Document:

Exhibit 10.4 

AMEREN CORPORATION
SYSTEM
NON-REGULATED SUBSIDIARY
MONEY POOL AGREEMENT

        This
NON-REGULATED SUBSIDIARY MONEY POOL AGREEMENT (this “Agreement”) is made
and entered into this 27th day of February, 2003 by and among Ameren Corporation
(“Ameren”), a Missouri corporation and a registered holding company under the
Public Utility Holding Company Act of 1935, as amended (the “Act”); Ameren
Services Company (“Ameren Services”), Ameren Energy, Inc., and
Ameren Development Company, each a Missouri corporation and subsidiary company of
Ameren; Ameren ERC, Inc., and Ameren Energy Communications, Inc., each a
Missouri corporation and subsidiary company of Ameren Development Company; CILCORP
Inc. (“CILCORP”), Ameren Energy Resources Company and CIPSCO
Investment Company, each an Illinois corporation and a subsidiary of Ameren; Ameren
Energy Development Company, Ameren Energy Marketing Company, Ameren Energy
Fuels and Services Company, and Illinois Materials Supply Co., each an Illinois
corporation and a subsidiary of Ameren Energy Resources Company; Ameren Energy
Generating Company, an Illinois corporation and a subsidiary of Ameren Energy
Development Company; AFS Development Company, LLC, an Illinois limited liability
company and a subsidiary of Ameren Energy Fuels and Services Company; Union Electric
Development Corporation, a Missouri corporation and a subsidiary of Union Electric
Company, which is a subsidiary of Ameren; CILCORP Investment Management Inc.,
CILCORP Ventures Inc., and QST Enterprises Inc., each an Illinois
corporation and a subsidiary of CILCORP; CILCORP Energy Services Inc., an Illinois
corporation and a subsidiary of CILCORP Ventures Inc.; Central Illinois Generation,
Inc., CILCO Exploration and Development Company, and CILCO Energy
Corporation, each an Illinois corporation and a subsidiary of Central Illinois Light
Company, which is a subsidiary of CILCORP; AES Medina Valley Cogen (No. 4), L.L.C.
(“AES Medina Valley”), an Illinois limited liability company and a subsidiary of
Ameren Energy Resources Company; AES Medina Valley Operations, L.L.C. and AES
Medina Valley Cogen (No. 2) L.L.C., each an Illinois limited liability company and a
subsidiary of AES Medina Valley; and AES Medina Valley Cogen, L.L.C., an Illinois
limited liability company and a subsidiary of AES Medina Valley Cogen (No. 2) L.L.C. (each
a “Party” and collectively, the “Parties”). 

RECITALS 

        WHEREAS,
Ameren and certain of the Parties named above are parties to the Ameren System Amended and
Restated Non-Utility Money Pool Agreement, as amended from time to time through September
7, 2002, pursuant to which Ameren and participating subsidiaries make contributions from
time to time to the money pool in order to coordinate and provide for the short-term cash
and working capital requirements of participating subsidiaries; 

        WHEREAS,
in accordance with the authorization of the Securities and Exchange Commission under the
Act, Ameren acquired all of the issued and outstanding common stock of CILCORP, effective
January 31, 2003, and, in conjunction therewith, also acquired all of the membership
interests in AES Medina Valley; 

        WHEREAS,
in conjunction with the acquisition of CILCORP and AES Medina Valley, Ameren wishes to
restate and replace the Amended and Restated Non-Utility Money Pool Agreement, as amended,
in order to add CILCORP, certain direct and indirect subsidiaries of CILCORP, and AES
Medina Valley and its direct and indirect subsidiaries as money pool participants in order
to coordinate and provide for their short-term cash and working capital requirements; 

        NOW
THEREFORE, in consideration of the premises, and the mutual promises set forth herein, the
Parties hereto agree as follows: 

ARTICLE I
CONTRIBUTIONS AND LOANS

        Section
1.1 Contributions to Non-Regulated Subsidiary Money Pool. Each Party will determine
each day, on the basis of cash flow projections and other relevant factors, in such
Party’s sole discretion, the amount of funds it has available for contribution to the
Non-Regulated Subsidiary Money Pool, and will contribute such funds to the Non-Regulated
Subsidiary Money Pool. The determination of whether a Party at any time has surplus funds
to contribute to the Non-Regulated Subsidiary Money Pool or shall contribute funds to the
Non-Regulated Subsidiary Money Pool will be made by an appropriate officer of such Party,
or by a designee thereof, on the basis of cash flow projections and other relevant
factors, in such Party’s sole discretion. Each Party may withdraw any of its funds at
any time upon notice to Ameren Services as administrative agent of the Non-Regulated
Subsidiary Money Pool. No contributions to the Non-Regulated Subsidiary Money Pool will be
made by Ameren Services. 

        Section
1.2 Rights to Loans. (a) Subject to the provisions set forth in this clause (a) and
in Section 1.4(b) below, all short-term borrowing needs of the Parties, with the exception
of Ameren and CILCORP, may be met by funds in the Non-Regulated Subsidiary Money Pool to
the extent such funds are available. Each Party (other than Ameren and CILCORP) shall have
the right to request loans from the Non-Regulated Subsidiary Money Pool from time to time,
subject to the availability of funds and the limitations and conditions set forth herein.
Each Party (other than Ameren and CILCORP) may request loans from the Non-Regulated
Subsidiary Money Pool from time to time during the period from the date hereof until this
Agreement is terminated by written agreement of the Parties; provided, however, that the
aggregate amount of all loans requested by any Party hereunder shall not exceed the
borrowing limits set forth in any applicable orders of the Securities and Exchange
Commission and other regulatory authorities, resolutions of such Party’s shareholders
and Board of Directors or similar governing body, such Party’s governing corporate
documents, and agreements binding

2

upon such Party. No Party shall be obligated to borrow
from the Non-Regulated Subsidiary Money Pool if lower cost funds can be obtained from
external borrowing. No loans through the Non-Regulated Subsidiary Money Pool will be made
to, and no borrowings through the Non-Regulated Subsidiary Money Pool will be made by,
Ameren or CILCORP.

            (b)    
          Subject to receipt of any necessary regulatory approval, other non-regulated
          affiliates of Ameren may enter into this Agreement under the same terms and
          conditions by amendment executed by the affiliate and Ameren Services as
          administrative agent. 

        Section
1.3 Source of Funds. (a) Funds will be available through the Non-Regulated
Subsidiary Money Pool from the following sources for use by the Parties from time to time:
(i) surplus funds in the treasuries of Parties other than Ameren Services (“Internal
Sources”), and (ii) proceeds from commercial paper issuances, bank borrowings or
other external borrowing arrangements by Parties other than Ameren Services
(“External Sources”), in each case to the extent permitted by applicable laws
and regulatory orders. Funds will be made available from such sources in such order as
Ameren Services, as administrative agent of the Non-Regulated Subsidiary Money Pool, may
determine will result in a lower cost of funds to Parties borrowing from the Non-Regulated
Subsidiary Money Pool, consistent with the individual borrowing needs and financial
standing of the Parties contributing funds to the Non-Regulated Subsidiary Money Pool. 

            (b)    
          Borrowing Parties will be deemed to have borrowed pro rata from each Party that
          has contributed funds to the Non-Regulated Subsidiary Money Pool in the
          proportion that the total amount then contributed to the Non-Regulated
          Subsidiary Money Pool by such Party bears to the total amount then contributed
          to the Non-Regulated Subsidiary Money Pool by all Parties. On any day when more
          than one source of funds (e.g., funds from Internal Sources and funds from
          External Sources), with different rates of interest, are used to fund loans
          through the Non-Regulated Subsidiary Money Pool, each borrowing Party will
          borrow pro rata from each such source of funds in the Non-Regulated Subsidiary
          Money Pool in the same proportion that the amount of funds provided by that
          funding source bears to the total amount of short-term funds available in the
          Non-Regulated Subsidiary Money Pool. 

        Section
1.4 Authorization. (a) Each contribution to the Non-Regulated Subsidiary Money Pool
shall be authorized by the contributing Party’s President, Treasurer, or Assistant
Treasurer, or by a designee thereof. 

            (b)    
          All borrowings from the Non-Regulated Subsidiary Money Pool shall be authorized
          by the borrowing Party’s President, Treasurer, Assistant Treasurer, or by a
          designee thereof. Disbursement requests signed by a Party’s President,
          Treasurer, Assistant Treasurer, or designee thereof shall be considered as
          authorization for borrowing hereunder. 

3

        Section
1.5 Interest. Each Party receiving a loan shall accrue interest monthly on the
unpaid principal amount of such loan from the Non-Regulated Subsidiary Money Pool from the
date of such loan until such principal amount shall be paid in full. 

            (a)    
          If only funds from Internal Sources comprise the funds available in the
          Non-Regulated Subsidiary Money Pool, the interest rate applicable to loans of
          such funds from Internal Sources shall be the CD yield equivalent of the 30-day
          Federal Reserve “AA” Non-Financial Commercial Paper Composite Rate
          (the “Composite Rate”) (or, if no such Composite Rate is established
          for that day, then the applicable rate shall be the Composite Rate for the next
          preceding day for which such Composite Rate was established). 

            (b)    
          If only funds from External Sources comprise the funds available in the
          Non-Regulated Subsidiary Money Pool, the interest rate applicable to loans of
          such funds from External Sources shall be equal to the lending Party’s cost
          for such funds from External Sources (or, if more than one Party had made
          available funds from External Sources on such day, the applicable interest rate
          shall be a blended rate, equal to the weighted average of the cost incurred by
          the respective Parties for such funds from External Sources). 

            (c)    
          In cases where funds from both Internal Sources and External Sources are
          concurrently borrowed through the Non-Regulated Subsidiary Money Pool, the rate
          applicable to all loans comprised of such “blended” funds shall be a
          blended rate, equal to the weighted average of the (i) cost of all funds
          contributed by Parties from Internal Sources (as determined pursuant to Section
          1.5(a) above) and (ii) the cost of all such funds from External Sources (as
          determined pursuant to Section 1.5(b) above); provided, that, notwithstanding
          Section 1.3(b) of this Agreement, in circumstances where funds from Internal
          Sources and External Sources are available for loans through the Non-Regulated
          Subsidiary Money Pool, loans may be made exclusively with funds from Internal
          Sources or External Sources, rather than from a “blend” of such funds,
          to the extent it is expected that such loans would result in a lower cost of
          borrowing. 

        Section
1.6 Certain Costs. The cost of compensating balances and/or fees paid to banks or
other institutions to maintain credit facilities by Parties contributing funds from
External Sources to the Non-Regulated Subsidiary Money Pool shall initially be paid by the
Party maintaining such facilities. A portion of such costs shall periodically be allocated
to the Parties borrowing such funds from External Sources through the Non-Regulated
Subsidiary Money Pool on a fair and equitable basis. 

        Section
1.7 Repayment. Each Party receiving a loan hereunder shall repay the principal
amount of such loan, together with all interest accrued thereon, on demand and in any
event within one year of the date on which such loan was made. All loans made through the
Non-Regulated Subsidiary Money Pool may be prepaid by the borrowing Party without premium
or penalty. 

4

        Section
1.8 Form of Loans to Parties. Loans to Parties through the Non-Regulated Subsidiary
Money Pool will be made pursuant to open-account advances, repayable upon demand;
provided, that each Party contributing funds shall at all times be entitled to receive
upon demand one or more promissory notes evidencing any and all loans made by the
Non-Regulated Subsidiary Money Pool. Any such note shall: (a) be dated as of the date of
the initial borrowing, (b) mature on demand or on a date agreed to by the Parties to the
transaction, but in any event not later than one year after the date of the applicable
borrowing, and (c) be prepayable in whole at any time or in part from time to time,
without premium or penalty. 

ARTICLE II
OPERATION OF
NON-REGULATED SUBSIDIARY MONEY POOL

        Section
2.1 Operation. Operation of the Non-Regulated Subsidiary Money Pool, including
record keeping and coordination of contributions and loans, will be handled by Ameren
Services under the authority of the appropriate officers of the Parties. Ameren Services
shall be responsible for the determination of all applicable interest rates and charges to
be applied to contributions to and loans from the Non-Regulated Subsidiary Money Pool at
any time hereunder, shall maintain records of all such contributions and loans, interest
charges and accruals and interest and principal payments for purposes hereof, and shall
prepare periodic reports thereof for the Parties. Ameren Services will administer the
Non-Regulated Subsidiary Money Pool on an “at cost” basis. Separate records
shall be kept by Ameren Services for the Non-Regulated Subsidiary Money Pool established
by this Agreement and any other money pool administered by Ameren Services. 

        Section
2.2 Investment of Surplus Funds in the Non-Regulated Subsidiary Money Pool. Funds
not required to meet Non-Regulated Subsidiary Money Pool loans (with the exception of
funds required to satisfy the Non-Regulated Subsidiary Money Pool’s liquidity
requirements) will ordinarily be invested in one or more short-term investments,
including: (i) interest-bearing accounts with banks; (ii) obligations issued or guaranteed
by the U.S. government and/or its agencies and instrumentalities, including obligations
under repurchase agreements; (iii) obligations issued or guaranteed by any state or
political subdivision thereof, provided that such obligations are rated not less than A by
a nationally recognized rating agency; (iv) commercial paper rated not less than A-1 or
P-1 or their equivalent by a nationally recognized rating agency; (v) money market funds;
(vi) bank certificates of deposit and bankers acceptances; (vii) Eurodollar certificates
of deposit or time deposits; (viii) investment grade medium term notes, variable rate
demand notes and variable rate preferred stock; and (ix) such other investments as are
permitted by Section 9(c) of the Act and Rule 40 thereunder. 

        Section
2.3 Allocation of Interest Income and Investment Earnings. The interest income and
other investment income earned by the Non-Regulated Subsidiary Money Pool on loans to
Parties and on investment of surplus funds will be allocated among the  

5

Parties making
contributions in accordance with the proportion each Party’s contribution of funds to
the Non-Regulated Subsidiary Money Pool bears to the total amount of funds contributed to
the Non-Regulated Subsidiary Money Pool and the cost of any External Sources contributed
to the Non-Regulated Subsidiary Money Pool by such Party. Interest and other investment
earnings will be computed on a daily basis and settled once per month.

        Section
2.4 Event of Default. If any Party shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors, or any proceeding shall be
instituted by or against any Party seeking to adjudicate it a bankrupt or insolvent, then
the other Parties may declare the unpaid principal amount of any loans to such Party, and
all interest thereon, to be forthwith due and payable and all such amounts shall forthwith
become due and payable. 

ARTICLE III
MISCELLANEOUS

        Section
3.1 Amendments, Waivers. Except as provided for in Section 1.2(b), this Agreement
may not be modified or amended in any respect except in writing executed by the Parties.
No provision of this Agreement shall be deemed waived unless such wavier is set forth in
writing and executed by the Party making such waiver. 

        Section
3.2 Legal Responsibility. Nothing herein contained shall render any Party liable
for the obligations of any other Party hereunder and the rights, obligations and
liabilities of the Parties are several in accordance with their respective obligations,
and not joint. 

        Section
3.3 Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Missouri. 

6

        IN
WITNESS WHEREOF, the undersigned companies have duly caused this Agreement to be signed on
their behalf on the date first written above by the undersigned thereunto duly authorized. 

			AMEREN CORPORATION

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMEREN SERVICES COMPANY

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMEREN ENERGY, INC.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMEREN DEVELOPMENT COMPANY

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMEREN ERC, INC.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

7

			CIPSCO INVESTMENT COMPANY

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   President

			UNION ELECTRIC DEVELOPMENT CORPORATION

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMEREN ENERGY COMMUNICATIONS, INC.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMEREN ENERGY RESOURCES COMPANY

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMEREN ENERGY GENERATING COMPANY

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

8

			AMEREN ENERGY DEVELOPMENT COMPANY

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMEREN ENERGY MARKETING COMPANY

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMEREN ENERGY FUELS AND SERVICES COMPANY

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AFS DEVELOPMENT COMPANY, LLC

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Treasurer

			ILLINOIS MATERIALS SUPPLY CO.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

9

			CILCORP INC.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			CENTRAL ILLINOIS GENERATION, INC.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			CILCORP INVESTMENT MANAGEMENT INC.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   President

			CILCORP VENTURES INC.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			QST ENTERPRISES INC.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Treasurer

10

			CILCORP ENERGY SERVICES INC.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			CILCO EXPLORATION AND DEVELOPMENT COMPANY

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   President

			CILCO ENERGY CORPORATION

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   President

			AMERENENERGY MEDINA VALLEY COGEN (NO. 4), L.L.C.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMERENENERGY MEDINA VALLEY COGEN, L.L.C.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

11

			AMERENENERGY MEDINA VALLEY COGEN (NO. 2), L.L.C.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

			AMERENENERGY VALLEY OPERATIONS, L.L.C.

By: /s/ Jerre E. Birdsong
——————————————

Name:  Jerre E. Birdsong
Title:   Vice President and Treasurer

12Exhibit 10.01

EXECUTION COPY

 

STOCK PURCHASE
AGREEMENT

 BY AND BETWEEN

 ARGAN, INC.

a Delaware
corporation

and

WESTERN FILTER
CORPORATION

a California
corporation

dated as of
October 31, 2003

 

TABLE OF CONTENTS

                                                                                                                                                  Page

ARTICLE I. Purchase of Shares. 1

1.1       Purchase
and Sale of Shares.                                                                                      1

ARTICLE II. Purchase Price and Closing.                                                                                         2

2.1       Purchase
Price.                                                                                                           2

2.2       Payment
at Closing.                                                                                                    2

2.4        Deliveries at
Closing/Deliveries by Seller and Buyer.                                                  
2

2.5       Closing.                                                                                                                      2

2.6       Deliveries
at Closing/Deliveries by Seller and Buyer.                                                    2

ARTICLE III. Representations and Warranties.                                                                                 3

3.1       Representations
and Warranties of Seller.                                                                    3

3.2       Representations
and Warranties of Buyer.                                                                  20

ARTICLE IV. Certain Covenants.                                                                                                   21

4.1       Covenants
of Seller.                                                                                                   21

4.2       Covenants
of Buyer.                                                                                                  27

ARTICLE V. Conditions to Closing.                                                                                               
28

5.1       Conditions
Precedent to Obligation of Buyer to Close.                                               28

5.2       Conditions
Precedent to Obligation of Seller to Close.                                                30

ARTICLE VI. Indemnification.                                                                                                        31

6.1       Indemnification
by Sellers.                                                                                         31

6.2       Indemnification
by Buyer.                                                                                          31

6.3       Procedures
for Indemnification.                                                                                 32

6.4       Certain
Limitations.                                                                                                   33

ARTICLE VII. Termination.                                                                                                           33

7.1       Termination.                                                                                                             33

7.2       Effect
of Termination.                                                                                               34

7.3       Refund
of Deposit.                                                                                                   34

ARTICLE VIII. Miscellaneous.                                                                                                      34

8.1       Survival
of Representations and Warranties.                                                              34

8.2       Expenses.                                                                                                                
34

8.3       Notices.                                                                                                                   34

8.4       Amendments.                                                                                                           36

8.5       Waiver.                                                                                                                    36

8.6       Publicity.                                                                                                                  36

8.7       Headings.                                                                                                                 36

8.8       Assignment
of Agreement.                                                                                        36

8.9       Parties
in Interest.                                                                                                     36

8.10     Counterparts.                                                                                                           36

8.11     Governing
Law.                                                                                                       36

8.12     Severability.                                                                                                             36

8.13     Remedies.                                                                                                                37

8.14     Entire
Agreement.                                                                                                     37

8.15     Further
Assurances.                                                                                                  37

8.16     Consent
to Jurisdiction and Waivers.                                                                         37

8.17     Waiver
of Jury Trial.                                                                                                 37

STOCK PURCHASE
AGREEMENT

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

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

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

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

ARTICLE I.

Purchase of Shares

1.1       Purchase and Sale of Shares. 

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

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

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

 

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ARTICLE II.

Purchase Price and Closing

2.1       Purchase Price. 

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

2.2       Payment at Closing. 

At the Closing the following
cash payments shall be made by Buyer:

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

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

2.3       Closing. 

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

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

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

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

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

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

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

 

-2-

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE III.

Representations and Warranties

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

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

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

 

-3-

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

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

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

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

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

 

-4-

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

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

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

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

 

-5-

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

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

 

-6-

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

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

 

-7-

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

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

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

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

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

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

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

 

-8-

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

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

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

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

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

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

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

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

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

 

-9-

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

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

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

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

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

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

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

(xvi)     plan of reorganization;

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

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

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

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

 

-10-

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

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

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

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

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

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

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

 

-11-

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

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

 

-12-

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

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

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

 

-13-

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

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

(y)        Intellectual Property.

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

 

-14-

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

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

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

 

-15-

(aa)      Environmental Matters.

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

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

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

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

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

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

 

-16-

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

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

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

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

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

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

 

-17-

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

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

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

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

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

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

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

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

 

-18-

(cc)      Condition of Assets.

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

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

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

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

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

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

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

 

-19-

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

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

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

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

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

 

-20-

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

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

ARTICLE IV.

Certain Covenants

4.1       Covenants of Seller. 

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

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

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

 

-21-

(c)        Tax Covenants.

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

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

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

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

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

 

-22-

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

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

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

 

-23-

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

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

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

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

 

-24-

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

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

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

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

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

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

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

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

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

 

-25-

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

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

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

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

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

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

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

 

-26-

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

4.2       Covenants of Buyer. 

Buyer hereby
covenants and agrees with Seller as follows:

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

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

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

 

-27-

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

ARTICLE V.

Conditions to Closing

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

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

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

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

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

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

 

-28-

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

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

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

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

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

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

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

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

 

-29-

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

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

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

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

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

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

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

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

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

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

 

-30-

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

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

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

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

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

ARTICLE VI.

Indemnification

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

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

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

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

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

 

-31-

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

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

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

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

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

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

 

-32-

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

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

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

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

 

-33-

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

ARTICLE VII.

Termination

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

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

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

 

-34-

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

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

ARTICLE VIII.

Miscellaneous

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

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

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

	If to Buyer:                   Western Filter Corporation
	

26235 Technology
Drive

    
	

Valencia, CA 
91355

    
	

Attention:          Paul
Akian

    
	

Telephone:        (661)
295-0800

    
	

Telecopy:         (661)
295-0200

    
	  
	With a copy to:             Sheppard Mullin Richter &
Hampton LLP
	

Forty Eighth Floor

    
	

333 South Hope
Street

    
	

Los Angeles CA 
90071

    
	

Attention:          James
J. Slaby

    
	

Telephone:        (213)
617-5411

    
	

Telecopy:         (213)
620-1398

    

 

 

-35-

 

	If to Seller:                    Argan, Inc.
	

1 Church Street

    
	

Suite 302

    
	

Rockville, MD 
20850

    
	

Attention:          H.
Haywood Miller III

    
	

Telephone:        (301)
315-0027

    
	

Telecopy:         (301)
315-0064

    
	   
	With a copy to:             Robinson & Cole LLP
	

Financial Centre

    
	

P.O. Box 10305

    
	

Stamford, CT 
06904-2305

    
	

Attention:          Richard
Krantz

    
	

Telephone:        (203)
462-7505

    
	

Telecopy:         (203)
462-7599

    

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

 

-36-

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

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

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

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

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

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

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

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

8.12     Severability.   If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.  It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such which may be hereafter
declared invalid, void or unenforceable.

 

-37-

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

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

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

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

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

[remainder of this
page left intentionally blank]

 

 

-38-

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

BUYER:

WESTERN FILTER CORPORATION

By:                                                       

Its:                                                        

 

SELLER:

ARGAN, INC.

By:                                                       

Its:                                                        

 

-39-

EXHIBIT B

 SELECTED
DEFINITIONS

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

"Buyer" means Western Filter Corporation.

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

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

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

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

"Company" means Puroflow, Inc.

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

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

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

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

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

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

"Dollars" means United States Currency.

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

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

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

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

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

 

-i-

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

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

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

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

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

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

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

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

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

"Seller" means Argan, Inc.

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

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

 

-ii-

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

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

 

 

 

 

-iii-

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