of Incorporation of the
Company or any pre-emptive right of any person.  There are no outstanding
subscriptions, contracts, conversion privileges, options, warrants, calls or
other rights obligating the Company to issue, sell or otherwise dispose of, or
to purchase, redeem or otherwise acquire, any equity interests in the Company. 
Seller is the only holder of an equity interest in the Company, and the Shares
represent each and every equity interest in the Company and there is no
agreement, restriction or encumbrance to which the Company or Seller is a party
or by which either of them is bound (such as a right of first refusal, right of
first offer, option, voting trust, proxy, power of attorney, pre-emptive rights
or the like) with respect to the acquisition, disposition or voting of any
equity interest in the Company.

(g)        Claims and Proceedings.  There is no legal action, suit, arbitration
or other legal, administrative or governmental proceeding or investigation
pending or, to the knowledge of Seller, threatened against the Company or any of
its properties or assets, against Seller in its capacity as the sole shareholder
of the Company, or against the Business, or against Seller relating to the
Business, including, without limitation, any action, proceeding or investigation
relating to product liability, antitrust or anti-competition, intellectual
property infringement or misappropriation, or environmental matters, and, except
as set forth in Schedule 3.1(g), neither Seller nor the Company is subject to
any outstanding order, judgment, writ, injunction or decree of any court or
governmental authority that would prevent or be violated by or that would result
in the creation of any lien as a result of, or under which there would be a
default or right of termination as a result of, the execution, delivery and
performance by Seller of this Agreement and the consummation of the transactions
contemplated hereby.

 

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(h)        Company Financial Statements.  Attached as Schedule 3.1(h) hereto is
unaudited pro forma financial information of the Company at September 30, 2003
(the "Company Balance Sheet Date"), including the related statements of
operations for the eight (8) months then ended (the "Company Financial
Statements") and an unaudited balance sheet at September 30, 2003 (the "Company
Balance Sheet").    The Company has made available to Buyer all the work papers
requested by Buyer which were used by the Company to create the Company
Financial Statements and the Company Balance Sheet.  Other than as and to the
extent disclosed or reserved against on the Company Balance Sheet, the Company
has no material liabilities or obligations of any nature whatsoever (whether
accrued, absolute, contingent, asserted, unasserted or otherwise, and whether
due or to become due, including, without limitation, deferred compensation
obligations or tax or product liabilities, and whether incurred in respect of or
measured by income for any period up to and including the date of the Closing or
arising out of transactions entered into, or any state of facts existing, prior
to or on the date of the Closing) except:  (i) liabilities and obligations
incurred in the Ordinary Course of Business of the Company since the Company
Balance Sheet Date, and (ii) liabilities and obligations set forth in, or
arising under, leases, agreements, contracts or commitments set forth in
Schedule 3.1 hereto.  All of the books and records of the Company are true,
correct and complete in all material respects.  The Closing Date Balance Sheet
will present fairly the financial condition of the Company at the Closing Date.

(i)         Tax Matters.  The Company and Seller have paid all taxes due,
assessed and owed by them as reflected on its consolidated tax returns and have
timely filed all federal, state, local and other tax returns which were required
to be filed and which were due prior to the Closing Date, except for those taxes
set forth on Schedule 3.1(i).  All federal, state, local, and other taxes of the
Company and Seller accruable since the filing of such returns have been properly
accrued.  No federal income tax returns for the Company or Seller have ever been
audited by the Internal Revenue Service or any state or local taxing authority,
except as described in Schedule 3.1(i).  No other proceedings or other actions
which are still pending or open have been taken for the assessment or collection
of additional taxes of any kind from the Company or  Seller for any period for
which returns have been filed, and to Seller's knowledge, no other examination
by the Internal Revenue Service or any other taxing authority affecting the
Company is now pending.  Except for those taxes set forth on Schedule 3.1(i),
taxes which the Company was required by law to withhold or collect subsequent to
the incorporation of the Company have been withheld or collected and have been
paid over to the proper governmental authorities or are properly held by the
Company for such payment and are so withheld, collected and paid over as of the
date hereof, except where the liability for such taxes is immaterial.  No
waivers of statutes of limitations with respect to any tax returns of the
Company, nor extensions of time for the assessment of any tax, have been
expressly given in writing by any current employees of the Company.  There is
not and there will not be any material liabilities for federal, state and local
income, sales, use, excise or other taxes arising out of, or attributable to, or
affecting the assets or the conduct of the business of the Company through the
close of business on the Closing Date, or attributable to the conduct of the
operations of the Company at any time for which Parent or the Surviving
Corporation will have any material liability for payment or otherwise.  After
the Closing, there does not and will not exist by virtue of the transactions
contemplated by this Agreement any material liability for taxes that may be
asserted by any taxing authority against the assets of the Company, or the
operation of any of its businesses, and no material lien or other encumbrance
for taxes will attach to such assets or the operation of its businesses. 

 

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(j)         Absence of Certain Changes or Events.  Except as consented to by
Buyer in writing or except as set forth on Schedule 3.1(j) hereto, since the
Company Balance Sheet Date:

(i)         the Company has not incurred any obligations or liabilities which
were not incurred in the Ordinary Course of Business; made any loans to or
guaranteed any indebtedness of others; prepaid any indebtedness; changed or
modified any existing accounting method, principle or practice; mortgaged,
pledged or subjected to a lien, charge or encumbrance any of its assets,
tangible or intangible, other than mechanic's or materialmen's liens or other
statutory liens arising in the Ordinary Course of Business; sold, transferred or
otherwise disposed of any of its tangible assets, except for sales of inventory
in the Ordinary Course of Business; sold, assigned or transferred any patents,
trademarks, trade names, service marks or other intangible assets; suffered any
business interruption or disruption or labor disputes, whether or not covered by
insurance; entered into or modified any agreement, contract or commitment other
than in the Ordinary Course of Business or waived any rights of substantial
value; purchased any capital assets for use in the Ordinary Course of Business
in the aggregate in excess of $25,000; leased any assets as lessee or lessor
except in the Ordinary Course of Business; terminated or modified any lease to
which it is a party or by which it is bound, except for terminations of leases
which expired in accordance with their terms or in the Ordinary Course of
Business; suffered any material destruction of its properties, whether or not
covered by insurance, ordinary wear and tear excepted; become subject to any
other event or condition which would reasonably be expected to have a Material
Adverse Effect on the Business, other than general changes in market conditions
generally affecting the industry of which it is a part and similarly situated
competitors; or entered into any other transaction other than in the Ordinary
Course of Business;

 

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(ii)        except as disclosed in Schedule 3.1(j), no dividends or other
distributions have been declared, set aside, made or paid by the Company;

(iii)       no equity interests of the Company have been purchased, redeemed or
otherwise acquired, directly or indirectly, by the Company from any shareholder;

(iv)       except as disclosed in Schedule 3.1(j), no equity interests or other
securities of the Company or options or other rights of the type referred to in
Section 3.1(f) hereof, have been issued or authorized for issuance;

(v)        increased or decreased the compensation of any of its officers or
employees, except pursuant to past practices of Seller or the Company as
disclosed in Schedule 3.1(j), and no sums or other assets have been paid to or
withdrawn by the officers or employees of the Company, except for ordinary
compensation and fees, payments under established compensation or incentive
plans, ordinary expense reimbursement and similar payments, all in accordance
with past custom and practice and as specifically contemplated by this
Agreement; and

(vi)       entered into any commitment to do any of the foregoing.

(k)        Real Property.  The Company does not own or have an option to
purchase any real property.  Schedule 3.1(k) sets forth a true and complete list
of all leases of real property to which the Company is a party.  The Company
enjoys quiet possession under each of its respective leases, each of which is
enforceable in accordance with its terms against the lessor thereunder.  None of
the Company, Seller or, to the Company's knowledge, any other party is in
material default under the terms of the Company's leases or Seller's leases that
relate to the Business.  To Seller's knowledge, no event has occurred that, with
the lapse of time or the giving of notice, or both, would reasonably be expected
to constitute a material default under any of such leases.

(l)         Title to Assets and Permitted Encumbrances.  The Company has good
title to all of its assets (except for Intellectual Property, which is
separately addressed in Section 3.1(y), below) free and clear of any liens,
mortgages, pledges, encumbrances, defects or other restrictions or rights of
third parties, except as set forth in Schedule 3.1(l) hereof.  In the case of
tangible personal property used by the Company in connection with its business,
but not owned by it, it has an enforceable right to use such property pursuant
to a written lease, license or other agreement or understanding.  Except for
ordinary wear and tear, all tangible personal property owned or leased by the
Company is in commercially reasonable operating condition.  The Company's
assets, together with the tangible personal property used by the Company under
leases, licenses and other agreements, constitute all material assets (excluding
Intellectual Property) used by Seller in the conduct of the Business prior to
the transfer of the Business to the Company and the assets of the Company are
all of the assets reasonably necessary for conducting the Business as now
conducted.

 

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(m)       Contracts.  Set forth in Schedule 3.1(m) hereto is a list of contracts
or commitments (hereinafter collectively "contracts") required to be listed
pursuant to the third sentence of this Section 3.1(m) and to the extent such
contracts are evidenced by documents, true and correct copies thereof have been
delivered or made available to Buyer unless otherwise noted on Schedule 3.1(m). 
All contracts to which the Company is a party or by which it is bound or to
which Seller is a party or by which it is bound and which relate to the Business
are enforceable against the Company or Seller, as the case may be, and against
the other parties thereto.  Except as set forth in Schedule 3.1(m) hereto, the
Company is not a party to or bound by any:

(i)         contract with any labor union or any collective bargaining
agreement;

(ii)        written or oral severance pay plan or agreement; agreements with
respect to leased or temporary employees; stock purchase plan; stock option
plan; fringe benefit plan; incentive plan; bonus plan; cafeteria or flexible
spending account plan; and any deferred compensation agreement or plan, program
or arrangement;

(iii)       employment (exclusive of employment at will without written
agreement), agency, consulting or similar service contract;

(iv)       agreement (including sales representative, broker or distributorship
agreement) for the payment of royalties, fees, commissions, or other
compensation which involves payment on product sales (in the case of
distributorship agreements) of $25,000 or more per year or is not terminable by
the Company without cost or penalty upon ninety (90) days' or less notice;

(v)        distributor agreements with commitments to sell products beyond a 12
month period and not terminable on ninety (90) days, or less, notice.

(vi)       lease, whether as lessor or lessee, with respect to any real or
tangible personal property which involves payment of $25,000 or more per year;

(vii)      contract as licensor or licensee for the license of any material
patent, know-how, trademark, trade name, service mark or other intangible asset,
other than software licenses;

(viii)      material guaranty, suretyship, indemnification or contribution
agreement (other than warranties made in the Ordinary Course of Business), and
has not received any notices or claims made by or against the Company with
respect to any of the foregoing;

 

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(ix)       loan agreement, promissory note or other document evidencing
indebtedness of or to the Company (other than trade accounts payable or
receivable and other indebtedness incurred in the Ordinary Course of Business
and not for money borrowed or other than as disclosed in the Company Financial
Statements);

(x)        material mortgage, security agreement, sale-leaseback agreement or
other agreement which effectively creates (or could reasonably be expected, in
the future, to create) a lien on any assets of the Company in excess of $25,000;

(xi)       contract for the purchase of capital assets or for remodeling or
construction which involves payment of $25,000 or more a year;

(xii)      contract for advertising or promotional services to be rendered for
the Company which involves payment of $25,000 or more a year;

(xiii)      contract concerning confidentiality or restricting the Company from
engaging in business or from competing with any other parties;

(xiv)     material contract with any officer, manager or affiliate of the
Company or any entity owned, in whole or in part, directly or indirectly, by any
such officer, director or affiliate;

(xv)      purchase or sales orders for merchandise or supplies outside the
Ordinary Course of Business in excess of $25,000;

(xvi)     plan of reorganization;

(xvii)     any other contract involving the acquisition or disposition of
$25,000 or more in assets;

(xviii)    agreement concerning a partnership, limited liability company or
joint venture; or

(xix)     any other contract not otherwise disclosed in a schedule to this
Agreement which involves payments of $25,000 or more a year and is not
terminable by the Company without cost or penalty upon ninety (90) days' or less
notice.

(n)        No Defaults.  Except as set forth in Schedule 3.1(n) hereto, neither
the Company nor Seller is in material default and no event has occurred which,
with the lapse of time or the giving of notice, or both, would reasonably be
expected to constitute a material default by (i) the Company under any lease,
indenture, loan agreement, contract, instrument or other agreement to which it
is a party or by which it or any of its assets is bound or (ii) Seller under any
lease, indenture, loan agreement, contract, instrument or other agreement to
which it is a party or by which it or any of its assets is bound and which
relates to the Business.  Except as set forth in Schedule 3.1(n) hereto, (x) the
Company has not received notice that any party with whom it has any agreement or
contract is not in compliance in all material respects therewith and (y) Seller
has not received notice that any party with whom it has any agreement or
contract relating to the Business is not in compliance in all material respects
therewith.  The Company is not in violation of its certificate of incorporation
or bylaws.

 

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(o)        Transactions with Affiliates.  No manager, officer or shareholder of
the Company nor any person who is a member of the immediate family or an
affiliate of any such manager, officer or shareholder, (i) has any material
direct or indirect interest, as director, officer, partner, shareholder or
otherwise, in any entity that does business with it, or in any property, asset
or right which is used by it in the conduct of its business, or (ii) has any
material contractual relationship with it other than as an officer, manager or
employee.

(p)        Insurance.  Schedule 3.1(p) hereto sets forth the following
information with respect to each material insurance policy (including policies
providing product liability, property, casualty, liability and workers'
compensation coverage and bond and surety arrangements) with respect to which
either the Company or Seller is a named insured or otherwise the beneficiary of
coverage:

(i)         the name, address and telephone number of the agent;

(ii)        the name of the insurer, the name of the policyholder and the name
of each covered insured; and

(iii)       the policy number and the period of coverage.

With respect to each such insurance policy:  (A) the policy is enforceable in
all material respects; (B) insured is not, nor has it received notice that any
other party to the policy is, in material breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would reasonably be expected
to constitute such a material breach or default, or permit termination,
modification or acceleration, under the policy; (C) insured has not repudiated,
and to the knowledge of Seller, no party to the policy has repudiated any
material provision thereof; and (D) insured has not received any notice of
non-renewal or any proposed material change in the terms upon which such policy
is offered for renewal (including, but not limited to, material changes in the
premiums payable thereunder or the scope of coverage).  Schedule 3.1(p) hereto
describes any material self-insurance arrangements affecting the Company and all
claims filed against the Company since June 30, 2002.

(q)        Compliance with Laws; Permits and Licenses.  The Company is in
compliance in all material respects with all applicable federal, state, local or
foreign laws, ordinances and regulations, except where the failure to be in
compliance would not reasonably be expected to have a Material Adverse Effect. 
The Company is in compliance with all judgments, awards, orders, writs,
injunctions and decrees with which it is required to comply and has received no
written notice of any failure to comply which remains uncorrected.  The Company
is in possession of all material governmental permits, licenses, approvals,
authorizations, permissions and similar filings (expressly including permits
issued by Federal Aviation Administration) that are required for the operation
of the Business, including, without limitation, those relating to environmental
laws, occupational safety and health and equal employment practices
(collectively, the "Permits").  No material notice, citation, summons or order
has been issued and served on the Company or Seller, no material complaint has
been filed and served on the Company or Seller and no material penalty against
the Company or Seller has been assessed which is outstanding, and, no material
investigation or review is pending, or to the knowledge of Seller, threatened,
by any governmental (expressly including the Federal Aviation Administration) or
other entity with respect to the Permits or any product defects.

 

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(r)        Employment Matters.  The Company is not subject to any work stoppage
or union picketing, or any other labor dispute or disturbance or any other
unfair labor practice charge.  There is no collective bargaining unit
representing any of the employees of the Company.  No petition has been filed
and is pending with the National Labor Relations Board by any labor organization
or any group of employees for an election or certification regarding the
representation of any group of employees of the Company by a labor organization,
nor to the knowledge of Seller is there at present any solicitation or campaign
by any labor organization or employee for the representation of employees of the
Company by a labor organization.  The Company is in material compliance with all
requirements of applicable federal, state, provincial, local and foreign laws
and regulations governing employee relations, including but not limited to, anti
discrimination laws, wage/hour laws, labor relations laws and occupational
safety and health laws, except where the failure to be in compliance would not
reasonably be expected to have a Material Adverse Effect.  Neither the Company
nor Seller has not engaged in any plant closing, workforce reduction or other
action which has resulted or could result in liability under the Workers
Adjustment and Retraining Notification Act, the Employment Standards Act
R.S.B.C. 1996 c.113, or issued any notice that any such action is to occur in
the future.  The Company is in compliance with all applicable requirements of
the Immigration Reform and Control Act and has in its file properly completed
copies of Form I 9 for all employees to whom that requirement applies.  Except
as set forth in Schedule 3.1(r) hereto, the Company is not a contractor or
subcontractor with obligations under any federal, state or local government
contract.

(s)        Employee Benefit Plans.  Except as disclosed in Schedule 3.1(s)
hereto, the Company does not maintain or contribute to any employee benefit plan
(including any employee welfare benefit plan, any employee pension benefit plan
or any multiemployer pension plan) whether or not subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").  Except as
disclosed in Schedule 3.1(s) hereto, the Company does not have any form of plan
or agreement with any of its current or former employees, officers or managers
providing for options to purchase equity interests or any other present or
future employee benefits (including, without limitation, health benefits) or
deferred compensation of any nature whatsoever (hereinafter collectively
referred to as a "plan").  Each plan maintained by the Company (and each related
trust, insurance contract or fund) is in compliance in all material respects in
form and in operation with all applicable requirements of ERISA, the Code and
any other applicable federal or state law or regulation.  Each plan maintained
by the Company or Seller has been administered in all material respects in
accordance with its plan documents and the applicable laws and regulations, and
to the knowledge of Seller, there has been no breach of fiduciary duty,
prohibited transaction, or other event with respect to any such plan which could
result in an excise tax or other claim or liability against the Company, any
plan or any fiduciary of a plan.  All health plans, programs or arrangements
maintained by the Company and subject to Code Section 4980B and Part 6 of
Subtitle B of Title I of ERISA relating to COBRA continuation of health coverage
have been operated in accordance therewith in all material respects, and Sellers
are not aware of any failure to comply therewith with respect to any employee or
former employee of the Company, or any qualified beneficiary thereof.  No
representation has been made to any employee or former employee of the Company
or Seller with respect to any plan which would entitle the employee to benefits
greater than or in addition to the benefits provided by the actual terms of the
plan, including, without limitation, representations as to post retirement
health or death benefits.  A true and correct copy of each of the plans and
agreements listed in Schedule 3.1(s) hereto, together with the summary plan
description prepared with respect to such plan, if any, has been furnished or
made available to Buyer by Seller.

 

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(t)         Relationships with Suppliers.  Except as set forth in Schedule
3.1(t) hereto, neither Seller nor the Company has experienced material
difficulties in securing the equipment, supplies or services necessary to
conduct its business, nor does the Company anticipate any difficulties with
respect thereto prior to the Closing Date.  Since December 31, 2002, no supplier
of more than $25,000 during calendar year 2002 in merchandise, supplies or
services to Seller or the Company has, to the knowledge of Seller, refused to
supply further merchandise, supplies or services to the Company or the Seller
and neither the Company nor Seller has received written notice of any threatened
refusals or terminations by any such supplier of its relationship with the
Company.

(u)        Relationships with Customers.  Since December 31, 2002, none of the
five (5) largest customers (as measured by sales volume) in goods or services of
Seller during calendar year 2002 has, to the knowledge of Seller, cancelled a
material purchase of merchandise or services from Seller or the Company or made
any significant reductions in the volume of goods or services customarily
purchased from Seller or the Company, other than reductions reasonably
consistent with historical purchasing patterns of such customer as described in
Schedule 3.1(u) hereto or as a result of general economic conditions, and Seller
has no knowledge of any such threatened terminations or reductions by any such
customer of its relationship with the Company.   Seller does not believe that
the relationship of the Company with each of its current customers is other than
satisfactory.

(v)        Accounts Receivables.  All accounts receivable of the Company have
arisen in the Ordinary Course of Business, are reflected properly on the books
and records of the Company in accordance with GAAP, and constitute enforceable
obligations of the account debtors and obligors, subject, as to enforceability,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity.  The Company's normal payment terms are not in excess of
45 days and all accounts receivable are warranted to be collectible within 90
days, except for accounts receivable from Norcross Air, Inc., which are
warranted to be collectible within 120 days, in each case subject to the reserve
for doubtful accounts appearing on the Company Balance Sheet.

 

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(w)       Inventory.  Except as set forth in Schedule 3.1(w) hereto, there have
been no material changes in the amount and mix of items in the inventory of the
Company since the Company Balance Sheet Date, except changes in the Ordinary
Course of Business which are reflected on the books and records of the Company
in accordance with GAAP.  Except as set forth in Schedule 3.1(w) hereto, the
booked inventory of the Company (and the previously booked inventory of the
Company that has been returned to suppliers), net of booked reserves, consists
of items of a quality and quantity useable or saleable in the Ordinary Course of
Business.  The inventory is priced at the lower of cost or market and consists
of items in the quantity and is of the type ordinarily used in the production of
the Company's current product line or, in the case of finished products, sold as
part of the company's current product line. 

(x)        Products.  To Seller's knowledge, all of the goods sold and delivered
by the Company or Seller have conformed in all material respects with all
applicable contractual commitments and all express and implied warranties, and
the Company has no unreserved liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due)
for replacement, repair or modification thereof or other damages in connection
therewith.  Seller warrants that all goods sold are without known defect and
that Buyer's exposure to repair or replacement cost of goods sold is reasonably
believed to be limited to the part numbers, quantities and dollar amounts shown
in the reserve for warranty reflected in the Company Financial Statements.

(y)        Intellectual Property.

(i)         "Company Intellectual Property" means software programs, licenses to
third party software programs, know-how, trade secrets, confidential
information, research, reports, formulae, recipes, compositions, process
procedures, techniques, ideas, inventions (whether patentable or not and whether
or not reduced to practice), invention records, registered designs, data,
database rights, design rights, patents (including continuations,
continuations-in-part, divisionals, other extensions, reissued patents and
reexamined patents), trade names, corporate names, service marks, domain names
and other electronic communication identifications, trademarks, trade dress,
logos, copyrights, mask works, rights of publicity, licenses to, rights in,
translations, adaptations, derivations, applications issuances, registrations
and renewals for any of the foregoing and other intangible property concerning
the Company or its business or necessary for the use, operation, maintenance or
repair thereof (whether or not used on or before the Closing Date) including
without limitation those items listed on Schedule 3.1(y) and rights of the
Company, if any, to the use of the names "Puroflow" and "Michigan Dynamics" and
any variations or components of and logos associated with such names, and rights
in the nature of any of the aforesaid items in any country or jurisdiction and
rights in the nature of unfair competition rights and rights to sue for passing
off.

 

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(ii)        Except as set forth on Schedule 3.1(y), (A) the Company owns and
possesses without material restriction, all right, title, and interest, freely
transferable and free of any liens, security interests, licenses, claims or
restrictions of others, in and to the Company Intellectual Property necessary
for the operation of the Business as currently conducted; (B) the Company has
not received any notice of invalidity, infringement, or misappropriation from
any third party with respect to any Company Intellectual Property; (C) to the
knowledge of Seller, the Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any intellectual property
of any third parties; (D) to the knowledge of Seller, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Company Intellectual Property; (E) all patented, registered,
or applied for Company Intellectual Property has been properly maintained and
renewed in accordance with all applicable legal requirements, and are currently
in force; and (F) no licensing fees, royalties or payments are due and payable
by the Company for Company Intellectual Property.  No licenses or other rights
have been granted by the Company and it has no obligation to grant any licenses
or other rights, with respect to any Company Intellectual Property.

(iii)       The transactions contemplated by this Agreement will not affect the
right, title, and interest of the Company in and to any Company Intellectual
Property.  The Company has taken all reasonable actions to maintain and protect
the Company Intellectual Property and shall continue to maintain and protect
those rights before the Closing so as not to materially adversely affect the
validity or enforcement of Company Intellectual Property.  The Company has not
knowingly caused any Company Intellectual Property to enter the public domain,
or taken any action which has in any way materially affected its ownership of
any portion of the Company Intellectual Property.

(z)        Banking Matters.  Set forth in Schedule 3.1(z) hereto is a list
containing the name of each financial institution in which the Company has an
account or safe deposit box and the names of all persons authorized to draw
thereon or having access thereto.  Except as set forth in Schedule 3.1(z)
hereto, no persons hold powers of attorney from the Company.

 

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(aa)      Environmental Matters.

(i)         Neither Seller nor the Company has deposited, nor to the knowledge
of Seller are there present in, on or under the Company Existing Property (as
hereinafter defined) any Hazardous Substances (as hereinafter defined) in form
or quantities and so situated as to create any liability or obligation under any
Environmental Law (as hereinafter defined) for the Company and/or Buyer.  All
Hazardous Substances stored by or on behalf of the Company or Seller on the
Company Existing Property are properly stored above ground, and the wastes
therefrom are being stored, transported, treated and/or disposed of in material
compliance with all applicable laws, regulations, ordinances and codes,
including, but not limited to, the Environmental Laws (as hereinafter defined).

(ii)        During the occupancy of the Company Leased Property by Seller or the
Company, neither Seller nor the Company deposited nor, to the knowledge of
Seller, were there present in, on or under the Company Leased Property (as
hereinafter defined) any Hazardous Substances in such form or quantity and so
situated as to create any liability obligation under any Environmental Law for
the Company and/or Buyer.  All Hazardous Substances stored by or on behalf of
the Company or Seller on the Company Leased Property were properly stored above
ground, and the wastes therefrom were stored, transported, treated and/or
disposed of in material compliance with all applicable laws, regulations,
ordinances and codes, including, but not limited to, the Environmental Laws.

(iii)       To the knowledge of Seller there are no substances or conditions in,
on or under the Company Existing Property that could support a claim or cause of
action against the Company and/or Buyer under any Environmental Law.

(iv)       To the knowledge of Seller there are no substances or conditions in,
on or under the Company Leased Property that could support a claim or cause of
action against the Company and/or Buyer under any Environmental Law.

(v)        No activity has been undertaken on the Company Existing Property by
the Company or Seller, or to the knowledge of Seller, by any other person, that
would cause or contribute to a release or threatened release of Hazardous
Substances from Company Existing Property so as to create material liability for
the owner or operator of the Company Existing Property under any Environmental
Law.

(vi)       No activity has been undertaken on the Company Leased Property by the
Company or Seller, or to the knowledge of Seller, by any other person, that
would cause or contribute to a release or threatened release of Hazardous
Substances from the Company Leased Property so as to create material liability
for the owner or operator of the Company Leased Property under any Environmental
Law.

 

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(vii)      The Company and Seller have and at all times have had in full force
and effect, and the Company is and the Company and Seller at all times have been
in compliance in all material respects with, all material permits, licenses and
other authorizations required by any Environmental Law.

(viii)      Neither the Company nor Seller has received any written request for
response action, administrative or other order (or request therefor), judgment,
complaint, claim, investigation, written request for information or other
written request for relief in any form relating to any facility where wastes
generated or transported by the Company or Seller have been disposed of, placed
or located.

(ix)       The Company and Seller have not, in connection with the Company
Leased Property or otherwise, stored, used, generated, treated, transported,
disposed of, or arranged for the disposal of any Hazardous Substances in any
manner to create any material liability or obligation under any Environmental
Law or any other material liability or obligation for the Company or Buyer.  To
the knowledge of Seller, neither Seller nor the Company has ever sent, arranged
for disposal or treatment, arranged with a transporter for transport for
disposal or treatment, transported, or accepted for transport any Hazardous
Substances to a facility, site or location that has been placed or is proposed
to be placed on the United States Environmental Protection Agency's National
Priorities List of Hazardous Waste Sites ("National Priorities List") or any
state equivalent; to any facility, site or location that is subject to an
investigation, claim, administrative order or other request to take clean-up
action or remedial action by any person; or to any facility, site or location
that is subject to a claim for damages by any person (including any governmental
entity).

(x)        There are no pending, or to the knowledge of Seller, threatened
claims, investigations, administrative proceedings, litigation, regulatory
hearings or written requests or demands for remedial or response actions or for
compensation, with respect to the Company Existing Property, alleging
noncompliance with or violation of any Environmental Law or seeking relief under
any Environmental Law.

(xi)       To the knowledge of Seller, the Company Existing Property is not and
never has been listed on the National Priorities List or on any other list,
schedule, log, inventory or record of hazardous waste sites that require
environmental remediation maintained by any federal, state or local agency.

(xii)      To the knowledge of Seller, the Company Leased Property is not and
never has been listed on the National Priorities List or on any other list,
schedule, log, inventory or record of hazardous waste sites that require
environmental remediation maintained by any federal, state, provincial, foreign
or local agency.

 

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(xiii)      The Company and Seller have made available to Buyer all final
written environmental reports and written investigations within the Company's or
Seller's possession and control which the Company or Seller has ever obtained or
ordered with respect to the Company Existing Property.

(xiv)     The Company and Seller has made available to Buyer all final written
environmental reports and written investigations within the Company's or
Seller's possession and control which the Company or Seller has ever obtained or
ordered with respect to the Company Leased Property.

(xv)      As used in this Agreement, "Hazardous Substances" is defined as toxic,
radioactive or hazardous substances or wastes, pollutants or contaminants
(including, without limitation, asbestos, urea formaldehyde, the group of
organic compounds known as polychlorinated biphenyls, petroleum products
including gasoline, fuel oil, crude oil and various constituents of such
products, and any hazardous substance as defined in CERCLA) and any substance or
material regulated by any Environmental Law.

(xvi)     As used in this Agreement, "Environmental Law" is defined as any
federal, state, provincial, county, municipal, local, foreign or other statute,
law, ordinance or regulation, which may relate to or deal with the environment
or human health as affected by environmental conditions, all as in effect on the
date hereof, including, without limitation the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 42 U.S.C. § 9601, as amended
from time to time.

(xvii)     "Company Leased Property" is defined as any parcel of real property
previously leased or otherwise occupied by the Company or Seller or in which the
Company has any interest, including any lessee's interest, but not including any
parcel of real property defined as "Company Existing Property" pursuant to this
paragraph 3.1(aa).

(xviii)    "Company Existing Property" is defined as any parcel of real property
now occupied by the Company or in which the Company has any interest, including
any lessee's interest.

As to any Company Leased Property or Company Existing Property, as the case may
be, this paragraph 3.1(y) does not apply to any period of time prior to or
subsequent to the termination of Seller's or the Company's ownership, occupancy,
leasehold interest in or use of such Company Leased Property, or Company
Existing Property, as the case may be, except with respect to matters and
conditions relating to any such prior period of which Seller has knowledge.

(bb)      Equipment.  Schedule 3.1(bb) hereto contains a list of machinery,
tooling, equipment, vehicles, fixtures, tools and office, plant, warehouse and
storeroom equipment and furnishings. 

 

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(cc)      Condition of Assets.

(i)         The assets of the Company are, in all respects, except for normal
wear and tear, in a condition and working order sufficient so as to not
materially impair conduct of the Business as it is presently being conducted.

(ii)        The facilities used by the Company and the Company Existing
Property, expressly including, without limitation, the lease of the facility
located at 10616 Lanark, Sun Valley, California, by and between Seller and Lorne
Investment, dated December 6, 2001 (the "SV Lease") and the use thereof by the
Company are in compliance in all material respects with all local, state,
provincial or federal laws and regulations affecting the current use and
occupancy of such facilities.

(dd)      Fees.  Except as set forth in Schedule 3.1(dd), neither Seller, nor
the Company has any liability or obligation to pay any fees, commissions or
other payment to any broker, finder, agent or third party with respect to the
transactions contemplated by this Agreement.

(ee)      Definition of Knowledge.  For purposes of this Section 3.1,
"knowledge" of Seller shall mean the actual knowledge of Michael Figoff, Craig
Montesanti, Arthur Trudel, H. Haywood Miller, and Rainer Bosselmann.

(ff)        Trade Allowances.  Except as set forth on Schedule 3.1(ff) attached
hereto and made a part hereof, the Company does not have in effect any trade
allowance, billback, rebate, discount or similar program with its customers,
regardless of whether the Company currently has any actual or contingent unpaid
liability thereunder.  Except as set forth on Schedule 3.1(ff), no supplier of
the Company or Seller has in effect, or has had in effect since December 31,
2002, and the Company has received no payments, other than payments disclosed in
writing to Buyer, under, any trade allowance, billback, rebate, discount or
similar program pursuant to which the Company or Seller has any actual or
contingent right to receive payment or has received payment since December 31,
2002.

(gg)      Backlog.  Schedule 3.1(gg) sets forth the Company's backlog on the
date of this Agreement.  The term "backlog," for purposes of this Agreement,
shall mean a schedule of all orders accepted and entered into the Company's
backlog order system which have a fixed delivery date, an agreed upon set price,
a designed and released product and which are not subject to cancellation.  All
orders in the backlog are supported by a hard copy of the customer order.

(hh)      Warranty.  Except as set forth in Schedule 3.1(hh), neither the
Company nor Seller has made written product warranties in connection with the
sale or lease of any product or the rendition of any service.  To the knowledge
of the Seller, there are no existing or threatened material claims against the
Company for merchandise which is defective, defectively designed or that
otherwise fails to satisfy the terms of any written product warranty.  Since
January 31, 2003, Seller's and the Company's aggregate obligations to replace or
repair products of the Business sold by either of them have not resulted in
charges to income of more than $25,000 in any year.

 

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3.2       Representations and Warranties of Buyer.  Buyer hereby represents and
warrants to Sellers that:

(a)        Organization, Qualification and Corporate Power of Buyer.  Buyer is a
corporation duly organized and validly existing under the laws of the State of
California.  Buyer is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each jurisdiction where the nature of its
activities or of its properties owned or leased makes such qualification
necessary, except any jurisdiction in which the failure to be so qualified and
in good standing would not, individually or in the aggregate, have a Material
Adverse Effect on Buyer.  Buyer has all requisite power and authority to own and
operate its properties and to carry on its business as now being conducted. 
True and correct copies of the Certificate of Incorporation of Buyer, as amended
to date and the Bylaws of Buyer have been delivered or made available to Seller.

(b)        Authorization; Binding Agreement.  The execution and delivery of this
Agreement by Buyer, and the consummation of the transactions contemplated
hereby, have been duly authorized by all necessary action on the part of Buyer. 
This Agreement and all other instruments required hereby to be executed and
delivered by Buyer have been, or will be, duly executed and delivered by Buyer
and are, or when delivered will be binding obligations of Buyer, enforceable
against Buyer, in accordance with their terms, subject as to enforceability,
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general principles of equity.

(c)        No Conflicts with Other Instruments.  Except as set forth in Schedule
3.2(c) hereto, neither the execution and delivery of this Agreement by Buyer,
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any government, governmental
agency or court to which Buyer is subject or any provision of the Articles of
Incorporation or Bylaws of Buyer, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which Buyer is a party or by which Buyer is bound or to which any of its
assets are subject (or result in the imposition of any lien or other encumbrance
upon any of its assets).

(d)        Notices, Consents and Approvals.  Except as set forth in Schedule
3.2(d) hereto, Buyer is not required to give any notice to, make any filing
with, or obtain any authorization, consent or approval of any governmental
authority or other entity in order for the parties hereto to consummate the
transactions contemplated by this Agreement.

 

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(e)        Fees.  Except as set forth in Schedule 3.2(e), Buyer has no liability
or obligation to pay any fees, commissions or other payment to any broker,
finder, agent or third party with respect to the transactions contemplated by
this Agreement.

(f)         Financial Ability.  Buyer has the funds required to pay the Purchase
Price and consummate the transactions contemplated hereby.

ARTICLE IV.
Certain Covenants

4.1       Covenants of Seller.  Seller hereby covenants and agrees with Buyer as
set forth below.

(a)        Approvals, Consents and Other Matters.  Seller shall take all
necessary action necessary to obtain any approvals and consents reasonably
required to carry out the transactions contemplated by this Agreement, without
creating any violations of any laws or any material defaults (or liens on
assets) under, or material breaches or terminations of, or material increases in
the consideration payable by the Company under, any agreements, and shall
cooperate with Buyer to obtain all such approvals and consents.  Seller shall
make all commercially reasonable efforts to satisfy at or before the Effective
Time each of the conditions set forth in Section 5.1 hereto.

(b)        Confidentiality.  Each of Seller and Buyer (the "Receiving Party")
shall hold in strict confidence all documents and information furnished to it or
its representatives concerning the other party ("the "Disclosing Party") in
connection with the transactions contemplated by this Agreement and all
documents and information concerning the Disclosing Party and the transactions
contemplated hereby and shall not release or disclose such documents or
information to any other person, except as required by law, and except to the
Receiving Party's accountants, attorneys, agents, advisors and personnel in
connection with this Agreement, with the same undertaking from such accountants,
attorneys, agents, advisors and personnel.  Regardless of whether the
transactions contemplated by this Agreement shall be consummated, such
confidence shall be maintained and such information shall not be used in
competition with the Disclosing Party and all such documents shall immediately
after the Effective Time or the termination of this Agreement, as the case may
be, be returned to Disclosing Party.  Notwithstanding the foregoing, such
information shall not be considered confidential if it (i) was already in the
possession of Receiving Party, (ii) is or becomes generally available to the
public other than as a result of disclosure by Receiving Party or its
representatives, (iii) becomes available to Receiving Party on a
non-confidential basis from a source other than Disclosing Party; or (iv) is
independently developed by Receiving Party.

 

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(c)        Tax Covenants.

(1)        Section 338(h)(10) Election.

(A)       For purposes hereof, (i) "Section 338(h)(10) Election" means an
election described in Section 338(h)(10) of the Code with respect to Seller's
sale of the Shares to Buyer pursuant to this Agreement (including any
corresponding election under any state, local and foreign Tax laws for which a
separate election is permissible with respect to the transactions contemplated
by this Agreement and (ii) "Section 338 Forms" means all returns, documents,
statements, and other forms that are required to be submitted to any federal,
state, local or foreign Taxing Authority in connection with a Section 338(h)(10)
Election (including, without limitation, any "statement of section 338 election"
and IRS Form 8023, together with any schedules or attachments thereto, that are
required pursuant to Treasury Regulations under IRC Section 338).

(B)       If reasonably requested by Buyer, Seller shall join with Buyer in
making a Section 338(h)(10) Election with respect to the purchase and sale of
the Shares.  Seller shall include any income, gain, loss, deduction, or other
tax item resulting from the Section 338(h)(10) Election on Seller's Tax Returns
to the extent required by applicable law.  Seller shall pay any Tax imposed on
the Company attributable to the making of the Section 338(h)(10) Election.

(C)       Buyer shall be responsible for the preparation and filing of all the
Section 338 Forms.  Seller shall execute and deliver to Buyer such Section 338
Forms as are requested by Buyer to complete properly the Section 338(h)(10)
Election at least 10 days before the date such Section 338 Forms are required to
be filed, provided that Buyer shall have delivered to Seller all the Section 338
Forms properly completed in accordance with all applicable Laws no less than
thirty (30) days before the date such Section 338 Forms are required to be
filed.

(D)       Seller, the Company and Buyer agree that the Purchase Price and the
liabilities of the Company (plus other relevant items) will be allocated to the
assets of the Company for all Tax purposes as reasonably determined by Buyer in
a manner consistent with Sections 338 and 1060 of the Internal Revenue Code and
the regulations thereunder.  Seller, the Company and Buyer shall file all Tax
Returns (including amended returns and claims for refund) and information
reports in a manner consistent with such allocation.

 

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(E)       To the extent permitted by state, local or foreign Tax laws, then (x)
the principles and procedures hereof relating to the Section 338(h)(10) Election
shall apply to any equivalent or comparable provision under the Tax laws of such
other jurisdiction, and (y) Seller as reasonably required shall cooperate and
join in any election made by the Company or Buyer to effect such an election so
as to treat the purchase contemplated by this Agreement as a purchase of assets
under the Tax laws of such other jurisdiction.

(1)        Tax Indemnity.  In addition to its other obligations under this
Agreement (including without limitation Section 6.1), Seller (and not the
Company) shall pay, and shall indemnify and hold Buyer and its Affiliates free
and harmless from, (i) all Taxes imposed on the Company with respect to taxable
periods, or portions of taxable periods, ending on or before the Closing Date
(such taxable periods and portions of taxable periods, "Seller Tax Periods"),
including without limitation (A) any liability for Tax arising as a result of
inclusion of the Company in an Affiliated Group or any Tax Return with respect
thereto for any Seller Tax Period, and (B) any liability for any Seller Tax
Period arising as a result of participation by the Company in any tax sharing,
tax indemnity or similar agreement for any Seller Tax Period, (ii) all liability
for Taxes of the Company arising (directly or indirectly) as a result of the
transactions contemplated by this Agreement, including without limitation (A)
any income item of adjustment (as, for example, under Section 481 of the Code)
in any period necessary to implement a change of accounting made in any Seller
Tax Period, (B) restoration of any deferral of income (or similar inclusion into
the income currently to be taxed under applicable law) under federal
consolidated return regulations (or similar provisions, if any, of state, local,
or foreign Tax laws) by reason of any transaction contemplated under this
Agreement (such as the triggering of a deferred intercompany transaction under
Treasury Regulations §1.1502-13), and (C) all sales, transfer, registration and
similar Taxes, and (iii) all liability for reasonable legal fees and expenses
incurred by Buyer or any of its Affiliates with respect to any item in clause
(i) and (ii), any audit, examination or litigation relating thereto, and the
assessment or collection thereof.

(2)        Partial Periods.  For purposes of this Agreement, Taxes incurred
during a tax period that begins before and ends after Closing shall be allocated
to the pre-Closing portion thereof constituting a Seller Tax Period as follows: 
(i) ad valorem Taxes for such period shall be equal to the amount of such Taxes
for the full tax period multiplied by a fraction, the numerator of which is the
number of days during the pre-Closing partial tax period and the denominator of
which is the number of days during the full tax period; and (ii) Taxes (other
than the Taxes referred to in clause (i)) for the pre-Closing partial tax period
shall be computed as if such taxable period ended on the Closing Date.

 

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(3)        Cooperation.  Seller shall furnish such information and assistance to
Buyer as is reasonably necessary for the preparation of any Tax Return or claim
for refund or for the prosecution or defense of such claim for any period ending
on or before the Closing Date and, with respect to any period in which the
Closing Date is included, for that portion of such period up to and including
the Closing Date.  In addition, Seller shall cooperate with Buyer in connection
with the determination or any audit or examination of the liability of the
Company for Taxes with respect to receipts, income, sales, transactions, assets,
operations or other business activities of the Company before the Closing, or
any Tax Return filed before the Closing, and shall disclose to Buyer any
documents and information within the possession or control of Seller pertaining
thereto.  Notwithstanding any other provision of this Agreement to the contrary,
any Tax audit or examination and any administrative or judicial proceeding
relating thereto involving the Company and relating to the period after the
Closing shall be controlled exclusively by Buyer after the Closing. 
Notwithstanding anything herein to the contrary, Buyer shall pay Seller's
reasonable out-of-pocket expenses in connection with Seller's compliance with
this Section 4.1(c)(3); provided, however, that such out-of-pocket expenses
shall not include any hourly fees or other charges associated with the
reasonable assistance of Seller's employees in connection with such compliance.

(d)        Access; Conduct of Business Prior to Closing.  In addition to any
other covenants of Seller in this Agreement, Seller hereby covenants and agrees
that from and after the date of this Agreement to the Closing:

(i)         Seller shall cause the Company to make available for inspection by
Buyer and its representatives, during normal business hours, corporate records,
books of accounts, Contracts and all other documents reasonably requested by
Buyer, and shall permit Buyer and its representatives reasonable access to the
properties of the Company in order to permit Buyer and its representatives to
make reasonable inspection and examination of the operations and affairs and
Business of the Company and to facilitate the transactions contemplated by this
Agreement and related transition matters; provided, however, that Buyer shall
have executed an Access and Indemnity Agreement prepared by Seller prior to
accessing any of Seller's properties.  Seller shall cause the Company to be
available upon reasonable notice to answer questions of Buyer and its
representatives concerning the operations and affairs and Business of the
Company, and shall cause the Company to, make available all relevant books and
records in connection with such inspection and examination.

(ii)        Except as otherwise provided in this Agreement, the Company will
not, without the prior written consent of Buyer (with such consent not to be
unreasonably delayed, withheld, or conditioned):

 

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(A)       enter into or amend any lease of real property; or enter into or amend
any other agreement (other than in the Ordinary Course of Business) materially
affecting the Company's assets or Business;

(B)       sell, transfer, dispose of, encumber or abandon any material assets or
enter into any agreement to do any of the foregoing, provided that the Company
may sell inventory in the ordinary course consistent with past practice;

(C)       take any action of the nature described in Section 3.1(j);

(D)       enter into any merger or consolidation with any person, or engage in
any new business or invest in, or make a loan, advance or capital contribution
to, any person;

(E)       settle any pending litigation or obtain any releases of threatened
actions or proceedings, except in the Ordinary Course of Business;

(F)       knowingly accelerate or delay collection of any notes or accounts
receivable in advance of or beyond their regular due dates when the same would
reasonably be expected to have been collected in the Ordinary Course of Business
consistent with past practice if the amount of any such note or account
receivable, or series of related notes or accounts receivable, exceeds $25,000
individually or $50,000 in the aggregate;

(G)       except as set forth on Schedule 4.1(d)(ii)(G), delay or knowingly
accelerate payment of any accounts payable or other liabilities beyond or in
advance of their due dates or the dates when such liabilities would reasonably
be expected to have been paid in the Ordinary Course of Business consistent with
past practice if the amount of any such account payable or other liability, or
series of related accounts payable or other liabilities, exceeds $25,000
individually or $50,000 in the aggregate;

(H)       declare, set aside, make or pay any dividend or other distribution in
respect of the Company's capital stock; or

(I)        issue, repurchase or redeem or commit to issue, repurchase or redeem,
any shares of the company's capital stock, any options or other rights to
acquire such stock or any securities convertible into or exchangeable for such
stock.

 

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(e)        Maintenance of Assets.  Seller will cause the Company to use
commercially reasonable efforts to maintain its tangible assets and real
property in commercially reasonable condition and repair, ordinary wear and tear
excepted.

(f)         Preservation of Goodwill.  Seller will cause the Company to use
commercially reasonable efforts to preserve for Buyer the good will of
suppliers, customers and others having relationships with the Company.  Seller
will cause the Company to maintain its books and records in a manner consistent
with past practice.

(g)        Retention of Employees.  Seller will cause the Company to use
commercially reasonable efforts to keep available the services of the Company's
employees.

(h)        Maintenance of Inventory and Supplies.  Seller will cause the Company
to use commercially reasonable efforts to maintain inventory and supplies that
are usable and merchantable in the Ordinary Course of Business at levels
sufficient for the Company to conduct its Business in the Ordinary Course of
Business following the Effective Time in the same manner as the manner in which
it has been conducted by the Company prior to the Effective Time.

(i)         Ordinary Course of Business.  Without limiting the generality of the
foregoing, the Company will in all other respects operate the Business in the
ordinary course and will not commit or otherwise agree to take any action
prohibited hereby.

(j)         Consents and Conditions.  Seller shall use commercially reasonable
efforts to obtain the consent of any third party or governmental authority which
is required in order to prevent a material default under, material breach of,
termination or material modification of, or any acceleration of any material
obligations under any Permit or any Contract.

(k)        Non-Solicitation.  Seller agrees and covenants that from the date
hereof through the Closing Date, it will not nor will it permit any of its
representatives to (a) make, solicit, assist, initiate, facilitate or encourage
any inquiries, proposals, offers or bids from any other party relating to the
Company, its assets or the Business or, any equity interest in the Company, or
(b) participate in any discussions or negotiations regarding, or furnish or
cause to be furnished to any person any non-public information relating to, the
Company, its assets or the Business or any equity interest in the Company, other
than in the Ordinary Course of Business consistent with past practice.  Seller
covenants that from the date hereof through the Closing Date, it will not,
directly or indirectly, enter into or authorize, or permit any of its
representatives to enter into, any agreement or arrangement in principle with
any third party for the acquisition of any of the Company's assets (other than
sales and inventory in the Ordinary Course of Business) or any equity interest
in the Company (an "Acquisition Transaction").  Seller covenants and agrees to
inform Buyer in writing by facsimile within 48 hours following the receipt by it
or any of its representatives of any inquiry, proposal, offer or bid (including
the terms thereof and the identity of the person making such inquiry, proposal,
offer or bid) in respect of any Acquisition Transaction.

 

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(l)         Updating of Information.  Seller shall, and Seller shall cause the
Company to, promptly deliver to Buyer any information concerning any event
subsequent to the date of this Agreement which is reasonably necessary to
supplement the information contained in or made a part of the representations
and warranties contained herein, including the Schedules hereto, or delivered by
Seller or the Company pursuant to any of the covenants contained herein, in
order that the information contained herein or so delivered by Seller shall be
complete and accurate in all material respects from and after the date hereof,
it being understood and agreed that the delivery of such information shall not
in any manner constitute a waiver by Buyer of any of the conditions precedent to
the Closing hereunder, including, without limitation, the conditions contained
in Section 5.1 hereof.

4.2       Covenants of Buyer.  Buyer hereby covenants and agrees with Seller as
follows:

(a)        Approvals, Consents and Other Matters.  Buyer shall take all
necessary action to obtain any approvals and consents required to carry out the
transactions contemplated by this Agreement known by Buyer to be applicable to
the transactions contemplated hereby, and shall cooperate with Seller to obtain
all such approvals and consents.  Buyer shall make all commercially reasonable
efforts to satisfy at or before the Effective Time each of the conditions set
forth in Sections 5.2 hereto.

(b)        Confidentiality.  Until the Effective Time, Buyer shall hold in
strict confidence all documents and information concerning the Company furnished
to Buyer and its representatives in connection with the transactions
contemplated by this Agreement and shall not release or disclose such
information to any other person, except as required by law, and except to
Buyer's accountants, attorneys, agents, advisors and employees in connection
with this Agreement with the same undertaking from such accountants, attorneys,
financial advisors and employees.  If the transactions contemplated by this
Agreement shall not be consummated, such confidence shall be maintained and such
information shall not be used in competition with the Company, and all such
documents shall immediately after termination of this Agreement be returned to
the Company and Seller, as may be appropriate.  Notwithstanding the foregoing,
such information shall not be considered confidential if it (i) was already in
Buyer's possession, (ii) is or becomes generally available to the public other
than as a result of disclosure by Buyer and its representatives, (iii) becomes
available to Buyer on a non-confidential basis from a source other than Sellers
or the Company, as the case may be, or (iv) is independently developed by Buyer.

(c)        Non-solicitation.  If this Agreement is terminated, Buyer will not,
for a period of three years thereafter, directly or indirectly, solicit,
encourage entice, induce or employ any person who is an employee of any Company
at the date hereof or at any time hereafter that precedes such termination, to
terminate his or her employment with such Company.  Buyer agrees that money
damages will not be an adequate remedy and that Seller and the Company shall be
entitled to equitable relief, including but not limited to injunction, in the
event of any breach by Purchaser of this Section 4.2(c), in addition to any
other remedies available to Seller or the Company at law.

 

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(d)        Cooperation.  Buyer shall furnish information and assistance to
Seller and shall cooperate with Seller in connection with the determination or
any audit or examination of the liability of Seller for Taxes, any audit of
Seller for tax purposes, and in connection with any audit of Seller by Seller's
independent auditors including, without limitation, for any audit of the
disposition, a physical inventory of the Company's tangible personal property,
and the formulation of Seller's quarterly report.  Notwithstanding anything
herein to the contrary, Seller shall pay Buyer's reasonable out-of-pocket
expenses in connection with Buyer's compliance with this Section 4.1(d);
provided, however, that such out-of-pocket expenses shall not include any hourly
fees or other charges associated with the reasonable assistance of Buyer's
employees in connection with such compliance.

ARTICLE V.
Conditions to Closing

5.1       Conditions Precedent to Obligation of Buyer to Close.  The obligation
of Buyer to effect the closing of the transactions contemplated by this
Agreement is subject to the satisfaction prior to or at the Closing of the
following conditions:

(a)        Representations and Warranties of Seller.  The representations and
warranties of Seller under this Agreement shall be true and correct in all
material respects as of the date of the Closing with the same effect as though
made on and as of the date of the Closing.

(b)        Observance and Performance by Seller.  Seller shall have performed
and complied in all material respects with all covenants and agreements required
by this Agreement to be performed and complied with by them prior to or as of
the date of the Closing.

(c)        No Adverse Effect on the Company.  There shall have occurred no
Material Adverse Effect on the Company since September 30, 2003, except as
disclosed herein and Seller shall have delivered to Buyer a certificate, dated
the Closing Date, executed by Seller certifying to the satisfaction of the
condition referred to herein.

(d)        Delivery of Shares.  A certificate representing 100% of the Shares,
accompanied by a duly-executed stock power, shall have been delivered to Buyer
pursuant to Section 2.4(a)(i).

(e)        Consents of Third Parties.  Buyer shall have received duly executed
copies of all material consents and agreements necessary for Seller to effect
the transactions contemplated hereby and listed on Schedule 5.1(e) hereto;
provided, however, that notwithstanding the foregoing, any consent in connection
with the SV Lease shall not be considered a material consent necessary to effect
such transactions for purposes of this Section 5.1(e).  Buyer hereby agrees to
use its commercially reasonable efforts to assist Seller, at Seller's cost and
expense, in obtaining such consents and agreements; provided, however, that
Buyer shall not be obligated to accept any terms materially different from those
that presently exist in such agreements.

 

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(f)         Withholding Certificates.  Seller shall have delivered or caused to
be delivered to Buyer such certificates, in form and substance satisfactory to
Buyer, duly executed and acknowledged, as are necessary to establish that no
amount paid by Buyer pursuant to this Agreement is subject to withholding
pursuant to any provision of Tax law or regulations thereunder, including
without limitation IRC Section 1445.

(g)        Seller's Closing Documents.  Buyer shall have received such further
instruments and documents as are set forth in Section 2.4(a).

(h)        No Legal Actions.  No court or governmental authority of competent
jurisdiction shall have issued an order, not subsequently vacated, restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement, and no person, firm, corporation or governmental
agency shall have instituted an action or proceeding that shall not have been
previously dismissed seeking to restrain, enjoin or prohibit the consummation of
the transactions contemplated by this Agreement or seeking material damages with
respect thereto.

(i)         Proceedings and Documents.  All corporate and other proceedings and
actions taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned in this
Section 5.1 or incident to any such transaction shall be reasonably satisfactory
in form and substance to Buyer and its counsel.

(j)         Release of Liens.  All existing security interests of record in the
assets of the Company shall have been released.

(k)        Resignations.  Each of the officers and directors of the Company
shall have submitted their written resignations effective upon Closing.

(l)         Officer's Certificate.  Seller shall have delivered to Buyer a
certificate, dated the Closing Date, executed by a responsible officer of Seller
certifying to the satisfaction of the conditions specified in Sections 5.1(a),
(b) and (c) hereof.

(m)       Corporate Resolutions.  Seller shall have delivered to Buyer copies of
all necessary corporate resolutions of Seller authorizing the execution,
delivery and performance by Seller of this Agreement, the Escrow Agreement and
the other transaction documents contemplated hereby and thereby, certified to be
true, correct, complete, unchanged and in full force and effect on the Closing
Date by the secretary of Seller.

 

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(n)        Inter-Company Balances.  All intercompany balances between the
Company and Seller shall have been satisfied and paid in full or satisfied and
deemed paid in full by treating such intercompany balances as adjustments to
paid-in capital and the Company shall have provided evidence thereof reasonably
satisfactory to Buyer.

(o)        Escrow Agreement.  Seller and the Escrow Agent shall have executed
and delivered to Buyer the Escrow Agreement.

(p)        Termination of Affiliate Agreements.  All agreements between the
Company and its Affiliates shall be terminated.

(q)        Assignment of Intellectual Property.  All Intellectual Property used
by the Company that is owned by, or registered in the name of Seller (including,
without limitation, the Intellectual Property identified on Schedule 3.1(y))
shall have been assigned to the Company and such assignment shall have been
registered with the appropriate governmental authorities.

(r)        Satisfactory Investigation.  Buyer shall have completed its
investigation of the Business and assets and liabilities of the Company in
connection with the transactions contemplated hereby and review of the schedules
hereto and shall have been satisfied in its sole discretion with the results of
such investigation. 

5.2       Conditions Precedent to Obligation of Seller to Close.   The
obligation of Seller to effect the closing of the transactions contemplated by
this Agreement is subject to the satisfaction prior to or at the Closing of the
following conditions:

(a)        Representations and Warranties of Buyer.  The representations and
warranties of Buyer under this Agreement shall be true and correct in all
material respects as of the date of the Closing with the same effect as though
made on and as of the date of the Closing.

(b)        Observance and Performance of Buyer.  Buyer shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed and complied with by it prior to or as of the
date of the Closing.

(c)        No Legal Actions.  No court or governmental authority of competent
jurisdiction shall have issued an order, not subsequently vacated, restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement.

(d)        Proceedings and Documents.  All corporate and other proceedings and
actions taken by Buyer in connection with the transactions contemplated hereby,
and all certificates, opinions, agreements, instruments and documents mentioned
in this Section 5.2 or incident to any such transaction shall be reasonably
satisfactory in form and substance to Seller and its counsel.

 

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(e)        Consent of Bank of America, N.A..  Seller shall have received the
written consent, in form reasonably acceptable to Seller, of Bank of America,
N.A., to the transactions contemplated by this Agreement.

(f)         Officer's Certificate.  Buyer shall have delivered to Seller a
certificate, dated the Closing Date, executed by a responsible officer of Buyer
and certifying to the satisfaction of the conditions specified in Sections
5.2(a) and (b) hereof.

(g)        Corporate Resolutions.  Buyer shall have delivered to Seller copies
of all necessary corporate resolutions of Buyer authorizing the execution,
delivery and performance of this Agreement, the Escrow Agreement and the other
transaction documents contemplated hereby and thereby, certified to be true,
correct, complete, unchanged and in full force and effect on the Closing Date by
the secretary of Buyer.

(h)        Escrow Agreement.  Buyer and the Escrow Agent shall have executed and
delivered to the Seller the Escrow Agreement.

(i)         Buyer's Closing Documents.  Seller shall have received such further
instruments and documents as are set forth in Section 2.4(b).

ARTICLE VI.
Indemnification

6.1       Indemnification by Sellers.   Seller agrees to indemnify and hold
harmless Buyer, and its officers, directors, employees, affiliates and agents,
through and after the date of the claim for indemnification resulting from,
arising out of, relating to, in the nature of or caused by:

(a)        Any and all Loss (as defined below) resulting from any
misrepresentation or breach of warranty by Seller under Section 3.1 of this
Agreement;

(b)        Any and all Loss  resulting from any non fulfillment of any covenant
or agreement on the part of Seller under Section 5.1 of this Agreement; and

(c)        Any and all Loss resulting from claims by any third party arising out
of facts or circumstances relating to the Company or the Business occurring on
or prior to the Closing Date, expressly including, without limitation, any
claims by employees of the Company.

For the purpose of this Section 6.1, "Loss" means any and all loss, injury or
damage incurred by Buyer in connection with any and all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, amounts paid in settlement, liabilities, obligations, taxes,
liens, expenses and fees (and including court costs and reasonable attorneys
fees and expenses incident to any of the foregoing).

 

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6.2       Indemnification by Buyer.   Buyer agrees to indemnify and hold
harmless Seller, and its officers, directors, employees, affiliates and agents,
through and after the date of the claim for indemnification resulting from,
arising out of, relating to, in the nature of or caused by any of the following:

(a)        Any and all Loss resulting from any misrepresentation or breach of
warranty by Buyer under Section 3.2 of this Agreement;

(b)        Any and all Loss resulting from any non fulfillment of any covenant
or agreement on the part of Buyer under Section 6.2 of this Agreement; and

(c)        Any and all Loss resulting from claims by any third party arising out
of facts or circumstances relating to the Company or the Business occurring
after the Closing Date, expressly including, without limitation, any claims by
employees of the Company.

For the purpose of this Section 6.2, "Loss" means any and all loss, injury or
damage incurred by Seller in connection with any and all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, amounts paid in settlement, liabilities, obligations, taxes,
liens, expenses and fees (and including court costs and reasonable attorneys
fees and expenses) incident to any of the foregoing.

6.3       Procedures for Indemnification.   Except as otherwise provided in
Sections 6.1 and 6.2, subject to the limitations imposed by Section 8.1,
promptly after receipt by an indemnified party pursuant to the provisions of
this Article VI of notice of the commencement of any action, claim or proceeding
involving the subject matter of the foregoing indemnity provisions, such
indemnified party shall, if a claim thereof is to be made against an
indemnifying party pursuant to the provisions of this Article VI, promptly
notify such indemnifying party of the commencement thereof; but the omission to
so notify such indemnifying party shall not relieve it from any liability which
it may have to the indemnified party otherwise than hereunder unless, and only
to the extent that, such omission shall have materially adversely affected the
indemnifying party' s ability to defend such action, claim or proceeding.  In
case such action, claim or proceeding is brought against an indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the extent
that it may wish, to assume the defense or conduct thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, (i) if the
defendants in any action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that there may
be legal defenses available to it which are different from or additional to
those available to the indemnifying party, or if there is a conflict of interest
which would reasonably be expected to prevent counsel for the indemnifying party
from also representing the indemnified party, the indemnified party shall have
the right to select separate counsel to participate in the defense of such
action on behalf of such indemnified party at the indemnifying party's expense
and (ii) if the claim or proceeding involves a Tax or an audit, examination,
investigation, appeal, suit or other proceeding involving the determination of
any Tax, the indemnifying party shall not have the right to assume the defense
or conduct thereof, which defense or conduct shall instead remain within the
sole power and authority of the indemnified party except that the indemnified
party shall not settle such matter without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld taking into
the account the circumstances of the indemnified party.  After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to the indemnified
party for any legal or other expense subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed counsel in
accordance with the proviso reasonably of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after the notice of the commencement of the action, or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party.  No indemnifying party, in the defense of any
such claim or litigation, shall, except with the consent of each indemnified
party which consent shall not be unreasonably withheld, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the release from all liability in respect to such claim or
litigation.

 

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6.4       Certain Limitations.   The liability of Sellers or Buyer, as
applicable, for claims under this Agreement shall be limited by the following:

(a)        The amount of Losses otherwise recoverable under this Article VI
shall be reduced to the extent to which any federal, state, local or foreign tax
liabilities of the Seller or Buyer, as applicable, or any of their respective
affiliates is decreased by reason of any Loss in respect of which Seller or
Buyer, as applicable, shall be entitled to indemnity under this Agreement.

(b)        If any matters giving rise to a claim of indemnification pursuant to
Article VI may be covered by any insurance policy, then no amount shall be
recovered pursuant to Article VI unless and until Buyer or Seller shall have
made a claim against its insurers under such policy and such insurance claim
shall have been finally decided.

(c)        No claim or claims with respect to Losses shall be asserted by Seller
or Buyer pursuant to the provisions of this Article VI, unless the amount of
such Losses exceeds at least $35,000 in the aggregate (such $35,000 amount, the
"Indemnity Threshold") and then to the full extent of such Losses, provided,
however, that the limitations set forth in this Section 6.4(c) shall not apply
with respect to the inaccuracy or breach of any representation or warranty set
forth in Section 3.1(i) or (s) or the last sentence of Section 3.1(h), provided
further that any claim for Losses under such sections shall not be counted as
contributing to either the Indemnity Threshold or the Indemnity Deductible.

 

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(d)        The aggregate amount of Losses recoverable pursuant to the provisions
of Article VI by Buyer and Seller shall be limited to $700,000.

ARTICLE VII.
Termination

7.1       Termination.   This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Effective Time:

(a)        by the consent of each of Buyer and Seller; or

(b)        by Buyer or Seller if (i) any of the conditions to their respective
obligations specified in Article V hereof have not been satisfied or waived
prior to Closing, or (ii) the transactions contemplated hereby shall not have
been consummated on or before November 30, 2003; provided, however, that the
right to terminate this Agreement pursuant to this Section 7.1 shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or resulted in, the failure of any of
the conditions specified in Article V that are required to have been satisfied
prior to the consummation of the transactions contemplated hereby.

 

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7.2       Effect of Termination.   In the event of the termination of this
Agreement by a party to this Agreement, as provided above, this Agreement shall
thereafter become void and there shall be no liability on the part of any party
hereto or their respective directors, officers, shareholders or agents, except
as provided in Sections 3.1(dd), 3.2(e), 4.1(b), 4.2(b) and 8.2 hereof and
except that any such termination shall be without prejudice to the rights of any
party hereto arising out of the willful breach by any other party of any
covenant or agreement contained in this Agreement.

7.3       Refund of Deposit.   In the event of termination of this Agreement
pursuant to Section 7.1, or by Buyer pursuant to Section 7.1(b), Seller will
refund Buyer's $200,000 deposit heretofore paid to Seller.  Such refund will be
made within five (5) days following notice of termination.  In the event of
termination of this Agreement by Seller pursuant to Section 7.1(b), Buyer's
$200,000 deposit shall be retained by Seller as liquidated damages for Buyer's
failure to satisfy the conditions specified in Article V.

ARTICLE VIII.
Miscellaneous

8.1       Survival of Representations and Warranties.   The representations and
warranties of Buyer and Seller in this Agreement shall survive the Closing for a
period of one year , except the representations and warranties contained in
Sections 3.1(a), (b), (c) and (f) and 3.2(a) and (b) shall survive indefinitely.

8.2       Expenses.   Each of the parties shall bear its own costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby (except as otherwise provided herein).

8.3       Notices.   Any notice or other communication provided for herein or
given hereunder to a party hereto shall be in writing and shall be deemed to be
received when delivered in person or by telecopy at the respective telecopy
numbers reflected below or at the close of the second full business day
following the day on which such notice is mailed by certified mail, postage
prepaid, addressed as follows:

If to Buyer:                   Western Filter Corporation

26235 Technology Drive

Valencia, CA  91355

Attention:          Paul Akian

Telephone:        (661) 295-0800

Telecopy:         (661) 295-0200

  With a copy to:             Sheppard Mullin Richter & Hampton LLP

Forty Eighth Floor

333 South Hope Street

Los Angeles CA  90071

Attention:          James J. Slaby

Telephone:        (213) 617-5411

Telecopy:         (213) 620-1398

 

 

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If to Seller:                    Argan, Inc.

1 Church Street

Suite 302

Rockville, MD  20850

Attention:          H. Haywood Miller III

Telephone:        (301) 315-0027

Telecopy:         (301) 315-0064

   With a copy to:             Robinson & Cole LLP

Financial Centre

P.O. Box 10305

Stamford, CT  06904-2305

Attention:          Richard Krantz

Telephone:        (203) 462-7505

Telecopy:         (203) 462-7599

or to such other address with respect to any party as such party shall notify
the others in writing as above provided.

 

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8.4       Amendments.   This Agreement may not be amended, modified or
supplemented except by written agreement of Seller and Buyer.

8.5       Waiver.   At any time prior to the Effective Time, Buyer or Seller may
(i) extend the time for the performance of any of the obligations or other acts
of the other party hereto, (ii) waive any inaccuracies in the representations
and warranties of the other party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the obligations of the
other party or any of the conditions to its own obligations contained herein to
the extent permitted by law.  Any agreement on the part of Buyer and Seller to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of Buyer and Seller.

8.6       Publicity.   Any public announcement or press release concerning the
transactions contemplated by this Agreement shall require the prior approval of
Seller and Buyer both as to the making of such announcement or release and as to
the form and content thereof, except to the extent that a party is advised by
counsel, in good faith, that such announcement or release is required as a
matter of law and full opportunity for prior consultation is afforded to the
other parties to the extent practicable.

8.7       Headings.   The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.

8.8       Assignment of Agreement.   Neither this Agreement nor any of the
rights or obligations hereunder may be assigned by Buyer or Seller, whether by
operation of law, asset or stock sale or otherwise, without the prior written
consent of the other parties hereto.

8.9       Parties in Interest.   This Agreement shall be binding upon and inure
solely to the benefit of the parties hereto and their successors and permitted
assigns, and nothing in this Agreement, expressed or implied, is intended to
confer upon any other person any rights or remedies of any nature under or by
reason of this Agreement.

8.10     Counterparts.   This Agreement may be executed in one or more
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each of the
parties hereto.

8.11     Governing Law.   This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California, without regard
to its conflicts of law rules.

8.12     Severability.   If any term, provision, covenant or restriction of this
Agreement is held 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.  It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such which may be hereafter declared invalid, void or unenforceable.

 

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8.13     Remedies.   Except as otherwise provided in this Section 8.13, the
rights and remedies provided herein shall be cumulative and nothing contained
herein is intended to or shall be construed so as to limit the remedies which
any party may have against the others in the event of a breach by any party of
any representation, warranty, covenant or agreement made under or pursuant to
this Agreement, it being intended that any remedies shall be cumulative and not
exclusive.  Notwithstanding any contrary provision in this Agreement, in the
absence of intentional misrepresentation or intentional omission of material
facts, the indemnification provisions contained in Article VI hereof shall
constitute the sole and exclusive remedy for any breach of a representation or
warranty (but not a covenant) of any party to this Agreement.

8.14     Entire Agreement.   This Agreement and the transaction documents
referred to herein constitutes the entire agreement among the parties hereto and
supersedes all prior agreements and understandings oral or written, among the
parties hereto with respect to the subject matter hereof and thereof.

8.15     Further Assurances.   Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its commercially reasonable
efforts to take, or cause to be taken all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement.

8.16     Consent to Jurisdiction and Waivers.   By their execution and delivery
of this Agreement, each of Buyer and Seller expressly and irrevocably consents,
and submits to the personal jurisdiction of the state courts of the State of
California located in the County of Los Angeles and the United States District
Court for the Central District of California.  Each of Buyer and Seller further
irrevocably consents to the service of any complaint, summons, notice or other
process relating to any such action or proceeding by delivery thereof to the
other parties hereto by hand or by any other manner provided for in Section
8.3.  Each of Buyer and Seller expressly and irrevocably waives any claim or
defense in any such action or proceeding based on any alleged lack of personal
jurisdiction, improper venue or forum non conveniens or any similar basis.

8.17     Waiver of Jury Trial.   In the event that any dispute shall arise
between or among any of the parties to this Agreement and litigation ensues,
WITH RESPECT TO ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR ANY RELATED
TRANSACTION, THE PARTIES EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A JURY TRIAL
AND AGREE THAT ANY SUCH LITIGATION SHALL BE TRIED BY A JUDGE WITHOUT A JURY.

[remainder of this page left intentionally blank]

 

 

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by a
duly authorized officer of Buyer and by a duly authorized officer of Seller as
of the date first above written.

BUYER:

WESTERN FILTER CORPORATION

By:                                                      

Its:                                                       

 

SELLER:

ARGAN, INC.

By:                                                      

Its:                                                       

 

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EXHIBIT B

 SELECTED DEFINITIONS

"Affiliated Group" means any affiliated group within the meaning of IRC §1504,
any group of corporations filing an aggregate, combined, composite,
consolidated, group or similar Tax Return for purposes of state, local or
foreign Tax law.

"Buyer" means Western Filter Corporation.

"CERCLA" has the meaning set forth in Section 3.1(bb)(vii).

"Closing" has the meaning set forth in Section 2.4.

"Closing Date" has the meaning set forth in Section 2.4.

"Code" means the Internal Revenue Code of 1986, as amended.

"Company" means Puroflow, Inc.

"Company Balance Sheet" has the meaning set forth in Section 3.1(h).

"Company Existing Property" has the meaning set forth in Section 3.1(aa)(xviii).

"Company Financial Statements" has the meaning set forth in Section 3.1(h).

"Company Intellectual Property" has the meaning set forth in Section 3.1(y)(i).

"Company Leased Property" has the meaning set forth in Section 3.1(aa)(xvii).

"Company Owned Property" has the meaning set forth in Section 3.1(aa)(xvii).

"Dollars" means United States Currency.

"Effective Time" has the meaning set forth in Section 2.4.

"Environmental Law" has the meaning set forth in Section 3.1(aa)(xvi).

"ERISA" has the meaning set forth in Section 3.1(s).

"Escrow Agreement" has the meaning set forth in Section 2.2(b).

"GAAP" means generally accepted accounting principles in the United States of
America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, or in such other statements by such other
entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.

 

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"Hazardous Substances" has the meaning set forth in Section 3.1(aa)(xv).

"Income Tax" means any federal, state, local or foreign Tax imposed on or
measured by gross or net income or a taxable base in the nature of gross or net
income (including franchise, alternative, minimum, alternative minimum, add-on,
and surcharge and other similar Taxes), any Tax imposed in whole or in part in
lieu of any of the foregoing, and in each instance any interest (including
interest on deferred tax liability under IRC Section 453A(c), "look-back"
interest under IRC Section 460 and similar amounts of interest imposed by the
IRC), penalties, additions to tax or similar charges attributable to such Tax.

"IRC" means the Internal Revenue Code of 1986, as amended.

"Knowledge" has the meaning set forth in Section 3.1(ee).

"Material Adverse Effect" or "Materially Adversely Affected" shall mean any
material adverse change in the business, properties, results of operations or
condition (financial or otherwise) of a company or its business, taken as a
whole.

"National Priorities List" has the meaning set forth in Section 3.1(aa)(ix).

"Ordinary Course of Business" shall mean the ordinary course of business
consistent with past custom and practice (including with respect to quantity,
quality and frequency and, when referring to the Business or the Company, with
respect to the past custom and practice of the Business as operated by both
Seller and by the Company).

"Permits" has the meaning set forth in Section 3.1(q).

"Purchase Price" has the meaning set forth in Section 2.1.

"Seller" means Argan, Inc.

"Tax Disclosure Schedule" has the meaning set forth in Section 3.1(i).

"Tax" or "Taxes" means (whether or not disputed) taxes of any kind, levies or
other like assessments, duties, imposts, charges or fees , including but not
limited to (x) all federal, state, local or foreign taxes, including all income,
profits, capital gains, receipts, corporate franchise, net worth, sales, use,
value added, property, ad valorem, value-added, intangible, unitary, transfer,
stamp, documentary, license, payroll, employment, estimated, excise,
environmental, occupation, premium, property, customs, duties, severance,
windfall profits, franchise, license, withholding, social security,
unemployment, disability, registration, alternative or add-on minimum, recapture
or other taxes, levies, fees or assessments together with any interest and any
penalties, additions to tax or additional amounts with respect thereto, (y) any
liability for payment of amounts described in clause (x) as a result of
transferee liability, or being a member of an Affiliated Group for any period,
or otherwise through operation of law, and (z) any liability for payment of
amounts described in clauses (x) or (y) as a result of any tax sharing, tax
indemnity or tax allocation agreement or any other express or implied agreement
or any practice, policy or arrangement of indemnifying to indemnify any other
person for taxes.

 

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"Tax Return or Return" means any return, declaration, report, claim for refund,
information return or statement that relates to any Tax, including any schedule
or attachment thereto and any amendment thereof.

"Treasury Regulation" means any final, proposed or temporary regulations
promulgated under the IRC.

 

 

 

 

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