<PAGE>   1
Private & Confidential


                             DATED 22ND OCTOBER 1999




                     YORK WATERWORKS ENTERPRISES LIMITED (1)

                     INDEPENDENT ENERGY HOLDINGS PLC     (2)

                                       AND

                               KELDA GROUP PLC           (3)






                                    AGREEMENT
                        FOR THE SALE AND PURCHASE OF THE
                         ENTIRE ISSUED SHARE CAPITAL OF
                                YORK GAS LIMITED


                          [ADDLESHAW BOOTH & CO. LOGO]
                             ADDLESHAW BOOTH & CO.

<PAGE>   2
                                    CONTENTS


<TABLE>
<CAPTION>
CLAUSE            HEADING                                                       PAGE
<S>      <C>                                                                    <C>
1                 Definitions                                                     1

2                 Sale and purchase                                               3

3                 Consideration                                                   3

4                 Completion                                                      4

5                 Warranties                                                      6

6        Non-competition and confidentiality                                      7

7        Taxation                                                                 8

8        Employees                                                                8

9        Further assurance                                                        8

10       Costs                                                                    9

11       Period to Completion                                                     9

12       General                                                                 10

13       Interpretation provisions                                               12

14       Proper law                                                              13

15       Notices                                                                 13

SCHEDULE

1        The Company                                                             14

2        Warranties                                                              15

3        Property                                                                21
         Part 1 - Description of Property                                        21

4        Provisions for the protection of the Seller                             22

5        Taxation                                                                26
         Part 1 - General                                                        26
         Part 2 - Tax Covenant                                                   36
         Part 3 - Taxation Warranties                                            38
</TABLE>

<PAGE>   3
<TABLE>
<S>      <C>                                                                    <C>
6        Preparation of Completion Accounts and determination of
         Net Assets Value                                                        43
         Part 1 - Principles for preparation of Completion Accounts              43
         Part 2 - Procedure for preparation of Completion Accounts
                   and determination of Net Assets Value                         46

7        Intellectual Property                                                   49

AGREED FORM DOCUMENTS

1        THE SHARED SERVICES AGREEMENT

2        THE SECONDMENT AGREEMENTS

3        THE LEASE OF THE PROPERTY
</TABLE>

<PAGE>   4
THIS AGREEMENT is made on 22nd October 1999 BETWEEN:

(1)      YORK WATERWORKS ENTERPRISES LIMITED (company number 3050705) whose
         registered office is at 2 The Embankment, Sovereign Street, Leeds, LS1
         4BG ("THE SELLER"),

(2)      INDEPENDENT ENERGY HOLDINGS PLC (registered in England and Wales under
         number 3033606) whose registered office is at Radcliffe House, Blenheim
         Court, Solihull B91 2AA("THE BUYER"), and

(3)      KELDA GROUP PLC (Company number 2366627) whose registered office is at
         2 The Embankment, Sovereign Street, Leeds, LS1 4BC ("KELDA").

IT IS HEREBY AGREED as follows:

1        DEFINITIONS

1.1      In this Agreement the following definitions apply, unless the context
         requires otherwise:

         "ACCOUNTS" means the audited accounts of the Company for the financial
         year ended on the Accounts Date;

         "ACCOUNTS DATE" means 31st March 1999;

         "AFFILIATE" means in relation to any person, any holding company or
         subsidiary of that person or any subsidiary of such holding company and
         "holding company" and "subsidiary" shall have the meaning given to them
         in section 736 of the Companies Act 1985;

         "AUDITED ACCOUNTS" means the audited accounts of the Company for the
         period from 1st April 1999 midnight on 31st October 1999 to be prepared
         by the Company pursuant to clause 3.3 and Schedule 6;

         "AUDITORS" means Messrs Ernst & Young, the auditors of the Company
         immediately prior to Completion;

         "BUSINESS DAY" means a day (excluding a Saturday, Sunday or public
         holiday) on which clearing banks are open for business in the City of
         London;

         "COMPANY" means York Gas Limited, a company registered in England and
         Wales under number 3061131, particulars of which are set out in
         schedule 1;

         "COMPLETION" means completion of the sale and purchase of the Shares
         pursuant to this Agreement in accordance with its provisions;

         "COMPLETION ACCOUNTS" means the balance sheet of the Company as at
         Completion on 1st November 1999 to be prepared in accordance with
         clause 3.3;

         "COMPLETION DATE" means 1st November 1999;

         "DESIGNATED ACCOUNT" means the bank account at the National Westminster
         Bank plc, Leeds City office; Account Number 86690469; Sort Code: 60 60
         05; and Account Name: Kelda Group plc;

         "DISCLOSURE LETTER" means the letter dated the same day as this
         Agreement written by the Seller to the Buyer qualifying the Warranties;

<PAGE>   5
         "DOMESTIC CUSTOMERS" means those persons who have signed the York Gas
         domestic gas supply agreement and have not delivered to the Company
         notice of termination of that agreement;

         "DUE DILIGENCE MATERIALS" means the Information Memorandum, the
         preliminary due diligence pack, the files called "York Gas Limited Due
         Diligence pack" volumes 1-5 and the documents sent to the Buyer on
         23rd, 28th and 29th September 1999 all as they appear in the bundle of
         documents attached to the Disclosure Letter;

         "GAS SUPPLIER LICENCE" means a licence granted pursuant to section
         7A(1) of the Gas Act 1986 (as amended);

         "INDUSTRIAL AND COMMERCIAL CUSTOMERS" means those persons who have
         signed the York Gas commercial gas supply agreement and have not
         delivered to the Company notice of termination of that agreement;

         "INFORMATION MEMORANDUM" means the document with the name "York Gas
         Limited Information Memorandum" a copy of which appears in the Due
         Diligence Materials;

         "INTELLECTUAL PROPERTY" means patents (including supplementary
         protection certificates), trade marks, service marks, registered
         designs, utility models, design rights, topography rights, copyrights,
         inventions, trade secrets and other confidential information, know-how,
         business or trade names, get-up, and all other intellectual property
         and neighbouring rights and rights of a similar or corresponding
         character in any part of the world (whether or not the same are
         registered or capable of registration) and all applications and rights
         to apply for or for the protection of any of the foregoing;

         "INTELLECTUAL PROPERTY RIGHTS" means the Intellectual Property which is
         listed in schedule 7;

         "NET ASSETS VALUE" means a sum (whether positive or negative) equal to
         the paid up share capital of the Company plus or minus (as the case may
         be) the amounts standing to the credit or debit of the capital and
         revenue reserves (including profit and loss account) of the Company at
         the Completion Date, all as shown in the Completion Accounts;

         "PERSON" includes a body corporate and an unincorporated body of
         persons;

         "PROPERTY" means the leasehold property specified in part 1 of schedule
         3 and any part of it;

         "PURCHASE PRICE" means the sum set out in clause 3.2 plus or minus any
         adjustment to be made pursuant to clause 3.3;

         "SHARES" means the 5,000 "A" Ordinary shares of Pound Sterling1 each
         and the 5,000 "B" Ordinary shares of Pound Sterling1 each in the
         Company together with all the shares to be issued pursuant to clause
         4.5 being the whole of the issued share capital of the Company at
         Completion;

         "TAX COVENANT" means the covenant contained in part 2 of schedule 5;

         "1988 TAXES ACT" means the Income and Corporation Taxes Act 1988; and

<PAGE>   6
         "WARRANTIES" means the warranties referred to in clause 5 and set out
         in schedule 2, part 2 of schedule 3 and part 3 of schedule 5.

1.2      A document expressed to be "in the Agreed Form" is a document whose
         form has been agreed, and for identification purposes signed, by or on
         behalf of the parties to this Agreement.

1.3      Words and phrases which are defined for the purposes of the Companies
         Act 1985 shall, unless the context requires otherwise, bear the same
         meanings in this Agreement.

1.4      A person shall be treated as "connected with" another person for the
         purpose of this Agreement if he would be so treated under section 839
         of the 1988 Taxes Act.

1.5      References in this Agreement to "TAX" and "TAXATION" shall be construed
         in accordance with the Tax Covenant.

2        SALE AND PURCHASE

2.1      On and subject to the provisions of this Agreement the Seller shall
         sell with full title guarantee the Shares and the Buyer shall purchase
         the Shares on and with effect from Completion, in each case free from
         any mortgage, charge, pledge, lien, equity, option, encumbrance or
         other third party right or claim, and free from any outstanding
         agreement or commitment to give or create any of the foregoing,
         together with all rights and benefits attached or accruing to the
         Shares on or after Completion (including without limitation the right
         to receive all dividends and distributions declared, made or paid on or
         after Completion).

2.2      The Seller hereby waives any rights of pre-emption conferred on him by
         the Articles of Association of the Company or otherwise over any of the
         Shares.

3        CONSIDERATION

3.1      The consideration for the sale of the Shares shall be the payment by
         the Buyer to the Seller in accordance with the following provisions of
         this clause 3 of the Purchase Price in cash.

3.2      The sum of Pound Sterling4,400,000 on account of the Purchase Price
         shall be payable on Completion to the Designated Account by way of
         electronic funds transfer for same day value.

3.3      Following Completion the Buyer shall prepare drafts of the Audited
         Accounts and the Completion Accounts in accordance with schedule 6, and
         following agreement or determination of the Net Asset Value in
         accordance with that schedule, if the Net Asset Value is:

         (a)      an amount which is more than Pound Sterling839,000, the Buyer
                  shall pay to the Seller in accordance with clause 3.4 a sum
                  equal to the difference between the Net Assets Value and Pound
                  Sterling689,000;

         (b)      an amount which is less than Pound Sterling539,000, the Seller
                  shall pay to the Buyer in accordance with clause 3.4 a sum
                  equal to the difference between the Net Assets Value and Pound
                  Sterling689,000; or

<PAGE>   7
         (c)      equal to or between Pound Sterling839,000 and Pound
                  Sterling539,000, no payment or further payment from the Buyer
                  to the Seller, or from the Seller to the Buyer shall be made
                  pursuant to this clause 3.3.

3.4      Every sum payable under clause 3.3 shall be paid:

         (a)      within 5 business days after the date of agreement or
                  determination of the Net Asset Value by electronic funds
                  transfer for same day value:

                  (i)      (where such sum is expressed to be payable to the
                           Seller) to the Designated Account; or

                  (ii)     (where such sum is expressed to be payable to the
                           Buyer) to such account as is designated by the Buyer.

4        COMPLETION

4.1      Prior to Completion the accounting reference date shall be changed to
         31st October 1999.

4.2      Completion shall take place at the offices of Addleshaw Booth & Co of
         Sovereign House, PO Box 8, Sovereign Street, Leeds, LS1 1HQ on the
         Completion Date.

4.3      At Completion the Seller shall deliver to the Buyer:

         (a)      the transfers of the Shares, duly executed by the registered
                  holders, in favour of the Buyer or its nominee, together with
                  the relevant share certificates;

         (b)      the common seal, certificate(s) of incorporation and statutory
                  books, written up to but excluding Completion, of the Company;

         (c)      letters of resignation (with effect from the end of the
                  relevant board meeting referred to in clause 4.4) under seal
                  in the Agreed Form from Rachel Victoria Jones, Jonson Cox,
                  Peter John Nicholson and John Peter O'Kane resigning from all
                  their offices within the Company;

         (d)      a copy of each bank mandate of the Company;

         (e)      the accounting records and all cheque books, paying in books
                  and unused cheques of the Company accompanied by bank
                  statements of all its bank accounts as at the close of
                  business on the date not more than 2 business days prior to
                  Completion;

         (f)      a copy of the resolutions of the directors of the Seller
                  (certified as true by its secretary or a director) authorising
                  the execution and delivery of, and performance of its
                  obligations under, this Agreement and the other documents to
                  be entered into by it in relation to this Agreement;

         (h)      the certificates of registration for all Intellectual Property
                  Rights which are registered together with evidence of all
                  renewals of such registrations

         and shall use all reasonable endeavours to procure that the lease of
         the Property in substantially the Agreed Form has been executed by the
         parties thereto and duly stamped before Completion and shall deliver
         unconditional receipts for rent and any service charges due in respect
         of the Property.

<PAGE>   8
4.4      At Completion the Seller will procure that a meeting of the board of
         directors of the Company and a meeting of its shareholders is held, at
         which:

         (a)      the transfers of Shares are approved and, subject to stamping,
                  the entry of the transferee(s) in the relevant register of
                  members as holder(s) of such shares is approved;

         (b)      Ian Stewart and John Sulley are appointed directors and Ian
                  Stewart is appointed as secretary of the Company;

         (c)      all the Company's authorities and instructions to bankers
                  (including bank mandate forms) are modified or replaced, as
                  directed by the Buyer;

         (d)      the sending to the Registrar of Companies of a notice changing
                  the Company's registered office to that of the Buyer is
                  approved; and

         (e)      the actions required to be taken by the Company to effect
                  clause 4.5 and 4.6 are taken and approved.

4.5      Immediately prior to Completion the Seller shall procure that:

         (a)      the Company shall transfer a sum equal to the net aggregate
                  credit balance on all the Company's bank accounts to the
                  Seller in satisfaction of a capital sum equal to such amount
                  in respect of amounts owed by the Company to the Seller; or

         (b)      if there is a net aggregate debit balance on all of the
                  Company's bank accounts, the Seller shall transfer a sum equal
                  to any such net aggregate debit balance to a bank account of
                  the Company.

 4.6     Any outstanding amounts due to the Seller from the Company after clause
         4.4 is complied with shall be capitalised by the Seller and used to
         fund the subscription by the Seller for "A" Ordinary Shares of Pound
         Sterling1 each per share in the capital of the Company with a nominal
         value equal to the amounts outstanding at that time following which
         subscription all such outstanding amounts shall be completely
         discharged.

4.7      The Seller hereby declares that so long as it remains the registered
         holder of any of the shares after Completion it will:

         (a)      hold the Shares and the dividends and other distribution of
                  profits or surplus or other assets declared, paid or made in
                  respect of them now or after the date hereof and all rights
                  arising out of or in connection with them in trust for the
                  Buyer and its successors in title; and

         (b)      deal with and dispose of the Shares and all such dividends,
                  distributions and rights as are described in sub-clause (a)
                  only as the Buyer or any such successor may direct.

4.7      Within 14 business days following Completion, the Buyer shall procure
         the unconditional release (and deliver to the Seller the original
         document effecting such release) of all obligations under the first
         demand without proof or conditions Bond (the "BOND") dated 8th October
         1997 given by York Waterworks Limited in favour of Ofgem and shall, if
         so required by Ofgem as a condition of such release, enter into any
         bond or other security arrangement in the form and in respect of the
         principal sum required by Ofgem. The Buyer shall

<PAGE>   9
         indemnify the Seller (as trustee for York Waterworks Limited) against
         all costs, claims and liabilities of York Waterworks under the Bond
         arising by reason of a claim under such Bond after Completion.

4.8      At Completion, the Seller and the Company shall enter into the Shared
         Services Agreement and the Secondment Agreements each in the Agreed
         Form.

4.9      The Seller confirms that Peter John Nicholson and Steven Bradley have
         both agreed to enter into the Secondment Agreements each in the Agreed
         Form.

5        WARRANTIES

5.1      The Seller warrants to the Buyer (for itself and as trustee for its
         permitted successors in title) in the terms of the Warranties as at the
         date of this Agreement. The Seller acknowledges that the Buyer is
         entering into this Agreement on the basis of and in reliance upon the
         accuracy of each Warranty. Liability under any Warranty shall not be
         confined to breaches discovered before Completion nor in any way be
         modified or discharged by Completion.

5.2      The Buyer shall not have any claim under the Warranties in respect of
         any matter which is fairly disclosed in or deemed disclosed by the
         Disclosure Letter or by the Due Diligence Materials.

5.3      Each Warranty which is, or could be, set out in a separate clause shall
         be construed independently of the others and, save as expressly
         provided otherwise, shall not be limited or curtailed as a result of
         any other provision of this Agreement.

5.4      Where a statement in this Agreement is qualified by the expression "so
         far as the Seller is aware" or any similar expression the Seller shall
         be deemed to have the knowledge of all employees of the Seller and its
         subsidiaries other than the Company and in addition the Seller is
         deemed to have the knowledge it would have acquired after reasonable
         diligent enquiry of Peter Nicholson but shall not be deemed to have
         further knowledge of any other person.

5.5      Neither any failure to exercise, or delay in exercising, any right or
         remedy of the Buyer in relation to this Agreement or Completion, shall
         operate as a waiver of any such right or remedy and a single or partial
         exercise of such a right or remedy shall not preclude any other
         exercise by the Buyer of that or any other right or remedy.

5.6      All claims by the Buyer for damages or compensation in respect of any
         claim by the Buyer or the Company against the Seller under this
         Agreement shall be subject to the provisions for the protection of the
         Seller in schedule 4.

6        NON-COMPETITION AND CONFIDENTIALITY

6.1      The Seller covenants with the Buyer (for itself and as trustee for the
         Company and its permitted successors in title) that (always subject to
         Clause 6.2) it will not directly or indirectly in any capacity within
         Great Britain within 12 months after the Completion Date apply for a
         gas licence to supply gas under the Gas Act 1986 or be interested in an
         undertaking which has an existing licence to supply gas under the Gas
         Act 1986.

6.2      Clause 6.1 shall not prevent the Seller from having an interest in
         securities which are traded on a recognised public market if that
         interest does not

<PAGE>   10
         constitute a notifiable interest for the purpose of section 199(2)
         Companies Act 1985 or purchasing any company or business which includes
         a business which carries out operations of the type specified in clause
         6.1 provided they do not comprise the majority of such company's or
         business's operations.

6.3      If the undertakings in clauses 6.1 or 6.5 would be void unless
         modified, they shall be modified to the extent necessary to make them
         enforceable.

6.4      The Seller covenants with the Buyer that it shall not for a period of 2
         years after the Completion Date (except under the authority of the
         court or other legal or regulatory obligation) divulge to any other
         person or use otherwise than for the benefit of the Company, any secret
         or confidential information relating to the businesses of the Company,
         including its customers, processes and dealing terms, which was
         obtained by it from its ownership of shares in the Company or position
         in the Company.

6.5      Kelda covenants with the Buyer (for itself and as trustee for the
         Company and its permitted successors in title) that it will not and
         will procure that no subsidiary of Kelda will during the period of 2
         years from the Completion Date enter into an agreement with any person
         who is a Domestic Customer or Industrial and Commercial Customer of the
         Company at the Completion Date for the supply of electricity by Kelda
         or any such subsidiary or solicit any such person in connection with
         such an agreement provided that this covenant shall not apply to sales
         of electricity generated by Yorkshire Windpower Limited or sales of
         electricity generated by any generating facility in which Kelda or any
         subsidiary of Kelda has become interested in or will become interested
         in the future.

6.6      Kelda covenants with the Buyer (for itself and as trustee for the
         Company and its permitted successors in title) that it will not and
         will procure that no subsidiary of Kelda will during the period of 2
         years from the Completion Date enter into an agreement with any person
         who is a Domestic Customer or Industrial and Commercial Customer of the
         Company at the Completion Date for the supply of gas by Kelda or any
         such subsidiary or solicit any such person in connection with such an
         agreement.

7        TAXATION

7.1      The provisions of schedule 5 shall have effect.

8        EMPLOYEES

8.1      The Buyer undertakes to the Seller and to Kelda that it will not, and
         will procure that the Company will not, dismiss or transfer to a
         location outside the City of York any of the permanent employees of the
         Company at the Completion Date during the period of 6 months starting
         on the Completion Date and that during such period it will procure that
         the Company maintains such employees in their current posts on the same
         terms (save for any increase in salary and variations to pension
         arrangements which are necessary as a result of completion of this
         Agreement) as applied to them at the Completion Date. The Buyer further
         undertakes that if following such period (but before the expiry of 9
         months from the Completion Date) the Company wishes to terminate the
         post of such an employee at the Property it will, or will procure that
         the Company will, offer alternative employment on at least as
         beneficial terms to such employee.

<PAGE>   11
8.2      The Buyer accepts that a monetary claim would not be an adequate remedy
         for breach of clause 8.1 and that the Seller is entitled to an order
         for specific performance of the Buyer's obligations under clause 8.1.

8.3      Notwithstanding clauses 8.1 and 8.2, nothing in this Agreement shall
         prevent the Company from exercising any rights or remedies available to
         it arising from any employee's breach of the terms and/or conditions of
         his/her employment.

9        FURTHER ASSURANCE

9.1      The Seller shall, at the request and expense of the Buyer, execute and
         deliver all such instruments and any further document, including a
         power of attorney in favour of the Buyer or its nominee, and perform
         any further act which may be required by the Buyer to effectually vest
         title to the Shares in the Buyer.

9.2      Save as (but only to the extent) expressly required by law or by the
         London Stock Exchange or by the relevant national or supra-national
         regulatory, governmental or quasi-governmental authority, all
         announcements or circulars by, or on behalf of the parties hereto and
         relating to the terms of this Agreement or any document entered into
         pursuant to it shall be in terms to be agreed between the parties in
         advance of issue and the terms of this Agreement and of the documents
         entered into pursuant to it shall otherwise be kept confidential by the
         parties.

9.3      Subject always to use of the Intellectual Property Rights by the Buyer
         and/or the Company, the Buyer shall not at any time following
         Completion represent or allow representations to be made that it, any
         associated company of the Buyer or the Company is in any way connected
         to the Seller or Kelda or any subsidiary thereof.

10       COSTS

10.1     Each party shall pay its own costs and expenses in relation to the
         negotiation, preparation, execution and implementation of this
         Agreement and the documents referred to herein.

11       PERIOD TO COMPLETION

11.1     The Seller undertakes with the Buyer that from the date of this
         Agreement to the Completion (both dates inclusive) it will procure that
         the business of the Company will be carried on in the normal and
         ordinary course and will procure that the Company will not (without the
         prior written consent of the Buyer) other than as provided for in this
         Agreement:

         (a)      enter into any material transaction, contract or arrangement
                  material for the purpose of this clause 11.1(a) being a
                  transaction contract or arrangement for a principal amount
                  which exceeds or could exceed Pound Sterling10,000;

         (b)      enter into any lease, hire purchase or other agreement or
                  arrangement for payment on deferred terms;

         (c)      grant a lease, licence or third party right in respect of any
                  of the Properties or otherwise transfer or dispose of any of
                  its interests in any of the Properties;

<PAGE>   12
         (d)      make any loan;

         (e)      dispose of or grant any option or right of pre-emption in
                  respect of any part of its assets (except in the ordinary
                  course of trading);

         (f)      borrow any money or make any payment out of or drawings on its
                  bank accounts (except routine payments in the ordinary course
                  of trading);

         (g)      incur any expenditure exceeding Pound Sterling5,000 on capital
                  account; or

         (h)      declare, make or pay any dividend or other distribution; or

         (i)      grant, issue or redeem any mortgage, charge, debenture or
                  other security or give any guarantee or indemnity; or

         (j)      vary any class rights attaching to any shares, create or allot
                  or issue any shares, grant any option over any shares or
                  uncalled capital or issue any securities convertible into
                  shares;

         (k)      capitalise any amount standing to the credit of any reserve or
                  redeem or repurchase any shares or otherwise reorganise its
                  share capital save as expressly envisaged in clause 4.5;

         (l)      admit any person (other than a party to this Agreement),
                  whether by subscription, transfer or transmission, as a
                  member;

         (m)      acquire or (enter into any agreement to acquire) the shares of
                  any other company or the whole or any part of the undertaking
                  of any company or person;

         (n)      enter into any joint venture, partnership or European Economic
                  grouping;

         (o)      enter into any contract or commitment or any transaction
                  otherwise than at arms length and for full value;

         (p)      make any appointment of or engage any additional director or
                  any employee;

         (q)      enter into any negotiations relating to or agree any change in
                  the terms and conditions upon which it employs its employees
                  (including, without limitation, relating to increases in
                  remuneration or the payment of bonuses or benefits);

         (r)      incur, agree or pay any management charge, charge in the
                  nature of a management charge or bonus save for the management
                  charge of Pound Sterling5,000 payable to York Waterworks
                  Limited in respect of the month of October 1999; or

         (s)      enter into any transaction, commitment or agreement with, or
                  make any payment to, the Seller not provided for in this
                  Agreement;

         (t)      appoint new auditors.

11.2     The Seller shall procure that pending Completion:

         (a)      the Buyer and all persons authorised by it are given promptly
                  on request all such facilities and information regarding the
                  business, assets, liabilities and affairs of the Company and
                  all such access to books and records or the Company as the
                  Buyer may reasonably require;

<PAGE>   13
         (b)      the Buyer is provided with copies of all board papers and
                  management reports and accounts relating to the Company
                  together with such other information as the Buyer may
                  reasonably require;

         (c)      no material decision concerning the business, assets or
                  affairs of the Company is taken without the prior written
                  consent of the Buyer;

         (d)      a representative of the Buyer is entitled to attend and speak
                  at all the board and management meetings of the Company.

11.3     The Seller shall not and shall procure the Company shall not take any
         action pending Completion which would have placed the Seller in breach
         of the Warranties had they been repeated at Completion.

12       GENERAL

12.1     In the event that the Seller shall not have procured the execution by
         the parties thereto and the stamping of the lease of the Property
         substantially in the Agreed Form before Completion the Seller and Kelda
         shall until the earlier of such execution and stamping or the expiry of
         6 months from Completion:

         (a)      use reasonable endeavours to procure that the Company may
                  continue to occupy the Property as licensee;

         (b)      jointly and severally indemnify and keep indemnified the Buyer
                  and the Company against all losses liabilities costs and
                  expenses arising by reason of claims made by the landlord or
                  the relevant owners of the Property by reason of the
                  occupation of the Property by the Company following Completion
                  other than payment of rent and other outgoings payable under
                  the terms of the lease and always subject to the Company
                  observing the terms of the lease as if it were the tenant
                  named thereunder;

         (c)      jointly and severally indemnify and keep indemnified the Buyer
                  and the Company against all reasonable costs expenses and
                  liabilities incurred or suffered in relocating the business of
                  the Company to alternative premises to include without
                  limitation legal, agents and other professional fees in the
                  event that the Company shall be required to vacate the
                  Property but always excluding rental payments and any
                  increased rental payments.

12.2     The Seller and Kelda jointly and severally agree to indemnify and keep
         indemnified the Buyer and the Company against all costs claims losses
         expenses and liabilities arising by reason of:

12.2.1   any claim by Regency Marketing (UK) Limited for payment of their
         invoice No 000149 dated 7th October 1999 for Pound Sterling409,163.49
         plus Pound Sterling71,603.61 Value Added Tax, or any claim arising
         therefrom;

12.2.2   any claims against the Company for payments due to any agent or sales
         representatives of the Company in respect of domestic gas customers or
         alleged potential gas customers who had been referred to the Company by
         such agents or sales representatives prior to Completion, or for
         compensation or other payments due for breach or termination of
         agreements with such agents or representatives

<PAGE>   14
         prior to Completion, save to the extent that such amounts have been
         provided for in the Completion Accounts;

in each case a "Claim"

PROVIDED THAT:

         (a)      The Buyer will not, and will procure that the Company does
                  not, make any admission or enter into any correspondence,
                  discussions or negotiations with any person or company
                  whatsoever in relation to any Claim (without the express prior
                  written consent of the Seller), nor take any action which the
                  Buyer or the Company should reasonably have known could
                  prejudice any defence to that Claim.

         (b)      The Buyer will not, and will procure that the Company will
                  not, compromise or settle any Claim without the consent of the
                  Seller.

         (c)      The Buyer and the Company will promptly notify the Seller of
                  any communication received in relation to any Claim.

         (d)      The Buyer and the Company shall procure that the Company shall
                  take such action to appeal, protest against, mitigate, reduce,
                  avoid, dispute, resist, compromise or accept any Claim as the
                  Seller may by written notice reasonably request provided that
                  Kelda and the Seller shall indemnify the Buyer and the Company
                  against any liabilities which they may incur as a result of
                  taking such actions.

         (e)      The Buyer and the Company will permit the Seller to have
                  conduct of each Claim subject to the Buyer and the Company
                  being secured and indemnified to their reasonable
                  satisfaction.

         (f)      The Buyer will make available, and procure that the Company
                  shall make available to the Seller all information and
                  documentation and reasonable assistance required by the Seller
                  (at the Company's cost) in connection with each Claim.

         (g)      The Buyer will provide, and will procure that the Company
                  provides, access to any of its employees, secondees (including
                  Peter Nicholson) and consultants who may have documents
                  information or evidence which may have a bearing on the Claim
                  and to permit the Seller to obtain witness statements from
                  such persons, and to require them to attend any meetings or
                  hearing in connection with the Claim and provide contact
                  details of any former employees who may have documents,
                  information or evidence which may have a bearing on the Claim.

         (h)      In the case of a Claim under Clause 12.2.2, Kelda and the
                  Seller shall have been notified in writing of such Claim prior
                  to 31st March 2000.

         (i)      The aggregate liability of Kelda and the Seller in respect of
                  any Claim under Clause 12.2.2 shall be limited to Pound
                  Sterling100,000.

         (j)      The provisions of paragraphs 1.1(b) (provided that the
                  reference therein to 30 business days after the date on which
                  proceedings referred to in clause 8 of this schedule are
                  concluded adversely against the Company shall be deemed to be
                  a reference to 30 days after conclusion of the conduct of the
                  Claim by the Seller (if any) pursuant to sub-clause (e)

<PAGE>   15
                  above), 4.1(b), 4.1(d) (with the exclusion of the reference to
                  any note in the Accounts or the Completion Accounts), 5.1(a),
                  6.1, 7.1, 8 and 9 of schedule 4 in respect of a claim for
                  breach of Warranty and/or the Tax Covenant shall apply mutatis
                  mutandis to any claim under the indemnity given in this clause
                  12.2.

12.2.3   The Buyer will use its best endeavours to, and will procure that the
         Company will use its best endeavours to, retain all documents and
         records pertaining to any entitlement to commission by any agent or
         sales representative until the later of 31st March 2000 and the final
         determination of any Claim.

12.3     The Seller and Kelda shall use reasonable endeavours to procure that on
         Completion the Company is released from all guarantees and indemnities
         given by it in respect of obligations or liabilities of the Seller
         and/or any company within the group of companies of which the Seller
         forms part and/or any associate or person connected with the Seller
         (including for avoidance of doubt the banking cross-guarantees).

12.4     The Seller and Kelda agree that pending such release to indemnify and
         keep indemnified the Buyer and the Company against all actions,
         proceedings, losses, costs, claims, damages, liabilities, and expenses
         which the Buyer or the Company may suffer or incur in respect of any
         claim made under any guarantee or indemnity referred to in clause 12.3.

13       INTERPRETATION PROVISIONS

13.1     References to any enactment, statute or statutory provision shall
         include any subordinate legislation made under it, any provision which
         it has superseded or re-enacted (whether with or without modification),
         and any provision superseding it or re-enacting it (whether with or
         without modification) provided that this provision shall not operate to
         increase the Seller's liability under this Agreement above that which
         applies as a result of any such legislation in force at the date of
         this Agreement.

13.2     References to a clause, schedule, part, section or paragraph are to a
         clause in this Agreement, a schedule to this Agreement or a section,
         part or paragraph of such a schedule respectively.

13.3     The headings in this Agreement shall not affect its construction or
         interpretation.

13.4     This Agreement shall be binding upon, and enure for the benefit of, the
         parties' successors in title but rights arising in connection with this
         Agreement (including the benefit of the Warranties) are not assignable
         other than to a party's Affiliates always provided that where such
         assignment occurs, the aggregate liability of the non-assigning party
         to the assignee and assignor shall be no greater than it would have
         been to the assigning party if the assigning party had not assigned its
         rights.

13.5     This Agreement and the documents entered into pursuant to it set out
         the entire agreement between the parties and supersedes all prior
         agreements,

<PAGE>   16
         understandings and arrangements between them, and representations by
         them, whether oral or written, which relate to the subject matter of
         this Agreement.

13.6     No variation of any provision of this Agreement shall be effective
         unless it is in writing, refers specifically to this Agreement and is
         duly executed by each party.

13.7     Time shall be of the essence of this Agreement, both as regards any
         time, date or period mentioned in this Agreement and as to any agreed
         time, date or period substituted for it.

13.8     This Agreement may be executed in 2 or more counterparts, each of which
         shall constitute an original but which when taken together, shall
         constitute 1 instrument,

13.9     In this Agreement the words and phrases "other", "including" and "in
         particular" shall not limit the generality of any preceding words or be
         construed as being limited to the same class as the preceding words
         where a wider construction is possible.

14       PROPER LAW

14.1     This Agreement shall be governed by, and construed in accordance with,
         English law. The courts of England are to have exclusive jurisdiction
         to settle any dispute which may arise out of or in connection with this
         Agreement.

15       NOTICES

15.1     Any notice in connection with this Agreement shall be in writing and
         delivered personally or sent by first class air mail pre-paid post to
         the relevant party at their registered office or such other address as
         the recipient may have previously notified to the sender in accordance
         with this clause or by telex or facsimile transmission to the then
         current telex or facsimile number of the recipient. Proof of posting or
         despatch shall be deemed to be proof of receipt:

         (a)      in the case of a letter, on the business day after posting,
                  and

         (b)      in the case of a telex or facsimile transmission, at the time
                  of despatch.

This Agreement is entered into on the date specified above.

<PAGE>   17
                                   SCHEDULE 1

                                   The Company

1        AUTHORISED SHARE CAPITAL

1.1      Pound Sterling10,000 divided into 5,000 "A" Ordinary shares of Pound
         Sterling1 each and 5,000 "B" Ordinary shares of Pound Sterling1 each.

2        NAMES OF DIRECTORS

2.1      Jonson Cox
         Peter John Nicholson
         John Peter O'Kane

3        NAME OF SECRETARY

3.1      Rachel Victoria Jones.

4        REGISTERED OFFICE

4.1      2 The Embankment, Sovereign Street, Leeds, LS1 4BQ.

5        ACCOUNTING REFERENCE DATE

5.1      31st March.

<PAGE>   18
                                   SCHEDULE 2

                                   Warranties

1.       CAPACITY OF THE SELLER

1.1      The Seller has the requisite power and authority to enter into and
         perform this Agreement.

1.2      The execution and delivery of, and the performance by the Seller of its
         obligations under, this Agreement does not require the consent of any
         other person and will not result in a breach of or default under any
         agreement or instrument to which any Seller is a party or any
         commitment or court order by which the Seller is bound.

1.3      None of the Shares has been the subject of a transfer at an undervalue
         (within the meaning of sections 238 or 339 Insolvency Act 1986) within
         the period of 5 years prior to the date of this Agreement.

2.       ACCURACY OF INFORMATION

2.1      The information in schedule 1 is accurate.

3.       CONSTITUTIONAL MATTERS

3.1      The Shares comprise the whole of the issued share capital of the
         Company.

3.2      All the issued shares of the Company are fully paid. The Company has
         not claimed or exercised a lien over any share.

3.3      There is no outstanding agreement or commitment (including any
         pre-emption and conversion rights) which may require the allotment or
         issue of, or may give to any person a right (whenever exercisable and
         whether unconditional or not) to call for the allotment or issue of,
         any share in the Company.

3.4      There is no shadow director of the Company.

3.5      Copies of the memorandum and articles of association of the Company
         (having attached thereto copies of all such resolutions as are required
         to be attached thereto) are attached to the Disclosure Letter.

4.       SUBSIDIARIES AND ASSOCIATED COMPANIES

4.1      The Company:

         (a)      has no legal or beneficial interest in the share capital of or
                  other investment in any other person (whether incorporated in
                  the United Kingdom or elsewhere) and has not agreed to acquire
                  any such shares or investments; and

         (b)      does not hold and has not agreed to any investment or other
                  interest in any partnership, joint venture, consortium or
                  other unincorporated association or arrangement for sharing
                  profits or receivables and has no branch, agency, place of
                  business or establishment outside the United Kingdom.

<PAGE>   19
5.       THE ACCOUNTS

5.1      The Accounts:

         (a)      comply with the requirements of the Companies Act 1985 and
                  1989 and with accounting principles and practices generally
                  accepted in the United Kingdom at the relevant time,

         (b)      give a true and fair view of the financial position and state
                  of affairs of the Company as at the Accounts Date and of the
                  profit or loss of the Company for the financial year ended on
                  the Accounts Date.

5.2      The bases and policies of accounting adopted for the purpose of
         preparing the Accounts are the same as those adopted in preparing the
         audited accounts of the Company for the 2 preceding financial years.

5.3      All the accounting records and VAT records of the Company are in its
         possession and give a reasonably accurate view of the trading
         transactions and the financial position of the Company.

6.       EVENTS SINCE THE ACCOUNTS DATE

6.1      Since the Accounts Date:

         (a)      the business of the Company has been carried on in the
                  ordinary and normal course, and

         (b)      the Company has not declared, made or paid any distribution
                  within the meaning of the 1988 Taxes Act.

7.       FINANCE AND CAPITAL COMMITMENTS

7.1      There is no debt of the Company for a sum exceeding Pound
         Sterling20,000 and which has been outstanding for a period of more than
         60 days since the invoice date.

7.2      Since the Accounts Date, the Company has not made or agreed to incur
         any item of capital expenditure exceeding Pound Sterling10,000 or
         disposed or agreed to dispose of any capital asset with a book value in
         excess of Pound Sterling10,000.

7.3      No guarantee, indemnity, suretyship obligation or security has been
         given or agreed to be given by, or for the benefit of, the Company.

7.4      The Company has not factored any of its debts, or engaged in any other
         financing which need not be shown in its audited accounts.

7.5      The Company has not received any material government grant.

8.       CONTRACTS

8.1      So far as the Seller is aware, there is no ground on which any material
         contract of the Company could be avoided, prematurely determined or
         declared to be invalid and the Company has not received notice
         indicating that such a claim is foreseeable.

8.2      Copies of all material contracts (including all amendments or
         variations thereto) to which the Company is a party are attached to the
         Disclosure Letter.

8.3      At the date of this Agreement:

<PAGE>   20
         (a)      the number of Industrial and Commercial Customers currently
                  taking gas is not less than 700; and

         (b)      the number of current Domestic Customers currently taking gas
                  confirmed on supply points is not less than 37,000 and there
                  are not less than 5,000 Domestic Customers who are not yet
                  confirmed as supply points which have not been rejected by
                  Transco or not yet objected to by any other gas supplier.

8.4      So far as the Seller is aware, the Company has not agreed to acquire or
         dispose of any material assets or assumed or incurred or agreed to
         assume or incur any material expenditure or material liabilities
         (including contingent liabilities) following Completion.

8.5      The Company has not entered into any agreement with Kelda or any
         subsidiary of Kelda otherwise than by way of bargain at arms length.

8.6      The Company has not entered into any contracts for the purchase of gas
         save as contained in the Disclosure Bundle and in the case of the
         purchase of gas for the supply to Industrial and Commercial Customers
         has only contracted to acquire gas under the arrangements with Aquila
         Energy Limited described in clause 8.7.

8.7      The gas prices charged by Aquila Energy in respect of Industrial and
         Commercial Customers is fixed for the duration of that customer's
         contract and provided that there are no significant changes in the
         transportation charges levied by TRANSCO and that Industrial and
         Commercial Customers consume gas in accordance with the estimated
         annual quantity for that customer's site set by TRANSCO, the prices
         charged to each such customer should result in a gross profit for the
         Company.

9.       TRADING AND TRADING PRACTICES

9.1      Save for any warranty implied by law or contained in its standard terms
         of sale (copies of which are attached to the Disclosure Letter), the
         Company has not given any warranty or guarantee, or made any
         representation, in respect of goods or services supplied or agreed to
         be supplied by it.

9.2      So far as the Seller is aware, the Company has not received
         notification of any claim that it is under a liability to replace or
         remedy defects to any goods which have been sold by it or to make good
         any errors or omission to services which have been supplied by it.

10.      OWNERSHIP AND CONDITION OF ASSETS

10.1     Having regard to their age, all of the plant and machinery used by the
         Company in connection with its business is in reasonably good repair
         and condition, fair wear and tear excepted, and has been serviced and
         maintained and complies with compulsory safety regulations.

10.2     The Company is the absolute owner of and is in actual possession of all
         the material assets used in the course of its business with full right
         and power to sell the same in each case with full title guarantee. No
         person has the right to call for any payment in respect of any of those
         assets and the Company has not created or agreed to create any charge,
         debenture, mortgage, pledge, lien, assignment or

<PAGE>   21
         other form of encumbrance or security interest over any part of its
         undertaking or assets.

11.      EMPLOYEES

11.1     The Disclosure Letter contains materially accurate details of the
         identities, dates of appointment to office or commencement of
         continuous employment, emoluments, notice periods and other terms of
         employment of each officer and employee of the Company including
         benefits provided by custom or practice.

11.2     Since the Accounts Date no change has been made in the terms of
         engagement of any officer or employee of the Company and so far as the
         Seller is aware none is expected within 6 months of the date of this
         Agreement.

11.3     The Company is not a party to any consultancy agreement.

11.4     There is no existing, pending or, so far as the Seller is aware,
         threatened dispute between the Company and any material number or
         category of its employees and so far as the Seller is aware there are
         no circumstances which are likely to give rise to any such dispute
         provided that it is acknowledged that the Seller has no knowledge of
         employees' intentions following the change of control of the Company
         contemplated by this Agreement

11.5     Save as set out in the Disclosure Letter there are no agreements,
         arrangements or practices for the provision of pension or lump sum
         benefits on or in anticipation of the retirement or death of any person
         to which the Company is a party.

12.      INTELLECTUAL PROPERTY

12.1     The Company is the sole and absolute legal and beneficial owner of the
         Intellectual Property Rights.

12.2     All the Intellectual Property Rights are valid, subsisting and
         enforceable and so far as the Seller is aware no claims have been made
         challenging their use or such validity, subsistence or enforceability
         and so far as the Seller is aware no grounds exist which might support
         any such claims.

12.3     So far as the Seller is aware, there is and has been no infringement or
         threatened infringement of any of the Intellectual Property Rights by
         any third party or of any third party Intellectual Property by the
         Company and no claim concerning such infringement has been made or
         considered by the Seller.

12.4     Save as disclosed in the Disclosure Letter there are no subsisting or
         proposed licences or other arrangements from or with third parties
         ("THIRD PARTY ARRANGEMENTS") nor are any Third Party Arrangements
         required for the exercise of any of the Intellectual Property Rights or
         for the use or disclosure of any of the subject matter thereof.

12.5     All current advertising and marketing materials ("THE MATERIALS") used
         or proposed to be used directly by the Company itself complies with the
         Company's Gas Supplier Licence and all relevant Codes of Practice and
         so far as the Seller is aware the Materials used or proposed to be used
         in connection with the Company's business by persons other than the
         Company comply with the Company's Gas Supplier Licence and all relevant
         Codes of Practice.

<PAGE>   22
12.6     The Company is registered under the Data Protection Act 1984 and so far
         as the Seller is aware has complied with the this legislation.

13.      COMPETITION

13.1     So far as the Seller is aware, the Company is not, nor has at any
         material time been, a party to, or otherwise bound by, any agreement,
         practice, concerted practice or obligation which is in contravention of
         any anti-trust or similar legislation anywhere where the Company has
         assets or carries on or intends to carry on business.

14.      LITIGATION AND DISPUTES

14.1     Apart from the collection of debts in the ordinary course of the
         business, there are no proceedings (that is to say, civil, criminal and
         arbitration proceedings and administrative proceedings of a litigious
         nature which involve the Company, or any of its employees or agents in
         relation to a matter for which the Company may have a liability) which:

         (a)      are current,

         (b)      are being contemplated by the Company, or

         (c)      so far as the Seller is aware, are pending, threatened or
                  expected to be brought against the Company or its agents or
                  employees,

         and so far as the Seller is aware, there is no circumstance (including
         without limitation any allegation made to Ofgem as to any breach or
         purported breach of the Company's Gas Supplier Licence) which may give
         rise to any proceedings.

15.      INSOLVENCY

15.1     No administrative receiver, receiver, manager or receiver and manager
         has been appointed of the whole or any part of the assets or
         undertaking of the Company and so far as the Seller is aware no such
         appointment has been threatened.

15.2     So far as the Seller is aware, no order has been made or petition
         presented or threatened or resolution passed for the winding up of the
         Company or for an administrator to be appointed in respect of the
         Company.

15.3     The Company is not insolvent nor has it stopped payment of its debts
         within the meaning of section 123 Insolvency Act 1986.

15.4     No distress, execution or other process has been levied or so are as
         the Seller is aware threatened in respect of any asset of the Company.

15.5     So far as the Seller is aware, there is no unfulfilled or unsatisfied
         judgment or court order outstanding against the Company.

15.6     So far as the Seller is aware, no proposal has been made for a
         voluntary arrangement in relation to the Company to be implemented
         under section 1 Insolvency Act 1986.

16.      INSURANCE

16.1     Particulars of all insurance policies maintained by the Company and
         currently in force are contained in the Disclosure Letter.

<PAGE>   23
16.2     The Company has in place at Completion all insurances required by law
         to be effected by it.

16.3     So far as the Seller is aware all the insurance policies in which the
         Company has an interest are in full force and effect, all premiums have
         been paid on time and there is no fact or circumstance which might lead
         to any liability under those policies being avoided by the insurers or
         the premiums being increased.

16.4     No claim is outstanding under any insurance policy in which the Company
         has an interest.

17.      LEGAL AND REGULATORY REQUIREMENTS

17.1     So far as the Seller is aware:

         (a)      the Company is conducting, and has at all material times
                  conducted, its business in accordance with all applicable laws
                  and regulations of Great Britain and has no liability for any
                  unlawful act committed by any other person;

         (b)      no licence, consent or authority is necessary to enable the
                  Company to carry on its business effectively in the places and
                  manner in which it is carried on which the Company has not
                  obtained; and

         (c)      all returns, particulars and other documents required to be
                  filed with the Registrar of Companies in respect of the
                  Company have been properly filed.

<PAGE>   24
                                   SCHEDULE 3

                                    Property

                        Part 1 - Description of Property

The Basement and Ground floors of "Club Chambers" Museum Street in the City of
York.

Part 2 - Warranties relating to Property

1.       The Property comprises all the freehold and leasehold land and premises
         owned occupied or used by the Company. The particulars of the Property
         set out in part 1 of this schedule 3 are true and accurate.

2.       So far as the Seller is aware, no notices affecting the Property have
         been served by any person or body or local or other competent authority
         which have not been complied with or are outstanding and so far as the
         Seller is aware there are no circumstances known which are likely to
         result in any such notice being served.

3.       There are no outstanding claims, notices or recommendations under the
         provisions of the Factories Act 1961, the Offices Shops and Railway
         Premises Act 1963, the Fire Precautions Act 1971 relating to the
         Property.

4.       All payments of rent and other sums due to the landlord under the lease
         have been duly paid on time and so far as the Seller is aware all
         covenants and provisions of the lease have been duly observed and there
         are no outstanding notices from the landlord concerning breach of
         covenant, rent review, determination of term, state of repair of the
         Property or otherwise.

5.       The Company has no accrued or contingent liabilities whether as
         original lessee or guarantor or surety or by virtue of any indemnity or
         otherwise under or in connection with any property formerly occupied by
         it or in which it owned or held any interest or in connection with
         which it acted as surety.

<PAGE>   25
                                   SCHEDULE 4

                   Provisions for the protection of the Seller

1        TIME LIMITS

1.1      Notwithstanding anything to the contrary in this Agreement, the Seller
         shall have no liability for any claim made against it under this
         Agreement (including in relation to the Warranties or the Tax
         Covenant):

         (a)      unless written notification of the claim giving reasonable
                  particulars of the grounds on which it is based and, so far as
                  is reasonably practicable, details of the amount of the claim
                  is given to it within 1 year after the Completion Date (other
                  than in the case of claims in respect of Tax, where such
                  notification must be given within 6 years after the Completion
                  Date); and

         (b)      if the Buyer or the Company does not issue proceedings in
                  respect of any claim within 6 months after notification of the
                  claim or, if later and if applicable, within 30 business days
                  after the date on which proceedings referred to in clause 8 of
                  this schedule are concluded adversely against the Company.

2        FINANCIAL LIMITS

2.1      Notwithstanding anything to the contrary in this Agreement, the Seller
         shall have no liability for any claim made against it in relation to
         the Warranties or the Tax Covenant:

         (a)      where the liability of the Seller in respect of that matter is
                  less than Pound Sterling2,000;

         (b)      unless and to the extent that, subject to the other provisions
                  of this clause, the aggregate of the liability of the Seller
                  under the Warranties and under the Tax Covenant exceeds Pound
                  Sterling150,000 and, once such level has been reached, the
                  Buyer and the Company shall be entitled, subject as above, to
                  claim for the full amount and not just the excess; or

         (c)      which would cause the aggregate liability of the Seller under
                  this Agreement and the Tax Covenant to exceed the Purchase
                  Price.

2.2      The limitations on the liability of the Seller set out in this
         paragraph 2 shall not apply to any claim made in relation to the
         Warranties or the Tax Covenant if the claim arises as a result of fraud
         on the part of the Seller or where it is proved that the Seller
         intentionally withheld any material disclosure relating to such claim,
         in each case on or prior to Completion.

3        NO RESCISSION

3.1      The Buyer shall have no right to rescind or treat this Agreement as
         repudiated, whether before or after Completion, for breach of any of
         the Warranties or under the provisions of the Misrepresentation Act
         1967 or for any other reason and the Buyer's sole remedy for a claim
         under this Agreement or the Tax Covenant shall be a monetary claim.

<PAGE>   26
4        EXCLUSIONS

4.1      The liability of the Seller in relation to the Warranties and the Tax
         Covenant shall not apply in
         respect of:

         (a)      any matter  expressly provided for in this Agreement;

         (b)      any matter or thing done or omitted to be done prior to
                  Completion at the written request of, or with the written
                  approval of, the Buyer;

         (c)      a claim which would not have arisen but for some voluntary act
                  or omission (which the Buyer knew or ought reasonably to have
                  known would give rise to such a claim) undertaken by the Buyer
                  or any other member of the group of companies of which the
                  Buyer is a member, for the time being, including the Company,
                  (the "BUYER'S GROUP"), or any of their respective officers,
                  agents or successors in title on or after Completion; and

         (d)      any matter or thing for which a specific provision or reserve
                  or note was made in the Accounts or the Completion Accounts.

5        CREDITS

5.1      Any liability of the Seller under the Warranties and under the Tax
         Covenant shall be reduced by an amount equal to:

         (a)      the amount of or by which any Taxation for which any of the
                  Buyer's Group is accountable is extinguished or reduced as a
                  result of the claim giving rise to the liability; and

         (b)      the amount by which any provision for Taxation not being a
                  provision for deferred Taxation, bad or doubtful debts or
                  contingent or other liabilities contained in the Accounts
                  proves after Completion to have been excessive, except by
                  reason of a reduction in Tax rates.

6        TAXATION AND CHANGES IN LAW

6.1      No liability shall attach to the Seller for any claim in relation to
         the Warranties or the Tax Covenant to the extent that:

         (a)      such claim arises as a consequence of a change in any law,
                  rule or regulation (or their interpretation) or administrative
                  practice of any government, governmental department, agency or
                  regulatory body taking effect after the date of this
                  Agreement;

         (b)      such claim arises as a result of a change of accounting or
                  Taxation policy or practice by the Buyer or the Company
                  introduced on or after the Completion Date; or

         (c)      such claim arises as a result of any increase in the rates of
                  Taxation made after the date of this Agreement.

7        INSURANCE

7.1      The Seller shall not have any liability under this Agreement or the Tax
         Covenant in respect of any claim to the extent that it has been
         recovered under any policy of insurance effected by the Company or the
         Buyer.

<PAGE>   27
8        THIRD PARTY CLAIMS

8.1      Where any member of the Buyer's Group is entitled to recover any amount
         from some other person, including any amount in respect of Taxation, in
         respect of any matter giving rise to a breach of the Warranties or a
         claim under the Tax Covenant, it shall first take steps (including the
         commencement and prosecution of proceedings in circumstances where the
         Seller and the Buyer consider that there is a reasonable chance of
         recovery) to enforce such recovery before taking steps against the
         Seller. If the Seller pays to any member of the Buyer's Group an amount
         in respect of a claim under the Warranties or under the Tax Covenant
         and subsequently any member of the Buyer's Group recovers from a third
         party a sum which is referable to that payment then the Buyer shall
         forthwith procure the repayment to the Seller of so much of the amount
         recovered from the third party less costs of recovery and tax payable
         in respect of the amount recovered as does not exceed the sum so paid
         to the Buyer's Group. The Buyer shall use and shall procure that each
         other member of the Buyer's Group uses all reasonable endeavours to
         enforce any right to recover any such sum.

8.2      If grounds for any claim against the Seller arise in relation to this
         Agreement or the Tax Covenant as a result of, or in connection with, a
         claim by, or alleged liability to, a third party (a "THIRD PARTY
         CLAIM"), the third party claim shall not be compromised or settled
         without the consent of the Seller, not to be unreasonably withheld. If
         requested promptly in writing by the Seller and, subject to its being
         indemnified to its reasonable satisfaction by the Seller against all
         costs and liabilities which may be incurred by the Seller as a result,
         the Buyer shall:

         (a)      take, and shall procure that the Company takes, all such
                  action as the Seller may reasonably request to avoid, dispute,
                  resist, appeal or compromise the third party claim; and

         (b)      make available, and procure that the Company shall make
                  available, to the Seller on request all information and
                  reasonable assistance which is relevant for that purpose. The
                  Seller shall not use or disclose any such information for any
                  other purpose.

9        MITIGATION

9.1      The provisions of this schedule 4 are without prejudice to the
         obligations of the Buyer and the Company to mitigate any loss or
         liability which might give rise to a claim under this Agreement or the
         Tax Covenant.

10       ACCESS TO INFORMATION

10.1     If any claim under this Agreement or the Tax Covenant is notified, and
         without prejudice to its validity, the Buyer shall procure that the
         Company allows the Seller and their professional advisers to
         investigate the basis for that claim. For such purpose the Buyer shall
         procure that the Company gives such reasonable access to any relevant
         documents or other information in the possession of the Company. The
         Seller shall pay the reasonable costs and expenses of the Buyer and/or
         the Company in providing or procuring such assistance.

<PAGE>   28
11       WARRANTIES AND TAX COVENANT

11.1     Where a claim may be made under the Warranties or the Tax Covenant in
         respect of the same subject matter the claim shall be made and pursued
         under the Warranties before a claim is made under the Tax Covenant for
         the same matter save in circumstances where the time period for
         bringing claims under the Warranties in accordance with paragraph
         1.1(a) of this schedule has expired.

11.2     A claim brought under the Tax Covenant shall be reduced by the amount
         recovered under a claim for breach of the Warranties in respect of the
         same matter, and vice versa.

12       NO OTHER WARRANTIES

12.1     The Buyer acknowledges that it does not enter into this Agreement in
         reliance on any warranty, representation, covenant or indemnity by or
         on behalf of the Seller which is not embodied in this Agreement or the
         Tax Covenant.

13       EFFECT ON CONSIDERATION

13.1     Any amounts payable by the Seller to the Company or the Buyer under
         this Agreement or the Tax Covenant shall constitute a reduction of the
         consideration received by it under this Agreement.

<PAGE>   29
                                   SCHEDULE 5

                                    Taxation

                                Part 1 - General

1        INTERPRETATION

1.1      In this schedule (unless the context otherwise requires):

         "ACTUAL TAXATION LIABILITY" means a liability to make an actual payment
         of Taxation whether or not such Taxation is also or alternatively
         chargeable against or attributable to any other person;

         "CAA" means the Capital Allowances Act 1990;

         "CLAIM" means any assessment, notice, demand or other document issued
         or action taken by or on behalf of any Taxation Authority or any form
         of return, computation or self-assessment required by law from which it
         appears that the Company is subject to or is sought to be made subject
         to, or will or might become subject to, any Taxation Liability or that
         a breach of any Taxation Warranty has occurred;

         "DEEMED TAXATION LIABILITY" means:

         (a)      the setting off of a Post-Completion Relief against an Actual
                  Taxation Liability of the Company in respect of which the
                  Seller would have been liable under paragraph 1.1(a) of part 2
                  or (as the case may be) against income, profits or gains which
                  would have given rise to such an Actual Taxation Liability (a
                  "SET OFF LIABILITY"), in which event the amount of the Set Off
                  Liability is the amount of the earliest Actual Taxation
                  Liability of the Company to arise which would not have arisen
                  or could have been avoided by the use of that Post-Completion
                  Relief but for that setting off;

         (b)      the unavailability of a right to repayment of Taxation treated
                  as an asset in the Completion Accounts in consequence of an
                  Event occurring on or before Completion in which event the
                  amount of the Deemed Taxation Liability is the amount of
                  Taxation which would have been repaid but for such
                  unavailability (an "UNAVAILABLE REPAYMENT LIABILITY");

         "EVENT" means any event, omission, occurrence, transaction, or act
         whatsoever;

         "FA" means  Finance Act;

         "GROUP RELIEF" has the meaning given to that expression by section 402
         ICTA;

         "ICTA" means the Income and Corporation Taxes Act 1988;

         "IHTA" means the Inheritance Tax Act 1984;

         "INDEPENDENT EXPERT" means a member of the Chartered Institute of
         Taxation or the Institute of Chartered Accountants in England and Wales
         independent of the parties who has had a specialised Taxation practice
         for at least ten years and who shall be appointed by agreement between
         the relevant parties or (failing such agreement and upon the first
         application made by any such party) by the President of the Chartered
         Institute of Taxation or the Institute of Chartered Accountants in
         England and Wales;

<PAGE>   30
         "POST-COMPLETION RELIEF" means any Relief which arises in consequence
         of or by reference to an Event occurring or deemed to occur after
         Completion and not in consequence of or by reference to any Event
         occurring or deemed to occur on or before Completion (but shall not
         include any Relief referred to in paragraph 4.2);

         "RELIEF" means any loss, allowance, exemption, set-off, deduction,
         credit or other relief from any Taxation or in the computation of
         income, profits or gains for the purpose of any Taxation and any right
         to a repayment of Taxation;

         "TAXATION" means:

         (a)      any form of tax, and any levy, duty, impost, deduction, or
                  withholding in the nature of tax whenever created or imposed
                  and whether of the United Kingdom, or elsewhere but not
                  including uniform business rates, water rates, community
                  charge, council tax or stamp duty or any tax, charge, rate or
                  duty similar to, corresponding with, replacing or replaced by
                  any of them; and

         (b)      all charges, surcharges, interest, penalties and fines
                  relating to any Taxation falling within paragraph (a) of this
                  definition;

         "TAXATION AUTHORITY" means any authority or person, whether of the
         United Kingdom or elsewhere, competent to impose, assess or collect any
         Taxation Liability;

         "TAXATION LIABILITY" means any Actual Taxation Liability, any Deemed
         Taxation Liability and any costs, fees and expenses falling within
         paragraph 1.1(d) of part 2;

         "TAX REFUND" means a tax refund relating to an accounting period within
         the meaning of section 102 FA 1989;

         "TCGA" means the Taxation of Chargeable Gains Act 1992;

         "VATA" means the Value Added Tax Act 1994; and

         "SELLER'S RELIEF" means any Relief which is or becomes available to the
         Company in respect of an accounting period of the Company ended prior
         to Completion, other than a Post-Completion Relief;

1.2      In this schedule (unless the context otherwise requires):

         (a)      references to persons include an individual, corporation,
                  partnership, unincorporated association, or body of persons
                  and any state or any agency thereof;

         (b)      references to parts are references to parts of this schedule
                  and reference in any part to a paragraph shall, unless
                  otherwise stated, be to the paragraph of that part.

<PAGE>   31
1.3      Any payments made pursuant to this schedule or for breach of any
         Warranty shall, so far as possible, be treated as an adjustment to the
         consideration paid by the Buyer for the Shares under this Agreement.

2        EXCLUSIONS AND LIMITATIONS

2.1      The Seller shall not be liable for breach of any Taxation Warranty in
         respect of any Taxation Liability (or where the loss, liability or
         damage arising in consequence of a breach of any Taxation Warranty is
         any Taxation Liability) or under part 2 in respect of any Taxation
         Liability to the extent that:

         (a)      specific provision or reserve for it is made in the Completion
                  Accounts or payment or discharge of it is taken into account
                  therein;

         (b)      any Seller's Relief is or becomes available (or is made
                  available) to the Company to mitigate the Taxation Liability
                  or breach;

         (c)      In relation to a breach of Tax Warranties only (and not so as
                  to apply to a claim under part 2 of this schedule) it arises
                  in consequence of any fact or matter which was disclosed or
                  expressed to be disclosed in the Disclosure Letter or which
                  was in the public domain at Completion.

         (d)      it arises in consequence of, or would have been reduced or
                  eliminated but for:

                  (i)      any act or omission of the Company after Completion
                           otherwise than in the ordinary course of the business
                           of the Company as carried on at Completion and
                           otherwise than pursuant to a legally binding
                           obligation of the Company in existence at Completion;

                  (ii)     the Company ceasing to carry on any trade or business
                           after Completion or effecting a major change after
                           Completion in the nature or conduct of any trade or
                           businesses carried on by it, the Company changing the
                           date to which it makes up its accounts or changing
                           any of its accounting policies, bases or practices
                           (including, without limitation, the treatment of
                           timing differences and the bases on which the Company
                           values its assets) in either case after Completion
                           other than in order to comply with generally accepted
                           accounting principles;

                  (iii)    the failure by the Company after Completion to make
                           any claim, election, surrender or disclaimer or to
                           give any notice or consent or to do any other thing,
                           the making, giving or doing of which was permitted by
                           law and which is taken in account:

                           (A)      in computing and so reducing any provision
                                    which appears in the Completion Accounts (or
                                    eliminating any provision which would
                                    otherwise have appeared in the Completion
                                    Accounts); or

                           (B)      in computing any right to repayment of
                                    Taxation which appears in the Completion
                                    Accounts;

                           and which in each case was disclosed in sufficient
                           detail and time by the Seller to the Buyer to enable
                           the same reasonably to be made, given or done, or the
                           withdrawal or amendment by the

<PAGE>   32
                           Company after Completion of any such claim, election,
                           surrender, disclaimer, notice or consent made by the
                           Company prior to Completion;

                  (iv)     any claim, election, surrender, disclaimer, notice or
                           consent made by the Company after Completion, the
                           making or doing of which was not taken into account:

                           (A)      in computing and so reducing any provision
                                    which appears in the Completion Accounts (or
                                    eliminating any provision which, would
                                    otherwise have appeared in the Completion
                                    Accounts); or

                           (B)      in computing any right to repayment of
                                    Taxation which appears in the Completion
                                    Accounts.

                  (v)      any failure by the Buyer or the Company to comply
                           with its obligations under paragraph 5 ("APPEALS AND
                           CONDUCT OF CLAIMS") or paragraph 7 ("TAXATION
                           COMPUTATIONS") to the extent (but only to the extent)
                           that such failure by the Buyer results in an increase
                           in Taxation Liability;

                  (vi)     any legislation or any change in the rate of any
                           Taxation or any imposition of Taxation or change in
                           the published practice of, or published concession
                           operated by, any Taxation Authority in each case
                           coming into effect after Completion;

                  (vii)    the earning, receipt or accrual for any Taxation
                           purpose of any income, profit or gain prior to
                           Completion which is not recognised in the Completion
                           Accounts but would have been had all the relevant
                           facts been known;

                  (viii)   the rate or average rate of any Taxation for any
                           period which is applicable to the Company increasing
                           as a result of the sale and purchase of the Company
                           under the Agreement, including the Company ceasing to
                           be subject to corporation tax at the small companies'
                           rate (or qualifying for relief under section 13(2)
                           ICTA) and becoming subject to corporation tax at the
                           rate applicable to companies generally;

<PAGE>   33
         (e)      the Buyer has recovered damages or any other amount under this
                  Agreement (whether for breach of warranty, under this schedule
                  or otherwise) in respect of the same loss, liability, damage
                  or Event or the Buyer or the Company have otherwise obtained
                  reimbursement or restitution from the Seller.

3        MITIGATION OF LIABILITY

3.1      The Seller may, in particular but without limitation, by notice in
         writing to the Buyer avoid or reduce any liability which the Seller
         would, apart from this paragraph 3.1, have under part 2 or for breach
         of any Taxation Warranty by surrendering or procuring the surrender to
         the Company of Group Relief, advance corporation tax or a Tax Refund
         (without the Buyer or the Company being liable to make any payment in
         consideration for such surrender) and the liability of the Sellers
         under part 2 or for breach of any Taxation Warranty shall be satisfied
         or avoided to the extent of the amount of Taxation which could be
         satisfied or avoided as a result of such surrender. The Buyer shall
         procure that the Company takes all such steps, including (without
         limitation) making and giving all such claims and consents as the
         Seller may reasonably request to effect any such surrender.

4        OVER-PROVISIONS AND RELIEFS

4.1      The Buyer shall at the request of the Seller require the auditors for
         the time being of the Company ("the Auditors") to determine as experts
         and not as arbitrators (and at the expense of the Seller) whether:

         (a)      any provision for Taxation, the surrender of a Tax Refund or
                  the surrender of advance corporation tax in the Completion
                  Accounts has proved to be an over-provision and if so its
                  amount;

         (b)      any right to a repayment of Taxation treated as an asset in
                  the Completion Accounts has proved to be understated and if so
                  its amount or, where no right to repayment of Taxation was
                  treated as an asset in the Completion Accounts, whether any
                  such amount should have been treated as an asset in the
                  Completion Accounts and if so the amount; or

         (c)      any Actual Taxation Liability which arises or would otherwise
                  have arisen (other than one which would otherwise have given
                  rise to a corresponding liability of the Seller under
                  paragraph 1 of part 2) is avoided or reduced or any repayment
                  of an amount of Taxation is obtained in either case by the use
                  of a Seller's Relief, and, if so, the amount of Taxation so
                  saved or the amount of that repayment; and

         if the Auditors determine that there has proved to be any such
         over-provision, understatement or amount, the amount of such
         over-provision, understatement or amount (as the case may be) shall be
         dealt with in accordance with paragraph 4.3.

4.2      The Buyer shall at the request of the Seller require the Auditors to
         determine as experts and not as arbitrators and (at the expense of the
         Seller) whether any Taxation Liability (or the Event giving rise to
         such Taxation Liability or the discharge of it) which has resulted in
         any sum having been paid or becoming payable by the Seller under part 2
         or for breach of any Taxation Warranty has

<PAGE>   34
         given rise to a Relief (or would give rise to a Relief assuming that
         all reasonable steps are taken to obtain such Relief) which would not
         otherwise have arisen, and:

         (a)      a liability of the Company or any member of the Buyer's group
                  to make an actual payment or increased payment of Taxation has
                  been satisfied or avoided in whole or in part by the use of
                  that Relief; or

         (b)      a right to a repayment of Taxation has arisen as a result of
                  the use of that Relief;

         and, if the Auditors so determine, the amount by which that liability
         has been or could have been satisfied or avoided or an amount equal to
         the amount of that repayment (as the case may be) shall be dealt with
         in accordance with paragraph 4.3.

4.3      Where it is provided under paragraph 4.1 or 4.2 that any amount is to
         be dealt with in accordance with this paragraph 4.3:

         (a)      the amount shall first be set off against any payment then due
                  from the Seller under part 2 or be taken into account in
                  assessing any loss for breach of any Warranty or set off
                  against any payment due under part 2 as the case may be;

         (b)      to the extent there is an excess, the remainder of that excess
                  shall be carried forward and set off against any future
                  payment which becomes due from the Seller under part 2 or for
                  breach of any Warranty.

4.4      Where such determination by the Auditors as is mentioned in paragraph
         4.1 or 4.2 has been made, the Seller or the Buyer may request the
         Auditors to review such determination (at the expense of the person
         making the request) in the light of all relevant circumstances,
         including any facts which have become known only since such
         determination, and to determine whether such determination remains
         correct or whether, in the light of those circumstances, the amount
         that was the subject of such determination should be amended.

<PAGE>   35
4.5      If the Auditors determine under paragraph 4.4 that an amount previously
         determined should be amended, that amended amount shall be substituted
         for the purposes of paragraph 4.1 or 4.2, as the case may be, in place
         of the amount originally determined and such adjusting payment (if any)
         as may be required by virtue of such substitution shall forthwith be
         made by the Seller to the Buyer or, as the case may be, by the Buyer to
         the Seller.

5        APPEALS AND CONDUCT OF CLAIMS

5.1      If the Buyer or the Company (or any of their officers, employees,
         servants or agents) becomes aware of a Claim, the Buyer shall or shall
         procure that the Company shall as soon as reasonably practicable give
         written notice of the Claim to the Seller and, in any event, where a
         statutory or other time limit is applicable for responding to or
         appealing against the Claim or to any assessment, notice, demand or
         other document issued (or deemed to be issued) or action taken which
         constitutes the Claim, the Buyer shall give written notice of the Claim
         to the Seller at least 14 days prior to the expiry of such time limit.
         Such written notice shall include to the extent it is reasonable to do
         so an estimate of the Seller's liability under this schedule in respect
         of such Claim and such details of the Claim as are then available to
         the Buyer or the Company.

5.2      The Buyer shall, and shall procure that the Company shall, take such
         action to appeal, protest against, mitigate, reduce, avoid, dispute,
         resist or compromise the Claim and make available such documents,
         information and assistance in connection with the Claim as the Seller
         may by written notice request provided the Seller shall indemnify the
         Buyer and the Company against all reasonable costs and expenses which
         the Buyer or the Company incurs as a result of taking such action or
         providing such information and assistance.

5.3      The Seller may elect to have any action referred to in paragraph 5.2
         conducted by professional advisers acting in the name of the Company
         but reporting to the Seller in which event the provisions of paragraph
         5.4 shall apply. Such appointment shall be subject to the prior written
         approval of the Buyer, such approval not to be unreasonably withheld or
         delayed.

5.4      The Seller hereby undertakes to the Buyer to

         (a)      keep the Buyer informed of all matters relating to the action
                  and deliver to the Buyer copies of all material correspondence
                  relating to the action;

         (b)      obtain the prior written approval of the Buyer (not to be
                  unreasonably withheld or delayed) to the content and sending
                  of written communications and to the content of material oral
                  communications relating to the action to a Taxation Authority;
                  and

         (c)      obtain the prior written approval of the Buyer (not to be
                  unreasonably withheld or delayed) to:

                  (i)      the settlement or compromise of the Claim which is
                           the subject of the action; and

                  (ii)     the agreement of any matter in the conduct of the
                           action which is likely to affect the amount of the
                           Claim.

<PAGE>   36
5.5      The Buyer shall not be obliged to procure that the Company take any
         action under this clause which involves contesting any matter beyond
         the first appellate body (excluding the Taxation Authority which has or
         shall have made the Claim in question and the General and Special
         Commissioners) unless the Seller furnishes the Buyer with the written
         opinion of Counsel of at least five years call who is experienced in
         the subject matter of the Claim to the effect that an appeal in respect
         of the matter in question is on the balance of probabilities likely to
         be won.

5.6      If at any time the Seller has not exercised the election referred to in
         paragraph 5.3 but requests that the Buyer take, or procure that the
         Company take, any action referred to in paragraph 5.2, the provisions
         of paragraph 5.4 shall apply as if references to "the Seller" are
         references to "the Buyer" and reference to "the Buyer" are references
         to "the Seller".

5.7      The Buyer shall not be obliged to take any action or cause the Company
         to take any action under this clause 5 which will in the opinion of the
         Buyer prejudice the business of the Company, the Buyer or a member of
         the Group of companies as the Buyer.

6        DISPUTES

6.1      In the event of any dispute under paragraphs 3, 4, 5, or 7 of this
         schedule, such dispute shall if the parties so agree be determined by
         the Independent Expert (acting as expert and not as arbitrator) and in
         the absence of manifest error his determination shall be conclusive and
         binding on the parties. The proper charges and disbursements of the
         Independent Expert shall be paid and borne on each occasion by the
         parties concerned in such proportions as the Independent Expert may in
         his absolute discretion consider fair and reasonable.

6.2      If either party is dissatisfied with any determination of the Auditors,
         the matter shall be referred to the Independent Expert for
         determination in accordance with the provisions of paragraph 6.1.

7        TAXATION COMPUTATIONS

7.1      Subject to complying with the provisions of paragraphs 7.2 and 7.3
         below, the Seller or its duly authorised agents shall have the right,
         at the cost and expense of the Seller, to prepare the corporation tax
         returns of the Company for all accounting periods, ending on or prior
         to Completion to the extent that the same shall not have been prepared
         before the date hereof. The Seller or its duly authorised agents shall
         have the right, at the cost and expense of the Seller, to prepare all
         documentation and deal with all matters (including correspondence)
         relating to the corporation tax returns of the Company for all
         accounting periods ending on or prior to Completion.

7.2      The Seller's rights under paragraph 7.1 are subject to the Seller
         informing the Buyer and the Company of its intention to exercise such
         rights prior to Completion.

7.3      In the event that the Seller exercises its rights under paragraph 7.1
         the Seller shall:

<PAGE>   37
         (a)      keep the Buyer and its duly authorised agents and the Company
                  informed of all material matters relating to the submission,
                  negotiation and agreement of such corporation tax returns and
                  computations;

         (b)      ensure that no such computations or returns nor any
                  correspondence pertaining to the negotiations or agreement of
                  such computations or returns which it proposes to send shall
                  be transmitted to any Taxation Authority without first being
                  submitted to the Buyer and the Company or their duly
                  authorised agents for their comments and for the Buyer's
                  approval and shall only finally be submitted or transmitted on
                  the receipt of the written approval of the Buyer or its duly
                  authorised agent, such approval not to be unreasonably
                  withheld or delayed.

7.4      The Buyer shall procure that the Company shall cause the returns
         mentioned in paragraph 7.3 (and all claims, elections, disclaimers,
         surrenders and consents assumed to be made or given therein) to be
         authorised, signed and submitted to the appropriate Taxation Authority
         and generally do all such things as may be necessary to give effect to
         such returns, claims, elections, disclaimers, surrenders or consents
         provided that neither the Buyer nor the Company can be required to do
         anything which is illegal or unlawful or which does not accord with
         standard accounting practice.

7.5      The Buyer shall (if requested in writing by the Seller) procure that
         the Company promptly makes or gives such returns, claims, elections,
         disclaimers, surrenders and consents in relation to Taxation which it
         was assumed would be made or given in computing any provision which
         appears in the Completion Accounts (or in eliminating any provision
         which would have so appeared) or which relate to any Seller's Relief
         and generally does all such things as may be necessary to give effect
         to such returns, claims, elections, surrenders or consents.

7.6      If at any time the Seller has not exercised its right pursuant to
         paragraph 7.3, the provisions of paragraph 7.3 shall apply as if
         reference to "the Seller" are references to "the Buyer", as if
         references to "the Buyer" are references to "the Seller" and as if the
         words "and the Company" in paragraphs 7.3(a) and 7.3(b) are deleted.

7.7      The Buyer acknowledges that trading losses and other amounts eligible
         for surrender by Group Relief by the Company to members of its group
         arising in its accounting periods ending on or before Completion are to
         be surrendered for no payment to the Seller or other members of its
         group nominated by the Seller for the purpose of Group Relief to the
         extent allowed by sections 402-413 ICTA 1988. To the extent that any
         correspondence concerning or computation implying the date when
         arrangements for the transfer of the Company to the Buyer came into
         existence or the amount of the trading losses available for the purpose
         of Group Relief shall be sent by the Buyer or any person acting on its
         behalf to any Taxation Authority, where such correspondence or
         computation is requested by a Taxation Authority, such correspondence
         or computation shall also be copied to the Seller.

7.8      The Buyer shall procure that the Company keeps the Seller fully
         informed of its Taxation affairs in respect of the accounting period of
         the Company last ending prior to Completion and shall promptly provide
         the Seller with copies of all

<PAGE>   38
         relevant documents and shall not submit any correspondence or submit or
         agree any return or computation for such period to any Taxation
         Authority without giving the Seller a reasonable opportunity to make
         representations thereon and without the written consent of the Seller
         (such consent not to be unreasonably withheld or delayed).

7.9      The Buyer shall provide, and shall procure that the Company provides,
         the Seller at the expense of the Seller reasonable access to such
         documents, reasonable information and reasonable assistance (including,
         without limitation, access to books, accounts, records and personnel)
         as the Seller may reasonably require on giving reasonable notice (and
         in all circumstances it shall be reasonable on the Seller giving the
         Buyer seven days notice) in connection with its conduct of the
         Company's Taxation affairs pursuant to this paragraph 7.

8        MISCELLANEOUS

8.1      In assessing any damages payable by the Seller for breach of any
         Taxation Warranty, the value of the Company shall not be taken as
         exceeding the Consideration.

8.2      Nothing in this Agreement shall in any way diminish the Buyer's or the
         Company's common law obligation to mitigate its loss.

8.3      If any potential claim for breach of any Taxation Warranty arises in
         consequence of a liability of the Company which is contingent only, the
         Seller shall not be liable in respect of the claim until such time as
         the contingent liability ceases to be contingent and becomes actual
         provided always notification of a contingent claim shall be sufficient
         for the purposes of paragraph 1 schedule 4.

8.4      The liability of the Seller to the Buyer under part 2 or for breach of
         any Taxation Warranty shall cease and any subsisting claim shall be
         withdrawn upon the Company ceasing to be controlled whether directly or
         indirectly by the Buyer or any Affiliate of the Buyer.

9        BUYER'S COVENANT

9.1      The Buyer covenants with the Seller to pay to the Seller an amount
         equal to any Actual Taxation Liability of the Seller or of any company
         which is under the control of the Seller at any time after Completion
         (and any reasonable costs and expenses incurred by the Seller or the
         company in relation to such Actual Taxation Liability or in making any
         claim under this paragraph 9.1), where such Actual Taxation Liability
         arises as a result of the failure by the Company to discharge after
         Completion an Actual Taxation Liability for which the Company is
         primarily liable and which is not within part 2.

<PAGE>   39
9.2      If the Buyer becomes liable to make a payment under paragraph 9.1, the
         Buyer shall pay such amount in cleared immediately available funds on
         or before the later of the date 2 business days before that Actual
         Taxation Liability is finally due and payable and the date 5 business
         days after the date of written demand on the Buyer by the Seller.

<PAGE>   40
                              Part 2 - Tax Covenant

1        COVENANT BY THE SELLER

1.1      Subject to the provisions of part 1 and of schedule 4, the Seller
         hereby covenants with the Buyer to pay to the Buyer an amount equal to:

         (a)      any Actual Taxation Liability of the Company arising as a
                  result of;

                  (i)      an Event occurring on or before Completion including
                           the combined results of two or more events the first
                           of which was outside the ordinary course of business
                           and took place on or before Completion or which was
                           deemed for the purposes of Taxation to have taken
                           place before Completion and the second event which
                           was inside the ordinary and usual course of the
                           Company's business as carried on at Completion and
                           took place after Completion; or

                  (ii)     any income, profits or gains earned, accrued or
                           received on or before or in respect of any period
                           ended on or before the date of Completion;

         (b)      any Deemed Taxation Liability;

         (c)      any Actual Taxation Liability in respect of inheritance tax
                  which:

                  (i)      is at Completion a charge on, or gives rise to a
                           power to sell, mortgage or charge, any of the shares
                           or assets of the Company; or

                  (ii)     after Completion becomes a charge on, or gives rise
                           to a power to sell, mortgage or charge, any of the
                           shares or assets of the Company being an Actual
                           Taxation Liability arising as a result of the death
                           of any person within seven years after a transfer of
                           value (or a deemed transfer of value) if a charge on
                           or power to sell, mortgage or charge any such shares
                           or assets could, if the death had occurred
                           immediately before Completion and the inheritance tax
                           payable as a result thereof had not been paid, have
                           existed at Completion; or

                  (iii)    arises as a result of a transfer of value occurring
                           or being deemed to occur on or before Completion
                           (whether or not in conjunction with the death of any
                           person whenever occurring) which increased or
                           decreased the value of the estate of the Company;

         (d)      any costs, fees and expenses reasonably incurred by the Buyer
                  or the Company as a result of any Actual Taxation Liability
                  within paragraph 1.1(a) or (c) or any Deemed Taxation
                  Liability within paragraph 1.1(b) or in successfully taking
                  any action under this part 2.

1.2      With regard to VAT:

<PAGE>   41
         (a)      The Seller covenants with the Buyer that if the Seller is in
                  breach of the Warranty set out in paragraph 7.2 of Part 3 the
                  Seller shall pay to the Buyer an amount equal to any liability
                  of the Company to account for VAT on actual supplies, self
                  supplies, importations or acquisitions made for VAT purposes
                  by other members of the group (not being the Company) before
                  the date of cancellation of group registration

         (b)      The deeming provisions of Section 43(1)(b) and (c) VATA shall
                  be disregarded for all periods and (in addition) those of
                  Section 43(1)(a) shall be disregarded for all periods after
                  Completion in determining what supplies, self supplies,
                  importations or acquisitions have been made or are deemed to
                  have been made by or to any person for the purposes of (a)
                  above.

2        PAYMENT

2.1      If the Seller is or becomes liable to make a payment under this part 2
         in respect of:

         (a)      an Actual Taxation Liability, the Seller shall pay such amount
                  in cleared funds on or before the date 5 business days after
                  the date of written notice from the Buyer to the Seller of the
                  amount which the Seller is required to pay and requesting
                  payment or, if later, the business day before the date on
                  which the Actual Taxation Liability in question is due for
                  payment;

         (b)      a Deemed Taxation Liability, the Seller shall pay such amount
                  in cleared funds 5 business days after the date of written
                  notice from the Buyer to the Seller of the amount which the
                  Seller is required to pay and requesting payment, and:

                  (i)      in the case of a Set Off Liability, the date on which
                           the Actual Taxation Liability referred to in the
                           definition of that term would otherwise have become
                           due for payment;

                  (ii)     in the case of an Unavailable Repayment Liability,
                           the date on which the repayment of Taxation would
                           have been made but for that unavailability;

         (c)      any amount within paragraph 1.1(d) the Buyer will notify the
                  Seller in writing of such amount specifying details of the
                  services for which those costs, fees and expenses were
                  incurred and the circumstances in which they were obtained and
                  the Seller shall pay such amount on or before the date 5
                  business days after the date of such notice.

<PAGE>   42
2.2      Sums not paid by the Seller on the dates specified in paragraphs 2.1
         and 2.2 shall bear interest (which shall accrue from day to day after,
         as well as before, judgment at 2% above the base rate from time to time
         of Lloyds Bank plc) from the date following the specified date up to
         and including the day of actual payment of such sums.

3        TAX ON PAYMENTS BY SELLER

3.1      The Seller shall be entitled to deduct or withhold from any payment
         made under this part 2 or for breach of any Warranty any deduction or
         withholding (whether in respect of Taxation or otherwise) required by
         law provided always that the provisions of paragraph 3.2 of this part 2
         shall operate.

3.2      If any amount paid to the Buyer under this part 2 is subject to
         Taxation (whether by deduction or withholding or otherwise), the Seller
         covenants to pay to the Buyer such further sum as will ensure that the
         Buyer receives and retains a net amount (after taking into account such
         Taxation) equal to the full amount which it would have received and
         retained had the payment in question not been subject to Taxation,
         provided that the Seller shall not be obliged to pay such additional
         amount if the payment received by the Buyer is subject to Taxation as a
         result of a voluntary act of the Buyer or the Company occurring after
         Completion which causes the payment to fall outside the scope of the
         Inland Revenue's Extra Statutory Concession D33 or otherwise become
         subject to Taxation.

                          Part 3 - Taxation Warranties

1.       COMPLIANCE

1.1      There is no dispute between the Company and any Taxation Authority, the
         Company is not the subject of an investigation, audit or review by any
         Taxation Authority and as far as the Seller is aware there are no facts
         which are likely to give rise to any such dispute, investigation, audit
         or review.

1.2      The Company is not liable to pay any penalty, fine, surcharge, interest
         or similar amount in relation to Taxation and as far as the Seller is
         aware there are no facts which are likely to cause it to become liable
         to pay any such penalty, fine, surcharge, interest or similar amount.

1.3      Within the last 6 years, the Company has duly and punctually complied
         with all its obligations to deduct Taxation from payments made by it
         and to account for such Taxation to any Taxation Authority.

2.       CLOSE COMPANIES

2.1      The Company is not and has never been a close company within the terms
         of section 414 ICTA.

<PAGE>   43
3.       DISTRIBUTIONS AND PAYMENTS

3.1      No distribution (within the meaning of sections 209 and 210 ICTA) has
         been made by the Company during the 6 years ended on the Accounts Date
         (except as provided in the Accounts).

3.2      The Company has not made or received any exempt distribution within the
         meaning of section 213 ICTA, and has at no time been a relevant company
         in relation to an exempt distribution for the purposes of that section
         or concerned in an exempt distribution for the purposes of section 214
         ICTA.

3.3      The Company has not at any time received a capital distribution to
         which section 189 TCGA could apply.

3.4      The Company has not paid, and has not elected that any dividend it has
         paid or declared be treated as, a foreign income divided as described
         in Chapter VA Part VI ICTA.

3.5      The Company has not on or after 6th April 1965:

         (a)      repaid, redeemed or purchased or agreed to repay, redeem or
                  purchase any of its share capital; or

         (b)      capitalised or agreed to capitalise in the form of shares or
                  debentures, any profits or reserves of any class or
                  description, or otherwise issued or agreed to issue share
                  capital otherwise than for new consideration (as defined in
                  section 254 ICTA).

4.       GROUP TRANSACTIONS

4.1      The Company is not liable to make any payment for any Group Relief, a
         Tax Refund or advance corporation tax surrendered or to be surrendered
         to it and there are no amounts due or which may become due to the
         Company in respect of the surrender of any Group Relief, a Tax Refund
         or advance corporation tax. The Company is not liable to surrender any
         Group Relief, a Tax Refund or advance corporation tax under those
         provisions. There are no arrangements whereby the Company may become
         liable to repay any sums paid to it for the surrender of any Group
         Relief, a Tax Refund or advance corporation tax.

4.2      The Company has not within the last 6 years:

         (a)      acquired any capital asset from any company which at the time
                  of the acquisition was a member of the same group of companies
                  as defined in section 170 TCGA;

         (b)      joined in the making of any election pursuant to section 247
                  ICTA or paid any dividend without paying ACT or made any
                  payment without deduction of income tax in circumstances such
                  that ACT ought to have been paid or income tax ought to have
                  been deducted as mentioned in section 247(6) ICTA;

<PAGE>   44
         (c)      been the subject of or otherwise involved in any agreements as
                  are referred to in section 240(11) or 410 ICTA;

         (d)      acquired an asset as trading stock from a member of the same
                  group where the asset did not form part of the trading stock
                  of any trade carried on by the other member, as mentioned in
                  section 173(1) TCGA, or disposed of an asset which formed part
                  of the trading stock of any trade carried on by the Company to
                  another member of the same group which acquired the asset
                  otherwise than as trading stock of a trade carried on by the
                  other member, as mentioned in section 173(2) TCGA; and

         (e)      been, and there are no circumstances by virtue of which the
                  Company could be, assessed or charged to corporation tax by
                  virtue of the provisions of section 178(9), 179(11), 190 or
                  191 TCGA and is not entitled to recover or liable to have
                  recovered from it any sums pursuant to any of those sections.

5.       RESIDENCE AND OFFSHORE INTERESTS

5.1      The Company is and has at all times been resident in the United Kingdom
         for Tax purposes and is not and has not been treated as resident or as
         having a branch or permanent establishment in any other jurisdiction
         for any Taxation purpose (including under any double taxation treaty or
         agreement).

5.2      The Company is not liable for any Taxation as the agent or Tax
         representative of any other person or business and does not constitute
         a permanent establishment of any other person, business or enterprise
         for any Taxation purposes.

5.3      The Company does not and has at no time owned a beneficial interest in
         the capital of a company which is resident outside the United Kingdom
         and which would be a close company if it were resident in the United
         Kingdom, in circumstances such that a chargeable gain accruing to that
         other company could be appointed to the Company under section 13 TCGA.

6.       NON-ARM'S LENGTH TRANSACTIONS

6.1      There is no outstanding Inland Revenue charge (as defined in section
         237 IHTA) over any asset of the Company or over any of the Shares and
         there are no circumstances in which such a charge could arise.

6.2      There are in existence no circumstances by virtue of which any such
         power as is mentioned in section 212 IHTA could be exercised in
         relation to any asset of the Company or to any of the Sale Shares or by
         virtue of which any such power could be exercised but for the
         provisions of section 204(6) IHTA.

6.3      The Company has not been a party to associated operations in relation
         to a transfer of value within the meaning of section 268 IHTA.

6.4      The Company has not received any asset by way of gift as mentioned in
         section 282 TCGA.

<PAGE>   45
6.5      No expenditure incurred by the Company on the acquisition of any shares
         is liable to be reduced under the provisions of section 125 TCGA.

7.       VAT

7.1      The Company is duly registered for the purposes of VATA. Such
         registration is not subject to any conditions imposed by or agreed with
         the Commissioners of Customs and Excise. Within the last 3 years, the
         Company has complied in all material respects with VATA and all orders,
         provisions, directions or other conditions made or imposed thereunder
         or under any other law relating to VAT.

7.2      The Company is not a member of a group for the purpose of section 43
         VATA.

7.3      The Company has not within the two years ending on the date of this
         Agreement been served with any penalty liability notice under section
         64 VATA or any surcharge liability notice under section 59 VATA or been
         issued with any written warning under section 76(2) VATA.

7.4      The Company has not registered, and is not required to register, for
         VAT purposes (or for the purposes of any similar tax on added value or
         turnover) in any country other than the United Kingdom.

8.       STAMP DUTY AND STAMP DUTY RESERVE TAX

8.1      All documents which confer any right or title upon the Company to which
         the Company was a party as a purchaser, lessee or assignee and which
         attract stamp or transfer duty in the United Kingdom have been duly
         stamped.

8.2      The Company has not been party to any transaction whereby the Company
         is or could become liable to or to account for stamp duty reserve tax.

9.       CAPITAL ALLOWANCES

         The aggregate book value of each of the assets of the Company,
         exclusive of any value attributable to an asset in excess of its cost,
         on which an entitlement to Industrial Building Allowances or other
         allowances in respect of capital expenditure has arisen under the CAA,
         in or adopted for the purposes of the Accounts, does not exceed the
         aggregate residue of expenditure or written down value attributable to
         such assets for the purposes of that Act, and the aggregate book value
         (exclusive of any value attributable to an asset in excess of its cost)
         of plant and machinery allocated to a pool of plant and machinery on
         which an entitlement to capital allowances has arisen under Part II CAA
         does not exceed the written-down value of the qualifying expenditure in
         respect of each such pool under that Act.

10.      CHARGEABLE GAINS

         The book value in or adopted for the purposes of the Accounts as the
         value of each of the assets of the Company on the disposal of which a
         chargeable gain or allowable loss could arise does not exceed the
         amount deductible under s 38

<PAGE>   46
         TCGA plus an indexation allowance computed as though each asset were
         disposed of on the date of signing of this Agreement.

11.      TAX CLEARANCES

         The Disclosure Letter contains details of all transactions, schemes or
         arrangements in respect of which the Company has been a party or has
         otherwise been involved in respect of which a statutory clearance
         application was made, together with copies of all relevant applications
         for clearances and copies of all clearances obtained pursuant thereto,
         all such clearances having been obtained on the basis of full and
         accurate disclosure of all material facts and considerations relating
         thereto, and all such transactions, schemes or arrangements have been
         implemented strictly in accordance with the terms of such clearances.

<PAGE>   47
                                   SCHEDULE 6

    Preparation of Completion Accounts and determination of Net Assets Value

           Part 1 - Principles for preparation of Completion Accounts

1.1      The draft Audited Accounts shall be prepared in the same format as the
         Accounts and in accordance with the accounting, principles, bases and
         practises used in preparation of the Accounts and subject thereto and
         in accordance with UK GAAP.

         The Buyer shall procure that the Company shall employ Messrs Ernst &
         Young as its auditors in relation to the preparation of the Audited
         Accounts.

1.2      The draft Completion Accounts shall be prepared:

         (a)      in the same format as the Accounts;

         (b)      in accordance with the accounting principles, policies, bases
                  and practices used in the preparation of the Accounts; and

         (c)      notwithstanding the provisions of clauses 1.2(a) and 1.2(b),
                  in accordance with the specific matters mentioned in paragraph
                  1.3.

1.3      The following accounting principles, policies, bases and practices
         shall be used in the preparation of the Completion Accounts:

         (a)      There shall be no provision for deferred taxation;

         (b)      The Completion Accounts shall be prepared on the basis that
                  the period from (and including) the opening of business on the
                  day following the Accounts Date to (and including) the
                  Completion Date were an accounting reference period of the
                  Company;

         (c)      There shall be no provision or accrual for the cost of future
                  pension contributions;

         (d)      Accrual shall be made for unbilled domestic accounts
                  calculated using the following method:

                  The number of unbilled days shall be the number of days
                  between the date the customer was last billed and the
                  Completion Date or where the customer has yet to be billed the
                  date when the customer first commenced taking gas and the
                  Completion Date. The number of unbilled days shall then be
                  applied to the annual quantity for the site which shall then
                  be profiled in accordance with an average domestic profile
                  covering all LDZ's. The relevant tariff for each payment type
                  shall then be applied to the quantities derived. To this shall
                  be added the standing charge for the days unbilled.

<PAGE>   48
                  In relation to industrial and commercial customers turnover in
                  the Completion Accounts will comprise the amount billed to
                  customers in respect of all periods up to 31 October 1999. The
                  Buyer will use reasonable endeavours to procure that the
                  Company shall bill customers in respect of gas consumed in
                  October 1999 in time for this to be included within the
                  Completion Accounts. If the Buyer has been unable to bill then
                  October 1999 turnover shall be based on the turnover for
                  September 1999 uplifted to take account of seasonal factors
                  using a profile which reflects the Company's customer base.

         (e)      Cost of sales shall comprise gas and transportation charges,
                  metering charges (including charges for failing to provide
                  OMR's) and risk management fees (all of which will be included
                  in the sums invoiced by Aquila Energy) plus Quantum charges,
                  any other sums levied by Aquila Energy and an allowance to
                  reflect the difference between the volume profiles
                  incorporated in the accrued sales figure and the Aquila
                  billing in accordance with the procedure used by the Company
                  since 1 April 1999 and up to completion set out below.

                  Because the customer base was predominantly in NE1 LDZ at 1st
                  April 1999, the adjustment made reflects the difference
                  between the York Gas average domestic profile applied in
                  determining the accrued sales and the NE1 profile. The
                  difference between these two profiles is used to calculate an
                  accrual or a pre-payment value to be added to the cost of gas
                  and transportation. The difference in kWh determined from the
                  comparison is applied to the prevailing rates for gas risk
                  management and the commodity element of the transportation
                  charge.

                  Where a reconciliation by difference invoice has not been
                  received for any period in respect of which the accounts have
                  been prepared, a provision shall be made of Pound
                  Sterling5,000 for each month where a reconciliation by
                  difference invoice has not been received.

                  Cost of sales for industrial and commercial customers shall
                  comprise the Aquila Energy invoices in respect of the quantity
                  of gas supplied up to Completion.

         (f)      Agents commission payable in respect of domestic contracts
                  shall be provided for in full in the month in which the
                  contract is received. A deduction to the commissions payable
                  shall be made to reflect any contract where commission has
                  been paid but the contract is subsequently cancelled or
                  objected to up to and including the date for which the
                  Completion Accounts are presented to the Seller provided
                  always that provisions exist in the relevant contract to
                  enable such monies to be recovered.

         (g)      Commission due to agents providing commercial contracts shall
                  be amortized over the period of the gas supply contract to
                  which they relate.

<PAGE>   49
         (h)      Apart from specific provisions for recognised bad and doubtful
                  debts, bad and doubtful debts shall be provided at the rate of
                  4.5% of domestic turnover including unbilled amounts and 1% of
                  the commercial turnover including unbilled amounts.

         (i)      Depreciation shall be provided on all tangible fixed assets so
                  as to provide for the cost less residual value of these assets
                  over their expected useful lives which are estimated as
                  follows:

                  Office equipment and Furniture              5 years

                  Computer Software and Hardware              5 years

                  Residual values of assets shall be those previously used in
                  the preparation of the Accounts.

         (j)      No provision shall be made in respect of the claim for
                  commissions made against the Company by Regency Marketing
                  Limited which is referred to in the Disclosure Letter in the
                  disclosure against clause 14 of schedule 2 of this Agreement.

<PAGE>   50
 Part 2 - Procedure for preparation of Completion Accounts and determination of
                                Net Assets Value

2.1      The Buyer shall procure that as soon as practicable following the
         Completion Date, and in any event not later than 60 days after that
         date, a draft of the Completion Accounts ("THE DRAFT COMPLETION
         Accounts") and a draft of the Audited Accounts ("THE DRAFT AUDITED
         ACCOUNTS") shall be prepared by the Company in accordance with part 1
         of this Schedule and delivered to the Seller.

2.2      As soon as practicable after delivery of the draft Completion Accounts
         and draft Audited Accounts to the Seller and in any event not later
         than the later of 30 days after such delivery and 14 days after the
         date on which the Buyer has complied in full with all requests for
         access, information or assistance made by the Seller under paragraph
         2.7 ("THE REVIEW PERIOD"), the Seller shall review the draft Completion
         Accounts and draft Audited Accounts and notify the Buyer of what
         adjustments (if any) need to be made to them in order for them to
         comply with part 1 of this Schedule.

2.3      If the Seller and the Buyer are unable to agree within 30 days of the
         notification by the Seller under paragraph 2.2 on

         (a)      whether adjustments need to be made to the draft Completion
                  Accounts and draft Audited Accounts;

         (b)      the adjustments to be made thereto; or

         (c)      the amount of the Net Assets Value

         then such matter or matters (but no other matters) shall thereupon be
         referred to in the case of the draft Completion Accounts or the draft
         Audited Accounts such firm of independent chartered accountants as the
         Sellers and the Buyer may agree within 14 days of a request by either
         of them to the other or, failing such agreement within such time, as
         the President for the time being of the Institute of Chartered
         Accountants in England and Wales may nominate on the application of the
         Sellers or the Buyer.

         ("THE INDEPENDENT ACCOUNTANTS").

2.4      The matters referred to the Independent Accountants shall be referred
         for determination on the following basis:

         (a)      the Independent Accountants shall be instructed to notify the
                  Sellers and the Buyer of their determination of any such
                  matter within 30 days of such referral;

         (b)      the Independent Accountant shall be instructed to specify what
                  adjustments should be made to the draft Audited Accounts and
                  draft Completion Accounts in order for them to comply with
                  part 1 of this schedule;

<PAGE>   51
         (c)      the Seller and the Buyer shall be entitled to make written
                  submissions to the Independent Accountants, but subject
                  thereto the Independent Accountants shall have power to
                  determine the procedure to be followed in relation to their
                  determination;

         (d)      in making such submissions the Seller and the Buyer shall
                  state their respective best estimates of monetary amounts of
                  the matters referred for determination;

         (e)      in making their determination the Independent Accountants
                  shall act as experts and not as arbitrators, their decision as
                  to any matter referred to them for determination shall in the
                  absence of manifest error be final and binding in all respects
                  on the parties and shall not be subject to question on any
                  ground whatsoever; and

         (f)      the fees and expenses of the Independent Accountants shall be
                  borne and paid as the Independent Accountants shall direct
                  save that the fees and expenses of Messrs Ernst & Young in
                  relation to the Audited Accounts shall be borne by the Seller.

2.5      Following any agreement between the Sellers and the Buyer under
         paragraph 2.3 or any determination by the Independent Accountants in
         accordance with paragraph 2.4, the Buyer shall procure that the Company
         shall incorporate into and reflect in the draft Completion Accounts or
         draft Audited Accounts in the manner specified by the Independent
         Accountants or agreed between the Buyer and Seller the matters agreed
         between the Seller and the Buyer and/or determined by the Independent
         Accountants and the Completion Accounts or draft Audited Accounts as
         amended and the amount of the Net Assets Value stated therein shall be
         the Completion Accounts, Audited Accounts and the Net Assets Value
         respectively for all purposes of this Agreement, shall in the absence
         of manifest error be final and binding on the parties.

2.6      Within four weeks of the Audited Accounts becoming final and binding in
         accordance with paragraph 2.5 the Buyer shall procure that such
         accounts are laid before and received and adopted at a general meeting
         of the Company and filed with the Registrar of Companies as the Audited
         Accounts of the Company for the relevant period.

2.7      Until the Net Assets Value shall have been agreed or determined the
         Buyer shall:

         (a)      give or procure that the Seller and, if appointed, the
                  Independent Accountants are given access at all reasonable
                  times to all books and records which are or may be relevant to
                  the Completion Accounts which are in the possession or under
                  the control of the Company or the Buyer (as the case may be);
                  and

         (b)      generally provide the Seller and, if appointed, the
                  Independent Accountants with such other information and
                  assistance as it may reasonably require (including access to
                  and assistance at reasonable times to personnel employed by
                  the Company or the Buyer, as the case may be), in relation to
                  the review, agreement or determination of the Completion
                  Accounts and the determination of the Net Assets Value.

<PAGE>   52
                                   SCHEDULE 7

                              Intellectual Property



-        York Gas trade marks registered as a series of two marks under number
         2143342

-        Software licensed to the Company:

         -        Mview Licence
         -        Microsoft office

<PAGE>   53
Signed by                                            )
for and on behalf of YORK                            )
WATERWORKS ENTERPRISES                               )
LIMITED
in the presence of:                                  )




Witness

Signature
         --------------------------------------------

Name
    -------------------------------------------------

Address
       ----------------------------------------------

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Signed by                                            )
for and on behalf of INDEPENDENT                     )
ENERGY HOLDINGS PLC                                  )
in the presence of:                                  )




Witness

Signature
         --------------------------------------------

Name
    -------------------------------------------------

Address
       ----------------------------------------------

-----------------------------------------------------

<PAGE>   54
Signed by                                            )
for and on behalf of KELDA GROUP                     )
PLC in the presence of:                              )




Witness

Signature
         --------------------------------------------

Name
    -------------------------------------------------

Address
       ----------------------------------------------

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