Document:

exv10w55

 

Exhibit 10.55

EQUITY PURCHASE AGREEMENT

     This Equity Purchase Agreement (“Agreement”) is dated August 5, 2005, by and among
PolyMedica Corporation, a Massachusetts corporation (“Buyer”), National Pharmacies Group,
Inc., a Delaware corporation (“Seller”), and National Diabetic Pharmacies, Inc., a Virginia
corporation (together with any successor in interest, collectively, the “Company”).

RECITALS

     WHEREAS, the Company is a nationwide specialized pharmaceutical distribution company focusing
on diabetes management products, including diabetes testing supplies, insulin pumps, respiratory
medications, wound care supplies and prescriptions (the “Business”);

     WHEREAS, Seller owns all of the issued and outstanding shares (the “Shares”) of
capital stock of the Company;

     WHEREAS, Seller intends to cause the Company to be converted into a single member limited
liability company in Virginia prior to the Closing Date (as defined herein);

     WHEREAS, as of the Conversion (as defined herein), Seller shall own all of the issued and
outstanding membership interests (the “Interests”) of the Company; and

     WHEREAS, Seller desires to sell, and Buyer desires to purchase, all of the Interests for the
consideration and on the terms set forth in this Agreement.

AGREEMENT

     The parties, intending to be legally bound, agree as follows:

1. Sale and Transfer of Interests; Closing

     1.1 Interests. Upon the terms and subject to the conditions set forth herein, at the
Closing, but effective as of the Effective Time, Seller will sell, convey, assign, transfer and
deliver to Buyer, and Buyer will purchase and acquire from Seller, free and clear of any
Encumbrances, the Interests.

     1.2 Purchase Price. The purchase price for the Interests will be $55,000,000.00
plus the Adjustment Amount (such sum, as so adjusted is herein referred to as the
“Purchase Price”). On the Closing Date, Buyer shall make payment on account of the
Purchase Price as follows: $55,000,000.00 plus the Estimated Closing Working Capital
Excess or minus the Estimated Closing Working Capital Shortfall by wire transfer to
an account designated by Seller as set forth on Schedule 1.2(a).

     1.3 Closing. The purchase and sale of the Interests provided for in this Agreement
(the “Closing”) will take place at the offices of Buyer’s counsel at Weil, Gotshal & Manges
LLP, 100 Federal Street, 34th Floor, Boston, Massachusetts 02110, commencing at 10:00 a.m. (local
time) on the later of (a) August 22, 2005, or (b) the date that is five (5) Business Days following
the termination of the applicable waiting period under the HSR
Act,
unless Buyer and Seller

 

 

otherwise agree. Subject to the provisions of Section 8,
failure to consummate the purchase and sale provided for in this Agreement on the date and time and
at the place determined pursuant to this Section 1.3 will not result in the termination of
this Agreement and will not relieve any party of any obligation under this Agreement. In such a
situation, the Closing will occur as soon as practicable, subject to Section 8. The Closing
shall be deemed effective as of 12:01 a.m. local time, on the Closing Date (the “Effective
Time”).

     1.4 Closing Obligations. In addition to any other documents to be delivered pursuant
to other provisions of this Agreement, at the Closing:

          (a) Seller and the Company will deliver to Buyer:

               (i) the Interests Certificate duly endorsed (or accompanied by a duly executed power) for
transfer to Buyer;

               (ii) a release in the form of Exhibit A duly executed by Seller (the “Seller’s
Release”);

               (iii) [Intentionally Omitted]

               (iv) a noncompetition agreement in the form of Exhibit C duly executed by Robert Haft
(the “Noncompetition Agreement”);

               (v) the Seller’s Secretary Certificate;

               (vi) the Consents listed on Schedule 1.4(a)(vi).

               (vii) the Seller’s Officer Certificate;

               (viii) certificates of the Secretaries of State of the State of Delaware and the Commonwealth
of Virginia certifying the good standing of Seller and the Company, respectively, dated as of a
recent date prior to the Closing Date; and

               (ix) resignations of each of the Company’s officers and directors from such positions
effective as of the Effective Time.

          (b) Buyer will deliver to Seller:

               (i) the Purchase Price to be paid to Seller on the Closing Date in accordance with Section
1.2;

               (ii) the Buyer’s Secretary Certificate; and

               (iii) the Buyer’s Officer Certificate.

Each of the deliveries pursuant to this Section 1.4 will be deemed to occur simultaneously
and no delivery shall be made unless all other deliveries have been made.

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          1.5 Adjustment Amount. (a) Pre-Closing Date Purchase Price Adjustment Estimate.

               (i) Not later than three (3) Business Days prior to the Closing Date, the Seller shall provide
Buyer with a statement (the “Estimated Closing Statement”) setting forth in reasonable
detail a calculation of its good faith estimation of the Closing Working Capital (“Estimated
Closing Working Capital”). The Estimated Closing Statement and Estimated Closing Working
Capital shall be prepared by the Company in good faith in accordance with GAAP applied using the
same accounting methods, practices, principles, policies and procedures, with consistent
classifications, judgments and valuation and estimation and accrual methodologies that were used in
the preparation of the Company’s audited Financial Statements for the most recent fiscal year end
as if such Estimated Closing Statement and Estimated Closing Working Capital were being prepared
and audited as of a fiscal year end. Notwithstanding the foregoing or any other provision of this
Agreement, the Estimated Closing Statement, the Estimated Working Capital and the Closing Working
Capital Statement shall reflect the reserves set forth on Schedule 1.5 attached hereto
(collectively, the “Supplemental Reserves”). The Supplemental Reserves shall be
disregarded for the purposes of calculating any adjustment required to be made under this
Section 1.5.

               (ii) If Estimated Closing Working Capital is less than Target Working Capital, then the
Purchase Price payable at Closing will be decreased by the positive difference between Estimated
Closing Working Capital and Target Working Capital (the “Estimated Closing Working Capital
Shortfall”). If Estimated Closing Working Capital is greater than Target Working Capital, then
the Purchase Price payable at Closing will be increased by the positive difference between
Estimated Closing Working Capital and Target Working Capital (the “Estimated Closing Working
Capital Excess”).

          (b) Post-Closing Date Purchase Price Adjustment.

               (i) Following the Closing, the Purchase Price shall be adjusted as provided herein to reflect
the difference between Closing Working Capital and Target Working Capital (the “Adjustment
Amount”).

               (ii) Within sixty (60) days following the Closing Date, Buyer shall deliver to Seller a
statement of Closing Working Capital (the “Closing Working Capital Statement”) setting
forth in reasonable detail Buyer’s calculations of Closing Working Capital. The Closing Working
Capital Statement shall be prepared in accordance with GAAP applied using the same accounting
methods, practices, principles, policies and procedures, with consistent classifications, judgments
and valuation and estimation methodologies that were used in the preparation of the Company’s
audited Financial Statements for the most recent fiscal year end as if such Closing Working Capital
Statement was as of a fiscal year end. In order for the Seller and its Representatives to review
such Closing Working Capital Statement, Buyer will promptly furnish to Seller and its
Representatives such work papers, supporting schedules, analyses and other documents and
information as Seller and its Representatives may reasonably request. Buyer shall reasonably
cooperate with Seller to assist Seller’s and its Representatives’ review of any such Closing
Working Capital Statement and if requested, Buyer’s accounting

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personnel will meet in person with Seller and its Representatives to discuss the Closing
Working Capital Statement.

               (iii) If, within forty-five (45) days following delivery of the Closing Working Capital
Statement, Seller has not given Buyer written notice of its objection as to the Adjustment Amount
(which notice shall state in reasonable detail the basis of Seller’s objection or identify
additional information reasonably required by Seller and its Representatives to evaluate the
determination made by Buyer), then the Adjustment Amount calculated by Buyer shall be binding and
conclusive on the parties.

               (iv) If Seller gives Buyer such written notice of objection, and if Seller and Buyer fail to
resolve the issues outstanding with respect to the Closing Working Capital Statement and the
calculation of the Adjustment Amount within thirty (30) days of Buyer’s receipt of Seller’s
objection notice, Seller and Buyer shall submit the issues remaining in dispute as identified in
Seller’s notice of objection to Deloitte & Touche LLP or such other independent public accounting
firm mutually selected by Buyer and Seller (the “Independent Accountants”) for resolution
applying the principles, policies and practices referred to in Section 1.5(b)(ii). If
issues are submitted to the Independent Accountants for resolution, (i) Seller and Buyer shall
furnish or cause to be furnished to the Independent Accountants such work papers, supporting
schedules, analyses and other documents and information relating to the disputed issues as the
Independent Accountants may request and are available to that party or its agents and shall be
afforded the opportunity to present to the Independent Accountants any material relating to the
disputed issues and to discuss the issues with the Independent Accountants; and (ii) the
determination by the Independent Accountants, as set forth in a notice to be delivered to both
Seller and Buyer within sixty (60) days of the submission to the Independent Accountants of the
issues remaining in dispute, shall be final, binding and conclusive on the parties and shall be
used in the calculation of the Adjustment Amount. Copies of all materials submitted or furnished
by a Party to the Independent Accountants shall also be provided to the other Party and its
Representatives and all meetings and communications with the Independent Accountants shall be held
so that all Parties are given a reasonable opportunity to participate. The costs and expenses of
the Independent Accountants in a dispute regarding the Adjustment Amount shall be paid by Seller if
(A) the positive difference between (i) the Adjustment Amount resulting from determination of the
Independent Accountants, and (ii) the Adjustment Amount set forth in Seller’s notice of objection,
is greater than (B) the positive difference between (i) the Adjustment Amount resulting from
determination of the Independent Accountants, and (ii) Buyer’s calculation of the Adjustment Amount
as delivered to Seller; otherwise, such costs and expenses of the Independent Accounts will be paid
by Buyer. The Independent Accounts will be entitled to the privileges and immunities of
arbitrators.

               (v) If Closing Working Capital is greater than the Estimated Closing Working Capital, the
difference shall be paid by Buyer to Seller within five (5) days of either the delivery of the
Closing Working Capital Statement or, if Seller gives notice pursuant to Section
1.5(b)(iii) herein, the determination of the Independent Accountants. If Closing Working
Capital
is less than Estimated Closing Working Capital, the difference shall be paid by Seller to
Buyer
within five (5) days of either the delivery of the Closing Working Capital

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Statement or, if
Seller gives notice pursuant to Section 1.5(b)(iii) herein, the determination of the
Independent Accountants.

               (vi) The Independent Accountants shall have not been engaged by any Party or any Related
Person of such Party within the prior five (5) year period ending on the date of this Agreement.

2. Representations and Warranties of Seller and the Company

     In order to induce Buyer to enter into this Agreement, except as set forth in the Seller
Disclosure Schedule to the specific reference to the section as to which the disclosure applies or
to the extent reasonably apparent in any section of such Seller Disclosure Schedule (the
“Seller Disclosure Schedule”), Seller and the Company, jointly and severally, subject to
the limitations set forth in Section 10, represent and warrant to Buyer as follows:

     2.1 Organization, Good Standing and Capitalization.

          (a) Each of Seller and the Company is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation, with full corporate power and authority
to conduct its business as it is now being conducted, to own or use the properties and assets that
it purports to own or use, and to perform all its obligations under the Applicable Contracts. The
Company is duly qualified and licensed to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which either the property owned, leased or operated
by it or the nature of the Business as currently conducted makes such qualification or license
necessary, except where the failure to be so qualified or licensed and in good standing would not
have, individually or in the aggregate, a Material Adverse Effect.

          (b) Seller has delivered or made available to Buyer copies of all Governing Documents of
Seller and the Company as currently in effect.

          (c) Prior to the Conversion, the authorized equity securities of the Company consist of 5,000
shares of voting common stock and 5,000 shares of non-voting common stock, without par value, all
of which are issued and outstanding and constitute the Shares. Following the Conversion, the
authorized equity securities of the Company will consist of one hundred units of limited liability
company interests, all of which will be issued and outstanding and constitute the Interests. Seller
is the record and beneficial owner and holder of the Shares, free and clear of all Encumbrances and
will be on the Closing Date the record and beneficial owner and holder of the Interests, free and
clear of all Encumbrances other than Permitted Encumbrances. The Shares have been duly authorized
and validly issued and are fully paid and nonassessable, and following the Conversion, the
Interests will be duly authorized and validly issued and fully paid and nonassessable. There are
no Contracts relating to the issuance, sale or transfer of any equity securities or other
securities of the Company. None of the Shares were issued in violation of the Securities Act or
any other Legal Requirement, and following the
Conversion, none of the Interests will have been issued in violation of the Securities Act or
any other Legal Requirement.

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          (d) Except for the Interests, neither the Company nor the Seller owns, or has any Contract to
acquire, any equity securities or other securities of any Person or other direct or indirect equity
or other ownership interest in any other business.

     2.2 Enforceability; Authority; No Conflict.

          (a) This Agreement constitutes the legal, valid and binding obligation of Seller and the
Company, enforceable against each of them in accordance with its terms. Upon the execution and
delivery by Seller or the Company of each other agreement to be executed or delivered by Seller or
the Company at the Closing (collectively, the “Seller’s Closing Documents”), each of the
Seller’s Closing Documents will constitute the legal, valid and binding obligation of Seller and/or
the Company, enforceable against it/them in accordance with its terms. Seller and the Company have
the absolute and unrestricted right, power and authority to execute and deliver this Agreement and
the Seller’s Closing Documents and to perform their obligations under this Agreement and Seller’s
Closing Documents, and such action has been duly authorized by all necessary action by Seller’s and
the Company’s shareholders and boards of directors.

          (b) Except as set forth on Schedule 2.2(b), neither the execution and delivery of this
Agreement nor the consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time): (i) Breach (A) any provision of
any of the Governing Documents of Seller or the Company or (B) any resolution adopted by the board
of directors or the shareholders of Seller or the Company; (ii) Breach or give any Governmental
Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any
remedy or obtain any relief under any Legal Requirement or any Order to which Seller or the Company
may be subject; (iii) contravene, conflict with or result in a violation or breach of any of the
terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate or modify, any Governmental Authorization that is held by Seller or the Company
that otherwise relates to the Business; (iv) cause Buyer or the Company to become subject to, or to
become liable for the payment of, any Tax; (v) Breach any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to accelerate the maturity or
performance of, or payment under, or to cancel, terminate or modify, any Contract identified or
required to be identified on Schedule 2.20(a); or; (vi) result in the imposition or
creation of any Encumbrance upon or with respect to any asset owned or used by the Company.

          (c) Except as set forth on Schedule 2.2(c), neither Seller nor the Company is or will
be required to give any notice to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions; provided that, in the case of Contracts, this representation applies
only to Contracts identified or required to be identified on Schedule 2.20(a).

     2.3 Financial Statements. Seller has delivered to Buyer: (a) an audited consolidated
balance sheet of the Company and Seller as at December 31, in each of the years 2002 through 2004,
and the related audited consolidated statements of income, changes in shareholders’ equity and cash
flows for each fiscal year then ended, including the notes thereto (the “Annual Financial

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Statements”); and (b) an interim unaudited consolidated balance sheet of the Company and Seller
as at June 30, 2005 (the “Balance Sheet Date”), including the notes thereto (the
“Balance Sheet”) and the related statements of income, changes in shareholders’ equity, and
cash flows for the period then ended (together with the Balance Sheet, the “Most Recent
Financial Statements” and together with the Annual Financial Statements, the “Financial
Statements”). The Financial Statements fairly present, in all material respects, the
consolidated financial condition and the results of operations, changes in shareholders’ equity and
cash flows of the Company and Seller as at the respective dates of and for the periods referred to
therein, all in accordance with GAAP, applied on a consistent basis throughout the periods covered
thereby, subject in the case of the Most Recent Financial Statements to footnotes and normal year
end adjustments. The Financial Statements have been prepared from and are in accordance with the
accounting records of the Company and Seller.

     2.4 Books and Records. The books of account, minute books, stock record books, and
other records of the Company and Seller, all of which have been made available to Buyer, are
complete and correct in all material respects and have been maintained in accordance with sound
business practices.

     2.5 Title to Properties; Encumbrances.

     (a) Schedule 2.5(a) contains a list of all real property leased (“Leased Real
Property”) by the Company. The Company does not own any real property. Except as set forth in
Schedule 2.5(a), the Company has valid and subsisting leasehold estate in, and enjoys
peaceful and undisturbed possession of, all Leased Real Property, subject only to (i) any Permitted
Encumbrances and (ii) Encumbrances constituting a lease, sublease or occupancy agreement that gives
any third party any right to occupy any portion of the Leased Real Property (which have been
disclosed in Schedule 2.5(a)).

     (b) Except as set forth in Schedule 2.5(b), the Company owns and has good title to or
a valid leasehold in all material buildings, machinery, equipment and other tangible assets (i)
shown on the Most Recent Financial Statements and (ii) necessary for the conduct of the Business as
currently conducted, in each case free and clear or all Encumbrances other than Permitted
Encumbrances, except for properties and assets disposed of in the Ordinary Course of Business since
the Balance Sheet Date.

     2.6 Condition and Sufficiency of Assets. The buildings, plants, structures, and
equipment of the Company are in good operating condition and repair, and are adequate for the uses
to which they are currently being used, except as would not reasonably be expected to have a
Material Adverse Effect. None of such buildings, plants, structures or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs that are not material
in nature or cost. The assets of the Company used in the Business are, taken as a whole,
sufficient for the continued conduct of the Business after the Closing in substantially the
same manner as conducted prior to the Closing.

     2.7 Accounts Receivable. All Accounts Receivable of the Company that are reflected on
the Balance Sheet or the accounting records of the Company as of the Closing Date represent

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or will
represent valid obligations arising from sales actually made or services actually performed by the
Company in the Ordinary Course of Business.

     2.8 Inventories. The Inventories, taken as a whole, consist of a quality and quantity
usable and, with respect to finished goods, saleable, in the Ordinary Course of Business, except
for obsolete items and items of below-standard quality arising in the Ordinary Course of Business.
The Company is not in possession of any Inventories not owned by it, including goods already sold.
All Inventories not written off have been valued using the weighted average cost method, which
approximates the first-in, first-out (FIFO) method.

     2.9 No Undisclosed Liabilities. Except as set forth on Schedule 2.9, the
Company has no Liability that would be required to be reflected on a balance sheet of the Company
prepared as of the date hereof in accordance with GAAP (excluding footnotes and normal year end
adjustments), except for Liabilities reflected, accrued for or reserved against in the Most Recent
Financial Statements and liabilities incurred in the Ordinary Course of Business since the Balance
Sheet Date.

     2.10 Taxes. Except as set forth on Schedule 2.10:

          (a) The Company has filed or caused to be filed on a timely basis all Tax Returns that are or
were required to be filed by or with respect to it, either separately or as a member of a group of
Persons, pursuant to applicable Legal Requirements. Seller has delivered or made available to Buyer
copies of all such Tax Returns filed by Seller or the Company with respect to the tax periods
ending on December 31, 2001, December 31, 2002, December 31, 2003 and December 31, 2004 and
Schedule 2.10(a) lists all federal and state income Tax Returns filed by Seller or the
Company with respect to tax periods ending on December 31, 2001, December 31, 2002, December 31,
2003 and December 31, 2004. All Tax Returns and reports filed by Seller and/or the Company are
true, correct and complete in all material respects. The Company has timely paid all of its Taxes
that have or may have become due for all periods covered by the Tax Returns, or pursuant to any
assessment received by Seller or the Company, except such Taxes, if any, as are listed on
Schedule 2.10(a) and are being contested in good faith and as to which either adequate
reserves (as required and as determined in accordance with GAAP) have been provided in the Balance
Sheet (subject to any footnote and normal year-end adjustment) or which will be taken into account
in the calculation of Closing Working Capital. Except as provided on Schedule 2.10(a),
neither Seller nor the Company currently is the beneficiary of any extension of time within which
to file any Tax Return. No written claim has been made within the past five years by any
Governmental Body in a jurisdiction where Seller or the Company do not file Tax Returns that either
of them is or may be subject to taxation by that jurisdiction. There are no Encumbrances on any of
the assets of the Company that arose in connection with any failure (or alleged failure) to pay any
Tax.

          (b) Schedule 2.10(b) contains a list of all Tax Returns of Seller and the Company that
have been audited within the past three years or are currently under audit and accurately describes
any deficiencies or other amounts that were paid or are currently being contested with respect to
such audits. All deficiencies proposed in writing as a result of such audits have been paid,
settled or are being contested in good faith by appropriate proceedings as

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described on
Schedule 2.10(b). Seller has delivered, or made available to Buyer, copies of any
examination reports, statements or deficiencies or similar items with respect to such audits. There
is no outstanding dispute or claim concerning any Taxes of the Company claimed or raised by any
Governmental Body in writing. Except as described in Schedule 2.10(b), neither Seller nor
the Company has given or been requested to give waivers or extensions that are still in effect (or
is or would be subject to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of Seller or the Company or for the Company may be
liable after the Closing Date.

          (c) Except as set forth on Schedule 2.10(c), as of the date of the Balance Sheet, the
charges, accruals and reserves with respect to Taxes on the Balance Sheet of the Company are
adequate (as required and as determined in accordance with GAAP) and are at least equal to the
Company’s liability for Taxes as of the date of the Balance Sheet as determined and as required by
GAAP, subject to any footnotes and normal year end adjustments. No consent to the application of
former Section 341(f)(2) of the Code has been filed with respect to any property or assets of the
Company. All Taxes that the Company is or was required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the extent required, have been paid to the
proper Governmental Body or other Person.

          (d) There is no tax sharing agreement or tax allocation agreement with respect to the
Company’s Taxes that will require any payment by the Company after the Closing Date. The Company
is not a party to any advance pricing agreement or any closing agreement that would require any
payment by the Company after the Closing Date. The Company (A) has not been a member of an
affiliated group within the meaning of Code Section 1504(a) (or any similar group defined under a
similar provision of state, local or foreign law) and (B) has no liability for Taxes of any other
Person under Treas. Reg. sect. 1.1502-6 (or any similar provision of state, local or foreign law),
as a transferee or successor by contract or otherwise.

          (e) For federal income tax purposes Seller is an S corporation as defined in Code Section
1361. Prior to the Conversion, for federal income tax purposes the Company was a Qualified
Subchapter S Subsidiary as defined under Section 1361 of the Code. Following the Conversion,
Seller shall not take or cause to be taken any action that would prevent the Company from being
disregarded as an entity separate from its owners under Treas. Reg. § 301.7701-3 for federal income
tax purposes, and to the extent permitted, for all other income tax purposes.

2.11 Employees.

          (a) Schedule 2.11 contains a list of the following information, as of July 25, 2005,
for each employee or director of the Company, including each employee on leave of absence or layoff
status: employer; name; job title; current base compensation and target bonus, status as exempt or
non-exempt and any material change in compensation since January 1, 2005;
date of hire; and, to the extent different from date of hire, service credited for purposes of
vesting and eligibility to participate under the Company’s pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option, cash bonus, employee stock
ownership (including investment credit or payroll stock ownership), severance pay, insurance,
medical, welfare, vacation plan or any other Employee Plan.

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          (b) To the Knowledge of the Seller and the Company, no employee or director of the Company is
a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or director and any other
Person (“Proprietary Rights Agreement”) that in any way materially adversely affects or
will affect (i) the performance of his duties as an employee or director of the Company, or (ii)
the ability of the Company to conduct its business, including any Proprietary Rights Agreement with
Seller or the Company by any such employee or director. To the Knowledge of Seller and the Company,
no director, officer, or other key employee of the Company intends to terminate his employment with
the Company within 30 days after Closing.

          (c) Schedule 2.11 also contains a list of the following information for each retired
employee or director of the Company, or their dependents, receiving retiree benefits from the
Company or scheduled to receive retiree benefits in the future from the Company: name, retiree
medical insurance coverage, retiree life insurance coverage, and other retiree benefits.

     2.12 Labor Disputes; Compliance. Since January 1, 2003, the Company has not been or
is not a party to any collective bargaining or other labor Contract. Since January 1, 2003, there
has not been and, there is not presently pending, existing or to the Knowledge of Seller and the
Company, Threatened (a) any material strike, slowdown, picketing, organizing campaign, work
stoppage, or employee grievance process, (b) any material Proceeding against or affecting the
Company relating to the alleged violation of any Legal Requirement pertaining to labor relations or
employment matters, including any material charge or complaint filed by an employee or union with
the National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable
Governmental Body, organizational activity, or other material labor or employment dispute against
or affecting the Company or its premises, or (c) any application for certification of a collective
bargaining agent. There is no lockout of the employees by the Company, and no such action is
contemplated by the Company. Except as set forth on Schedule 2.12, the Company has complied
in all material respects with all Legal Requirements relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the
payment of social security and similar taxes, occupational safety and health, and plant closing.
The Company is not liable for the payment of any material compensation, damages, taxes, fines,
penalties, or other amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.

     2.13 WARN Act. Since January 1, 2003, neither Seller nor the Company has effectuated
(a) a “plant closing” (as defined in the Worker Adjustment and Retraining Notification Act (the
“WARN Act”), 29 U.S.C. §§ 2101 et seq.,) affecting any site of employment or one or more
facilities or operating units within any site of employment or facility of the Business, or (b) a
“mass layoff” (as defined in the WARN Act) affecting any site of
employment or facility of the Business where liabilities under the WARN Act remain, nor has
Seller or the Company been affected by any transaction or engaged in layoffs or employment
terminations relating to the Business sufficient in number to trigger application of any similar
state or local law where liabilities under such law remain.

2.14 Employee Benefits.

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          (a) Set forth on Schedule 2.14(a) is a list of all “employee benefit plans” as defined
by Section 3(3) of ERISA, all specified fringe benefit plans as defined in Section 6039D of the
Code, and all other bonus, incentive-compensation, deferred-compensation, profit-sharing,
stock-option, stock-appreciation-right, stock-bonus, stock-purchase, employee-stock-ownership,
savings, severance, change-in-control, supplemental-unemployment, layoff, salary-continuation,
retirement, pension, health, life-insurance, disability, accident, group-insurance, vacation,
holiday, sick-leave, fringe-benefit or welfare plan, and any other benefit plan, agreement, policy,
practice, commitment, contract or understanding (whether qualified or nonqualified, currently
effective or terminated, written or unwritten) and any trust, escrow or other agreement related
thereto that (i) is maintained or contributed to by the Company or any other Person controlled by,
controlling or under common control with the Company (within the meaning of Section 414 of the Code
or Section 4001(a)(14) or 4001(b) of ERISA) (“ERISA Affiliate”) or has been maintained or
contributed to in the last six years by the Company or any ERISA Affiliate, and with respect to
which the Company has or may have any liability, and (ii) provides benefits, or describes policies
or procedures applicable to any current or former director, officer, employee or service provider
of the Company or any ERISA Affiliate, or the dependents of any thereof, regardless of how (or
whether) liabilities for the provision of benefits are accrued or assets are acquired or dedicated
with respect to the funding thereof (collectively the “Employee Plans”). No Employee Plan
is (x) a “Defined Benefit Plan” (as defined in Section 414(l) of the Code); (y) a
“Multiemployer Plan” (as defined in Section 3(37) of ERISA); or (z) a plan subject to Title
IV of ERISA, other than a Multiemployer Plan.

          (b) Seller has delivered to Buyer copies of (i) the material documents comprising each
Employee Plan (or, with respect to any Employee Plan which is unwritten, a detailed written
description of eligibility, participation, benefits, funding arrangements, assets and any other
material documents which relate to the obligations of Seller, the Company or any ERISA Affiliate);
(ii) all trust agreements, insurance contracts or any other funding instruments related to the
Employee Plans; (iii) the most recent rulings, determination letters, no-action letters or advisory
opinions from the IRS, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation
(“PBGC”) or any other Governmental Body that pertain to any Employee Plan and any open
requests therefor; (iv) the most recent actuarial and financial reports (audited and/or unaudited)
and the annual reports filed with any Government Body with respect to the Employee Plans during the
current year and each of the three preceding years; (v) all collective bargaining agreements
pursuant to which contributions to any Employee Plan(s) have been made or obligations incurred
(including both pension and welfare benefits) by the Company or any ERISA Affiliate, and all
collective bargaining agreements pursuant to which contributions are being made or obligations are
owed by such entities; (vi) all contracts with third-party administrators, actuaries, investment
managers, consultants and other independent contractors
that relate to any Employee Plan; and (vii) all summary plan descriptions, employee handbooks
and other material written communications regarding the Employee Plans.

          (c) Except as set forth on Schedule 2.14(c), full payment has been made for all
amounts that are required under the terms of each Employee Plan to be paid as contributions with
respect to all periods prior to and including the last day of the most recent fiscal year of such
Employee Plan ended on or before the date of this Agreement and all periods thereafter

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prior to the
Closing Date, and no accumulated funding deficiency or liquidity shortfall (as those terms are
defined in Section 302 of ERISA and Section 412 of the Code) has been incurred with respect to any
such Employee Plan, whether or not waived. The Company is not required to provide security to an
Employee Plan under Section 401(a)(29) of the Code.

          (d) The Company has, at all times, complied, and currently complies, in all material respects
with the applicable continuation requirements for its welfare benefit plans, including (1) Section
4980B of the Code (as well as its predecessor provision, Section 162(k) of the Code) and Sections
601 through 608, inclusive, of ERISA, which provisions are hereinafter referred to collectively as
“COBRA” and (2) any applicable state statutes mandating health insurance continuation coverage for
employees.

          (e) Except as set forth on Schedule 2.14(e), the form of all Employee Plans is in
compliance in all material respects with the applicable terms of ERISA, the Code, and any other
applicable laws, including the Americans with Disabilities Act of 1990, the Family Medical Leave
Act of 1993 and the Health Insurance Portability and Accountability Act of 1996, and such plans
have been operated in material compliance with such laws and the written Employee Plan documents.
Neither Seller nor the Company has violated the requirements of Section 404 of ERISA.

          (f) Each Employee Plan that is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the IRS, and neither Seller nor the Company has
Knowledge of any circumstances that will result in revocation of any such favorable determination
letter. Each trust created under any Employee Plan has been determined to be exempt from taxation
under Section 501(a) of the Code, and neither Seller nor the Company has Knowledge of any
circumstance that will result in a revocation of such exemption. No Employee Plan utilizes a
funding vehicle described in Section 501(c)(9) of the Code or is subject to the provisions of
Section 505 of the Code. With respect to each Employee Plan, no event has occurred or condition
exists that will or could reasonably be expected to give rise to a loss of any intended tax
consequence or to any Tax under Section 511 of the Code.

          (g) There is no material pending or to the Knowledge of the Seller and the Company threatened
Proceeding relating to any Employee Plan, nor to the Knowledge of the Seller and the Company, is
there any basis for any such Proceeding. Neither Seller, the Company nor any fiduciary of an
Employee Plan has engaged in a transaction with respect to any Employee Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could subject Seller, the Company
or Buyer to a material Tax or penalty imposed by either Section 4975 of the Code or Section 502(l)
of ERISA or a violation of Section 406 of ERISA. The Contemplated Transactions will not result in
the potential assessment of a Tax or
penalty under Section 4975 of the Code or Section 502(l) of ERISA nor result in a violation of
Section 406 of ERISA.

          (h) Seller and the Company have maintained workers’ compensation coverage as required by
applicable state law through purchase of insurance and not by self-insurance or otherwise.

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          (i) Except as required by Legal Requirements or as set forth on Schedule 2.14(i), the
consummation of the Contemplated Transactions will not accelerate the time of vesting or the time
of payment, or increase the amount, of compensation due to any director, employee, officer, former
employee or former officer of Seller or the Company. Except as disclosed on Schedule
2.14(i), there are no contracts or arrangements providing for payments by Seller or the
Company, in their current form, that could subject any Person to Liability for tax under Section
4999 of the Code.

          (j) Except for the continuation coverage requirements of COBRA or similar statute, the Company
has no potential Liability for benefits to employees, former employees or their respective
dependents with respect to claims incurred following termination of employment or retirement under
any of the Employee Plans that are Employee Welfare Benefit Plans.

          (k) Except as set forth on Schedule 2.14(k), no Contemplated Transaction will result
in an amendment, modification or termination of any of the Employee Plans. No written or oral
representations have been made to any employee or former employee of Seller or the Company
promising or guaranteeing any employer payment or funding for the continuation of medical, dental,
life or disability coverage for any period of time beyond the end of the current plan year (except
to the extent of coverage required under COBRA or similar statute). Except as set forth in Section
6.1 hereof, no written or oral representations have been made by Seller or the Company to any
employee or former employee of Seller or the Company concerning the employee benefits of Buyer.

     2.15 Compliance With Legal Requirements; Governmental Authorizations.

          (a) Except as set forth on Schedule 2.15(a): (i) the Company is, and at all times
since January 1, 2001 has been, in material compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of the Business, including its reimbursement,
marketing, billing and collection practices; (ii) notwithstanding any qualifications as to time and
materiality set forth in subsection (a)(i) above, no event has occurred or circumstance exists that
(with or without notice or lapse of time) may give rise to any obligation on the part of the
Company to undertake, or to bear all or any portion of the cost of, any repayment of overpayments
made to the Company by Medicare, Medicaid or any other governmentally funded health care
reimbursement program or payment of penalties or other amounts in connection therewith; (iii) no
event has occurred or circumstance exists that (with or without notice or lapse of time) may give
rise to any obligation on the part of the Company to undertake, or to bear all or any portion of
the cost of, any Remedial Action of any material nature; and (iv) the Company has not received, at
any time since January 1, 2001, any notice or other communication (whether oral or written) from
any Governmental Body regarding (A) any
actual or alleged material violation of, or material failure to comply with, any Legal
Requirement, (B) any actual or alleged obligation on the part of the Company to undertake, or to
bear all or any portion of the cost of, any Remedial Action of any material nature, or (C) any
obligation on the part of the Company to undertake, or to bear all or any portion of the cost of,
any repayment of overpayments made to the Company by Medicare, Medicaid or any other governmentally
funded health care reimbursement program or payment of penalties or other

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amounts in connection
therewith. Neither Seller nor the Company has received notice of any material change and does not
have Knowledge of any potential material change in its status as a Medicare or Medicaid
participating supplier with Medicare or Medicaid. Neither the Seller nor the Company, nor, to the
Knowledge of Company, any officer, director, employee, contractor or vendor of any of them, is now
or has ever been suspended or excluded from participation in Medicare, Medicaid or any other
governmentally funded health care reimbursement program.

          (b) The Company holds all Governmental Authorizations that are material to operation of the
Business, including those necessary to be a Medicare or Medicaid participating supplier. Each
Governmental Authorization material to operation of the Business is valid and in full force and
effect. Except as set forth on Schedule 2.15(b): (i) the Company is, and at all times since
January 1, 2001, has been, in material compliance with the terms and requirements of each
Governmental Authorization material to operation of the Business; (ii) no event has occurred or
circumstance exists that may (with or without notice or lapse of time) (A) constitute or result
directly or indirectly in a material violation of or a failure to comply with any material term or
requirement of any Governmental Authorization material to operation of the Business or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation or termination of,
or any modification to, any Governmental Authorization material to operation of the Business; (iii)
the Company has not received, at any time since January 1, 2001, any notice or other communication
(whether oral or written) from any Governmental Body regarding (A) any actual or alleged violation
of or failure to comply with any term or requirement of any Governmental Authorization or (B) any
actual or proposed revocation, withdrawal, suspension, cancellation, termination of or modification
or restriction to any Governmental Authorization; and (iv) all applications required to have been
filed for the renewal of the Governmental Authorizations material to operation of the Business have
been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings
required to have been made with respect to such Governmental Authorizations have been duly made on
a timely basis with the appropriate Governmental Bodies.

          (c) Notwithstanding any disclosure made elsewhere herein, since January 1, 2001, neither
Seller nor the Company has engaged in any activities, nor, to the Knowledge of Company, has any
event occurred or circumstance existed, which would constitute or give rise to a material violation
of, or subject Seller or the Company to mandatory or permissive exclusion under, 31 U.S.C. §3729,
or 42 U.S.C. §§1320a-7, 1320a-7a or §1320a-7b or any regulation promulgated thereunder, or any
comparable state or local statutes or regulations, or which are prohibited by rules of professional
conduct including, but not limited to, the following: (i) making or causing to be made a materially
false statement or representation of a material fact in any application for any benefit or payment;
(ii) making or causing to be made any materially false statement or representation of a material
fact for use in determining rights to any benefit or
payment; (iii) any failure by a claimant to disclose knowledge of the occurrence of any
material event affecting the initial or continued right to any benefit or payment on its own behalf
or on behalf of another, with the intent to fraudulently secure such benefit or payment; and (iv)
offering or paying, or soliciting or receiving, any remuneration (including and kickback, bribe or
rebate) directly or indirectly, overtly or covertly, in cash or in kind, or offering to pay or
receive such remuneration (I) in return for referring an individual to a Person for the furnishing
or

-14-

 

arranging for the furnishing of any item or service for which payment may be made in whole or in
part by Medicare, Medicaid or any other federal or state health care program, as defined in such
statutes and regulations, or (II) in return for or to induce purchasing, leasing or ordering or
arranging for, or recommending, purchasing, leasing or ordering any good, facility, service or item
for which payment may be made in whole or in part by Medicare, Medicaid or any other federal or
state health care program, as defined in such statutes and regulations.

          (d) This Section 2.15 does not pertain to matters concerning any Environmental Law or
Environmental, Health and Safety Liabilities, which, for purposes of this Agreement, are
exclusively addressed in Section 2.22 hereof.

     2.16 Legal Proceedings; Orders.

          (a) Except as set forth on Schedule 2.16(a), there is no pending Proceeding (provided
that with respect to any Proceeding involving an audit or investigation, so long as no written
notice of such audit or investigation has been received by the Company, to the Knowledge of the
Seller and the Company, there is no such audit or investigation): (i) by or against the Company or
that otherwise relates to or may materially affect the Business; or (ii) that challenges, or that
may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of
the Contemplated Transactions. To the Knowledge of Seller and the Company, (1) no such Proceeding
has been Threatened, and (2) no event has occurred or circumstance exists that is likely to give
rise to or serve as a basis for the commencement of any such Proceeding. Seller has delivered or
made available to Buyer copies of all pleadings, correspondence and other documents relating to
each Proceeding listed on Schedule 2.16(a). The Proceedings listed or required to be
listed on Schedule 2.16(a) will not have a Material Adverse Effect.

          (b) Except as set forth on Schedule 2.16(b): (i) there is no Order to which the
Company or the Business is subject requiring payment in excess of $100,000; and (ii) neither Seller
or the Company, nor any officer or director of Seller or the Company is subject to any Order that
prohibits Seller, the Company or any such officer or director of Seller or the Company from
conducting the Business.

          (c) Except as set forth on Schedule 2.16(c): (i) the Company is, and, at all times
since January 1, 2000, has been in compliance in all material respects with all of the terms and
requirements of each Order to which it or any of the assets owned or used by it, is or has been
subject; (ii) no event has occurred or circumstance exists that may constitute or result in (with
or without notice or lapse of time) a material violation of or failure to comply in any material
respects with any term or requirement of any Order to which the Company, or any of the assets owned
or used by the Company, is subject; and (iii) neither Seller nor the Company has
received, at any time since January 1, 2000, any notice or other communication (whether oral
or written) from any Governmental Body or any other Person regarding any actual, alleged, possible
or potential material violation of, or failure to comply with, any term or requirement of any Order
to which the Company, or any of the assets owned or used by the Company, is or has been subject.

-15-

 

          (d) This Section 2.16 does not pertain to matters concerning any Environmental, Health
and Safety Liabilities or to any Proceeding or Order relating to any Environmental Law, which, for
purposes of this Agreement, are exclusively addressed in Section 2.22 hereof.

     2.17 No Material Adverse Change. Except as set forth on Schedule 2.17, to the
Knowledge of Seller and the Company, since the Balance Sheet Date, there has not been any Material
Adverse Change.

     2.18 Absence of Certain Changes and Events. Except as set forth on Schedule
2.18, since the Balance Sheet Date, the Company has operated the Business only in the Ordinary
Course of Business and, to the Knowledge of Seller and the Company, there has not been any event,
change, occurrence or circumstance that has had or would reasonably be expected to have a Material
Adverse Effect. Without limiting the generality of the foregoing, since the date of the Balance
Sheet there has not been any:

          (a) change in the Company’s authorized or issued capital stock; grant of any stock option or
right to purchase shares of capital stock of the Company; issuance of any security convertible into
such capital stock; grant of any registration rights; purchase, redemption, retirement, or other
acquisition by the Company of any shares of any such capital stock; or declaration or payment of
any dividend or other distribution or payment in respect of shares of capital stock;

          (b) amendment to the Governing Documents of the Company;

          (c) except in the Ordinary Course of Business, payment or increase by the Company of any
bonuses, salaries, or other compensation to any shareholder, director, officer, or employee or
entry into any severance or similar Contract with any director, officer, or employee;

          (d) except in the Ordinary Course of Business, adoption of, or material increase in the
payments to or benefits under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with any employees of the
Company;

          (e) except in the Ordinary Course of Business, damage to or destruction or loss of any asset
or property of the Company, whether or not covered by insurance, materially and adversely affecting
the properties, assets, business, financial condition, or prospects of the Company;

          (f) except in the Ordinary Course of Business, entry into, termination of, or receipt of
notice of termination of (i) any license, distributorship, dealer, sales representative, joint
venture, credit, or similar agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to the Company of at least $100,000;

          (g) sale (other than sales of inventory in the Ordinary Course of Business), lease, or other
disposition of any asset or property of the Company or Encumbrance on any

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material asset or
property of the Company, including the sale, lease, or other disposition of any of the Intellectual
Property Assets;

          (h) except in the Ordinary Course of Business, cancellation or waiver of any claims or rights
with a value to the Company in excess of $100,000;

          (i) material change in the accounting methods used by the Company;

          (j) except for the Conversion, any election or rescinding of any election relating to Taxes of
the Company or settlement or compromise of any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes of the Company, or except as may
be required by applicable law, any changes to any of the Company’s methods of reporting income or
deductions for federal income tax purposes from those employed in the preparation of its or Sellers
most recently filed federal tax returns if any of the foregoing actions would have an adverse
effect on Buyer or the Company following the Closing Date; or

          (k) agreement, whether oral or written, by the Company to do any of the foregoing.

     2.19 Third Party Payors and Suppliers.

          (a) Set forth on Schedule 2.19(a) is a list of the eight (8) most significant third
party payors (the “Major Customers”) in terms of revenue to the Company during the
twelve-month periods ended December 31, 2002, 2003 and 2004 and the six month period ended June
30, 2005, showing the approximate total revenue of the Company from each such payor during the
periods then ended. Except to the extent set forth on Schedule 2.19(a), since December 31,
2004, neither Seller nor the Company has received notice that any Major Customer has ceased, or
intends to cease, to do business with the Seller, the Company or Buyer, or has reduced, or will
reduce, its business in a manner that has a Material Adverse Effect. All of the Company’s claims
billed to third party payors have been for items and services actually provided, and such claims,
items and services have been billed and provided in accordance with all applicable requirements of
such third party payors.

          (b) Set forth on Schedule 2.19(b) is a list of the ten most significant suppliers (the
“Major Suppliers”) of services (including, without limitation, subcontractors), supplies,
merchandise or other goods for the Company in terms of purchases by the Company for the
twelve-month periods ended December 31, 2002, 2003 and 2004 and the six month period ended June 30,
2005, showing the amount paid to each such Major Supplier during such period. Except as disclosed
on Schedule 2.19(b), since December 31, 2004, neither Seller nor the Company has
received any notice that any such Major Supplier will not sell supplies, merchandise or other
goods to Buyer and the Company on substantially the same terms and conditions as those used in its
current sales to Seller and the Company, subject only to general and customary price increases or
other customary changes in terms, or changes in general business conditions or the like.

     2.20 Contracts; No Defaults.

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          (a) Schedule 2.20(a) contains a list, and Seller has delivered to Buyer copies, of:
(i) each Applicable Contract that involves performance of services or delivery of goods or
materials by the Company to the Major Customers; (ii) each Applicable Contract that involves
performance of services or delivery of goods or materials to the Company by the Major Suppliers;
(iii) each Applicable Contract that was not entered into in the Ordinary Course of Business and
that involves expenditures or receipts of the Company in excess of $25,000; (iv) each lease, rental
or occupancy agreement, license, installment and conditional sale agreement, and other Applicable
Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases and installment and
conditional sales agreements having a value per item or aggregate payments of less than $25,000 and
with terms of less than one year); (v) each licensing agreement or other Applicable Contract with
respect to patents, trademarks, copyrights, or other intellectual property (other than licenses to
use “shrink-wrap” or “off-the-shelf” software or any other software which is generally commercially
available), including agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual Property Assets; (vi)
each collective bargaining agreement and other Applicable Contract to or with any labor union or
other employee representative of a group of employees of the Company; (vii) each joint venture,
partnership, and other Applicable Contract (however named) involving a sharing of profits, losses,
costs, or liabilities by the Company with any other Person; (viii) each Applicable Contract
containing covenants that in any way purport to restrict the business activity of the Company or
any Related Person of the Company or limit the freedom of the Company or any Related Person of the
Company to engage in any line of business or to compete with any Person; (ix) each Applicable
Contract providing for payments to or by any Person based on sales, purchases, or profits, other
than direct payments for goods; (x) each power of attorney that is currently effective and
outstanding; (xi) each Applicable Contract entered into other than in the Ordinary Course of
Business that contains or provides for an express undertaking by the Company to be responsible for
consequential damages; (xii) each Applicable Contract for capital expenditures in excess of
$25,000; (xiii) each written warranty, guaranty, and or other similar undertaking with respect to
contractual performance extended by the Company other than in the Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or written) in respect of any of
the foregoing.

          (b) Except as set forth on Schedule 2.20(b), to Seller’s and the Company’s Knowledge,
no officer, director, agent, employee, consultant, or contractor of the Company is bound by any
Contract that purports to limit the ability of such officer, director, agent, employee, consultant,
or contractor to (A) engage in or continue any conduct, activity, or practice relating to the
Business, or (B) assign to the Company any rights to any invention, improvement, or discovery.

          (c) Except as set forth on Schedule 2.20(c), each Contract identified or required to
be identified on Schedule 2.20(a) is in full force and effect and is valid and enforceable
in accordance with its terms (except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization and other similar Legal Requirements affecting creditors’
rights generally and (ii) the general principles of equity, regardless of whether asserted in a
Proceeding in equity or at law).

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          (d) Except as set forth on Schedule 2.20(d): (i) the Company is, and at all times
since January 1, 2003 has been, in compliance in all material respects with all applicable terms
and requirements of each Contract identified or required to be identified on Schedule 2.20(a); (ii)
to the Knowledge of Seller and the Company, each other Person that has or had any Liability under
each Contract identified or required to be identified on Schedule 2.20(a) is, and at all
times since January 1, 2003 has been, in compliance in all material respects with all applicable
terms and requirements of such Contract; (iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may contravene, conflict with, or result in a violation
or breach of, or give the Company or, to the Knowledge of Seller and the Company, any other Person
the right to declare a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Contract identified or required to be
identified on Schedule 2.20(a); and (iv) the Company has not given to or received from any
other Person, at any time since January 1, 2003, any notice or other communication (whether oral or
written) regarding any actual, alleged, possible, or potential violation or breach of, or default
under, any Contract identified or required to be identified on Schedule 2.20(a), except
where any such failure would not have a Material Adverse Effect.

     2.21 Insurance.

          (a) Seller has delivered to Buyer: (i) copies of all policies of insurance to which the
Company is a party or under which the Company, or any director of the Company, is or has been
covered at any time within the three years preceding the date of this Agreement; (ii) copies of all
pending applications for policies of insurance; copies of all applications filed in connection with
current policies and (iii) any statement by the auditor of the Company’s financial statements with
regard to the adequacy of such entity’s coverage or of the reserves for claims. Set forth on
Schedule 2.21(a) is a list of all policies of insurance to which the Company is a party,
including the policy number of each such policy.

          (b) Schedule 2.21(b) describes: (i) any self-insurance arrangement by or affecting the
Company, including any reserves established thereunder and any partial self-insurance such as
through deductibles of more than $25,000 each occurrence, at any time during the two years
preceding the date of this Agreement, (ii) any current or previous contract or arrangement, other
than a policy of insurance, for the transfer or sharing of any material risk by the Company,
including any captive insurance company participation; and (iii) all obligations of the Company to
the Major Customers with respect to insurance and identifies the policy under which such coverage
is provided.

          (c) Schedule 2.21(c) sets forth, by year, for the current policy year and each of the
two preceding policy years: (i) a summary (whether internally prepared or insurance
company issued) of the loss experience under each policy; (ii) a statement describing each
open claim and all closed claims for an amount in excess of $25,000 under an insurance policy,
which sets forth: (A) the name of the claimant; (B) a description of the policy by insurer, type of
insurance, and period of coverage; and (C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that were self-insured, including
the number and aggregate cost of such claims.

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          (d) Except as set forth on Schedule 2.21(d): (i) All policies to which the Company is
a party or that provide coverage to Seller, the Company, or any director or officer of the Company:
(A) are valid, outstanding, and enforceable; (B) are issued by an insurer that is to the Knowledge
of Seller and the Company financially sound and reputable; (C) are sufficient for compliance with
all Legal Requirements and Contracts to which the Company is a party or by which it is bound; (D)
will continue in full force and effect following the consummation of the Contemplated Transactions,
except with respect to Seller; and (E) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company. (ii) Neither Seller nor the Company
has received (A) any refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that the issuer of any policy
is not willing or able to perform its obligations thereunder. (iii) The Company has paid all
premiums due, and has otherwise performed all of its obligations, under each policy to which the
Company is a party or that provides coverage to the Company or any director thereof. (iv) The
Company has given notice to the insurer of all material claims that may be insured thereby.

     2.22 Environmental Matters. Except as set forth on Schedule 2.22, and except
as would not reasonably be expected to have a Material Adverse Effect:

          (a) The Company is in compliance with, and has not been and is not in violation of or subject
to material liability under, any Environmental Law. Neither Seller nor the Company has any basis to
expect, nor has any of them received, any actual or Threatened order, notice, or other
communication from any Governmental Body or other person alleging any actual or potential violation
or failure to comply with any Environmental Law, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any
of the Facilities in which Seller or the Company has had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated, manufactured, refined,
transferred, imported, used, or processed by Seller or the Company.

          (b) Seller has delivered to Buyer copies of any Phase 1 or Phase 2 reports, and similar
environmental self-assessment documentation pertaining to the Facilities, or concerning compliance
by the Company with Environmental Laws.

          2.23 Intellectual Property Assets.

          (a) Set forth on Schedule 2.23(a) is a list and description of all material patents,
patent rights, trademarks, service marks, trade names, brands and copyrights (whether or
not registered and, if applicable, including pending applications for registration) owned,
used, licensed or held by the Company as of the date hereof. Except as set forth on Schedule
2.23(a), (vii) (A) to the Seller’s and the Company’s Knowledge, the Company is the owner of all
right, title and interest in and to all of the material Intellectual Property Assets owned by the
Company, free and clear of any Encumbrances other than Permitted Encumbrances, and (B) the Company
has the right to use and license the same in the conduct of the Business as currently conducted;
(viii) there have been no claims made against Seller or the Company asserting the invalidity,

-20-

 

abuse, misuse, or unenforceability of any of the Intellectual Property Assets; (ix) neither Seller
nor the Company has made any claim of any material violation or infringement by others of any of
its Intellectual Property Assets or interests therein and, to the Knowledge of Seller and the
Company, no grounds for any such claims exist; (x) neither Seller nor the Company has received any
notice that it is in conflict with or infringing upon the asserted intellectual property rights of
others in connection with the Intellectual Property Assets and, to the Knowledge of Seller and the
Company, neither the use of the Intellectual Property Assets nor the operation of the Business is
infringing or has infringed upon any intellectual property rights of others; (xi) the Intellectual
Property Assets are, in the aggregate, sufficient and include all intellectual property rights
necessary for the Company to lawfully operate the Business as presently being operated; and (xii)
to the Knowledge of Seller and the Company, no interest in any of Seller’s or the Company’s
Intellectual Property Assets has been assigned, transferred, licensed or sublicensed by Seller or
the Company to any Person other than Buyer pursuant to this Agreement.

          (b) Schedule 2.23(b) contains a list and of all internet web sites and internet domain
names presently used by the Company comprising part of the Intellectual Property Assets of the
Company (collectively “Net Names”). All Net Names have been registered in the name of the
Company. No Net Name has been or is now involved in any dispute, opposition, invalidation or
cancellation Proceeding and, to the Knowledge of Seller and the Company, no such action is
Threatened with respect to any Net Name. To the Knowledge of Seller and the Company, there is no
domain name application pending of any other Person which would or would potentially interfere with
or infringe any Net Name. No Net Name is infringed or, to the Knowledge of Seller and the Company,
has been challenged, interfered with or threatened in any way. To the Knowledge of Seller and the
Company, no Net Name infringes, interferes with or is alleged to interfere with or infringe the
trademark, copyright or domain name of any other Person.

     2.24 Certain Payments. Since January 1, 2003, neither the Company or any of its
directors or officers, nor any employee authorized by any such director or officer, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or
other payment to any Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, (iii) to obtain special concessions or for special concessions
already obtained, for or in respect of the Company or any Related Person of the Company, or (iv) in
violation of any Legal Requirement, (b) established or maintained any fund or asset belonging to
the Company that has not been recorded in the books and records of the Company.

     2.25 Relationships With Related Persons. Neither Seller nor any Related Person of
Seller or of the Company has, or since January 1, 2003 has had, any interest in any property
(whether real, personal, or mixed and whether tangible or intangible), used in or pertaining to the
Business of the Company . Neither Seller nor any Related Person of Seller or of the Company is, or
since January 1, 2003 has owned (of record or as a beneficial owner) an equity interest or any
other financial or profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with the Company, or (ii) engaged in direct competition with
the Company with respect to any of the line of the products or services of the Company set forth

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in
Schedule 2.25 (a “Competing Business”) in any market presently served by the
Company, except for less than five percent (5%) of the outstanding capital stock of any Competing
Business that is publicly traded on any recognized exchange or in the over-the-counter market.

     2.26 Brokers or Finders. Seller and its Representatives have incurred no Liability
for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with
this Agreement.

     2.27 Disclosure.

          (a) No representation or warranty of Seller or the Company in this Agreement omits to state a
material fact necessary to make the statements herein or therein, in light of the circumstances in
which they were made, not misleading.

          (b) No notice given pursuant to Section 4.5 will contain any untrue statement or omit
to state a material fact necessary to make the statements therein or in this Agreement, in light of
the circumstances in which they were made, not misleading.

3. Representations and Warranties of Buyer

     In order to induce Seller and the Company to enter into this Agreement, Buyer represents and
warrants to Seller and the Company as follows:

     3.1 Organization and Good Standing. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation, with full corporate
power and authority to conduct its business as it is now conducted.

     3.2 Authority; No Conflict.

          (a) This Agreement constitutes the legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms. Upon the execution and delivery by Buyer of each
agreement to be executed or delivered by Buyer at Closing (collectively, the “Buyer’s Closing
Documents”), each Buyer’s Closing Document will constitute the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its respective terms. Buyer has
the absolute and unrestricted right, power and authority to execute and deliver this Agreement and
the Buyer’s Closing Documents and to perform its obligations under this Agreement and the Buyer’s
Closing Documents, and such action has been duly authorized by all necessary corporate action.

          (b) Neither the execution and delivery of this Agreement by Buyer nor the consummation or
performance of any of the Contemplated Transactions by Buyer will give any Person the right to
prevent, delay or otherwise interfere with any of the Contemplated Transactions pursuant to: (i)
any provision of Buyer’s Governing Documents; (ii) any resolution adopted by the board of directors
or the shareholders of Buyer; (iii) any Legal Requirement or Order to which Buyer may be subject;
or (iv) any Contract to which Buyer is a party or by which Buyer may be bound.

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     Except as set forth on Schedule 3.2, Buyer is not and will not be required to obtain
any Consent from any Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.

     3.3 Investment Intent. Buyer is acquiring the Interests for its own account and not
with a view to their distribution within the meaning of Section 2(11) of the Securities Act.

     3.4 Certain Proceedings. There is no pending Proceeding that has been commenced
against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the Contemplated Transactions. To Buyer’s Knowledge, no such
Proceeding has been Threatened.

     3.5 Brokers or Finders. Buyer and its Representatives have incurred no Liability for
brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this
Agreement.

     3.6 No Outside Reliance. Buyer acknowledges that it has conducted to its satisfaction
an independent investigation of the financial condition, results of operations, assets,
liabilities, properties and projected operations of the business of the Company and the Seller and,
in making the determination to proceed with the Contemplated Transactions, has relied solely on the
results of its own independent investigation and the representations and warranties set forth in
Section 2 hereof, provided, however, that no such investigation shall in any way preclude or limit
Buyer’s ability to recover for breaches of such representations and warranties under Section
10 herein. Such representations and warranties constitute the sole and exclusive
representations and warranties of the Company and the Seller, respectively, to Buyer in connection
with the Contemplated Transactions, and Buyer acknowledges and agrees that neither the Company nor
Seller is making any representation or warranty whatsoever, express or implied, beyond those
expressly given in this Agreement, including any implied warranty as to the condition,
merchantability or suitability as to any of the assets or properties of the Company. Buyer further
acknowledges and agrees that any estimates, projections, forecasts or other predictions that may
have been provided to Buyer or any of its employees, agents or Representatives are not
representations or warranties of the Company or Seller, or any of their respective Related Persons,
and were not relied upon by the Buyer in entering into this Agreement or consummating the
Contemplated Transactions.

     3.7 Disclosure.

          (a) No representation or warranty of Buyer in this Agreement omits to state a material fact
necessary to make the statements herein or therein, in light of the circumstances in which they
were made, not misleading.

          (b) No notice given pursuant to Section 5.3 will contain any untrue statement or omit
to state a material fact necessary to make the statements therein or in this Agreement, in light of
the circumstances in which they were made, not misleading.

4. Seller’s Preclosing Covenants

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     4.1 Access and Investigation. Between the date of this Agreement and the Closing
Date, Seller and the Company will and will cause their Representatives to, (a) afford Buyer and its
Representatives (collectively, “Buyer’s Advisors”) reasonable access to the Company’s
personnel, properties (including subsurface testing), Contracts, books and records, and other
documents and data during the Company’s normal business hours, (b) furnish Buyer and Buyer’s
Advisors with copies of all such Contracts, books and records, and other existing documents and
data as Buyer may reasonably request, and (c) furnish Buyer and Buyer’s Advisors with such
additional financial, operating, and other data and information as Buyer may reasonably request.
Notwithstanding the foregoing, Buyer shall not, without Seller’s prior written consent, which may
be withheld at Seller’s sole and absolute discretion, contact or otherwise communicate with any of
Seller’s or the Company’s employees, customers, lenders, prospects, vendors or suppliers or any
other third parties with whom Seller or the Company has a contractual relationship concerning this
Agreement, provided, however, that Buyer (through individuals approved by Seller) shall be
permitted to meet in person, together with a Representative of the Company, with the Company’s
contacts at its top four (4) commercial payors (United Healthcare, Sentara Health, Anthem Blue
Cross Blue Shield of Virginia, and Catalyst RX) at such time and place each as shall be mutually
agreed upon by Buyer, Seller and the Company. Buyer, Seller and the Company agree that the purpose
of these meetings is to introduce Buyer to the representatives of such payors and to assure such
payors that the Company’s business will be conducted in accordance with historic practices.

     4.2 Operation of the Business. Between the date of this Agreement and the Closing
Date, Seller and the Company will:

          (a) conduct the Business only in the Ordinary Course of Business; and

          (b) use their Best Efforts to preserve intact the current business organization of the
Company, keep available the services of the current officers, employees, and agents of the Company,
and maintain the relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with the Company.

     4.3 Negative Covenant. Except as set forth on Schedule 4.3 or as otherwise
expressly permitted by this Agreement, between the date of this Agreement and the Closing Date,
Seller and the Company will not, without the prior consent of Buyer, take any of the following
actions:

          (a) change the Company’s authorized or issued capital stock; grant any stock option or right
to purchase shares of capital stock of the Company; issue any security convertible into such
capital stock; grant any registration rights; purchase, redemption, retirement, or other
acquisition by the Company of any shares of any such capital stock; or declare or pay any dividend
or otherwise distribute or pay in respect of shares of capital stock;

          (b) amend the Governing Documents of the Company, except as required by any Legal Requirement
and except in connection with the Conversion;

          (c) enter into any employment or similar Contract with any director, officer, or employee or,
except in the Ordinary Course of Business consistent with past practice, pay or

-24-

 

increase any
severance payment, bonuses, salaries, or other compensation to any shareholder, director, officer,
or employee;

          (d) adopt any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan or, except in the Ordinary Course consistent with past
practice of Business, increase the payments to or benefits under, any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for
or with any employees of the Company;

          (e) materially change the accounting methods used by the Company; or

          (f) agree, whether oral or written, to do any of the foregoing.

     4.4 Required Approvals. As promptly as practicable after the date of this Agreement,
Seller and the Company will make all filings required by Legal Requirements to be made by them in
order to consummate the Contemplated Transactions (including all filings under the HSR Act, which
shall be made no later than three (3) Business Days after the date hereof) and use their best
efforts to furnish or cause to be furnished as promptly as practicable all information and
documents requested with respect to such Legal Requirements (including specifically under the HSR
Act) and shall otherwise cooperate with the applicable Governmental Body in order to obtain any
Legal Requirements and Consents in connection therewith as expeditiously as possible. Between the
date of this Agreement and the Closing Date, Seller and the Company will (a) reasonably cooperate
with Buyer (at no out-of-pocket expense to Seller and the Company) with respect to all filings that
Buyer elects to make or is required by Legal Requirements to make in connection with the
Contemplated Transactions, and (b) reasonably cooperate with Buyer in obtaining all consents
identified on Schedule 3.2; provided that this Agreement will not require Seller to dispose
of or make any change in any portion of its business or to incur any other burden to obtain a
Governmental Authorization. Seller and the Company shall use their best efforts to resolve such
objections, if any, as any Governmental Body may assert with respect to this Agreement and the
Contemplated Transactions in connection with the Legal Requirements. In the event that a suit is
instituted by a Person or Governmental Body challenging this Agreement and the Contemplated
Transactions as a violation of applicable antitrust or competition laws, Seller and the Company
shall use their best efforts to resist or resolve such suit. Seller and the Company each shall,
upon request by the other, furnish Buyer with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other
matters as may reasonably be necessary or advisable in connection with any statement, filing,
ruling request, notice or application made by or on behalf of Seller, the Company, Buyer or any of
their respective Subsidiaries to any third party and/or any Governmental Body in connection with
this Agreement and the Contemplated Transactions.

     4.5 Notification.

          (a) Between the date of this Agreement and the Closing Date, Seller will promptly notify Buyer
in writing if Seller or the Company becomes aware of any fact or condition that causes or
constitutes a Breach of any of Seller’s and the Company’s representations and warranties as of the
date of this Agreement or becomes aware of the

-25-

 

occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this Agreement) cause or
constitute a Breach of any such representation or warranty had such representation or warranty been
made as of the Closing Date. The Seller and the Company shall promptly supplement or amend the
Disclosure Schedule to reflect any fact necessary to make the representations true and correct.
Any such supplement or amendment shall be deemed to qualify the Seller’s and the Company’s
representations and warranties contained herein in determining Buyer’s rights under Sections 7 and
10 unless such supplement or amendment arose out of a fact which, as of the date of execution of
the Agreement, constituted a breach of a representation or warranty contained herein.

     4.6 Payment of or Cancellation of Indebtedness. Except as expressly provided in this
Agreement or on Schedule 4.6, Seller will, prior to Closing, (i) cause all indebtedness
owed to the Company by Seller or any Related Person of Seller to be paid in full prior to Closing,
(ii) cancel all indebtedness of the Company to Seller or any Related Person of Seller, (iii) pay
off any indebtedness owed or guaranteed by the Company to any bank or other financial institution,
and (iv) use its Best Efforts to pay off in full all amounts owed under the Master Lease Agreement
between CitiCapital Technology Finance Inc. and the Company, dated February 22, 2005.

     4.7 No Negotiation. After the date of this Agreement and until such time, if any, as
this Agreement is terminated pursuant to Section 9, Seller and the Company will not, and
will cause each of their Representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public
information to, or consider the merits of any unsolicited inquiries or proposals from, any Person
(other than Buyer) relating to any transaction involving the sale of the Business, or any of the
capital stock of the Company, or any merger, consolidation, business combination, or similar
transaction involving the Company. If Seller, the Company, or any of their officers, directors,
officers, agents, employees or affiliates receives any such inquiry or proposal, Seller shall
provide written notice to Buyer as soon as practicable of any such inquiry or proposal by any such
Person.

     4.8 Best Efforts. Between the date of this Agreement and the Closing Date, Seller and
the Company will use their Best Efforts to cause (i) the conditions in Sections 7 and
8 to be satisfied and (ii) the Master Lease Agreement between CitiCapital Technology
Finance Inc. and the Company, dated February 22, 2005, to be terminated and of no further force and
effect as of the Effective Time.

     4.9 Change of Name. On or before the Closing Date, Seller shall (a) amend its
Governing Documents and take all other actions necessary to change its name to one sufficiently
dissimilar to Seller’s present name, in Buyer’s reasonable judgment, to avoid confusion and (b)
take all actions requested by Buyer to enable Buyer and the Company to utilize Seller’s present
name following Closing.

     4.10 Interim Financial Statements. Until the Closing Date, Seller shall deliver to
Buyer within twenty (20) Business Days after the end of each month, copies of consolidated balance
sheets, statements of income and shareholders equity and statements of cash flows for the Company
and Seller for such month prepared in accordance with GAAP (without footnotes

-26-

 

and normal year end
adjustments) and certified by Seller’s chief financial officer as to compliance with Section
2.3.

     4.11 Conversion of Company. No later than three (3) Business Days prior to the
Closing Date, Seller shall cause the Company to convert into a single member limited liability
company in Virginia (the “Conversion”). Following the Conversion, Seller shall not take or
cause to be taken any action that would prevent the Company from being disregarded as an entity
separate from its owners under Treas. Reg. § 301.7701-3 for federal income tax purposes, and to the
extent permitted, for all other income tax purposes.

5. Buyer’s Preclosing Covenants

     5.1 Required Approvals. Buyer acknowledges that the Parties proceeding to Closing as
expeditiously as possible is an important element of the Contemplated Transactions for Seller and,
as promptly as practicable after the date of this Agreement, Buyer will make all filings required
by Legal Requirements to be made by it in order to consummate the Contemplated Transactions
(including all filings under the HSR Act, which shall be made no later than three (3) Business Days
after the date hereof) and use its best efforts to furnish or cause to be furnished as promptly as
practicable all information and documents requested with respect to such Legal Requirements
(including specifically under the HSR Act) and shall otherwise cooperate with the applicable
Governmental Body in order to obtain any Legal Requirements and Consents in connection therewith as
expeditiously as possible. Between the date of this Agreement and the Closing Date, Buyer will (a)
reasonably cooperate with Seller and the Company (at no out-of-pocket expense to Buyer) with
respect to all filings that Seller and the Company elect to make or are required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b) diligently pursue
obtaining all consents identified on Schedule 3.2; provided that this Agreement will not
require Buyer to dispose of or make any change in any portion of its business or to incur any other
burden to obtain a Governmental Authorization. Buyer shall use its best efforts to resolve such
objections, if any, as any Governmental Body may assert with respect to this Agreement and the
Contemplated Transactions in connection with the Legal Requirements. In the event that a suit is
instituted by a Person or Governmental Body challenging this Agreement and the Contemplated
Transactions as a violation of applicable antitrust or competition laws, Buyer shall use its best
efforts to resist or resolve such suit. Buyer shall, upon request by Seller and the Company,
furnish the other with all information concerning itself, its Related Persons, directors, officers
and stockholders and such other matters as may reasonably
be necessary or advisable in connection with any statement, filing, ruling request, notice or
application made by or on behalf of the Seller, the Company, Buyer or any of their respective
Subsidiaries to any third party and/or any Governmental Body in connection with this Agreement and
the Contemplated Transactions.

     5.2 Best Efforts. Except as set forth in the proviso to Section 5.1, between
the date of this Agreement and the Closing Date, Buyer will use its Best Efforts to cause the
conditions in Sections 7 and 8 to be satisfied.

     5.3 Notification. Between the date of this Agreement and the Closing Date, Buyer will
promptly notify Seller in writing if Buyer becomes aware of any fact or condition that

-27-

 

causes or
constitutes a Breach of any of Buyer’s representations and warranties as of the date of this
Agreement that would reasonably be expected to result in a failure to satisfy the condition in
Section 8.1, or if Buyer becomes aware of the occurrence after the date of this Agreement
of any fact or condition that would (except as expressly contemplated by this Agreement) cause or
constitute a Breach of any such representation or warranty had such representation or warranty been
made as of the Closing Date that would reasonably be expected to result in a failure to satisfy the
condition in Section 8.1.

6. Additional Covenants

     6.1 Employee Matters.

          (a) Employees. For a period of one year following the Closing Date (or such longer
period as provided in any written employment agreement), Buyer covenants and agrees that the
employees of the Company who remain employed with the Company (it being understood that Buyer shall
in its sole discretion determine who shall continue to be so employed) shall maintain at least the
same salary or hourly wage rate in effect immediately prior to the Closing. Such individuals who
continue their employment with Company following the Closing Date are hereinafter referred to as
the “Continuing Employees”.

          (b) Benefits.

               (i) For a period of no more than one year following the Closing Date, or such longer period of
time required by applicable Law or in any applicable employment agreement, Buyer shall cause to be
maintained the Employee Plans, programs arrangements and policies of the Company, for each of the
Continuing Employees or shall otherwise provide such transferred employees with compensation
(including salary, wages and opportunities for commissions, bonuses, incentive pay, overtime and
premium pay), employee benefits, location of employment and a position of employment that are, in
each case, at least substantially equivalent (in the aggregate) to those provided to such
Continuing Employee immediately prior to the Closing.

               (ii) For purposes of eligibility and vesting (but not benefit accrual) under the employee
benefit plans of Buyer providing benefits to Continuing Employees, but expressly excluding the
Buyer’s employee stock purchase plan, (the “Buyer Plans”), Buyer shall
credit each Continuing Employee with his or her years of service with the Company, its Related
Persons and any of their predecessor entities, to the same extent as such Continuing Employee was
entitled immediately prior to the Closing to credit for such service under any similar Employee
Plan. The Buyer Plans shall not deny Continuing Employee coverage on the basis of pre-existing
conditions and shall credit such Continuing Employee for any deductibles and out-of-pocket expenses
paid in the year of initial participation in the Buyer Plans.

               (iii) Buyer shall be liable for any and all obligations and Liabilities in respect of
employees of the Company (to the extent arising on or after the Closing Date), in each case arising
under WARN or any similar state Legal Requirement, including any Liabilities imposed or incurred as
a result of the failure of any Party to this Agreement to give any requisite

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notice under the WARN
or any similar state Legal Requirement (including in connection with the transactions contemplated
herein).

               (iv) For the eighteen (18) month period following Closing, Buyer shall offer to provide to
Robert Haft and his wife and children health continuation medical care coverage under COBRA, at his
sole expense.

7. Conditions Precedent To Buyer’s Obligation To Close

     Buyer’s obligation to purchase the Interests and to take the other actions required to be
taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived by Buyer, in whole or in part):

     7.1 Accuracy of Representations. The representations and warranties contained in
Section 2 of this Agreement (i) that are qualified by materiality or Material Adverse
Effect shall be true and correct as if made on the Closing Date and (ii) that are not qualified by
materiality or Material Adverse Effect shall be true and correct in all material respects as if
made on the Closing Date, except, in each case, for inaccuracies or omissions that would not
reasonably be expected to have a Material Adverse Effect, and except for the representations and
warranties in Sections 2.1 and 2.2, which shall be true in all respects.

     7.2 Seller’s and the Company’s Performance.

          (a) All of the covenants and obligations that Seller and the Company are required to perform
or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively),
and each of these covenants and obligations (considered individually), must have been duly
performed and complied with in all material respects.

          (b) Each document required to be delivered pursuant to Section 1.4 must have been
delivered, and each of the other covenants and obligations in Section 4 must have been
performed and complied with in all material respects.

     7.3 Consents. Each Consent identified on Schedule 1.4(a)(vi), must have been
obtained and must be in full force and effect.

     7.4 No Proceedings. No temporary restraining order, preliminary or permanent
injunction or other order issues by a court or other Governmental Authority of competent
jurisdiction shall be in effect and have the effect of making the Contemplated Transactions illegal
or otherwise prohibiting consummation of the Contemplated Transactions; provided, however, that the
provisions of this Section 7.4 shall not be available to Buyer if its failure to fulfill
its obligations shall have been the cause of, or shall have resulted in, such order or injunction.

     7.5 No Claim Regarding Stock Ownership or Sale Proceeds. There must not have been
made or Threatened by any Person any claim asserting that such Person (a) is the holder or the
beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any stock

-29-

 

of, or any other voting, equity, or ownership interest in, the Company, or (b) is entitled to all
or any portion of the Purchase Price payable for the Interests.

     7.6 Termination of Certain Agreements. Seller and the Company shall have caused to be
terminated prior to the Effective Time the loan agreement between the Company and Wachovia, N.A.
and the Guaranty of the Seller’s obligations to Wachovia N.A., and shall have provided lien release
waivers from Wachovia, N.A. with respect thereto.

     7.7 UnitedHealth. UnitedHealth shall not have notified Seller or the Company prior to
Closing that it will cease or materially reduce its business with the Company before Closing or
within thirty (30) days thereafter.

8. Conditions Precedent To Seller’s Obligation To Close

     Seller’s obligation to sell the Interests and to take the other actions required to be taken
by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Seller, in whole or in part):

     8.1 Accuracy of Representations. The representations and warranties contained in
Section 3 of this Agreement (i) that are qualified by materiality or Material Adverse
Effect shall be true and correct as if made on the Closing Date and (ii) that are not qualified by
materiality or Material Adverse Effect shall be true and correct in all material respects as if
made on the Closing Date, except, in each case, for inaccuracies or omissions that would not
reasonably be expected to have a Material Adverse Effect, and except for the representations and
warranties in Sections 3.1 and 3.2, which shall be true in all respects.

     8.2 Buyer’s Performance.

          (a) All of the covenants and obligations that Buyer is required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been performed and complied with in
all material respects.

          (b) Buyer must have delivered each of the documents required to be delivered by Buyer pursuant
to Section 1.4 and must have made the cash payments required to be made by Buyer pursuant
to Section 1.4(b)(i).

     8.3 No Injunction. There must not be in effect any Legal Requirement or any
injunction or other Order that (a) prohibits the sale of the Interests by Seller to Buyer, and (b)
has been adopted or issued, or has otherwise become effective, since the date of this Agreement.

     8.4 Consents. Each Consent identified on Schedule 3.2, must have been
obtained and must be in full force and effect.

9. Termination

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     9.1 Termination Events. This Agreement may, by notice given prior to or at the
Closing, be terminated:

          (a) by either (i) Buyer or (ii) Seller and the Company, if a material Breach of any provision
of this Agreement has been committed by the other party or parties and such Breach has not been
waived and has continued without cure for a period of five (5) days following notice thereof by the
terminating Party;

          (b) (i) by Buyer if any condition in Section 7 has not been satisfied as of October 1,
2005 or if satisfaction of such a condition is or becomes impossible (other than through the
failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by Seller and the Company, if any condition in
Section 8 has not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Seller or the Company to
comply with their obligations under this Agreement) and neither Seller nor the Company has waived
such condition on or before the Closing Date;

          (c) by mutual consent of Buyer, Seller and the Company; or

          (d) by either (i) Buyer or (ii) Seller and the Company if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to comply with its
obligations under this Agreement) on or before September 15, 2005, or such later date as the
parties may agree upon.

     9.2 Effect of Termination. Each party’s right of termination under Section
9.1 is in addition to any other rights it may have under this Agreement or otherwise, and the
exercise of a right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under this
Agreement will terminate, except that the obligations in Sections 11.1 and 11.3
will survive; provided, however, that if this Agreement is terminated by a party
because of a willful or intentional Breach of the Agreement by the other party or parties or
because one or more of the conditions to the terminating party’s obligations under this Agreement
is not satisfied as a result of the other party’s or parties’ failure
to comply with its or their obligations under this Agreement in all material respects, the
terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

10. Indemnification; Remedies

     10.1 Survival and Right to Indemnification. All representations, warranties,
covenants, and obligations in this Agreement, the supplements to Seller’s and the Company’s
schedules, the certificates delivered pursuant to Section 1.4, and any other certificate or
document delivered pursuant to this Agreement will survive the Closing; provided,
however that all of the Company’s Liability with respect to its representations,
warranties, covenants and obligations pursuant hereto (whether or not made jointly with Seller)
shall terminate at Closing and each such representation, warranty, covenant and obligation shall be
deemed to be solely the representation, warranty, covenant or obligation of Seller as if the
Company was not a party to this Agreement. The right to indemnification, payment of Damages or
other remedy based on

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such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of
being acquired) at any time, whether before or after the execution and delivery of this Agreement
or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of Damages, or other
remedy based on such representations, warranties, covenants, and obligations.

     10.2 Indemnification and Payment of Damages by Seller and the Company. Prior to
Closing, Seller and the Company will jointly and severally and following the Closing Seller solely
will indemnify and hold harmless Buyer, the Company, and their respective Representatives,
shareholders, controlling persons, and affiliates (collectively, the “Buyer Indemnified
Persons”) for, and will pay to the Indemnified Persons the amount of, any Damages, arising,
directly or indirectly, from or in connection with:

          (a) any Breach of any representation or warranty made by Seller or the Company in this
Agreement (without giving effect to any supplement to Seller’s and the Company’s schedules) or any
other certificate or document delivered by Seller pursuant to this Agreement;

          (b) any Breach by Seller or the Company of any covenant or obligation of Seller or the Company
in this Agreement; or

          (c) any claim by any Person for brokerage or finder’s fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such Person with Seller or
the Company (or any Person acting on its behalf) in connection with any of the Contemplated
Transactions.

     Notwithstanding the foregoing, neither the Seller nor the Company shall be obligated to
provide indemnification for any Breach of a representation or warranty contained herein to the
extent that the amount of Damages arising from such Breach is provided for in the Supplemental
Reserves.

     10.3 Indemnification and Payment of Damages by Buyer. Buyer will indemnify and hold
harmless Seller and its Representatives, shareholders, controlling persons and affiliates
(collectively, “Seller Indemnified Persons”), and will pay to the Seller Indemnified
Persons the amount of any Damages arising, directly or indirectly, from or in connection with (a)
any Breach of any representation or warranty made by Buyer in this Agreement or in any certificate
delivered by Buyer pursuant to this Agreement, (b) any Breach by Buyer of any covenant or
obligation of Buyer in this Agreement, or (c) any claim by any Person for brokerage or finder’s
fees or commissions or similar payments based upon any agreement or understanding alleged to have
been made by such Person with Buyer (or any Person acting on its behalf) in connection with any of
the Contemplated Transactions.

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     10.4 Time Limitations. If the Closing occurs, Seller will have liability (for
indemnification or otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, for a period of eighteen
(18) months after the Closing Date; provided, however, that the representations and warranties set
forth in Sections 2.1, 2.2, 2.10, 2.14, 2.22, and
2.26 and the indemnification obligation set forth in Section 10.7 shall survive the
Closing for a period of three (3) years, and provided further that the representations and
warranties set forth in Section 2.15 shall survive the Closing for a period of four (4)
years. If the Closing occurs, Buyer will have liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be performed and complied
with prior to the Closing Date, for a period of eighteen (18) months after the Closing Date;
provided, however, that the representations and warranties set forth in Section 3.5 or a
claim for indemnification or reimbursement based upon Section 10.6(e) shall survive the
Closing for a period of four (4) years.

     10.5 Monetary Limitations.

          (a) If the Closing occurs, Seller will have no liability (for indemnification or otherwise)
with respect to the matters described in this Section 10.5(a), or, to the extent relating
to any failure to perform or comply prior to the Closing Date, clause (b) of Section 10.2,
or, subject to the last sentence of this Section 10.5(a), indemnification claims made under
Section 10.7 unless the total of all Damages with respect to such matters is at least
$750,000, at which time the Seller shall be liable for all Damages in excess of $250,000 (the
“Basket”). The maximum aggregate liability of the Seller as a result of all Damages
described in Section 10.2 and in Section 10.7 shall not exceed $11,400,000.00 (the
“Cap Amount”). The Basket will not apply to any Breach of any of Seller’s representations
and warranties set forth in Section 2.15 or to any Damages arising out of the failure of
the Company to pay Income Taxes for taxable periods (or portions thereof) ending on or before the
Closing Date and neither the Basket nor the Cap Amount will apply to any Breach of any of Seller’s
representations and warranties set forth in Sections 2.1, 2.2, or 2.26 such that
Buyer shall be entitled to recover the full amount of such Damages, which shall not exceed the
aggregate consideration that the Seller received hereunder.

          (b) If the Closing occurs, Seller’s liability for any Damages with respect to any Breach of
Seller’s representations and warranties set forth in Section 2.15 shall be as follows, with
the remaining liability to be assumed and paid by Buyer: (i) with respect to the first
$1,000,000.00 of Damages, liability for fifty percent (50%) of such Damages; (ii) with respect to
up to the next $4,000,000.00 of Damages, liability for eighty percent (80%) of such Damages; and
(iii) with respect to up to the next $6,400,000.00 of Damages, liability for one hundred percent
(100%) of such Damages. For the avoidance of doubt, liability for all such damages shall be
cumulative and subject, together with any other claims under Section 10.2, to the Cap
Amount.

          (c) [Intentionally omitted.]

          (d) If the Closing occurs, in no event shall the total Liability of Seller or Buyer with
respect to claims under this Section 10 exceed the Purchase Price.

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          (e) The amount of any Damages shall be reduced or reimbursed, as the case may be, by any
amount received by the Indemnified Person with respect thereto under any insurance coverage or from
any other party. An Indemnified Person shall use reasonable efforts to collect any amounts
available under such insurance coverage or from such other party. If an Indemnified Person
receives an amount under insurance coverage or from a third party with respect to Damages at any
time subsequent to any indemnification provided by an Indemnifying Party, then such Indemnified
Person shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by
such party in connection with providing such indemnification up to such amount received by the
Indemnified Person.

          (f) Any indemnification payments required to be made hereunder with respect to any matter
shall be reduced by the amount of any economic benefits (including, income tax benefits) that are
readily quantifiable and have been received by the Indemnified Person as a result of the same
matter.

          (g) To the extent Seller discharges any claim for indemnification hereunder, it shall be
subrogated to all related rights of the Buyer Indemnified Parties against third parties.

          (h) The Buyer Indemnified Parties shall not be entitled to indemnification with respect to any
matters or amounts which are the subject of a Closing Working Capital adjustment pursuant to
Section 1.5.

          (i) The Basket shall be increased dollar for dollar by any refund or recovery actually
received (net of Tax costs associated with such refund or recovery) by the Company after Closing in
connection with (1) the matter described on Schedule 10.5(i) with respect to the DMERC
Audit and (2) the Company’s amended Sales and Use Tax Returns for the State of California, which is
described on Schedule 2.10(b).

          (j) From and after the Closing, the indemnification provided in this Section 10 shall
be the sole and exclusive remedy of any Party hereto with respect to this Agreement and the
Contemplated Transactions, except with respect to the Noncompetition Agreement.
Notwithstanding any provision of this Agreement to the contrary, nothing contained in this
Agreement shall in any way limit, impair, modify or otherwise affect the rights of Buyer to bring
any claim, demand, suit or cause of action otherwise available to Buyer based upon, or to seek or
recover any Damages arising from or related to, an allegation or allegations that an indemnifying
party had an intent to defraud (as such term applies under common law and securities law
principles) or made a willful, intentional or reckless misrepresentation or omission of a material
fact in connection with this Agreement or any of the agreements contemplated hereby.

     (k) To the extent that a Breach of a representation or warranty contained in Section 2 arises
out of a review being conducted by the State of Virginia first described in Item 2 to Schedule
2.9, then any Damages arising from such Breach shall first be applied toward the Basket and
then any excess Damages arising from such Breach shall be funded eighty percent (80%) by Seller and
twenty percent (20%) by Buyer; provided, that Seller’s total liability for Damages under this
Section 10.5(k) shall be cumulative and subject to the Cap Amount along with other Damages subject
to the Cap Amount.

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     10.6 Procedure For Indemnification — Third Party Claims.

          (a) Promptly after receipt by an indemnified party under Sections 10.2 or 10.3
of notice of the commencement of any Proceeding against it, such indemnified party will, if a claim
is to be made against an indemnifying party under such Section, give notice to the indemnifying
party of the commencement of such claim, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any indemnified party, except
to the extent that the indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnifying party’s failure to give such notice.

          (b) If any Proceeding referred to in Section 10.6(a) is brought against an indemnified
party and it gives notice to the indemnifying party of the commencement of such Proceeding, the
indemnifying party will, be entitled to participate in such Proceeding and, to the extent that it
wishes (unless (i) the indemnifying party is also a party to such Proceeding and the indemnified
party determines in good faith that joint representation would be inappropriate, or (ii) the
indemnifying party fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to such Proceeding), to
assume the defense of such Proceeding with counsel reasonably satisfactory to the indemnified party
(Latham & Watkins, LLP being acceptable to Buyer for these purposes) and, after notice from the
indemnifying party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 10 for any fees of other counsel or any
other expenses with respect to the defense of such Proceeding, in each case subsequently incurred
by the indemnified party in connection with the defense of such Proceeding, other than reasonable
costs of investigation conducted at the request of the indemnifying party. If the indemnifying
party assumes the defense of a Proceeding, (i) it will be conclusively established for purposes of
this Agreement that the claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party’s consent (not
to be unreasonably withheld, conditioned or delayed) unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights of any Person and
no effect on any other claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or settlement of such
claims effected without its consent (not to be unreasonably withheld, conditioned or delayed). If
notice is given to an indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within thirty (30) days after the indemnified party’s notice is given, give notice
to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying
party will be bound by any determination made in such Proceeding or any compromise or settlement
effected by the indemnified party.

          (c) Notwithstanding the foregoing, if an indemnified party determines in good faith that there
is a reasonable probability that a Proceeding may adversely affect it or its affiliates other than
as a result of monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying

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party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying party will not be
bound by any determination of a Proceeding so defended or any compromise or settlement effected
without its consent (which may not be unreasonably withheld).

          (d) Seller hereby consents to the non-exclusive jurisdiction of any court in which a
Proceeding is brought against any Indemnified Person for purposes of any claim that an Indemnified
Person may have under this Agreement with respect to such Proceeding or the matters alleged
therein, and agrees that process may be served on Seller with respect to such a claim anywhere in
the world.

          (e) The Parties covenant and agree that the protocol set forth on Schedule 10.6(e)
shall be followed without exception in connection with any matters involving Medicare or Medicaid,
including indemnification claims arising under Section 2.15.

          (f) The Indemnified Party shall cooperate with the Indemnifying Party and its counsel in such
defense and make available to the Indemnifying Party all witnesses, records, materials, and
information in the Indemnified Party’s possession or under the Indemnified Party’s control relating
thereto as may be reasonably requested by the Indemnifying Party, and in contesting any claim,
demand or Proceeding which the Indemnifying Party defends, or if appropriate and related to the
claim, demand or Proceeding in question, in making any counterclaim against the Person asserting
the Third Party Claim, or any cross-complaint against any Person. In the event the Indemnifying
Party fails to assume the defense of such Third Party Claim within thirty (30) days after receipt
of notice thereof in accordance with the terms hereof, (A) the Indemnified Party against which such
Third Party Claim has been asserted shall have the right to undertake the defense, and (B) the
Indemnifying Party agrees to cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party, all witnesses, records, materials and information in the
Indemnifying Party’s possession or under the
Indemnifying Party’s control relating thereto as may be reasonably requested by the
Indemnified Party.

     10.7 Tax Indemnification.

     In addition to Section 10.2, without duplication, Seller agrees to indemnify and hold
harmless the Indemnified Persons from any Damages for (i) any Taxes imposed on the Company with
respect to Tax periods ending on or prior to the Closing Date (a “Pre-Closing Tax Period”)
and (ii) any Taxes imposed on the Company with respect to Tax periods beginning before and ending
after the Closing Date, but only with respect to the portion of such period up to and including the
Closing Date (such portion, a “Pre-Closing Partial Period”), to the extent such Taxes are
allocable pursuant to Section 11.4(b) to the Pre-Closing Partial Period, including, without
limitation, any Taxes (other than Transfer Taxes which are governed under Section 12.2)
arising as a result of the transactions contemplated in this Agreement to be undertaken by Seller
or the Company (including, without limitation, the Conversion described in Sections 4.11)
on or prior to the Closing Date. Notwithstanding the foregoing, Seller shall not be liable to the
Indemnified Parties for Taxes to the extent of the amount of Taxes that are taken into account in
determining Closing Working Capital or any Taxes imposed on the Company that are payable as

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a result of any events occurring on the Closing Date after the Closing that are outside of the
ordinary course of business. Seller’s indemnification obligation under this Section 10.7
shall survive the Closing for a period of three (3) years and as provided in Section 10.5,
Seller’s indemnification obligations with respect to Taxes (other than Income Taxes) shall be
subject to the Basket.

     10.8 Procedure For Indemnification — Other Claims. A claim for indemnification for
any matter not involving a Third-Party Claim may be asserted by notice to the party from whom
indemnification is sought.

     10.9 Payment of Indemnification Obligations. All indemnification amounts payable to
any party hereto in connection with a claim for indemnification pursuant to this Section 10
shall be effected immediately upon final determination of the amount of the indemnification
liability by payment of cash or delivery of a cashier’s check in the amount of the indemnification
liability.

     10.10 Retention of Holdback Amount by the Seller.

          (a) At the Closing, the Seller shall retain $11,400,000.00 from the proceeds of the Purchase
Price (the “Holdback Amount”) to satisfy payment of any future indemnification obligations
of the Seller or the Company pursuant to the terms of this Section 10. The Seller shall
invest at least $5,700,000.00 of the Holdback Amount in Required Investments. The term “Required
Investments” means (A) the following investments so long as they have maturities of six (6) months
or less: (a) obligations issued or guaranteed by the United States or by any person controlled or
supervised by or acting as an instrumentality of the United States pursuant to authority granted by
Congress; (b) obligations issued or guaranteed by any state or political subdivision thereof rated
either AA or higher, or MIG 1 or higher, by Moody’s Investors Service, Inc. or AA or higher, or an
equivalent, by Standard & Poor’s Corporation, both of New York,
New York, or their successors; (c) commercial or finance paper which is rated either Prime-1
or higher or an equivalent by Moody’s Investors Service, Inc. or A-1 or higher or an equivalent by
Standard & Poor’s Corporation, both of New York, New York, or their successors; (d) certificates of
deposit or time deposits of banks or trust companies, organized under the laws of the United
States, having a minimum equity of $500,000,000 or (e) money market funds and (B) equity securities
freely tradeable without regard to volume limitations and traded on either Nasdaq or The New York
Stock Exchange, Inc. The Seller shall be entitled to invest the remainder of the Holdback Amount
as it determines.

          (b) The Seller shall not pay dividends or make liquidating distributions involving all or a
portion of the Holdback Amount until the date that is four (4) years following the Closing;
provided, however, that if on the date that is four (4) years following the Closing there is a
pending claim or controversy governed by the terms of this Section 10, the Seller shall be
obligated to maintain that amount of the Holdback Amount, necessary to satisfy such pending claim
or controversy. In such event, the first Five Million Seven Hundred Thousand ($5,700,000) Dollars
of such Holdback Amount shall be in the form of Required Investments.

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     10.11 Access to Company Employees. Buyer shall make available to Seller from time to
time, at no charge, members of the Company’s management as well as other Company personnel as may
be reasonably requested by Seller to assist Seller after Closing in connection with the process
described in Section 1.5 hereof or with any claim for indemnification under this
Section 10.

     10.12 Tax Treatment of Indemnity Payments. Seller and Buyer agree to treat any
indemnity payment made pursuant to this Section 10 as an adjustment to the Purchase Price
for federal, state, local and foreign income tax purposes unless a contrary treatment is required
under applicable law.

11. Additional Covenants

11.1 Noncompetition, Nonsolicitation and Nondisparagement.

          (a) Noncompetition. For a period of three (3) years after the Closing Date, Seller shall not,
directly or indirectly, invest in, own, manage, operate, finance, control, advise, render services
to or guarantee the obligations of any company identified on Schedule 11.1(a) (each, a
“Competing Company” and, together, the “Competing Companies”), provided,
however, that Seller may purchase or otherwise acquire up to (but not more than) five
percent (5%) of any class of the securities of any such Competing Company (but may not otherwise
participate in the activities of such Person) if such securities are listed on any national
securities exchange.

          (b) Nonsolicitation. For a period of three (3) years after the Closing Date, Seller shall
not, directly or indirectly: (i) cause, induce or attempt to cause or induce any customer,
supplier, licensee, licensor, franchisee, employee, consultant or other business relation of the
Company as of the date of this Agreement to cease doing business with the Company or to deal with
any Competing Company; (ii) cause, induce or attempt to cause or induce any customer, supplier,
licensee, licensor, franchisee, employee, consultant or other business relation
of Seller or the Company on the Closing Date or within the year preceding the Closing Date to
cease doing business with the Company or, to deal with any Competing Company; or (iii) hire, retain
or attempt to hire or retain any Continuing Employee (other than by general solicitations of
employment) or in any way interfere with the relationship between the Company and any of its
Continuing Employees.

          (c) Modification of Covenant. If a final judgment of a court or tribunal of competent
jurisdiction determines that any term or provision contained in Sections 11.1(a) and
(b) is invalid or unenforceable, then the parties agree that the court or tribunal will
have the power to reduce the scope, duration or geographic area of the term or provision, to delete
specific words or phrases or to replace any invalid or unenforceable term or provision with a term
or provision that is valid and enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision. This Section 11.1 will be enforceable as
so modified after the expiration of the time within which the judgment may be appealed. This
Section 11.1 is reasonable and necessary to protect and preserve Buyer’s legitimate
business interests and the value of the Company and the Business and to prevent any unfair
advantage conferred on Seller.

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11.2 Intentionally Omitted.

     11.3 Confidentiality.

          (a) Seller and Buyer have entered into a letter agreement dated August 26, 2004 (the “NDA
Agreement”) and the terms of the NDA Agreement are hereby incorporated herein by reference as
if set forth in full in this Section 11.3.

          (b) Following the Closing, Seller shall and shall cause its Related Persons to, hold in strict
confidence all, and not divulge or disclose any Confidential Information, except to the extent
required in connection with any Legal Requirement (including preparation and filing of tax returns
for pre-closing periods) or as required or requested by any Governmental Body.

     11.4 Tax Matters.

          (a) Seller shall be responsible for preparing and filing all Income Tax Returns with
respect to Taxes relating to the Company for taxable periods (or portions thereof) ending on or
prior to the Closing Date, including any form 1120S’s to be filed by Seller after the Closing Date,
and all other Tax Returns of the Company (including all sales and use Tax Returns) that are filed
on or before the Closing Date). Buyer shall prepare or cause to be prepared all Tax Returns of the
Company, other than those described in the preceding sentence, that are due to be filed after the
Closing Date and those Tax Returns of the Company which are filed after the Closing Date, including
all sales and use and property Tax Returns. Buyer shall furnish copies of all such Tax Returns for
periods that end on before the Closing Date and for Straddle Periods (as defined below in
Section 11.4(b)) with respect to Taxes relating to the Company, to Seller for its review at
least ten (10) days prior to the due date for filing such Tax Returns and shall make any revisions
to such Tax Returns as are not unreasonably requested by Seller to the extent such revisions relate
to Taxes of the Company for a period that ends on or prior to the Closing Date or for a Pre-Closing
Partial Period. Such Tax Returns shall be prepared on a basis consistent with
those prepared for prior taxable periods, unless a different treatment of any item is required
by applicable law or such different treatment does not result in increased Tax Liability to the
Seller or an increased Tax Liability to the Company with respect to a Pre-Closing Tax Period or a
Pre-Closing Partial Period. Not later than five (5) Business Days prior to the due date for the
payment of any Tax on any such Tax Return, Seller shall pay to Buyer or the Company the amount of
Taxes owed by Seller pursuant to Section 10.7. Buyer and Seller shall provide such
assistance (including the provision of information and any required consents, powers of attorney,
authorizations or signatures) necessary or desirable to allow the applicable party to file any Tax
Returns described in this section.

     (b) In order to apportion appropriately any Taxes relating to a taxable period that
includes (but does not end on) the Closing Date (a “Straddle Period”), the parties hereto
will, to the extent permitted by applicable law, elect with the relevant taxing authority to treat
for all purposes the Closing Date as the last day of a taxable period of the Company (a “Short
Period”). In any case where applicable law does not permit Seller to elect the Closing Date as
the last day of a Short Period, then, for purposes of this Agreement, the portion of each Tax
relating to the Company for the Pre-Closing Partial Period shall be (i) in the case of ad valorem
or property

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Taxes, be deemed to be the amount of such Taxes for the entire Straddle Period
multiplied by a fraction, the numerator of which is the number of calendar days during the
Pre-Closing Partial Period and the denominator of which is the total number of calendar days in the
Straddle Period, and (ii) in the case of all other Taxes be determined based on an interim closing
of the books as of the close of business on the Closing Date.

     (c) For federal income tax purposes, and to the extent permitted, for all other income tax
purposes, the parties acknowledge and agree that Buyer shall be treated as acquiring the assets
held by the Company in exchange for the Purchase Price. Buyer and Seller shall report the
transaction hereunder in a manner consistent with such treatment. Buyer and Seller agree to
negotiate in good faith to determine the amount of the Purchase Price to be allocated to the
non-competition agreement that Seller is entering into pursuant to Section 11.1(a) of this
Agreement (the “Seller Non-Compete”) and that $0 of the Purchase Price shall be allocated
to all other non-competition agreements entered into in connection with this Agreement and the
remainder of the Purchase Price plus any liabilities of the Company that are treated as being
assumed by the Buyer for federal income tax purposes shall be allocated among the Company’s assets
in accordance with Section 1060 of the Code as provided in this Section 11.4(c), provided
that in no event will the amount allocated to the Seller Non-Compete exceed $100,000 (the
“Asset Allocation”). Consistent with the foregoing sentence, Buyer and Seller shall use
good faith efforts to agree upon, prior to Closing the Asset Allocation and if agreed upon prior to
Closing will incorporate the Asset Allocation on a schedule to be attached hereto prior to or at
Closing. If Buyer and Seller are unable to agree upon the Asset Allocation by the Closing Date,
they shall determine the Asset Allocation within sixty (60) days of the Closing Date. If Seller
and Buyer are unable to reach a resolution within such sixty (60) day period, then all remaining
disputed issues shall be submitted for resolution by an independent accounting firm mutually
acceptable to Seller and Buyer which shall make a final determination as to the disputed items
within thirty (30) days after such submission, and such determination shall be final, binding and
conclusive on the Seller and Buyer. Each of the parties hereto agree that (i) none of the parties
shall take a
position on any Tax Return (including IRS Form 8594), that is in any way inconsistent with such
Asset Allocation without the written consent of the other party or unless specifically required by
an applicable governmental authority, and (ii) they shall promptly advise each other regarding the
existence of any tax audit, controversy or litigation related to such Asset Allocation.
Notwithstanding the foregoing, nothing contained herein shall prevent Buyer or Seller from settling
any proposed deficiency or adjustment by any governmental authority based upon or arising out of
the Asset Allocation, and neither Buyer nor Seller shall be required to litigate before any court
any proposed deficiency or adjustment by any governmental authority challenging such Asset
Allocation.

     (d) If after the Closing Date either party hereto receives any notice, letter, correspondence,
claim or decree relating to Taxes of the Company from any taxing authority (a “Tax Notice”)
for periods or portions of period that end or prior to the Closing Date or for which an
indemnification claim may be made hereunder, the party receiving such Tax Notice shall deliver such
Tax Notice to the other party hereto. Seller shall have the right to handle, defend, conduct and
control any Tax audit or other proceeding that relates to Taxes for which Seller may have liability
provided that Seller shall not compromise or settle any such Tax audit or

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proceeding without
obtaining Buyer’s consent, which consent shall not be unreasonably withheld, conditioned or
delayed. In the event that Seller fails to provide Buyer with a written notice that it elects to
defend a Tax audit or proceeding described in this Section 11.4(d) within thirty (30) days of
receiving a Tax Notice, Buyer shall have the right to handle, defend, conduct and control such Tax
audit or proceeding and Seller shall have the right to participate in such Tax audit or proceeding
at its own expense. Buyer shall also have the right to compromise or settle any such Tax audit or
proceeding that it controls pursuant to the preceding sentence, subject to Seller’s consent, which
consent shall not be unreasonably withheld, conditioned or delayed. To the extent of any conflict
between the provision set forth in this Section 11.4(d) and the provision set forth in Section
10.6 of this Agreement, the provisions set forth in this Section shall control.

     (e) Without the Seller’s prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed, the Buyer shall not and it shall not permit or cause the Company
or any of its Affiliates to make or change any Tax election, amend any Tax Return of the Company
for a period that ends on prior to the Closing or for a Straddle Period, take any action or enter
into any transaction that results in any increased Tax liability of the Seller or the owners of the
Seller or that would increase the indemnification obligation of the Seller under this Agreement
unless such election, amendment, action or transaction is required by applicable law.

     (f) Buyer agrees to assume the preparation and filing of all income tax withholding
and employment tax forms (including Forms W-2) for all Company employees for the full 2005 calendar
year in accordance with the alternate procedure set forth in Rev. Proc. 2004-53, 2004-34 I.R.B.
320.

     (g) Buyer and Seller shall furnish or cause to be furnished to each other, as
promptly as practicable, such information and assistance relating to the Company as is reasonably
necessary for the preparation and filing of any Tax Return, claim for refund or other filings relating
to Tax matters, for the preparation for any Tax audit, for the preparation for any Tax protest, for
the prosecution or defense of any suit or other proceeding relating to Tax matters.

12. General Provisions

     12.1 Expenses. Except as otherwise expressly provided in this Agreement, each party
to this Agreement will bear its respective expenses incurred in connection with the preparation,
execution, and performance of this Agreement and the Contemplated Transactions, including all fees
and expenses of agents, representatives, counsel, and accountants in connection with this Agreement
and the Contemplated Transactions; provided that the fees and expenses of Seller’s and the
Company’s attorneys, finders and brokers will be borne by Seller. Buyer will pay one-half and
Seller will pay one-half of the HSR Act filing fee. In the event of termination of this Agreement,
the obligation of each party to pay its own expenses will be subject to any rights of such party
arising from a Breach of this Agreement by another party.

     12.2 Transfer Taxes. All Transfer Taxes applicable to, or resulting from, the
purchase of the Interests contemplated under this Agreement shall be borne equally by Seller and
Buyer.

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     12.3 Public Announcements. Any public announcement or similar publicity with respect
to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in
such manner as agreed by each of the parties hereto, except as required by Legal Requirements.
Unless consented to in writing by each party hereto in advance or required by Legal Requirements,
prior to the Closing, each party to this Agreement shall, and shall cause the Company to, keep this
Agreement strictly confidential and may not make any disclosure of this Agreement to any Person.
Seller and Buyer will consult with each other concerning the means by which the Company’s
employees, customers, and suppliers and others having dealings with the Company will be informed of
the Contemplated Transactions, and Buyer will have the right to be present for any such
communication. The foregoing will in no way preclude communications or disclosures by the parties
necessary to comply with any applicable accounting, stock exchange or federal securities disclosure
obligations.

     12.4 Notices. All notices, notifications, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written
confirmation of receipt), provided that a copy is mailed by registered mail, return receipt
requested, or (c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a party may designate
by notice to the other parties):

	 	 	 
	Seller:

	 	National Pharmacies Group, Inc.
	 

	 	2157 Apperson Drive
	 

	 	Salem, Virginia 24153
	 

	 	Attention: David Dixon and J. O’Neil Leftwich
	 

	 	Facsimile No.: (540) 777-0015 (Dixon)
	 

	 	Facsimile No.: (888) 797-4643 (Leftwich)
	 
	 	 
	with copies to

	 	Latham & Watkins, LLP
	 

	 	555 Eleventh Street, NW
	 

	 	Washington, DC 20004
	 

	 	Attention: Michael Schlesinger, Esq.
	 

	 	Facsimile No.: (202) 637-2201
	 

	 	Robert Haft
	 

	 	2346 Massachusetts Avenue NW
	 

	 	Washington, DC 20008
	 
	 	 
	Buyer:

	 	PolyMedica Corporation
	 

	 	11 State Street
	 

	 	Woburn, Massachusetts 01801
	 

	 	Attention: Chief Executive Officer
	 

	 	Facsimile No.: (781) 938-6950

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	with copies to

	 	PolyMedica Corporation
	 

	 	11 State Street
	 

	 	Woburn, Massachusetts 01801
	 

	 	Attention: Devin Anderson, Esq.
	 

	 	Facsimile No.: (781) 935-0695
	 

	 	Weil, Gotshal & Manges LLP
	 

	 	100 Federal Street, 34th Floor
	 

	 	Boston, Massachusetts 02110
	 

	 	Attention: James Westra, Esq.
	 

	 	Facsimile No.: (617) 772-8333

     12.5 Jurisdiction; Service Of Process. Any action or proceeding seeking to enforce
any provision of, or based on any right arising out of, this Agreement may be brought against any
of the parties in the courts of the State of Delaware, or, if it has or can acquire jurisdiction,
in any United States District Court sitting in Delaware, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the world. Each party
waives personal service of any and all process upon it, and irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by certified mail, postage prepaid, to such party at the address set forth above,
such service to become effective five business days after mailing.

     12.6 Waiver of Jury Trial. THE PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS,
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE
PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE
OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE TRIAL
BY JURY AND THAT ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE
CONTEMPLATED TRANSACTIONS SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.

     12.7 Enforcement of Agreement. The parties acknowledge and agree that in the event of
a Breach of this Agreement, the non-breaching party would be irreparably damaged and could not be
adequately compensated in all cases by monetary damages alone. Accordingly, in addition to any
other right or remedy to which the non-breaching party may be entitled, at law or in equity, it
shall be entitled to enforce any provision of this Agreement by a decree of specific performance
and to temporary, preliminary and permanent injunctive relief to prevent Breaches or threatened
Breaches of any of the provisions of this Agreement, without posting any bond or other undertaking.

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     12.8 Further Assurances. The parties agree (a) to furnish upon request to each other
such further information, (b) to execute and deliver to each other such other documents, and (c) to
do such other acts and things, all as the other party may reasonably request for the purpose of
carrying out the intent of this Agreement and the documents referred to in this Agreement.

     12.9 Waiver. The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in exercising any right, power,
or privilege under this Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right, power, or privilege
or the exercise of any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in
this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is given; and (c) no notice
to or demand on one party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.

     12.10 Entire Agreement and Modification. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter and constitutes (along with the
documents referred to in this Agreement) a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter. This Agreement may not be
amended except by a written agreement executed by the party to be charged with the amendment.

     12.11 Disclosure Schedules.

          (a) The schedules to this Agreement, and any supplement thereto, must relate only to the
representations and warranties in the Section of the Agreement to which they expressly relate or to
which any disclosure therein is readily apparent.

          (b) In the event of any inconsistency between the statements in the body of this Agreement and
those in the schedules, the statements in the body of this Agreement will control.

     12.12 Assignments, Successors, and No Third-Party Rights. No party may assign any of
its rights under this Agreement without the prior consent of the other parties, except that Buyer
may assign any of its rights under this Agreement to any Related Person of the Buyer; provided that
no such assignment shall release Buyer from its liabilities hereunder. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit
of the successors and permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this Agreement any legal
or equitable right, remedy, or claim under or with respect to this Agreement or any provision of
this Agreement. This Agreement and all of its provisions and conditions are

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for the sole and
exclusive benefit of the parties to this Agreement and their successors and assigns.

     12.13 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only
in part or degree will remain in full force and effect to the extent not held invalid or
unenforceable.

     12.14 Section Headings, Construction. The headings of Sections in this Agreement are
provided for convenience only and will not affect its construction or interpretation. All
references to “Section” or “Sections” refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word “including” does not limit the
preceding words or terms.

     12.15 Time of Essence. With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.

     12.16 Governing Law. This Agreement will be governed by the laws of the State of
Delaware without regard to conflicts of laws principles.

     12.17 Legal Fees. Each party shall pay its own attorneys’ fees and other costs and
expenses incurred as a result of any legal proceeding commenced in connection with this Agreement.

     12.18 Execution of Agreement. This Agreement may be executed in counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement. The exchange of copies of this
Agreement and of signature pages by facsimile transmission shall constitute effective execution and
delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for
all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their
original signatures for all purposes.

13. Definitions And Usage

     13.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for
purposes of this Agreement, the following terms and variations thereof have the meanings specified
or referred to in this Section 13.1:

     “Accounts Receivable”—all accounts receivable and other rights to payment from
customers of the Company for products sold or services rendered thereto, whether or not generated
in the Ordinary Course of Business, including the full benefit of all security for such accounts or
rights to payment and any claim, remedy or other related right.

     “Adjustment Amount”—as defined in Section 1.5(b)(i).

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     “Agreement”—as defined in the preamble.

     “Annual Financial Statements”—as defined in Section 2.3.

     “Applicable Contract”—any Contract (a) under which the Company has or may acquire any
rights, (b) under which the Company has or may become subject to any obligation or liability, or
(c) by which the Company or any of the assets owned or used by it is or may become bound.

     “Asset Allocation”—as defined in Section 11.4(c).

     “Balance Sheet”—as defined in Section 2.3.

     “Balance Sheet Date”—as defined in Section 2.3.

     “Basket” —as defined in Section 10.5(a).

     “Best Efforts”—the efforts that a prudent business Person desirous of achieving a
result would use in similar circumstances to achieve that result as expeditiously as possible.

     “Breach”—(a) any breach of, or any inaccuracy in, any representation or warranty, (b)
any claim (by any Person) or other occurrence or circumstance that is or was inconsistent with any
representation or warranty or (c) any breach of, or failure to perform or comply with, any covenant
or obligation.

     “Business”—as defined in the recitals of this Agreement.

     “Business Day”—any day other than (a) Saturday or Sunday or (b) any other day on which
banks in Woburn, Massachusetts are permitted or required to be closed.

     “Buyer”—as defined in the preamble.

     “Buyer Plans”—as defined in Section 6.1(b)(ii).

     “Buyer Indemnified Persons”—as defined in Section 10.2.

     “Buyer’s Advisors”—as defined in Section 4.1.

     “Buyer’s Closing Documents”—as defined in Section 3.2(a).

     “Buyer’s Officer Certificate” – a certificate of an officer of Buyer in the form of
Exhibit G.

     “Buyer’s Secretary Certificate” – a certificate of the Secretary of Buyer in the form
of Exhibit H.

     “Cap Amount” – as defined in Section 10.5(a).

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     “Closing”—as defined in Section 1.3.

     “Closing Working Capital” – as of Closing, the excess of (x) the sum of the Company’s
cash, cash equivalents, accounts receivables, inventory, prepaid assets and other assets that may
be properly classified as current assets in conformity with GAAP, over (y) the Company’s
liabilities that may be properly classified as current liabilities in conformity with GAAP.
Closing Working Capital shall be calculated after giving effect to payment in full of that certain
Master Lease Agreement between CitiCapital Technology Finance Inc. and the Company, dated February
22, 2005, whether or not paid off by the Effective Time. In addition, Closing Working Capital
shall be prepared in good faith in accordance with GAAP applied using the same accounting methods,
practices, principles, policies and procedures, with consistent classifications, judgments and
valuation and estimation and accrual methodologies that were used in the preparation of the
Company’s audited Financial Statements for the most recent fiscal year end Closing Working Capital
was being prepared and audited as of a fiscal year end.

     “Closing Working Capital Statement” – as defined in Section 1.5(b)(ii).

     “Closing Date”—the date and time as of which the Closing actually takes place.

     “COBRA”— the Consolidated Omnibus Reconciliation Act of 1985, as amended, and the
rules and regulations promulgated thereunder.

     “Code”—the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder.

     “Company”—as defined in the preamble.

     “Competing Business”—as defined in Section 2.25.

     “Competing Company”—as defined in Section 11.1(a).

     “Confidential Information”—all knowledge, documents, materials and information, not
generally known to the public, regarding matters relating to the Company and/or the Company’s
Business, including its finances, financial condition, owners, technology, products, services,
research and development, marketing, operations or plans, technical data, trade secrets or
know-how, equipment procurement plans or designs, ideas, inventions, specifications, techniques,
discoveries, models, software, including source code and object code, systems, technology research
and development partners and/or materials vendors, customer lists and customers and employees
(including names, contacts and other information relating to existing or potential key employees of
the Company).

     “Consent”—any approval, consent, ratification, waiver or other authorization of any
Person.

     “Contemplated Transactions”— (a) the sale of the Interests by Seller to Buyer; (b) the
execution, delivery and performance of the Noncompetition Agreement and the Seller’s Release;

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(c) the performance by Buyer, Seller and the Company of their respective covenants and obligations
under this Agreement; and (d) Buyer’s acquisition of the Interests.

     “Continuing Employees”—as defined in Section 6.1(a).

     “Contract”—any agreement, contract, Lease, consensual obligation, promise or
undertaking (whether written or oral and whether express or implied), which is, or intended to be,
legally binding.

     “Conversion” —as defined in Section 4.11.

     “Damages” – means any and all costs, Taxes, liabilities, obligations, damages,
expenses, and reasonable attorneys’ fees. Notwithstanding anything to the contrary in his
Agreement, “Damages” shall expressly exclude lost profits, consequential damages, special damages,
punitive damages, exemplary damages, multiple damages and other penalty damages, except and solely
to the extent such types of Damages are actually paid in respect of a Third Party Claim.

     “Effective Time”—as defined in Section 1.3.

     “Employee Plans”—as defined in Section 2.14(a).

     “Encumbrance”—any charge, claim, community or other marital property interest,
condition, equitable interest, lien, option, pledge, security interest, mortgage, right of way,
easement, encroachment, building or use restriction, servitude, conditional sales agreement, right
of first option, right of first refusal or similar restriction, encumbrance or right of third
parties, whether voluntarily or by operation of law, and includes any agreement to give any of the
foregoing in the future, and any contingent sale or other title retention agreement or lease
in the nature thereof.

     “Environment”—soil, land surface or subsurface strata, surface waters (including
navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), groundwaters,
drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life
and any other environmental medium or natural resource.

     “Environmental, Health and Safety Liabilities”—any cost, damage, expense, liability,
obligation or other responsibility arising from or under any Environmental Law or Occupational
Safety and Health Law.

     “Environmental Law”—any Legal Requirement that requires or relates to (a) advising
appropriate authorities, employees or the public of intended or actual Releases of pollutants or
hazardous substances or materials, violations of discharge limits or other prohibitions that could
have significant impact on the Environment; (b) preventing or reducing to acceptable levels the
Release of pollutants or hazardous substances or materials into the Environment; (c) reducing the
quantities, preventing the Release or minimizing the hazardous characteristics of wastes that are
generated; (d) assuring that products are designed, formulated, packaged and used so that they do
not present unreasonable risks to human health or the Environment when used or disposed of; (e)

-48-

 

protecting resources, species or ecological amenities; (f) reducing to acceptable levels the risks
inherent in the transportation of hazardous substances, pollutants, oil or other potentially
harmful substances; or (g) cleaning up pollutants that have been Released, preventing the Threat of
Release or paying the costs of such clean up or prevention.

     “ERISA”—the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations promulgated thereunder.

     “ERISA Affiliate”—as defined in Section 2.14(a).

     “Estimated Closing Statement” – as defined in Section 1.5(a)(i).

     “Estimated Closing Working Capital” – as defined in Section 1.5(a)(i).

     “Estimated Closing Working Capital Excess” – as defined in Section 1.5(a)(ii).

     “Estimated Closing Working Capital Shortfall” – as defined in Section
1.5(a)(ii).

     “Exchange Act”—the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

     “Facilities”—any real property, leaseholds, or other interests currently owned or
operated by the Company and any buildings, plants, structures, or equipment (including motor
vehicles, tank cars, and rolling stock) currently or formerly owned or operated by the Company.

     “Financial Statements”—as defined in Section 2.3.

     “GAAP”—generally accepted accounting principles for financial reporting in the United
States, in effect from time to time applied consistently with the Balance Sheet and the other
Financial Statements.

     “Governing Documents”—with respect to any corporation, the corporate charter and the
bylaws; as amended or supplemented from time to time, all equityholders’ agreements, voting
agreements, voting trust agreements, joint venture agreements, registration rights agreements or
other agreements or documents, as amended or supplemented from time to time, relating to the
organization, management or operation thereof or relating to the rights, duties and obligations of
the equityholders thereof.

     “Governmental Authorization”—any Consent, license, registration or permit issued,
granted, given or otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.

     “Governmental Body”—any: (a) nation, state, county, city, town, borough, village,
district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; (c) governmental or quasi-governmental authority of any nature (including any
agency, branch, department, board, commission, court, tribunal or other entity exercising
governmental or quasi-governmental powers); (d) multinational organization or body; (e) body

-49-

 

exercising, or entitled or purporting to exercise, any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power; or (f) official of any of the
foregoing.

     “Hazardous Material”—any substance, material or waste which is regulated by any
Governmental Body, including any material, substance or waste which is defined as a “hazardous
waste,” “hazardous material,” “hazardous substance,” “extremely hazardous waste,” “restricted
hazardous waste,” “contaminant,” “toxic waste” or “toxic substance” under any provision of
Environmental Law, and including petroleum, petroleum products, asbestos, presumed
asbestos-containing material or asbestos-containing material, urea formaldehyde and polychlorinated
biphenyls.

     “Holdback Amount”—as defined in Section 10.10(a).

     “HSR Act”—the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any successor
law, and regulations and rules issued pursuant to that act or any successor law.

     “Income Taxes” means all federal, state, local and foreign income taxes imposed on or
measured by net income (including gains and capital gains) of the relevant entity, together with
any interest and any penalty, addition to tax or additional amount imposed with respect thereto.

     “Independent Accountants”—as defined in Section 1.5(b)(iv).

     “Intellectual Property Assets”—collectively, all worldwide intellectual property and
associated rights, including patents, patent applications, rights to file for patent applications
(including but not limited to continuations, continuations-in-part, divisionals and reissues),
trademarks, logos, confidential documentation, service marks, trade names and service names (in
each case whether or not registered) and applications for and the right to file applications
for registration thereof, Internet domain name or application for an Internet domain name, Internet
and World Wide Web URLs or addresses, copyrights (whether or not registered) and applications for
and the right to file applications for registration thereof, moral rights, mask work rights, mask
work registrations and applications therefor, franchises, licenses, license or lease rights with
respect to software or hardware, inventions, trade secrets, trade dress, know-how, customer lists,
supplier lists, proprietary processes and formulae, software source code and object code,
algorithms, net lists, architectures, structures, screen displays, layouts, inventions, development
tools, designs, blueprints, specifications, technical drawings (or similar information in
electronic or digital format), publicity and privacy rights and any other intellectual property
rights arising under the laws of the United States of America, any state thereof, or any other
country or province thereof, and all documentation and media (in whatever form) constituting,
describing or relating to the foregoing, including, without limitation, manuals, programmers’
notes, memoranda and records.

     “Interests”—as defined in the recitals to this Agreement.

     “Interests Certificate” – a certificate representing the Interests in the form of
Exhibit D.

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     “Inventories”—all inventories of the Company attributable to the Business, held for
resale, wherever located, and all of the Company’s raw materials, work in process, finished
products, supplies and packing items and similar items with respect to the Business, in each case
wherever located.

     “IRS”—the United States Internal Revenue Service and, to the extent relevant, the
United States Department of the Treasury.

     “Knowledge”— an individual will be deemed to have Knowledge of a particular fact or
other matter if that individual is actually aware of that fact or matter. The Company and Seller
will each be deemed to have Knowledge of a particular fact or other matter if any of Robert Haft,
David Dixon, Scott Snead, Samuel Silek or J. O’Neil Leftwich has, or at any time had, Knowledge of
that fact or other matter. The Buyer will be deemed to have Knowledge of a particular fact or
other matter if any individual who is serving, or who has at any time served, as a director,
officer or manager of that Person (or in any similar capacity) has, or at any time had, Knowledge
of that fact or other matter.

     “Lease”—any lease or rental agreement, license, right to use or installment and
conditional sale agreement to which the Company is a party and any other Contract pertaining to the
leasing or use of any Tangible Personal Property.

     “Leased Real Property”—as defined in Section 2.5(a).

     “Legal Requirement”— any (i) federal, state, local, municipal, foreign, international
or multinational law (statutory, judicial or otherwise), ordinance, rule, regulation, judgment,
order, injunction, writ, decree or award of any Governmental Body, including without limitation
laws, regulations, manual instructions, and Centers for Medicare and Medicaid Services (“CMS”)
program memoranda relating to participation as a provider or supplier in the Medicare and
Medicaid programs or other governmentally funded health care reimbursement programs and to the
provision of, and billing and collection for, items and services provided to beneficiaries of such
programs; and (ii) standards of organizations offering accreditation or certification programs in
which the Company participates or must participate.

     “Liability”—with respect to any Person, any liability or obligation of such Person of
any kind, character or description, whether known or unknown, absolute or contingent, accrued or
unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or
several, due or to become due, vested or unvested, executory, determined, determinable or
otherwise, and whether or not the same is required to be accrued on the financial statements of
such Person.

     “Major Customers”—as defined in Section 2.19(a).

     “Major Suppliers”—as defined in Section 2.19(b).

     “Material Adverse Effect” or “Material Adverse Change”— with respect to the
Business, any material adverse effect or material adverse change in the condition (financial or
other),

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business, results of operations or operations of the Business or on the ability of Seller
to consummate the Contemplated Transactions, provided that none of the following events set forth
in clauses (a) through (h) below shall be deemed to constitute a Material Adverse Effect or
Material Adverse Change for one or more of the following occurrences: (a) changes in general
business or economic conditions, including such conditions related to the Business, (b) changes in
national or international political or social conditions, (c) changes in financial, banking, or
securities markets, (d) changes in the United States generally accepted accounting principles, (e)
changes in law, rules, regulations, orders, or other binding directives issued by any governmental
entity, (f) any change, circumstance, event or effect that relates to or results from the
announcement of the execution of this Agreement or the pendency of the consummation of the
Contemplated Transactions, (g) the taking of any action contemplated by this Agreement and the
other agreements contemplated hereby or (h) the termination or reduction or Threatened termination
or reduction of business with the Company by any of the Company’s Major Customers or Major
Suppliers, with the exception of UnitedHealth.

     “Most Recent Financial Statements”—as defined in Section 2.3.

     “Multiemployer Plan”—as defined in Section 2.14(a).

     “NDA Agreement”—as defined in Section 11.3(a).

     “Net Names”—as defined in Section 2.23(b).

     “Noncompetition Agreement”—as defined in Section 1.4(a)(iv.

     “Occupational Safety and Health Law”—any Legal Requirement designed to provide safe
and healthful working conditions and to reduce occupational safety and health hazards, including
the Occupational Safety and Health Act.

     “Order”—any award, decision, injunction, judgment, order, decree, ruling, assessment
(including without limitation overpayment notice or demand), subpoena, or verdict entered, issued,
made or rendered by any court, administrative agency, or other Governmental Body or by any
arbitrator.

     “Ordinary Course of Business”—an action taken by a Person will be deemed to have been
taken in the Ordinary Course of Business only if that action: (i) is consistent in nature, scope
and magnitude with the past practices of such Person and is taken in the ordinary course of the
normal, day-to-day operations of such Person; and (ii) does not require authorization by the board
of directors of such Person (or by any Person or group of Persons exercising similar authority) and
does not require any other separate or special authorization of any nature.

     “Party” or “Parties” – one or more of Seller, Buyer and the Company.

     “PBGC”—as defined in Section 2.14(b).

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     “Permitted Encumbrances”—means (i) all defects, exceptions, restrictions, easements,
rights of way and Encumbrances disclosed in policies of title insurance which have been made
available to Buyer; (ii) statutory liens for current Taxes, assessments or other governmental
charges not yet delinquent or the amount or validity of which is being contested in good faith by
appropriate proceedings, provided an appropriate reserve is established therefor; (iii) mechanics’,
carriers’, workers’, repairers’ and similar liens arising or incurred in the Ordinary Course of
Business that are not material to the business, operations and financial condition of the property
so encumbered or the Company; (iv) zoning, entitlement and other land use and environmental
regulations by any Governmental Body, provided that such regulations have not been violated; and
(v) such other imperfections in title, charges, easements, restrictions and encumbrances which do
not materially detract from the value of or materially interfere with the present use of any Leased
Real Property subject thereto or affected thereby.

     “Person”—any individual, partnership, corporation, business trust, limited liability
company, general, limited or limited liability partnership, joint stock company, trust,
unincorporated association, joint venture or other entity or a Governmental Body.

     “Pre-Closing Partial Period” as defined in Section 10.7.

     “Pre-Closing Tax Period” as defined in Section 10.7.

     “Proceeding”—any action, arbitration, audit, governmental health care program
integrity review, hearing, investigation, litigation or suit (whether civil, criminal,
administrative, judicial or investigative, whether formal or informal, whether public or private)
commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body
or other Person.

     “Proprietary Rights Agreement”—as defined in Section 2.11(b).

     “Purchase Price”—as defined in Section 1.2.

     “Related Person”—With respect to a particular individual (a) each other member of such
individual’s Family; (b) any Person that is directly or indirectly controlled by any one or more
members of such individual’s Family; (c) any Person in which members of such individual’s Family
hold (individually or in the aggregate) a Material Interest; and (d) any Person with respect to
which one or more members of such individual’s Family serves as a director, officer, partner,
executor or trustee (or in a similar capacity).

     With respect to a specified Person other than an individual (a) any Person that directly or
indirectly controls, is directly or indirectly controlled by or is directly or indirectly under
common control with such specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer, partner, executor or trustee
of such specified Person (or in a similar capacity); (d) any Person in which such specified Person
holds a Material Interest; and (e) any Person with respect to which such specified Person serves as
a general partner or a trustee (or in a similar capacity).

-53-

 

     For purposes of this definition, (a) “control” (including “controlling,”
“controlled by,” and “under common control with”) means the possession, direct or
indirect, of the power to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise, and shall be
construed as such term is used in the rules promulgated under the Exchange Act; (b) the
“Family” of an individual includes (i) the individual, (ii) the individual’s spouse, (iii)
any other natural person who is related to the individual or the individual’s spouse within the
second degree and (iv) any other natural person who resides with such individual; and (c)
“Material Interest” means direct or indirect beneficial ownership (as defined in Rule 13d-3
under the Exchange Act) of voting securities or other voting interests representing at least
twenty-five percent (25%) of the outstanding voting power of a Person or equity securities or other
equity interests representing at least twenty-five percent (25%) of the outstanding equity
securities or equity interests in a Person.

     “Release”—any release, spill, emission, leaking, pumping, pouring, dumping, emptying,
injection, deposit, disposal, discharge, dispersal, leaching or migration on or into the
Environment or into or out of any property.

     “Remedial Action”—all actions, including any capital expenditures, required or
voluntarily undertaken (a) to clean up, remove, treat or in any other way address any Hazardous
Material or other substance; (b) to prevent the Release or Threat of Release or to minimize the
further Release of any Hazardous Material or other substance so it does not migrate or endanger or
threaten to endanger public health or welfare or the Environment; (c) to perform pre-remedial
studies and investigations or post-remedial monitoring and care; or (d) to bring the Premises and
the operations conducted thereon into compliance with Environmental Laws and environmental
Governmental Authorizations.

     “Representative”—with respect to a particular Person, any director, officer, manager,
employee, agent, consultant, advisor, accountant, financial advisor, legal counsel or other
representative of that Person.

     “Securities Act”—the Securities Act of 1933, as amended, or any successor law, and
regulations and rules issued pursuant to that act or any successor law.

     “Seller”—as defined in the preamble.

     “Seller Disclosure Schedule”—as defined in Section 2.

     “Seller Indemnified Persons”—as defined in Section 10.3.

     “Seller Non-Compete”—as defined in Section 11.4(c).

     “Seller’s Closing Documents”—as defined in Section 2.2(a).

     “Seller’s Officer Certificate” – a certificate of an officer of the Seller in the form
of Exhibit E.

-54-

 

     “Seller’s Release”—as defined in Section 1.4(a)(ii).

     “Seller’s Secretary Certificate” – a certificate of the Secretary of Seller in the
form of Exhibit F.

     “Shares”—as defined in the recitals to this Agreement.

     “Straddle Period” shall have the meaning as set forth in Section 11.4(b).

     “Short Period” shall have the meaning set forth in Section 11.4(b).

     “Subsidiary”—with respect to any Person (the “Owner”), (a) any other Person of
which securities or other interests having the power to elect a majority of that Person’s board of
directors or similar governing body, or otherwise having the power to direct the business and
policies of that other Person (other than securities or other interests having such power only upon
the happening of a contingency that has not occurred), are held by the Owner or one or more of its
Subsidiaries; or (b) any Person that is directly or indirectly controlled by the Owner.

     “Supplemental Reserves”—as defined in Section 1.5(a)(i).

     “Tangible Personal Property”—all machinery, equipment, tools, furniture, office
equipment, fixtures, leasehold improvements, computer hardware, supplies, materials, vehicles and
other items of tangible personal property (other than Inventories) of every kind owned or leased by
the Company (wherever located and whether or not carried on the Company’s books), together with any
express or implied warranty by the manufacturers or sellers or lessors of any item or component
part thereof and all maintenance records and other documents relating thereto.

     “Target Working Capital” shall be $3,075,000.00.

     “Tax”—any income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental, windfall profit, customs, vehicle, airplane,
boat, vessel or other title or registration, capital stock, franchise, employees’ income
withholding, foreign or domestic withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer, value added, alternative, add-on minimum and
other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever and any interest,
penalty, addition or additional amount thereon imposed, assessed or collected by or under the
authority of any Governmental Body.

     “Tax Notice”—as defined in Section 11.4(d).

     “Tax Return”—any return (including any information return), report, statement,
schedule, notice, form, declaration, claim for refund or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental Body in connection
with the determination, assessment, collection or payment of any Tax or in connection with the

-55-

 

administration, implementation or enforcement of or compliance with any Legal Requirement relating
to any Tax.

     “Third Party”—a Person that is not a party to this Agreement.

     “Third-Party Claim”—any claim against any Indemnified Person by a Third Party, whether
or not involving a Proceeding.

     “Threat of Release”—a reasonable likelihood of a Release that may require action in
order to prevent or mitigate damage to the Environment that may result from such Release.

     “Threatened”—a claim, Proceeding, dispute, action, or other matter will be deemed to
have been “Threatened” if any demand or statement has been made (orally or in writing) or any
notice has been given (orally or in writing), or if any other event has occurred or any other
circumstances exist, that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action or other matter is likely to be asserted, commenced, taken or otherwise pursued in
the future.

     “Transfer Tax” means all sales, use, transfer, intangible, recordation, documentary,
stamp or similar taxes or charges of any nature whatsoever.

     “WARN Act” —as defined in Section 2.13.

     13.2 Usage.

          (a) Interpretation. In this Agreement, unless a clear contrary intention appears: (i) the
singular number or term includes the plural number or term and vice versa; (ii) reference to any
Person includes such Person’s successors and assigns but, if applicable, only if such successors
and assigns are not prohibited by this Agreement, and reference to a Person in
a particular capacity excludes such Person in any other capacity or individually; (iii)
reference to any gender includes each other gender; (iv) reference to any agreement, document or
instrument means such agreement, document or instrument as amended or modified and in effect from
time to time in accordance with the terms thereof; (v) reference to any Legal Requirement means
such Legal Requirement as amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations promulgated thereunder, and
reference to any section or other provision of any Legal Requirement means that provision of such
Legal Requirement from time to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section or other provision; (vi)
“hereunder,” “hereof,” “hereto,” and words of similar import shall be deemed references to this
Agreement as a whole and not to any particular Article, Section or other provision hereof; (vii)
“including” (and with correlative meaning “include”) means including without limiting the
generality of any description preceding such term; (viii) “or” is used in the inclusive sense of
“and/or”; (ix) with respect to the determination of any period of time, “from” means “from and
including” and “to” means “to but excluding”; and (x) references to documents, instruments or
agreements shall be deemed to refer as well to all addenda, exhibits, schedules or amendments
thereto.

-56-

 

          (b) Accounting Terms and Determinations. Unless otherwise specified herein, all accounting
terms used herein shall be interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP.

          (c) Legal Representation of the Parties. This Agreement was negotiated by the parties with the
benefit of legal representation, and any rule of construction or interpretation otherwise requiring
this Agreement to be construed or interpreted against any party shall not apply to any construction
or interpretation hereof.

[Signature Page Follows.]

-57-

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written
above.

	 	 	 	 	 	 	 
	Buyer:

	 	 	 	Seller:	 	 
	 
	 	 	 	 	 	 
	PolyMedica Corporation	 	National Pharmacies Group, Inc.
	 
	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 
	 

	 	Name:
	 	 	 	Name:
	 

	 	Title:
	 	 	 	Title:
	 
	 	 	 	 	 	 
	 	 	 	 	The Company:
	 
	 	 	 	 	 	 
	 	 	 	 	National Diabetic Pharmacies, Inc.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 

	 	 	 	 	 	Title:

-58-

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	1.	 	SALE AND TRANSFER OF INTERESTS; CLOSING	 	 	1	 
	 

	 	 	1.1	 	 	Interests
	 	 	1	 
	 

	 	 	1.2	 	 	Purchase Price
	 	 	1	 
	 

	 	 	1.3	 	 	Closing
	 	 	1	 
	 

	 	 	1.4	 	 	Closing Obligations
	 	 	2	 
	 

	 	 	1.5	 	 	Adjustment Amount
	 	 	3	 
	2.	 	REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY	 	 	5	 
	 

	 	 	2.1	 	 	Organization, Good Standing and Capitalization
	 	 	5	 
	 

	 	 	2.2	 	 	Enforceability; Authority; No Conflict
	 	 	6	 
	 

	 	 	2.3	 	 	Financial Statements
	 	 	6	 
	 

	 	 	2.4	 	 	Books and Records
	 	 	7	 
	 

	 	 	2.5	 	 	Title to Properties; Encumbrances
	 	 	7	 
	 

	 	 	2.6	 	 	Condition and Sufficiency of Assets
	 	 	7	 
	 

	 	 	2.7	 	 	Accounts Receivable
	 	 	7	 
	 

	 	 	2.8	 	 	Inventories
	 	 	8	 
	 

	 	 	2.9	 	 	No Undisclosed Liabilities
	 	 	8	 
	 

	 	 	2.10	 	 	Taxes
	 	 	8	 
	 

	 	 	2.11	 	 	Employees
	 	 	9	 
	 

	 	 	2.12	 	 	Labor Disputes; Compliance
	 	 	10	 
	 

	 	 	2.13	 	 	WARN Act
	 	 	10	 
	 

	 	 	2.14	 	 	Employee Benefits
	 	 	10	 
	 

	 	 	2.15	 	 	Compliance With Legal Requirements; Governmental Authorizations
	 	 	13	 
	 

	 	 	2.16	 	 	Legal Proceedings; Orders
	 	 	15	 
	 

	 	 	2.17	 	 	No Material Adverse Change
	 	 	16	 
	 

	 	 	2.18	 	 	Absence of Certain Changes and Events
	 	 	16	 

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	 	 	 	 	 	 	 	 	Page
	 

	 	 	2.19	 	 	Third Party Payors and Suppliers
	 	 	17	 
	 

	 	 	2.20	 	 	Contracts; No Defaults
	 	 	17	 
	 

	 	 	2.21	 	 	Insurance
	 	 	19	 
	 

	 	 	2.22	 	 	Environmental Matters
	 	 	20	 
	 

	 	 	2.23	 	 	Intellectual Property Assets
	 	 	20	 
	 

	 	 	2.24	 	 	Certain Payments
	 	 	21	 
	 

	 	 	2.25	 	 	Relationships With Related Persons
	 	 	21	 
	 

	 	 	2.26	 	 	Brokers or Finders
	 	 	22	 
	 

	 	 	2.27	 	 	Disclosure
	 	 	22	 
	3.	 	REPRESENTATIONS AND WARRANTIES OF BUYER	 	 	22	 
	 

	 	 	3.1	 	 	Organization and Good Standing
	 	 	22	 
	 

	 	 	3.2	 	 	Authority; No Conflict
	 	 	22	 
	 

	 	 	3.3	 	 	Investment Intent
	 	 	23	 
	 

	 	 	3.4	 	 	Certain Proceedings
	 	 	23	 
	 

	 	 	3.5	 	 	Brokers or Finders
	 	 	23	 
	 

	 	 	3.6	 	 	No Outside Reliance
	 	 	23	 
	 

	 	 	3.7	 	 	Disclosure
	 	 	23	 
	4.	 	SELLER’S PRECLOSING COVENANTS	 	 	23	 
	 

	 	 	4.1	 	 	Access and Investigation
	 	 	24	 
	 

	 	 	4.2	 	 	Operation of the Business
	 	 	24	 
	 

	 	 	4.3	 	 	Negative Covenant
	 	 	24	 
	 

	 	 	4.4	 	 	Required Approvals
	 	 	25	 
	 

	 	 	4.5	 	 	Notification
	 	 	25	 
	 

	 	 	4.6	 	 	Payment of or Cancellation of Indebtedness
	 	 	26	 
	 

	 	 	4.7	 	 	No Negotiation
	 	 	26	 
	 

	 	 	4.8	 	 	Best Efforts
	 	 	26	 
	 

	 	 	4.9	 	 	Change of Name
	 	 	26	 

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	 	 	 	 	 	 	 	 	Page
	 

	 	 	4.10	 	 	Interim Financial Statements
	 	 	26	 
	 

	 	 	4.11	 	 	Conversion of Company
	 	 	27	 
	5.	 	BUYER’S PRECLOSING COVENANTS	 	 	27	 
	 

	 	 	5.1	 	 	Required Approvals
	 	 	27	 
	 

	 	 	5.2	 	 	Best Efforts
	 	 	27	 
	 

	 	 	5.3	 	 	Notification
	 	 	27	 
	6.	 	ADDITIONAL COVENANTS	 	 	28	 
	 

	 	 	6.1	 	 	Employee Matters
	 	 	28	 
	7.	 	CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE	 	 	29	 
	 

	 	 	7.1	 	 	Accuracy of Representations
	 	 	29	 
	 

	 	 	7.2	 	 	Seller’s and the Company’s Performance
	 	 	29	 
	 

	 	 	7.3	 	 	Consents
	 	 	29	 
	 

	 	 	7.4	 	 	No Proceedings
	 	 	29	 
	 

	 	 	7.5	 	 	No Claim Regarding Stock Ownership or Sale Proceeds
	 	 	29	 
	 

	 	 	7.6	 	 	Termination of Certain Agreements
	 	 	30	 
	 

	 	 	7.7	 	 	UnitedHealth
	 	 	30	 
	8.	 	CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE	 	 	30	 
	 

	 	 	8.1	 	 	Accuracy of Representations
	 	 	30	 
	 

	 	 	8.2	 	 	Buyer’s Performance
	 	 	30	 
	 

	 	 	8.3	 	 	No Injunction
	 	 	30	 
	 

	 	 	8.4	 	 	Consents
	 	 	30	 
	9.	 	TERMINATION	 	 	30	 
	 

	 	 	9.1	 	 	Termination Events
	 	 	31	 
	 

	 	 	9.2	 	 	Effect of Termination
	 	 	31	 
	10.	 	INDEMNIFICATION; REMEDIES	 	 	31	 
	 

	 	 	10.1	 	 	Survival and Right to Indemnification
	 	 	31	 
	 

	 	 	10.2	 	 	Indemnification and Payment of Damages by Seller and the Company
	 	 	32	 

iii

 

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	 	 	 	 	 	 	 	 	Page
	 

	 	 	10.3	 	 	Indemnification and Payment of Damages by Buyer
	 	 	32	 
	 

	 	 	10.4	 	 	Time Limitations
	 	 	33	 
	 

	 	 	10.5	 	 	Monetary Limitations
	 	 	33	 
	 

	 	 	10.6	 	 	Procedure For Indemnification — Third Party Claims
	 	 	34	 
	 

	 	 	10.7	 	 	Tax Indemnification
	 	 	36	 
	 

	 	 	10.8	 	 	Procedure For Indemnification — Other Claims
	 	 	37	 
	 

	 	 	10.9	 	 	Payment of Indemnification Obligations
	 	 	37	 
	 

	 	 	10.10	 	 	Retention of Holdback Amount by the Seller
	 	 	37	 
	 

	 	 	10.11	 	 	Access to Company Employees
	 	 	37	 
	 

	 	 	10.12	 	 	Tax Treatment of Indemnity Payments
	 	 	38	 
	11.	 	ADDITIONAL COVENANTS	 	 	38	 
	 

	 	 	11.1	 	 	Noncompetition, Nonsolicitation and Nondisparagement
	 	 	38	 
	 

	 	 	11.2	 	 	Intentionally Omitted
	 	 	38	 
	 

	 	 	11.3	 	 	Confidentiality
	 	 	38	 
	 

	 	 	11.4	 	 	Tax Matters
	 	 	39	 
	12.	 	GENERAL PROVISIONS	 	 	41	 
	 

	 	 	12.1	 	 	Expenses
	 	 	41	 
	 

	 	 	12.2	 	 	Transfer Taxes
	 	 	41	 
	 

	 	 	12.3	 	 	Public Announcements
	 	 	41	 
	 

	 	 	12.4	 	 	Notices
	 	 	42	 
	 

	 	 	12.5	 	 	Jurisdiction; Service Of Process
	 	 	43	 
	 

	 	 	12.6	 	 	Waiver of Jury Trial
	 	 	43	 
	 

	 	 	12.7	 	 	Enforcement of Agreement
	 	 	43	 
	 

	 	 	12.8	 	 	Further Assurances
	 	 	44	 
	 

	 	 	12.9	 	 	Waiver
	 	 	44	 
	 

	 	 	12.10	 	 	Entire Agreement and Modification
	 	 	44	 
	 

	 	 	12.11	 	 	Disclosure Schedules
	 	 	44	 

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	 	 	 	 	 	 	 	 	Page
	 

	 	 	12.12	 	 	Assignments, Successors, and No Third-Party Rights
	 	 	44	 
	 

	 	 	12.13	 	 	Severability
	 	 	45	 
	 

	 	 	12.14	 	 	Section Headings, Construction
	 	 	45	 
	 

	 	 	12.15	 	 	Time of Essence
	 	 	45	 
	 

	 	 	12.16	 	 	Governing Law
	 	 	45	 
	 

	 	 	12.17	 	 	Legal Fees
	 	 	45	 
	 

	 	 	12.18	 	 	Execution of Agreement
	 	 	45	 
	13.	 	DEFINITIONS AND USAGE	 	 	45	 
	 

	 	 	13.1	 	 	Definitions
	 	 	45	 
	 

	 	 	13.2	 	 	Usage
	 	 	56	 

v

 

EXHIBITS

	 	 	 
	A

	 	Form of Seller’s Release
	B

	 	[Reserved]
	C

	 	Noncompetition Agreement of Robert Haft
	D

	 	Form of Interests Certificate
	E

	 	Form of Seller’s Officer’s Certificate
	F

	 	Form of Seller’s Secretary’s Certificate
	G

	 	Form of Buyer’s Officer’s Certificate
	H

	 	Form of Buyer’s Secretary’s Certificate

i

 

SCHEDULES

	 	 	 
	1.2(a)

	 	Designated Seller’s Account
	1.4(a)(vi)

	 	Consents Deliveries
	1.5

	 	Supplemental Reserves
	2.2(b)

	 	Enforceability; Authority; No Conflict
	2.2(c)

	 	Notice/Consents
	2.5(a)

	 	Leased Real Property
	2.5(b)

	 	Title to Properties; Encumbrances
	2.9

	 	Undisclosed Liabilities
	2.10(a)

	 	Tax Returns
	2.10(b)

	 	Audited Tax Returns
	2.10(c)

	 	Tax Assessments and Deficiencies
	2.11

	 	Employees
	2.12

	 	Labor Disputes; Compliance
	2.14(a)

	 	Employee Benefits
	2.14(c)

	 	Contributions to Employee Plans
	2.14(e)

	 	Employee Plan Compliance
	2.14(i)

	 	Accelerated Payments
	2.14(k)

	 	Promised Benefits
	2.15(a)

	 	Compliance with Legal Requirements
	2.15(b)

	 	Governmental Authorization
	2.16(a)

	 	Legal Proceedings
	2.16(b)

	 	Orders
	2.16(c)

	 	Compliance
	2.17

	 	Material Adverse Changes
	2.18

	 	Absence of Certain Changes and Events
	2.19(a)

	 	Major Customers
	2.19(b)

	 	Major Suppliers
	2.20(a)

	 	Material Contracts
	2.20(b)

	 	Seller’s Rights and Liabilities
	2.20(c)

	 	Contract Validity
	2.20(d)

	 	Contract Compliance
	2.21(a)

	 	Insurance Policies
	2.21(b)

	 	Third Party Insurance
	2.21(c)

	 	Insurance Claims
	2.21(d)

	 	Policy Validity
	2.22

	 	Environmental Matters
	2.23(a)

	 	Intellectual Property Assets
	2.23(b)

	 	Net Names
	2.25

	 	Relationships with Related Persons
	3.2

	 	Consents
	4.3

	 	Negative Covenant
	4.6

	 	Payment or Cancellation of Indebtedness by or to Related Persons
	10.5(i)

	 	DMERC Audit
	10.5(b)(i)

	 	California Sales and Use Tax Returns
	10.6(e)

	 	Medicare Protocol

ii

 

	 	 	 
	11.1(a)

	 	Competing Companies

iii<PAGE>

                                                                     EXHIBIT 4.1

                            SIERRA PACIFIC RESOURCES

                              OFFICERS' CERTIFICATE

                                 August 12, 2005

      Pursuant to Sections 2.01, 13.04 and 13.05 of the Indenture dated as of
May 1, 2000 (as supplemented and amended from time to time, the "Indenture"),
between Sierra Pacific Resources (the "Company") and The Bank of New York, as
trustee (the "Trustee") and the authority granted in the Resolutions of the
Board of Directors of the Company dated August 2, 2005, the undersigned officers
of the Company, Michael W. Yackira, Corporate Executive Vice President, and
Chief Financial Officer, and William D. Rogers, Corporate Treasurer, hereby
certify as follows:

      The terms and conditions of the securities described in this Officers'
Certificate (as amended, modified and supplemented from time to time, the
"Officers' Certificate") are as follows (the numbered paragraphs set forth below
corresponding to the numbered paragraphs of Section 2.01 of the Indenture,
except paragraph 20 below). Certain terms used herein are defined in paragraph
20 of this certificate. Capitalized terms used herein but not defined in said
paragraph 20 or elsewhere in this certificate shall have the meanings assigned
to them in the Indenture unless the context clearly requires otherwise

1.    Title; Ranking. The Securities issued under the Indenture shall be
      designated "6 3/4% Senior Notes due 2017" (the "Senior Notes"). The Senior
      Notes shall constitute the senior, unsecured and unsubordinated debt
      obligations of the Company and shall rank equally in right of payment with
      all other existing and future senior, unsecured and unsubordinated debt
      obligations of the Company. The form of Senior Notes, including the
      related form of Trustee's certificate of authentication and any applicable
      legends, is attached hereto as Exhibit A.

2.    Maximum Aggregate Principal Amount. The maximum aggregate principal amount
      of the Senior Notes that may be authenticated and delivered under the
      Indenture (except for the Senior Notes authenticated and delivered upon
      registration of transfer of or in exchange for, or in lieu of other Senior
      Notes pursuant to Section 2.06, 2.07, 2.09 or 3.07 of the Indenture) shall
      be $225,000,000.

3.    Book-entry; Form, Etc. The Senior Notes initially will be issued in
      book-entry form only. The Senior Notes will be represented by one or more
      global securities deposited with The Depository Trust Company (the
      "Depositary") and registered in the name of the Depositary's nominee. The
      Depositary shall make book-entry transfers among its participants and
      receive and transmit any payments on the global securities to such
      participants; provided that, solely for the purposes of determining
      whether the Holders of the requisite amount of the Senior Notes have voted
      on any matter provided for in the Indenture, the Company may rely
      conclusively on, and shall be protected in relying on, any written
      instrument (including a proxy) delivered to the Company by the Depositary
      setting forth the votes of the beneficial owners of the Senior Notes or
      assigning the right to vote on any matter to any other Persons either in
      whole or in part. The Company will

<PAGE>

      not issue the Senior Notes in definitive form unless the Depositary at any
      time is unwilling or unable to continue as a depository and the Company
      does not appoint a successor depository within 90 days. Under such
      circumstances, the Company will issue Senior Notes in definitive form in
      exchange for the entire global security. In addition, the Company may at
      any time determine not to have Senior Notes represented by a global
      security and, in such event, the Company will issue Senior Notes in
      definitive form in exchange for the entire global security. Senior Notes
      so issued in definitive form will be issued as registered Senior Notes in
      denominations of $1,000 and integral multiples thereof, unless the Company
      specifies otherwise. The Senior Notes may bear such legends as set forth
      on Exhibit A hereto.

      Each global security shall represent such of the outstanding Senior Notes
      as shall be specified therein and each shall provide that it shall
      represent the aggregate principal amount of outstanding Senior Notes from
      time to time endorsed thereon and that the aggregate principal amount of
      outstanding Senior Notes represented thereby may from time to time be
      reduced or increased, as appropriate, to reflect exchanges and
      redemptions. Any endorsement of a global security to reflect the amount of
      any increase or decrease in the aggregate principal amount of outstanding
      Senior Notes represented thereby shall be made by the Trustee, as
      custodian of the global security (the "Custodian"), in accordance with
      instructions as further set forth below.

      If any beneficial interest in a global security is exchanged for or
      transferred to a person who will take delivery thereof in the form of a
      beneficial interest in another global security, the principal amount of
      Senior Notes represented by such global security shall be reduced
      accordingly and an endorsement shall be made on such global security by
      the Depositary at the direction of the Trustee to reflect such reduction;
      and if the beneficial interest is being exchanged for or transferred to a
      person who will take delivery thereof in the form of a beneficial interest
      in another global security, such other global security shall be increased
      accordingly and an endorsement shall be made on such global security by
      the Trustee or by the Depositary at the direction of the Trustee to
      reflect such increase.

      The Senior Notes have not been registered under the Securities Act and may
      not be offered, sold or otherwise transferred in the absence of such
      registration or an applicable exemption therefrom. No service charge shall
      be made for the registration of transfer or exchange of the Senior Notes;
      provided, however, that the Company may require payment of a sum
      sufficient to cover any tax or other governmental charge payable in
      connection with the exchange or transfer (other than in certain cases
      provided in the Indenture).

4.    Not applicable.

5.    Not applicable.

6.    Maturity. The principal amount of all outstanding Senior Notes shall be
      payable at their Stated Maturity on August 15, 2017.

                                        2

<PAGE>

7.    Interest. The interest rate to be borne by the Senior Notes shall be
      6 3/4% per annum from August 12, 2005 to, but excluding, the Stated
      Maturity of the Senior Notes.

      The Company shall pay interest semi-annually in arrears on February 15 and
      August 15 of each such year, commencing February 15, 2006 or if any such
      day is not a Business Day, on the next succeeding Business Day (each an
      "Interest Payment Date"). Interest on the Senior Notes shall accrue from
      August 12, 2005. The Company shall pay interest (including post-petition
      interest in any proceeding under any Bankruptcy Law) on overdue principal
      and premium, if any, from time to time on demand at a rate that is 1% per
      annum in excess of the rate then in effect; it shall pay interest
      (including post-petition interest in any proceeding under any Bankruptcy
      Law) on overdue installments of interest (without regard to any applicable
      grace periods) from time to time on demand at the same rate to the extent
      lawful. Interest shall be computed on the basis of a 360-day year of
      twelve 30-day months.

      Any principal of or installment of interest on the Senior Notes that is
      overdue shall bear interest at the interest rate then borne by the Senior
      Notes (to the extent that the payment of such interest shall be legally
      enforceable), from the dates such amounts are due until they are paid or
      made available for payment, and such interest shall be payable on demand
      by the Holders.

      Interest shall be paid in arrears on each Interest Payment Date to the
      Person in whose name the Senior Notes are registered on the Regular Record
      Date for such Interest Payment Date; provided that, interest payable at
      the Stated Maturity of principal as provided herein will be paid to the
      Person to whom principal is payable. Any such interest that is not so
      punctually paid or duly provided for will forthwith cease to be payable to
      the Holders on such Regular Record Date and may either be paid to the
      Person or Persons in whose name the Senior Notes are registered at the
      close of business on a special record date (as such term is used in
      Section 2.12 of the Indenture) for the payment of such defaulted interest
      to be fixed by the Company, notice whereof shall be given to Holders of
      the Senior Notes not less than ten days prior to such special record date,
      or be paid at any time in any other lawful manner not inconsistent with
      the requirements of any securities exchange, if any, on which the Senior
      Notes may be listed, and upon such notice as may be required by any such
      exchange, all as set forth in Section 2.12 of the Indenture.

8.    Place and Method of Payment. Payments of the principal of and interest on
      the Senior Notes shall be made by the Company at the office of the Paying
      Agent which shall initially be The Bank of New York, with any such payment
      that is due at the Stated Maturity of any Senior Notes being made upon
      surrender of such Senior Notes to the Paying Agent. Payments of interest
      (including interest on any Interest Payment Date) will be made at the
      option of the Company, (i) by check mailed to the address of the Person
      entitled thereto as such address shall appear in the Security Register or
      (ii) by wire transfer at such place and to such account at a banking
      institution in the United States as may be designated in writing to the
      Trustee at least sixteen days prior to the date for payment by the Person
      entitled thereto.

                                       3

<PAGE>

9.    (i) Optional Redemption. Except as set forth in clause (ii) of this
      Section 9, the Company shall not have the option to redeem the Senior
      Notes pursuant to this Section 9 prior to August 15, 2010. Thereafter, the
      Company shall have the option to redeem the Senior Notes, in whole or in
      part, upon not less than 30, nor more than 60 days' notice, at the
      redemption prices (expressed as percentages of principal amount) set forth
      below plus accrued and unpaid interest and Liquidated Damages, if any, to
      the applicable redemption date, if redeemed during the twelve-month period
      beginning on August 15 of the years indicated below:

<TABLE>
<CAPTION>
YEAR                                                                 Percentage
----                                                                 ----------
<S>                                                                  <C>
2010..............................................................     103.375%
2011..............................................................     102.250%
2012..............................................................     101.125%
2013 and thereafter...............................................     100.000%
</TABLE>

      (ii) Equity Claw-back. Notwithstanding the provisions of clause (i) of
      this Section 9, at any time prior to August 15, 2008, the Company may on
      any one or more occasions redeem up to 35% of the aggregate principal
      amount of Senior Notes issued under the Indenture at a redemption price
      equal to 106.75% of the principal amount thereof, plus accrued and unpaid
      interest, if any, and Liquidated Damages, if any, to the Redemption Date,
      with the net cash proceeds of any public or private offering of its Equity
      Interests (other than Disqualified Stock); provided that (1) at least 65%
      of the aggregate principal amount of Senior Notes remain outstanding
      immediately after the occurrence of such redemption (excluding Senior
      Notes held by the Company and its Subsidiaries); and (2) that each such
      redemption shall occur within 120 days of the date of the closing of such
      offering.

10.   Mandatory Redemption/Redemption at Option of Holders/Repurchase at Option
      of Holders.

      (i) Mandatory Redemption. Except as set forth in clause (ii) of this
Section 10, the Company is not required to make mandatory redemption or sinking
fund payments with respect to the Senior Notes.

      (ii) Redemption at Option of Holders. The holders of at least 25% in
principal amount of then outstanding Senior Notes may deliver a notice to the
Company requiring the Company to redeem the Senior Notes immediately, at a
redemption price equal to 100% of the aggregate principal amount of the Senior
Notes plus accrued and unpaid interest, if any, on any such Senior Notes to the
date of redemption, upon the occurrence of any of the following events (the
"Triggering Events"):

            A. failure for 30 days to pay when due interest on the Senior Notes;

            B. failure to pay when due the principal of, or premium, if any, on
            the Senior Notes;

                                       4

<PAGE>

            C. failure by the Company or any of its Restricted Subsidiaries to
            comply with any of the provisions described in of Sections 18(A),
            18(C) or 18 (L) hereof (under the headings "Covenants -- Restricted
            Payments", "Covenants -- Incurrence of Indebtedness and Issuance of
            Preferred Stock" or "Covenants -- Merger Consolidation or Sale of
            Assets");

            D. failure by the Company or any of its Restricted Subsidiaries for
            30 days after notice to comply with the provisions described in
            Section 10(iii) or Section 10(iv) (under the headings "Offer to
            Purchase Upon Change of Control" and "Offer to Purchase by
            Application of Excess Proceeds");

            E. failure by the Company or any of its Restricted Subsidiaries for
            60 days after notice to observe or perform any of the other
            agreements in this Officers' Certificate or the Senior Notes;

            F. default under any mortgage, indenture or instrument under which
            there may be issued or by which there may be secured or evidenced
            any Indebtedness for money borrowed by the Company whether such
            Indebtedness or guarantee now exists, or is created after the Issue
            Date, if that default:

                  (I)   is caused by a failure to pay principal of, or interest
                        or premium, if any, on such Indebtedness prior to the
                        expiration of the grace period provided in such
                        Indebtedness on the date of such default (a "Payment
                        Default"); or

                  (II)  results in the acceleration of such Indebtedness prior
                        to its express maturity,

            and, in each case, the principal amount of any such Indebtedness,
            together with the principal amount of any such other Indebtedness
            under which there has been a Payment Default or the maturity of
            which has been so accelerated, aggregates $25.0 million or more;

            G. the Company or any of its Subsidiaries to pay final judgment
            aggregating in excess of $50.0 million or more, which judgment is
            not paid, discharged or stayed for a period of 60 days;

            H. the Company or any of its Significant Subsidiaries or any group
            of Restricted Subsidiaries that, taken as a whole, would constitute
            a Significant Subsidiary pursuant to or within the meaning of
            Bankruptcy Law:

                  (I)   commences a voluntary case,

                  (II)  consents to the entry of an order for relief against it
                        in an involuntary case,

                  (III) consents to the appointment of a Custodian of it or for
                        all or substantially all of its property,

                                       5

<PAGE>

                  (IV)  makes a general assignment for the benefit of its
                        creditors, or

                  (V)   generally is not paying its debts as they become due; or

            I. a court of competent jurisdiction enters an order or decree under
            any Bankruptcy Law that:

                  (I)   is for relief against the Company or any of its
                        Restricted Subsidiaries that is a Significant Subsidiary
                        in an involuntary case;

                  (II)  appoints a Custodian of the Company or any of its
                        Restricted Subsidiaries that is a Significant Subsidiary
                        or for all or substantially all of the property of the
                        Company or any of its Restricted Subsidiaries that is a
                        Significant Subsidiary; or

                  (III) orders the liquidation of the Company or any of its
                        Restricted Subsidiaries that is a Significant
                        Subsidiary; and the order or decree remains unstayed and
                        in effect for 60 consecutive days.

                  The holders of a majority in aggregate principal amount of the
            then outstanding Senior Notes by notice to the Company and the
            Trustee may on behalf of the holders of all of the Senior Notes
            waive any existing Triggering Event and its consequences, except a
            continuing Triggering Event related to the payment of interest on,
            or the principal of, the Senior Notes.

                  In the case of any Triggering Event occurring by reason of any
            willful action or inaction taken or not taken by or on behalf of the
            Company with the intention of avoiding payment of the premium that
            the Company would have had to pay if the Company then had elected to
            redeem the Senior Notes pursuant to the provisions of this Officers'
            Certificate relating to redemption at the option of the Company, an
            equivalent premium will also become and be immediately due and
            payable to the extent permitted by law upon the redemption of the
            Senior Notes at the option of the holders.

      (iii) Offer to Purchase Upon Change of Control.

            A.    Upon the occurrence of a Change of Control, each Holder of
                  Senior Notes shall have the right to require the Company to
                  purchase all or any part (equal to $1,000 in principal amount
                  or an integral multiple thereof) of such Holder's Senior Notes
                  pursuant to the offer described below (the "Change of Control
                  Offer") at an offer price in cash equal to 100% of the
                  aggregate principal amount thereof plus accrued and unpaid
                  interest and Liquidated Damages, if any (the "Change of
                  Control Payment"). Within 10 days following any Change of
                  Control, the Company shall mail a notice to each Holder
                  describing the transaction or transactions that constitute the
                  Change of Control and stating: (i) that the Change of Control
                  Offer is being made pursuant to the provisions of this Section

                                       6

<PAGE>

                  10(iii) and that all Senior Notes tendered shall be accepted
                  for payment; (ii) the purchase price and the purchase date,
                  which shall be no earlier than 30 days and no later than 60
                  days from the date such notice is mailed (the "Change of
                  Control Payment Date"); (iii) that any Senior Note not
                  tendered shall continue to accrue interest; (iv) that, unless
                  the Company defaults in the payment of the Change of Control
                  Payment, all Senior Notes accepted for payment pursuant to the
                  Change of Control Offer shall cease to accrue interest after
                  the Change of Control Payment Date; (v) that Holders electing
                  to have any Senior Notes purchased pursuant to a Change of
                  Control Offer shall be required to surrender the Senior Notes
                  to the Paying Agent at the address specified in the notice
                  prior to the close of business on the third Business Day
                  preceding the Change of Control Payment Date; (vi) that
                  Holders shall be entitled to withdraw their election if the
                  Paying Agent receives, not later than the close of business on
                  the second Business Day preceding the Change of Control
                  Payment Date, a facsimile transmission or letter setting forth
                  the name of the Holder, the principal amount of Senior Notes
                  delivered for purchase, and a statement that such Holder is
                  withdrawing his election to have the Senior Notes purchased;
                  and (vii) that Holders whose Senior Notes are being purchased
                  only in part shall be issued new Senior Notes equal in
                  principal amount to the unpurchased portion of the Senior
                  Notes surrendered, which unpurchased portion must be equal to
                  $1,000 in principal amount or an integral multiple thereof.

            B.    On the Change of Control Payment Date, the Company shall, to
                  the extent lawful, (i) accept for payment all Senior Notes or
                  portions thereof properly tendered pursuant to the Change of
                  Control Offer, (ii) deposit with the Paying Agent an amount
                  equal to the Change of Control Payment in respect of all
                  Senior Notes or portions thereof so tendered and (iii) deliver
                  or cause to be delivered to the Trustee the Senior Notes so
                  accepted together with an officers' certificate stating the
                  aggregate principal amount of Senior Notes or portions thereof
                  being purchased by the Company. The Paying Agent shall
                  promptly mail to each Holder of Senior Notes so tendered the
                  Change of Control Payment for such Senior Notes, and the
                  Trustee shall promptly authenticate and mail (or cause to be
                  transferred by book entry) to each Holder a new Senior Note
                  equal in principal amount to any unpurchased portion of the
                  Senior Notes surrendered, if any; provided that each such new
                  Senior Note shall be in a principal amount of $1,000 or an
                  integral multiple thereof.

            C.    The Company shall not be required to make a Change of Control
                  Offer upon a Change of Control if a third party makes the
                  Change of Control Offer in the manner, at the times and
                  otherwise in compliance with the requirements set forth in the
                  Indenture applicable to a Change of Control Offer made by the
                  Company and purchases all Senior Notes validly tendered and
                  not withdrawn under such Change of Control Offer. The

                                       7

<PAGE>

                  provisions under this Officers' Certificate or the Indenture
                  relative to the Company's obligations to make an offer to
                  repurchase the Senior Notes as a result of a Change of Control
                  may be waived or modified with the written consent of the
                  Holders of a majority in principal amount of the Senior Notes
                  then outstanding.

            D.    The Company shall comply, to the extent applicable, with the
                  requirements of Rule 14e-1 of the Exchange Act and any other
                  securities laws or regulations applicable to any Change of
                  Control Offer. To the extent that the provisions of any such
                  securities laws or securities regulations conflict with the
                  provisions of the covenant described above, the Company shall
                  comply with the applicable securities laws and regulations and
                  shall not be deemed to have breached its obligations under the
                  covenant described above by virtue thereof.

      (iv)  Offer to Purchase by Application of Excess Proceeds.

            A.    In the event that, pursuant to Section 18(D) hereof, the
                  Company shall be required to commence an offer to all Holders
                  to purchase the maximum principal amount of Senior Notes and
                  all other Indebtedness that is pari passu with the Senior
                  Notes containing provisions similar to those set forth in this
                  Officers' Certificate or the Indenture (an "Asset Sale Offer")
                  it shall follow the procedures specified below.

            B.    The Asset Sale Offer shall remain open for a period of 20
                  Business Days following its commencement and no longer, except
                  to the extent that a longer period is required by applicable
                  law (the "Offer Period"). No later than five Business Days
                  after the termination of the Offer Period (the "Purchase
                  Date"), the Company shall purchase the principal amount of
                  Senior Notes and such other pari passu Indebtedness required
                  to be purchased pursuant to paragraph A above (the "Offer
                  Amount") or, if less than the Offer Amount has been tendered,
                  all Senior Notes and such other pari passu Indebtedness
                  tendered in response to the Asset Sale Offer. Payment for any
                  Senior Notes so purchased shall be made in the same manner as
                  interest payments are made.

            C.    If the Purchase Date is on or after an interest record date
                  and on or before the related interest payment date shall be
                  paid to the Person in whose name a Senior Note is registered
                  at the close of business on such record date, and no
                  additional interest shall be payable to Holders who tender
                  Senior Notes pursuant to the Asset Sale Offer.

            D.    Upon the commencement of an Asset Sale Offer, the Company
                  shall send, by first class mail, a notice to the Trustee and
                  each of the Holders, with a copy to the Trustee. The notice
                  shall contain all instructions and materials necessary to
                  enable such Holders to tender Senior Notes pursuant to the

                                       8

<PAGE>

                  Asset Sale Offer. The Asset Sale Offer shall be made to all
                  Holders. The notice, which shall govern the terms of the Asset
                  Sale Offer, shall state:

                  I.    that the Asset Sale Offer is being made pursuant to the
                        provisions of this Section 10(iv) and Section 18(D)
                        hereof (under the heading "Covenants -- Asset Sales")
                        and the length of time the Asset Sale Offer shall remain
                        open;

                  II.   the Offer Amount, the purchase price and the Purchase
                        Date;

                  III.  that any Senior Note not tendered or accepted for
                        payment shall continue to accrue interest;

                  IV.   that, unless the Company defaults in making such
                        payment, any Senior Note accepted for payment pursuant
                        to the Asset Sale Offer shall cease to accrue interest
                        after the Purchase Date;

                  V.    that Holders electing to have a Senior Note purchased
                        pursuant to an Asset Sale Offer may only elect to have
                        all of such Senior Note purchased and may not elect to
                        have only a portion of such Senior Note purchased;

                  VI.   that Holders electing to have a Senior Note purchased
                        pursuant to any Asset Sale Offer shall be required to
                        surrender the Senior Note or transfer by book-entry
                        transfer, to the Company, a Depositary, if appointed by
                        the Company, or a Paying Agent at the address specified
                        in the notice at least three Business Days before the
                        Purchase Date;

                  VII.  that Holders shall be entitled to withdraw their
                        election if the Company, the depositary or the Paying
                        Agent, as the case may be, receives, not later than the
                        expiration of the Offer Period, a telegram, telex,
                        facsimile transmission or letter setting forth the name
                        of the Holder, the principal amount of the Senior Note
                        the Holder delivered for purchase and a statement that
                        such Holder is withdrawing his election to have such
                        Senior Note purchased;

                  VIII. that, if the aggregate principal amount of Senior Notes
                        and such other pari passu Indebtedness tendered by
                        Holders exceeds the Offer Amount, the Company shall
                        select the Senior Notes and such other pari passu
                        Indebtedness to be purchased on a pro rata basis (with
                        such adjustments as may be deemed appropriate by the
                        Company so that only Senior Notes in denominations of
                        $1,000, or integral multiples thereof, shall be
                        purchased); and

                  IX.   that Holders whose Senior Notes were purchased only in
                        part shall be issued new Senior Notes equal in principal
                        amount to the

                                       9

<PAGE>

                        unpurchased portion of the Senior Notes surrendered (or
                        transferred by book-entry transfer).

            E.    On or before the Purchase Date, the Company shall, to the
                  extent lawful, accept for payment, on a pro rata basis to the
                  extent necessary, the Offer Amount of Senior Notes and such
                  other pari passu Indebtedness or portions thereof tendered
                  pursuant to the Asset Sale Offer, or if less than the Offer
                  Amount has been tendered, all Senior Notes, and such other
                  pari passu Indebtedness or portions thereof tendered, and
                  shall deliver to the Trustee an Officers' Certificate stating
                  that such Senior Notes, and such other pari passu Indebtedness
                  or portions thereof were accepted for payment by the Company
                  in accordance with the terms of this Section 10(iv). The
                  Company, the Depositary or the Paying Agent, as the case may
                  be, shall promptly (but in any case not later than five days
                  after the Purchase Date) mail or deliver to each tendering
                  Holder an amount equal to the purchase price of the Senior
                  Notes tendered by such Holder and accepted by the Company for
                  purchase, and the Company shall promptly issue a new Senior
                  Note, and the Trustee, upon written request from the Company
                  shall authenticate and mail or deliver such new Senior Note to
                  such Holder, in a principal amount equal to any unpurchased
                  portion of the Senior Note surrendered. Any Senior Note not so
                  accepted shall be promptly mailed or delivered by the Company
                  to the Holder thereof. The Company shall publicly announce the
                  results of the Asset Sale Offer no later than the Purchase
                  Date.

            F.    Other than as specifically provided in this Section 10(iv),
                  any purchase pursuant to this Section 10(iv) shall be made
                  pursuant to the provisions of Sections 3.01 through 3.07 of
                  the Indenture.

11.   Denominations. The Senior Notes shall be issued in denominations of
      $1,000, or any integral multiple thereof, whether they are issued in
      global or definitive form.

12.   Not applicable.

13.   Not applicable.

14.   Not applicable.

15.   Not applicable.

16.   Not applicable.

17.   Not applicable.

18.   Covenants

                                       10

<PAGE>

            A.    Restricted Payments.

                  The Company shall not, and shall not permit any of its
            Restricted Subsidiaries to, directly or indirectly:

                  (I)   declare or pay any dividend or make any other payment or
                        distribution on account of the Company's or any of its
                        Restricted Subsidiaries' Equity Interests (including,
                        without limitation, any payment in connection with any
                        merger or consolidation involving the Company or any of
                        its Restricted Subsidiaries) or to the direct or
                        indirect holders of the Company's or any of its
                        Restricted Subsidiaries' Equity Interests in their
                        capacity as such (other than dividends or distributions
                        payable in Equity Interests (other than Disqualified
                        Stock) of the Company) or to the Company or a Restricted
                        Subsidiary of the Company;

                  (II)  purchase, redeem or otherwise acquire or retire for
                        value (including, without limitation, in connection with
                        any merger or consolidation involving the Company) any
                        Equity Interests of the Company or any direct or
                        indirect parent of the Company;

                  (III) make any payment on or with respect to, or purchase,
                        redeem, defease or otherwise acquire or retire for value
                        any Indebtedness that is subordinated to the Senior
                        Notes, except a payment of interest or principal at the
                        Stated Maturity thereof; or

                  (IV)  make any Restricted Investment (all such payments and
                        other actions set forth in these clauses (I) through
                        (IV) above being collectively referred to as "Restricted
                        Payments"),

                  unless, at the time of and after giving effect to such
                  Restricted Payment:

                  (I)   no Default or Event of Default has occurred and is
                        continuing or would occur as a consequence of such
                        Restricted Payment;

                  (II)  the Company would, at the time of such Restricted
                        Payment and after giving pro forma effect thereto as if
                        such Restricted Payment had been made at the beginning
                        of the applicable four-quarter period, have been
                        permitted to incur at least $1.00 of additional
                        Indebtedness pursuant to the Fixed Charge Coverage Ratio
                        test set forth in the first paragraph of Section 18(C)
                        (under the heading "Covenants -- Incurrence of
                        Indebtedness and Issuance of Preferred Stock"); and

                  (III) such Restricted Payment, together with the aggregate
                        amount of all other Restricted Payments made by the
                        Company and its Restricted Subsidiaries after the Issue
                        Date (excluding Restricted Payments

                                       11

<PAGE>

                        permitted by clauses (II), (III) (IV), (VI) and (X) of
                        the next succeeding paragraph), is less than the sum,
                        without duplication, of:

                        (a) 50% of the Consolidated Net Income of the Company
                        for the period (taken as one accounting period) from
                        April 1, 2004 to the end of the Company's most recently
                        ended fiscal quarter for which internal financial
                        statements are available at the time of such Restricted
                        Payment (or, if such Consolidated Net Income for such
                        period is a deficit, less 100% of such deficit), plus

                        (b) 100% of the aggregate net cash proceeds received by
                        the Company (including the fair market value of any
                        Permitted Business or assets used or useful in a
                        Permitted Business to the extent acquired in
                        consideration of Equity Interests (other than
                        Disqualified Stock) of the Company) since the Issue Date
                        as a contribution to its common equity capital or from
                        the issue or sale of Equity Interests of the Company
                        (other than Disqualified Stock and other than sales to a
                        Restricted Subsidiary of the Company) or from the issue
                        or sale of convertible or exchangeable Disqualified
                        Stock or convertible or exchangeable debt securities of
                        the Company that have been converted into or exchanged
                        for such Equity Interests (other than Disqualified Stock
                        or debt securities sold to a Subsidiary of the Company),
                        plus

                        (c) to the extent that any Restricted Investment that
                        was made after the Issue Date is sold for cash or
                        otherwise liquidated or repaid for cash, the lesser of
                        (i) the cash return of capital with respect to such
                        Restricted Investment (less the cost of disposition, if
                        any) and (ii) the initial amount of such Restricted
                        Investment, plus

                        (d) to the extent that any Unrestricted Subsidiary of
                        the Company is redesignated as a Restricted Subsidiary
                        after the Issue Date, the lesser of (i) the fair market
                        value of all Investments of the Company and any
                        Restricted Subsidiary in such Subsidiary as of the date
                        of such redesignation and (ii) the fair market value of
                        the Company's and any Restricted Subsidiary's Investment
                        in such Subsidiary as of the date on which such
                        Subsidiary was originally designated as an Unrestricted
                        Subsidiary.

                  The preceding provisions shall not prohibit:

                  (I)   the payment of any dividend within 60 days after the
                        date of declaration of the dividend, if at the date of
                        declaration the dividend payment would have complied
                        with the provisions of this Officers' Certificate or the
                        Indenture;

                                       12

<PAGE>

                  (II)   the redemption, repurchase, retirement, defeasance or
                         other acquisition of any subordinated Indebtedness of
                         the Company or any Subsidiary Guarantor or of any
                         Equity Interests of the Company or any of its
                         Restricted Subsidiaries in exchange for, or out of the
                         net cash proceeds of the substantially concurrent sale
                         (other than to a Restricted Subsidiary of the Company)
                         of, Equity Interests of the Company (other than
                         Disqualified Stock); provided that the amount of any
                         such net cash proceeds that are utilized for any such
                         redemption, repurchase, retirement, defeasance or other
                         acquisition shall be excluded from clause (III)(b) of
                         the preceding paragraph;

                  (III)  the defeasance, redemption, repurchase or other
                         acquisition of subordinated Indebtedness of the Company
                         with the net cash proceeds from an incurrence of
                         Permitted Refinancing Indebtedness;

                  (IV)   the payment of any dividend or other payment or
                         distribution by a Restricted Subsidiary of the Company
                         to the holders of its Equity Interests on a pro rata
                         basis;

                  (V)    the repurchase, redemption or other acquisition or
                         retirement for value of any Equity Interests of the
                         Company or any Restricted Subsidiary of the Company
                         held by any member of the Company's (or any of its
                         Restricted Subsidiaries') management pursuant to any
                         management equity subscription agreement, stock option
                         agreement or similar agreement; provided that the
                         aggregate price paid for all such repurchased,
                         redeemed, acquired or retired Equity Interests may not
                         exceed $10.0 million in any twelve-month period;

                  (VI)   the payment of any distribution by a Trust Preferred
                         Vehicle to holders of such trust's preferred beneficial
                         interests, to the extent such distribution does not
                         exceed the amount that is contemporaneously received by
                         such trust as a payment of interest at its Stated
                         Maturity on the subordinated Indebtedness of the
                         Company or any of its Restricted Subsidiaries held by
                         such trust;

                  (VII)  payments on stock purchase contracts obligating the
                         holders thereof to purchase common stock of the
                         Company;

                  (VIII) the payment of any dividend by SPPC on the SPPC Class A
                         Series I preferred stock outstanding on the Issue Date
                         at a rate not exceeding the dividend rate in effect on
                         the Issue Date; and

                  (IX)   the payment of any dividend on the Common Stock if
                         there shall be set forth in the resolutions of the
                         Board of Directors declaring

                                       13

<PAGE>

                        such dividend a finding by the Board of Directors, made
                        in good faith, to the effect that, on the basis of the
                        Dividend Considerations, the amount of such dividend
                        does not exceed the amount that the Board of Directors
                        would expect, subject to periodic consideration and
                        reevaluation of the Dividend Considerations, to be able
                        to declare, if the Board so determined, and to be
                        prudent, as a regular quarterly dividend on the Common
                        Stock; or

                  (X)   other Restricted Payments in an aggregate amount since
                        the Issue Date not to exceed $100.0 million;

            provided that, with respect to clauses (II), (III), (V), (IX) and
            (X) above, no Default or Event of Default shall have occurred and be
            continuing immediately after such transaction.

                  To the extent that the Company or any of its Restricted
            Subsidiaries is obligated to make payments to holders of any of its
            debt securities that are convertible into, or exchangeable for,
            Capital Stock of the Company or any of its Restricted Subsidiaries
            in respect of any dividend or other payment or distribution on
            account of such Capital Stock that would have been payable to such
            holders had they converted or exchanged their debt securities for
            such Capital Stock, such payments shall be treated as Restricted
            Payments.

                  The amount of all Restricted Payments (other than cash) shall
            be the fair market value on the date of the Restricted Payment of
            the asset(s) or securities proposed to be transferred or issued by
            the Company or such Restricted Subsidiary, as the case may be,
            pursuant to the Restricted Payment. The fair market value of any
            assets or securities that are required to be valued by this covenant
            shall be determined by the Board of Directors whose resolution with
            respect thereto shall be delivered to the Trustee. The Board of
            Directors' determination must be based upon an opinion or appraisal
            issued by an accounting, appraisal or investment banking firm of
            national standing if the fair market value exceeds $25.0 million.
            Not later than the date of making any Restricted Payment, the
            Company shall deliver to the Trustee an officer's certificate
            stating that such Restricted Payment is permitted and setting forth
            the basis upon which the calculations required by this "Restricted
            Payment" covenant were computed, together with a copy of any
            fairness opinion or appraisal required under this Officers'
            Certificate.

            B.    Dividend and Other Payment Restrictions Affecting
                  Subsidiaries.

                  The Company shall not, and shall not permit any of its
            Restricted Subsidiaries to, directly or indirectly, create or permit
            to exist or become effective any consensual encumbrance or
            restriction on the ability of any Restricted Subsidiary to:

                                       14

<PAGE>

                  (I)   pay dividends or make any other distributions on its
                        Capital Stock to the Company or any of its Restricted
                        Subsidiaries, or with respect to any other interest or
                        participation in, or measured by, its profits, or pay
                        any Indebtedness owed to the Company or any of its
                        Restricted Subsidiaries;

                  (II)  make loans or advances to the Company or any of its
                        Restricted Subsidiaries; or

                  (III) transfer any of its properties or assets to the Company
                        or any of its Restricted Subsidiaries.

                  However, the preceding restrictions applicable to dividends
            and other payment restrictions shall not apply to encumbrances or
            restrictions existing under or by reason of:

                  (I)   agreements governing Existing Indebtedness and Credit
                        Facilities as in effect on the Issue Date and other
                        customary encumbrances and restrictions existing on or
                        after the Issue Date that are not more restrictive,
                        taken as a whole, with respect to such dividend and
                        other payment restrictions than those contained in those
                        agreements on the Issue Date; provided that the
                        application of such restrictions or encumbrances to
                        additional Restricted Subsidiaries not subject thereto
                        on the Issue Date shall not be deemed to make such
                        restrictions or encumbrances more restrictive;

                  (II)  this Officers' Certificate, the Indenture and the Senior
                        Notes and other customary encumbrances and restrictions
                        existing in indentures and notes of the Company after
                        the Issue Date that are not more restrictive, in any
                        material respect, taken as a whole, with respect to such
                        dividend and other payment restrictions than those
                        contained in this Officers' Certificate, the Indenture
                        and the Senior Notes;

                  (III) applicable law (including without limitation, rules,
                        regulations and agreements with regulatory authorities)
                        or any order issued pursuant to a federal or state
                        statute or any order by or agreement with any court or
                        governmental agency or body having jurisdiction over the
                        Company or any of its Subsidiaries or any of their
                        respective properties;

                  (IV)  any instrument governing Indebtedness or Capital Stock
                        of a Person acquired by the Company or any of its
                        Restricted Subsidiaries as in effect at the time of such
                        acquisition (except to the extent such Indebtedness or
                        Capital Stock was incurred in connection with or in
                        contemplation of such acquisition), which encumbrance or
                        restriction is not applicable to any Person, or the

                                       15

<PAGE>

                         properties or assets of any Person, other than the
                         Person, or the property or assets of the Person, so
                         acquired, provided that, in the case of Indebtedness,
                         such Indebtedness was permitted by the terms of this
                         Officers' Certificate or the Indenture to be incurred;

                  (V)    customary non-assignment provisions in leases entered
                         into in the ordinary course of business and consistent
                         with past practices;

                  (VI)   purchase money obligations for property acquired in the
                         ordinary course of business that impose restrictions on
                         that property of the nature described in clause (III)
                         of the preceding paragraph;

                  (VII)  any Purchase Money Note or other Indebtedness or
                         contractual requirements incurred with respect to a
                         Qualified Receivables Transaction relating exclusively
                         to a Receivables Entity that, in the good faith
                         determination of the Board of Directors of the Company,
                         are necessary to effect such Qualified Receivables
                         Transaction;

                  (VIII) any agreement for the sale or other disposition of a
                         Restricted Subsidiary that restricts distributions or
                         dispositions of assets by that Restricted Subsidiary
                         pending its sale or other disposition;

                  (IX)   Permitted Refinancing Indebtedness, provided that the
                         restrictions contained in the agreements governing such
                         Permitted Refinancing Indebtedness are not more
                         restrictive, taken as a whole, than those contained in
                         the agreements governing the Indebtedness being
                         refinanced;

                  (X)    Liens securing Indebtedness otherwise permitted to be
                         incurred under the provisions of Section 18(F) (under
                         the heading "Covenants -- Liens") that limit the right
                         of the debtor to dispose of the assets subject to such
                         Liens; and

                  (XI)  provisions with respect to the disposition or
                        distribution of assets or property in joint venture
                        agreements, asset sale agreements, stock sale agreements
                        and other similar agreements entered into in the
                        ordinary course of business.

            C.    Incurrence of Indebtedness and Issuance of Preferred Stock.

                  The Company shall not, and shall not permit any of its
            Restricted Subsidiaries to, directly or indirectly, create, incur,
            issue, assume, guarantee or otherwise become directly or indirectly
            liable, contingently or otherwise, with respect to (collectively,
            "incur") any Indebtedness (including Acquired Debt), and the Company
            shall not issue any Disqualified Stock and shall not permit any of
            its Restricted Subsidiaries to issue any shares of preferred stock;
            provided, however,

                                       16

<PAGE>

            that the Company may incur Indebtedness (including Acquired Debt) or
            issue Disqualified Stock, and any Restricted Subsidiary may incur
            Indebtedness (including Acquired Debt) or issue preferred stock if
            the Fixed Charge Coverage Ratio for the Company's most recently
            ended four full fiscal quarters for which internal financial
            statements are available immediately preceding the date on which
            such additional Indebtedness is incurred or such Disqualified Stock
            is issued would have been at least 2.0 to 1, determined on a pro
            forma basis (including a pro forma application of the net proceeds
            therefrom), as if the additional Indebtedness had been incurred or
            Disqualified Stock had been issued, as the case may be, at the
            beginning of such four-quarter period.

                  The first paragraph of this Section 18(C) shall not prohibit
            the incurrence of any of the following items of Indebtedness
            (collectively, "Permitted Debt"):

                  (I)   the incurrence by the Company and any Restricted
                        Subsidiary pursuant to this clause (I) of additional
                        Indebtedness and letters of credit under one or more
                        Credit Facilities (with letters of credit being deemed
                        to have a principal amount equal to the maximum
                        potential liability of the Company and its Subsidiaries
                        thereunder), not to exceed $750.0 million at any time
                        outstanding;

                  (II)  the incurrence by the Company and its Restricted
                        Subsidiaries of the Existing Indebtedness;

                  (III) the incurrence by the Company of Indebtedness
                        represented by the Senior Notes to be issued on the
                        Issue Date (and the related Exchange Notes to be issued
                        pursuant to the Registration Rights Agreement) and the
                        incurrence by any Subsidiary Guarantor of a Subsidiary
                        Guarantee of those Senior Notes, any additional Senior
                        Notes of the same series and any related Exchange Notes;

                  (IV)  the incurrence by the Company or any of its Restricted
                        Subsidiaries of Indebtedness represented by Capital
                        Lease Obligations, mortgage financings or purchase money
                        obligations, in each case, incurred for the purpose of
                        financing all or any part of the purchase price or cost
                        of construction or improvement of property, plant or
                        equipment used in the business of the Company or such
                        Restricted Subsidiary, in an aggregate principal amount,
                        including all Permitted Refinancing Indebtedness
                        incurred to refund, refinance or replace any
                        Indebtedness incurred pursuant to this clause (IV), not
                        to exceed $40.0 million at any time outstanding;

                  (V)   the incurrence by the Company or any of its Restricted
                        Subsidiaries of Permitted Refinancing Indebtedness in
                        exchange for, or the net proceeds of which are used to
                        refund, refinance or replace Indebtedness (other than
                        intercompany Indebtedness) that

                                       17

<PAGE>

                         was incurred under the first paragraph of this covenant
                         or clauses (II), (III) (V) or (XII) of this paragraph;

                  (VI)   the incurrence by the Company or any of its Restricted
                         Subsidiaries (other than a Receivables Entity) of
                         intercompany Indebtedness between or among the Company
                         or any of its Restricted Subsidiaries (other than a
                         Receivables Entity); provided, however, that:

                         (a) if the Company is the obligor on such Indebtedness,
                         such Indebtedness must be expressly subordinated to the
                         prior payment in full in cash of all Obligations with
                         respect to the Senior Notes;

                         (b) if a Subsidiary Guarantor is the obligor on such
                         Indebtedness, such Indebtedness is expressly
                         subordinated to the prior payment in full in cash of
                         such Subsidiary Guarantor's Subsidiary Guarantee;

                         (c) any subsequent issuance or transfer of Equity
                         Interests that results in any such Indebtedness being
                         held by a Person other than the Company or a Restricted
                         Subsidiary and (ii) any sale or other transfer of any
                         such Indebtedness to a Person that is not either the
                         Company or a Restricted Subsidiary shall be deemed, in
                         each case, to constitute an incurrence of such
                         Indebtedness by the Company or such Restricted
                         Subsidiary, as the case may be, that was not permitted
                         by this clause (VI); and

                         (d) any Indebtedness issued by the Company or any of
                         its Restricted Subsidiaries to a Trust Preferred
                         Vehicle shall not be treated as intercompany
                         Indebtedness for purposes of this clause (VI) to the
                         extent of the face amount of the beneficial interests
                         of the Trust Preferred Vehicle that are not held by the
                         Company or any of its Restricted Subsidiaries;

                  (VII)  the incurrence by the Company or any of its Restricted
                         Subsidiaries of Hedging Obligations;

                  (VIII) the guarantee by the Company or any Restricted
                         Subsidiary of Indebtedness of the Company or any
                         Restricted Subsidiary that was permitted to be incurred
                         by another provision of this covenant; provided that in
                         the event the Indebtedness that is being guaranteed is
                         subordinated in right of payment to the Senior Notes,
                         then the Guarantee of that Indebtedness by the Company
                         shall be subordinated in right of payment to the Senior
                         Notes;

                  (IX)   the accrual of interest, the accretion or amortization
                         of original issue discount, the payment of interest on
                         any Indebtedness in the

                                       18

<PAGE>

                         form of additional Indebtedness with the same terms,
                         and the payment of dividends on Disqualified Stock in
                         the form of additional shares of such Disqualified
                         Stock shall not be deemed to be an incurrence of
                         Indebtedness or an issuance of Disqualified Stock for
                         purposes of this covenant; provided, in each such case,
                         that the amount thereof is included in the Fixed
                         Charges of the Company as accrued;

                  (X)    Indebtedness in respect of bid, performance or surety
                         bonds issued for the account of the Company or any
                         Restricted Subsidiary thereof in the ordinary course of
                         business, including guarantees or obligations of the
                         Company or any Restricted Subsidiary thereof with
                         respect to letters of credit supporting such bid,
                         performance or surety obligations (in each case other
                         than for an obligation for money borrowed);

                  (XI)   the incurrence by the Company's Unrestricted
                         Subsidiaries of Non-Recourse Debt; provided, however,
                         that if any such Indebtedness ceases to be Non-Recourse
                         Debt of an Unrestricted Subsidiary, such event shall be
                         deemed to constitute an incurrence of Indebtedness by a
                         Restricted Subsidiary of the Company that was not
                         permitted by this clause (XI);

                  (XII)  the incurrence by the Company or any Restricted
                         Subsidiary of additional Indebtedness consisting of
                         securities issued pursuant to the G&R Indentures in
                         respect of claims relating to the Company's or any
                         Restricted Subsidiary's obligations pursuant to
                         agreements with gas, electric power and other energy
                         suppliers that have been terminated as of the Issue
                         Date;

                  (XIII) the issuance by a Receivables Entity of a Purchase
                         Money Note in connection with a Qualified Receivables
                         Transaction;

                  (XIV)  the incurrence by the Company or any of its Restricted
                         Subsidiaries of additional Indebtedness to finance
                         capital expenditures incurred pursuant to NPC's 2003
                         Resource Plan and SPPC's 2004 Resource Plan as approved
                         or amended under order by the PUCN or mandated by
                         statute or by one or more federal or state regulatory
                         authorities, including all Permitted Refinancing
                         Indebtedness incurred to refund, refinance or replace
                         any Indebtedness incurred pursuant to this clause
                         (XIV); and

                  (XV)   the incurrence by the Company or any Restricted
                         Subsidiary of additional Indebtedness in an aggregate
                         principal amount (or accreted value, as applicable) at
                         any time outstanding, including all Permitted
                         Refinancing Indebtedness incurred to refund, refinance

                                       19

<PAGE>

                        or replace any Indebtedness incurred pursuant to this
                        clause (XV), not to exceed $200.0 million at any time
                        outstanding.

                  The Company shall not incur any Indebtedness (including
                  Permitted Debt) that is contractually subordinated in right of
                  payment to any other Indebtedness of the Company unless such
                  Indebtedness is also contractually subordinated in right of
                  payment to the Senior Notes on substantially identical terms;
                  provided, however, that no Indebtedness of the Company shall
                  be deemed to be contractually subordinated in right of payment
                  to any other Indebtedness of the Company solely by virtue of
                  being secured on a junior basis or by virtue of being
                  unsecured.

                  For purposes of determining compliance with this Section
                  18(C):

                  (I)   in the event that an item of proposed Indebtedness,
                        including Acquired Debt, meets the criteria of more than
                        one of the categories of Permitted Debt described in
                        clauses (I) through (XV) above, or is entitled to be
                        incurred pursuant to the first paragraph of this Section
                        18(C), the Company shall be permitted to classify (or
                        later classify or reclassify such Indebtedness, in whole
                        or in part in its sole discretion) such item of
                        Indebtedness in any manner that complies with this
                        Section 18(C); and

                  (II)  for the purposes of determining compliance with any U.S.
                        dollar-denominated restriction on the incurrence of
                        Indebtedness denominated in a foreign currency, the U.S.
                        dollar-equivalent principal amount of such Indebtedness
                        incurred pursuant thereto shall be calculated based on
                        the relevant currency exchange rate in effect on the
                        date that such Indebtedness was incurred.

            D.    Asset Sales.

                  The Company shall not, and shall not permit any of its
            Restricted Subsidiaries to, consummate an Asset Sale unless:

                  (I)   the Company (or the Restricted Subsidiary, as the case
                        may be) receives consideration at the time of the Asset
                        Sale at least equal to the fair market value of the
                        assets or Equity Interests issued or sold or otherwise
                        disposed of; and

                  (II)  at least 75% of the consideration received in the Asset
                        Sale by the Company or such Restricted Subsidiary is in
                        the form of (x) cash or Cash Equivalents or (y)
                        Permitted Assets or (z) any combination thereof. For
                        purposes of this provision, each of the following shall
                        be deemed to be cash:

                                       20

<PAGE>

                        (a) any liabilities, as shown on the Company's or such
                        Restricted Subsidiary's most recent balance sheet, of
                        the Company or any Restricted Subsidiary (other than
                        contingent liabilities and liabilities that are by their
                        terms subordinated to the Senior Notes) that are assumed
                        by the transferee of any such assets pursuant to a
                        customary novation agreement that releases the Company
                        or such Restricted Subsidiary from further liability;
                        and

                        (b) any securities, Senior Notes or other obligations
                        received by the Company or any such Restricted
                        Subsidiary from such transferee that are
                        contemporaneously, subject to ordinary settlement
                        periods, converted by the Company or such Restricted
                        Subsidiary into cash, to the extent of the cash received
                        in that conversion.

                  Within 365 days after the receipt of any Net Proceeds from an
            Asset Sale, the Company or any applicable Restricted Subsidiary may
            apply those Net Proceeds at its option:

                  (I)   to repay senior Indebtedness of the Company or any
                        Indebtedness of its Restricted Subsidiaries;

                  (II)  to acquire all or substantially all of the assets of, or
                        a majority of the Voting Stock of, another Permitted
                        Business;

                  (III) to make or enter into a definitive agreement to make a
                        capital expenditure; or

                  (IV)  to acquire other long-term assets that are used or
                        useful in a Permitted Business.

                  Pending the final application of any Net Proceeds, the Company
            may temporarily reduce revolving credit borrowings or otherwise
            invest the Net Proceeds in any manner that is not prohibited by this
            Officers' Certificate or the Indenture.

                  Any Net Proceeds from Asset Sales that are not applied or
            invested as provided in the preceding paragraph shall constitute
            "Excess Proceeds." When the aggregate amount of Excess Proceeds
            exceeds $50.0 million, the Company shall make an Asset Sale Offer to
            all Holders of Senior Notes and all Holders of other Indebtedness
            that is pari passu with the Senior Notes containing provisions
            similar to those set forth in this Officers' Certificate and the
            Indenture with respect to offers to purchase or redeem with the
            proceeds of sales of assets to purchase the maximum principal amount
            of Senior Notes and such other pari passu Indebtedness that may be
            purchased out of the Excess Proceeds. The offer price in any Asset
            Sale Offer shall be equal to 100% of principal amount of Senior
            Notes plus accrued and unpaid interest and Liquidated Damages, if
            any, to

                                       21

<PAGE>

            the date of purchase, and shall be payable in cash. If any Excess
            Proceeds remain after consummation of an Asset Sale Offer, the
            Company may use those Excess Proceeds for any purpose not otherwise
            prohibited by this Officers' Certificate or the Indenture. If the
            aggregate principal amount of Senior Notes and other pari passu
            Indebtedness tendered into such Asset Sale Offer exceeds the amount
            of Excess Proceeds, the Trustee shall select the Senior Notes and
            such other pari passu Indebtedness to be purchased on a pro rata
            basis subject to authorized denominations. Upon completion of each
            Asset Sale Offer, the amount of Excess Proceeds (as identified by
            the Company in an Officer's Certificate) shall be reset at zero.

                  To the extent that any Asset Sale constitutes the sale,
            conveyance or other disposition of all or substantially all of the
            assets of the Company and its Restricted Subsidiaries taken as a
            whole, such transaction shall be governed by the provisions of
            Sections 10(iii) and 18(L) (under the headings "Mandatory
            Redemption/Redemption at Option of Holders/Repurchase at Option of
            Holders -- Offer to Purchase Upon Change of Control" and "Covenants
            -- Merger, Consolidation or Sale of Assets") and not by the
            provisions of this Section 18(D).

                  The Company shall comply with the requirements of Rule 14e-1
            under the Exchange Act and any other securities laws and regulations
            thereunder to the extent those laws and regulations are applicable
            in connection with each repurchase of Senior Notes pursuant to an
            Asset Sale Offer. To the extent that the provisions of any
            securities laws or regulations conflict with this Section, the
            Company shall comply with the applicable securities laws and
            regulations and shall not be deemed to have breached its obligations
            under the Asset Sale provisions of this Officers' Certificate by
            virtue of such conflict.

            E.    Transactions with Affiliates.

                  The Company shall not, and shall not permit any of its
            Restricted Subsidiaries to, make any payment to, or sell, lease,
            transfer or otherwise dispose of any of its properties or assets to,
            or purchase any property or assets from, or enter into or make or
            amend any transaction, contract, agreement, understanding, loan,
            advance or guarantee with, or for the benefit of, any Affiliate
            (each, an "Affiliate Transaction"), unless:

                  (I)   the Affiliate Transaction is on terms that are no less
                        favorable to the Company or the relevant Restricted
                        Subsidiary than those that would have been obtained in a
                        comparable transaction by the Company or such Restricted
                        Subsidiary with an unrelated Person; and

                  (II)  the Company delivers to the Trustee:

                        (a) with respect to any Affiliate Transaction or series
                        of related Affiliate Transactions involving aggregate
                        consideration in excess

                                       22

<PAGE>

                        of $10.0 million, a resolution of the Board of Directors
                        set forth in an officer's certificate certifying that
                        such Affiliate Transaction complies with this covenant
                        and that such Affiliate Transaction has been approved by
                        a majority of the disinterested members of the Board of
                        Directors; and

                        (b) with respect to any Affiliate Transaction or series
                        of related Affiliate Transactions involving aggregate
                        consideration in excess of $20.0 million, an opinion as
                        to the fairness to the holders of such Affiliate
                        Transaction from a financial point of view issued by an
                        accounting, appraisal or investment banking firm of
                        national standing.

                  The following items shall not be deemed to be Affiliate
            Transactions and, therefore, shall not be subject to the provisions
            of the prior paragraph:

                  (I)    any employment agreement entered into by the Company or
                         any of its Restricted Subsidiaries in the ordinary
                         course of business and consistent with the past
                         practice of the Company or such Restricted Subsidiary;

                  (II)   transactions between or among the Company and/or its
                         Restricted Subsidiaries (other than a Receivables
                         Entity);

                  (III)  transactions with a Person that is an Affiliate of the
                         Company solely because the Company owns an Equity
                         Interest in such Person;

                  (IV)   payment of reasonable directors fees to Persons who are
                         not otherwise Affiliates of the Company;

                  (V)    sales of Equity Interests (other than Disqualified
                         Stock) to Affiliates of the Company;

                  (VI)   Permitted Investments pursuant to this Officers'
                         Certificate and Restricted Payments that are permitted
                         by the provisions of this Officers' Certificate in
                         Section 18(A)(under the heading "Covenants --
                         Restricted Payments");

                  (VII)  fees and compensation paid to and indemnity provided on
                         behalf of directors, officers or employees of the
                         Company or any Restricted Subsidiary of the Company in
                         the ordinary course of business;

                  (VIII) transactions pursuant to any agreement in effect on the
                         date of this Officers' Certificate as the same may be
                         amended from time to time in any manner not materially
                         less favorable to the Holders of the Senior Notes;

                                       23

<PAGE>

                  (IX)  loans or advances to officers, directors and employees
                        of the Company or any Restricted Subsidiary made in the
                        ordinary course of business, consistent with past
                        practices of the Company and/or its Restricted
                        Subsidiaries and in compliance with applicable law in
                        aggregate amount not to exceed $2.0 million outstanding
                        at any one time; and

                  (X)   sales or other transfers or dispositions of accounts
                        receivable and other related assets customarily
                        transferred in an asset securitization transaction
                        involving accounts receivable to a Receivables Entity in
                        a Qualified Receivables Transaction, and acquisitions of
                        Permitted Investments in connection with a Qualified
                        Receivables Transaction.

            F.    Liens.

                  The Company shall not, and shall not permit any of its
            Restricted Subsidiaries to, directly or indirectly, create, incur,
            assume or otherwise cause or suffer to exist or become effective any
            Lien of any kind securing Indebtedness, Attributable Debt or trade
            payables on any of their property or assets, now owned or hereafter
            acquired, except Permitted Liens.

            G.    Business Activities.

                  The Company shall not, and shall not permit any Restricted
            Subsidiary to, engage in any business other than Permitted
            Businesses, except to such extent as would not be material to the
            Company and its Subsidiaries taken as a whole.

            H.    Sale and Leaseback Transactions.

                  The Company shall not, and shall not permit any of its
            Restricted Subsidiaries to, enter into any sale and leaseback
            transaction; provided that the Company or any Restricted Subsidiary
            may enter into a sale and leaseback transaction if:

                  (I)   the Company or that Restricted Subsidiary, as
                        applicable, could have incurred Indebtedness in an
                        amount equal to the Attributable Debt relating to such
                        sale and leaseback transaction under the Fixed Charge
                        Coverage Ratio test in the first paragraph of Section
                        18(C)(under the heading "Covenants -- Incurrence of
                        Indebtedness and Issuance of Preferred Stock");

                  (II)  the gross cash proceeds of that sale and leaseback
                        transaction are at least equal to the fair market value,
                        as determined in good faith by the Board of Directors
                        and set forth in an officer's certificate delivered to
                        the Trustee, of the property that is the subject of that
                        sale and leaseback transaction; and

                                       24

<PAGE>

                  (III) the transfer of assets in that sale and leaseback
                        transaction is permitted by, and the Company applies the
                        proceeds of such transaction in compliance with, Section
                        10(iv)(under the heading "Offer to Purchase by
                        Application of Excess Proceeds");

                  provided, however, that the foregoing clauses (I) and (III)
                  shall be suspended during any period in which the Company and
                  its Restricted Subsidiaries are not subject to the Suspended
                  Covenants.

            I.    Future Subsidiary Guarantees.

                  The Company shall not permit any Restricted Subsidiary to
            guarantee the payment of any Indebtedness of the Company unless (i)
            such Restricted Subsidiary simultaneously executes and delivers to
            the Trustee on behalf of the holders of the Senior Notes a
            Subsidiary Guarantee of such Restricted Subsidiary except that with
            respect to a guarantee of Indebtedness of the Company if such
            Indebtedness is by its express terms subordinated in right of
            payment to the Senior Notes, any such guarantee of such Restricted
            Subsidiary with respect to such Indebtedness shall be subordinated
            in right of payment to such Restricted Subsidiary's Subsidiary
            Guarantee with respect to the Senior Notes substantially to the same
            extent as such Indebtedness is subordinated to the Senior Notes;
            (ii) such Restricted Subsidiary waives and shall not in any manner
            whatsoever claim or take the benefit or advantage of, any rights or
            reimbursement, indemnity or subrogation or any other rights against
            the Company or any other Restricted Subsidiary as a result of any
            payment by such Restricted Subsidiary under its Subsidiary Guarantee
            of the Senior Notes; and (iii) such Restricted Subsidiary shall
            deliver to the Trustee an opinion of counsel to the effect that (A)
            such Subsidiary Guarantee has been duly executed and authorized and
            (B) such Subsidiary Guarantee constitutes a valid, binding and
            enforceable obligation of such Restricted Subsidiary, except insofar
            as enforcement thereof may be limited by bankruptcy, insolvency or
            similar laws (including, without limitation, all laws relating to
            fraudulent transfers) and except insofar as enforcement thereof is
            subject to general principles of equity; provided that this
            paragraph shall not be applicable to any guarantee of any Restricted
            Subsidiary that (A) existed at the time such Person became a
            Restricted Subsidiary of the Company and (B) was not incurred in
            connection with, or in contemplation of, such Person becoming a
            Restricted Subsidiary of the Company.

                  Notwithstanding the foregoing and the other provisions of this
            Officers' Certificate and the Indenture, in the event a Subsidiary
            Guarantor is sold or disposed of (whether by merger, consolidation,
            the sale of its Capital Stock or the sale of all or substantially
            all of its assets (other than by lease) and whether or not the
            Subsidiary Guarantor is the surviving corporation in such
            transaction) to a Person which is not the Company or a Restricted
            Subsidiary of the Company (other than a Receivables Entity), such
            Subsidiary Guarantor shall be released from its obligations under
            its Subsidiary Guarantee if:

                                       25

<PAGE>

                  (I)   the sale or other disposition is in compliance with the
                        applicable provisions of this Officers' Certificate,
                        including Section 18(D)(under the heading "Covenants --
                        Asset Sales"); and

                  (II)  the Subsidiary Guarantor is also released or discharged
                        from its obligations under the guarantee, which resulted
                        in the creation of such Subsidiary Guarantee, except a
                        discharge or release by or as a result of payment under
                        such guarantee.

            J.    Designation of Restricted and Unrestricted Subsidiaries.

                  The Board of Directors may designate any Restricted Subsidiary
            to be an Unrestricted Subsidiary if that designation would not cause
            a Default; provided that in no event shall the businesses currently
            operated by each of NPC and SPPC be transferred to or held by an
            Unrestricted Subsidiary. If a Restricted Subsidiary is designated as
            an Unrestricted Subsidiary, the aggregate fair market value of all
            outstanding Investments owned by the Company and its Restricted
            Subsidiaries in the Subsidiary properly designated shall be deemed
            to be an Investment made as of the time of the designation and shall
            reduce the amount available for Restricted Payments under the first
            paragraph of Section 18(A)(under the heading "Covenants --
            Restricted Payments"). That designation shall only be permitted if
            the Investment would be permitted at that time and if the Restricted
            Subsidiary otherwise meets the definition of an Unrestricted
            Subsidiary.

                  The Board of Directors of the Company may at any time
            designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
            provided that such designation shall be deemed to be an incurrence
            of Indebtedness by a Restricted Subsidiary of the Company of any
            outstanding Indebtedness of such Unrestricted Subsidiary and such
            designation shall only be permitted if (1) such Indebtedness is
            permitted under Section 18(C)(under the heading "Covenants --
            Incurrence of Indebtedness and Issuance of Preferred Stock")
            calculated on a pro forma basis as if such designation had occurred
            at the beginning of the four-quarter reference period; and (2) no
            Default or Event of Default would be in existence following such
            designation.

            K.    Payments for Consent.

                  The Company shall not, and shall not permit any of its
            Subsidiaries to, directly or indirectly, pay or cause to be paid any
            consideration to or for the benefit of any Holder of Senior Notes
            for or as an inducement to any consent, waiver or amendment of any
            of the terms or provisions of this Officers' Certificate, the
            Indenture or the Senior Notes unless such consideration is offered
            to be paid and is paid to all Holders of the Senior Notes that
            consent, waive or agree to amend in the time frame set forth in the
            solicitation documents relating to such consent, waiver or
            agreement.

                                       26

<PAGE>

            L.    Merger, Consolidation or Sale of Assets.

                  The Company may not, directly or indirectly: (1) consolidate
            or merge with or into another Person (whether or not the Company is
            the surviving corporation); or (2) sell, assign, transfer, convey or
            otherwise dispose of all or substantially all of the properties or
            assets of the Company and its Restricted Subsidiaries taken as a
            whole, in one or more related transactions, to another Person;
            unless:

                  (I)   either: (a) the Company is the surviving corporation; or
                        (b) the Person formed by or surviving any such
                        consolidation or merger (if other than the Company) or
                        to which such sale, assignment, transfer, conveyance or
                        other disposition has been made is a corporation
                        organized or existing under the laws of the United
                        States, any state of the United States or the District
                        of Columbia;

                  (II)  the Person formed by or surviving any such consolidation
                        or merger (if other than the Company) or the Person to
                        which such sale, assignment, transfer, conveyance or
                        other disposition has been made expressly assumes by
                        supplemental indenture executed and delivered to the
                        Trustee in form reasonably satisfactory to the Trustee;

                  (III) immediately after such transaction no Default or Event
                        of Default exists;

                  (IV)  immediately after such transaction after giving pro
                        forma effect thereto and any related financing
                        transactions as if the same had occurred at the
                        beginning of the applicable four-quarter period, either
                        the Company or the Person formed by or surviving any
                        such consolidation or merger (if other than the
                        Company), or to which such sale, assignment, transfer,
                        conveyance or other disposition has been made shall be
                        permitted to incur at least $1.00 of additional
                        Indebtedness pursuant to the Fixed Charge Coverage Ratio
                        test set forth in the first paragraph of Section
                        18(C)(under the heading "Covenants -- Incurrence of
                        Indebtedness and Issuance of Preferred Stock") or the
                        Fixed Charge Coverage Ratio of the Company or the
                        surviving Person, as applicable, or of the Person to
                        which such sale, assignment, transfer, conveyance or
                        other disposition has been made, would not be less than
                        the Fixed Charge Coverage Ratio of the Company
                        immediately prior to the transaction; provided, however,
                        that this clause (IV) shall be suspended during any
                        period in which the Company and its Restricted
                        Subsidiaries are not subject to the Suspended Covenants;
                        and

                                       27

<PAGE>

                  (V)   the Company, or the Person formed by or surviving any
                        such consolidation or merger (if other than the
                        Company), or to which such sale, assignment, transfer,
                        conveyance or other disposition has been made, shall
                        have delivered to the Trustee an officer's certificate
                        and an opinion of counsel, each stating that such
                        transaction and any supplemental indenture entered into
                        in connection therewith complies with all of the terms
                        of this covenant and that all conditions precedent
                        provided for in this covenant relating to such
                        transaction or series of transactions have been complied
                        with.

                  In addition, the Company may not, directly or indirectly,
            lease all or substantially all of its properties or assets, in one
            or more related transactions, to any other Person. Clauses (IV) and
            (V) of this Section 18(L) shall not apply to a sale, assignment,
            transfer, conveyance or other disposition of assets between or among
            the Company and any of its Restricted Subsidiaries.

                  Upon any consolidation or merger, or any sale, assignment,
            transfer, lease, conveyance or other disposition of all or
            substantially all of the assets of the Company in accordance with
            this Section 18(L) hereof, the successor corporation formed by such
            consolidation or into or with which the Company is merged or to
            which such sale, assignment, transfer, lease, conveyance or other
            disposition is made shall succeed to, and be substituted for (so
            that from and after the date of such consolidation, merger, sale,
            lease, conveyance or other disposition, the provisions of this
            Officers' Certificate and the Indenture referring to the Company
            shall refer instead to the successor corporation and not to the
            Company), and may exercise every right and power of the Company
            under this Officers' Certificate and the Indenture with the same
            effect as if such successor Person had been named as the Company
            herein, provided, however, that the predecessor company shall not be
            relieved from the obligation to pay the principal of and interest on
            the Senior Notes (and its obligations to the Trustee pursuant to
            Section 7.07 of the Indenture) except in the case of a sale of all
            of the Company's assets that meets the requirements of this Section
            18(L).

            M.    Corporate Existence.

                  Subject to Section 18(L) hereof, the Company shall do or cause
            to be done all things necessary to preserve and keep in full force
            and effect (i) its corporate existence, and the corporate,
            partnership or other existence of each of its Restricted
            Subsidiaries, in accordance with the respective organizational
            documents (as the same may be amended from time to time) of the
            Company or any such Restricted Subsidiary and (ii) the rights
            (charter and statutory), licenses and franchises of the Company and
            its Subsidiaries; provided, however, that the Company shall not be
            required to preserve any such right, license or franchise, or the
            corporate, partnership or other existence of any of its Restricted
            Subsidiaries, if the Board of Directors shall determine that the
            preservation thereof is no longer desirable in the conduct of the
            business of the Company and its Restricted

                                       28

<PAGE>

            Subsidiaries, taken as a whole, and that the loss thereof is not
            adverse in any material respect to the Holders of the Senior Notes.

            N.    Taxes.

                  The Company shall pay or discharge or cause to be paid or
            discharged, before the same shall become delinquent all material
            taxes, assessments, and governmental charges levied or imposed upon
            the Company or any Subsidiary or upon the income, profits or
            property of the Company or any Subsidiary, except such as are
            contested in good faith and by appropriate proceedings or where the
            failure to pay or discharge the same would not have a material
            adverse effect on the ability of the Company to perform its
            obligations under the Senior Notes, this Officers' Certificate or
            the Indenture.

            O.    Suspension of Certain Covenants.

                  During any period of time that the Senior Notes have an
            Investment Grade Rating from both of the Rating Agencies and no
            Default or Event of Default has occurred and is continuing under the
            Indenture, the Company and its Restricted Subsidiaries shall not be
            subject to the following provisions of this Officers' Certificate:
            Section 10(iv)(under the heading "Offer to Purchase by Application
            of Excess Proceeds"), Section 18(A)(under the heading "Covenants --
            Restricted Payments"), Section 18(B)(under the heading "Covenants --
            Dividend and Other Payment Restriction Affecting Subsidiaries"),
            Section 18(C)(under the heading "Covenants -- Incurrence of
            Indebtedness and Issuance of Preferred Stock"), Section 18(E)(under
            the heading "Covenants -- Transactions with Affiliates"), Section
            18(J)(under the heading "Covenants -- Designation of Restricted and
            Unrestricted Securities") and Section 18(G)(under the heading
            "Covenants -- Business Activities") (collectively, the "Suspended
            Covenants"); provided, however, that the provisions in Section 4.04
            of the Indenture and Section 10(iii)(under the heading "Mandatory
            Redemption/Redemption at Option of Holders/Repurchase at Option of
            Holders -- Change of Control"), Section 18(H)(under the heading
            "Covenants -- Sale and Leaseback Transactions"), Section 18(L)(under
            the heading "Covenants -- Merger, Consolidation or Sale of Assets"),
            Section 18(I)(under the heading "Covenants -- Future Subsidiary
            Guarantees"), Section 18(F)(under the heading "Covenants -- Liens")
            and Section 18(K)(under the heading "Covenants -- Payments for
            Consent") of this Officers' Certificate shall not be so suspended.

                  If the Company and its Restricted Subsidiaries are not subject
            to the Suspended Covenants for any period of time as a result of the
            preceding paragraph and, subsequently, either of the Rating Agencies
            withdraws its ratings or downgrades the ratings assigned to the
            Senior Notes below the Investment Grade Ratings so that the Senior
            Notes do not have an Investment Grade Rating from both Rating
            Agencies, or a Default or Event of Default (other than with respect
            to the Suspended Covenants) occurs and is continuing, the Company
            and

                                       29

<PAGE>

            its Restricted Subsidiaries shall thereafter again be subject to the
            Suspended Covenants, subject to the terms, conditions and
            obligations set forth in this Indenture (each such date of
            reinstatement being the "Reinstatement Date"), including the
            preceding sentence. Compliance with the Suspended Covenants with
            respect to Restricted Payments made after the Reinstatement Date
            shall be calculated in accordance with the terms of Section 18(A) as
            though such covenant had been in effect during the entire period of
            time from which the Senior Notes are issued, provided, however, that
            no immediate Default or Event of Default shall occur as a result of
            such reinstatement of the Suspended Covenants.

19.   No Recourse Against Others.

      No director, officer, employee, incorporator or stockholder of the Company
      or any Subsidiary, as such, will have any liability for any obligations of
      the Company or any Subsidiary Guarantor under the Senior Notes, the
      Indenture, any Subsidiary Guarantees, or for any claim based on, in
      respect of, or by reason of, such obligations or their creation. Each
      holder of Senior Notes by accepting a Senior Note waives and releases all
      such liability. The waiver and release are part of the consideration for
      issuance of the Senior Notes. The waiver may not be effective to waive
      liabilities under the federal securities laws.

20.   Definitions. Set forth below are certain defined terms used in this
      Officers' Certificate. Reference is made to the Indenture for the
      definitions of any capitalized used herein for which no definition is
      provided herein.

      "Acquired Debt" means, with respect to any specified Person:

      (i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and

      (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.

      "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.

      "Asset Sale" means:

                                       30

<PAGE>

      (i) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole shall be governed by the provisions of
Section 10(iii) (under the heading "Repurchase at the Option of Holders -- Offer
to Purchase upon Change of Control") and/or the provisions of Section 18(L)
(under the heading "Mandatory Redemption/Redemption at Option of
Holders/Repurchase at Option of Holders -- Covenants -- Merger, Consolidation or
Sale of Assets") and not by the provisions of Section 18(D)(under the heading
"Covenants -- Asset Sales"); and

      (ii) the issuance of Equity Interests in any of the Company's Subsidiaries
or the sale of Equity Interests in any of its Subsidiaries.

      Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:

      (i) any single transaction or series of related transactions that involves
assets having a fair market value of less than $5.0 million;

      (ii) a transfer of assets between or among the Company and its Restricted
Subsidiaries;

      (iii) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;

      (iv) a Restricted Payment or Permitted Investment that is permitted by the
provisions of Section 18(A)(under the heading "Covenants -- Restricted
Payments");

      (v) sales of accounts receivable and related assets or an interest therein
of the type specified in the definition of Qualified Receivables Transaction to
or by a Receivables Entity;

      (vi) sales, transfers or other dispositions of assets, including Capital
Stock of Restricted Subsidiaries, for consideration at least equal to the fair
market value of the assets sold or disposed of, but only if the consideration
received consists of Capital Stock of a Person that becomes a Restricted
Subsidiary engaged in, or property or assets (other than cash, except to extent
used as a bona fide means of equalizing the value of the property or assets
involved in the swap transaction) of a nature or type or that are used in, a
business of the Company and its Restricted Subsidiaries existing on the date of
such sale or other disposition; provided, however, that any cash received by the
Company shall be treated as Net Proceeds and applied as set forth in the
provisions of Section 18(D); provided further that the fair market value of the
assets sold or disposed of is determined as provided in the final paragraph of
Section 18(A)(under the heading "Covenants -- Restricted Payments"); and

      (vii) transfers of assets by the Company and its Restricted Subsidiaries
required under statute or regulation in connection with renewable energy
contracts.

                                       31

<PAGE>

      "Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.

      "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.

      "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.

      "Board of Directors" means:

      (i) with respect to a corporation, the board of directors of the
corporation or any committee of such board of directors duly authorized to act
for the corporation;

      (ii) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and

      (iii) with respect to any other Person, the board or committee of such
Person serving a similar function.

      "Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.

      "Capital Stock" means:

      (i) in the case of a corporation, corporate stock;

      (ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock;

      (iii) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and

      (iv) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.

      "Cash Equivalents" means:

                                       32

<PAGE>

      (i) United States dollars;

      (ii) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the United States
government (provided that the full faith and credit of the United States is
pledged in support of those securities) having maturities of not more than one
year from the date of acquisition;

      (iii) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case,
with any domestic commercial bank having capital and surplus in excess of $500.0
million and a Thomson Bank Watch Rating of "B" or better;

      (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above;

      (v) commercial paper having the highest rating obtainable from Moody's or
S&P and in each case maturing within 270 days after the date of acquisition; and

      (vi) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (i) through (v) of this
definition.

      "Change of Control" means the occurrence of any of the following:

      (i) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the properties or assets of the
Company and its Restricted Subsidiaries taken as a whole to any "person" (as
that term is used in Section 13(d)(3) of the Exchange Act, including any "group"
with the meaning of the Exchange Act);

      (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company;

      (iii) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person" (as
defined above) becomes the Beneficial Owner, directly or indirectly, of more
than 30% of the Voting Stock of the Company, measured by voting power rather
than number of shares;

      (iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors;

      (v) the first day on which the Company ceases to be a Beneficial Owner of
a majority of the Voting Stock of either NPC or SPPC; or

      (vi) so long as any of the 7.25% Convertible Notes due 2010 are
outstanding, a Change of Control as defined in the Company's Indenture dated
February 14, 2003, between the Company and The Bank of New York, as trustee,
governing the 7.25% Convertible Notes due 2010, as amended, modified or
supplemented from time to time.

                                       33

<PAGE>

      "Commission" means the Securities and Exchange Commission or any successor
agency.

      "Common Stock" means the Common Stock, $1.00 par value per share, of the
Company.

      "Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:

      (i) an amount equal to any extraordinary loss plus any net loss realized
by such Person or any of its Subsidiaries in connection with an Asset Sale, to
the extent such losses were deducted in computing such Consolidated Net Income;
plus

      (ii) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was deducted in computing such Consolidated Net Income; plus

      (iii) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net of the
effect of all payments made or received pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated Net
Income; plus

      (iv) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period of such Person and its Restricted Subsidiaries for
such period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net Income); plus

      (v) all extraordinary, unusual or non-recurring items of loss or expense;
minus

      (vi) all extraordinary, unusual or non-recurring items of gain or revenue;
minus

      (vii) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of business,

in each case, on a consolidated basis and determined in accordance with GAAP;
provided that non-cash expenses recorded as a result of deferred energy
accounting shall not be added to Consolidated Net Income.

      "Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:

                                       34

<PAGE>

      (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the specified Person or a Restricted Subsidiary of the Person;

      (ii) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders; and

      (iii) the cumulative effect of a change in accounting principles shall be
excluded.

      "Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:

      (i) was a member of such Board of Directors on the Issue Date; or

      (ii) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.

      "Credit Facilities" means one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time, and includes any securities issued pursuant to an
indenture in order to secure any amounts outstanding under a Credit Facility
from time to time; provided that the obligation of the Company to make any
payment on any such securities shall be:

      (i) no greater than the amount required to be paid under such Credit
Facility that is secured by such payment obligation;

      (ii) payable no earlier than such amount is required to be paid under such
Credit Facility; and

      (iii) deemed to have been paid or otherwise satisfied and discharged to
the extent that the Company has paid such amount under such Credit Facility;

provided further that any amounts the Company is obligated to pay under such
securities shall not be included for purposes of determining the aggregate
amount outstanding under Credit Facilities that is permitted under Section
18(C)(under the heading "Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock").

      "Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event (other than as a result of an

                                       35
<PAGE>

optional redemption by the issuer thereof), matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder of the Capital Stock, in whole or in part, on or prior
to the date that is 91 days after the date on which the Senior Notes mature.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders of the Capital Stock have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with Section 18(A)(under the
heading "Covenants--Restricted Payments").

      "Dividend Considerations" means all factors which are considered by the
Board of Directors in declaring dividends on the Common Stock, including,
without limitation, the Company's current and prospective earnings, cash flows
and financial condition, current and prospective business conditions, regulatory
factors and other matters within the discretion of the Board of Directors, as
well as contractual restrictions on the payment of dividends by the Company and
contractual and regulatory restrictions on the payment of dividends to the
Company by its subsidiaries.

      "Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

      "Exchange Notes" means if and when issued, each series of the Senior Notes
issued in exchange for any Initial Notes in an Exchange Offer or upon transfer
pursuant to a Shelf Registration Statement.

      "Exchange Offer" has the meaning set forth in a corresponding Registration
Rights Agreement.

      "Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.

      "Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under a Credit Facility) in existence on
the Issue Date, until such amounts are repaid.

      "First Mortgage Indentures" means (i) the Indenture of Mortgage, dated as
of October 1, 1953, between Nevada Power and Deutsche Bank Trust Company
Americas, as trustee, as modified, amended or supplemented at any time or from
time to time by supplemental indentures and (ii) the Indenture of Mortgage,
dated as of December 1, 1940, between SPPC and Deutsche Bank Trust Company
Americas, as trustee, as modified, amended or supplemented at any time or from
time to time by supplemental indentures.

      "Fixed Charges" means, with respect to any specified Person for any
period, the sum, without duplication, of:

                                       36
<PAGE>

      (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations; plus

      (ii) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus

      (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries, whether or
not such Guarantee or Lien is called upon; plus

      (iv) the product of (a) all dividends, whether paid or accrued and whether
or not in cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividends on Equity Interests payable solely
in Equity Interests of the Company (other than Disqualified Stock) or to the
Company or a Restricted Subsidiary of the Company, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP; plus

      (v) all distributions by a Trust Preferred Vehicle to persons other than
the Company or any of its Restricted Subsidiaries of amounts received as
interest by such trust on the subordinated Indebtedness of such Person or any of
its Restricted Subsidiaries held by such trust; plus

      (vi) any payments on stock purchase contracts obligating the holders
thereof to purchase common stock of the Company.

      "Fixed Charge Coverage Ratio" means with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the specified
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees,
repays, repurchases or redeems any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems preferred stock subsequent
to the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated and on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee, repayment, repurchase or redemption
of Indebtedness, or such issuance, repurchase or redemption of preferred stock,
and the use of the proceeds therefrom as if the same had occurred at the
beginning of the applicable four-quarter reference period.

      In addition, for purposes of calculating the Fixed Charge Coverage Ratio:

                                       37
<PAGE>

      (i) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers, consolidations or otherwise
(including acquisitions of assets used in a Permitted Business) and including
any related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be given pro forma effect as if they had occurred on the first day of the
four-quarter reference period, including any pro forma expense and cost
reductions that have occurred or are reasonably expected to occur, in the
reasonable judgment of the chief financial officer of the Company (regardless of
whether those cost savings or operating improvements could then be reflected in
pro forma financial statements in accordance with Regulation S-X promulgated
under the Securities Act or any other regulation or policy of the Commission
related thereto);

      (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded; and

      (iii) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges shall not be obligations of
the specified Person or any of its Restricted Subsidiaries following the
Calculation Date.

      "GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.

      "G&R Indentures" means (i) the General and Refunding Mortgage Indenture,
dated as of May 1, 2001, as amended and supplemented to the date hereof ,
between NPC and The Bank of New York, as trustee, and (ii) the General and
Refunding Mortgage Indenture, dated as of May 1, 2001, as amended and
supplemented to the date hereof, between SPPC and The Bank of New York, as
trustee.

      "Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.

      "Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person incurred in the normal course of business and
consistent with past practices and not for speculative purposes under:

      (i) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements designed to protect the person or entity
entering into the agreement against fluctuations in interest rates with respect
to Indebtedness incurred and not for purposes of speculation;

                                       38
<PAGE>

      (ii) foreign exchange contracts and currency protection agreements entered
into with one of more financial institutions designed to protect the person or
entity entering into the agreement against fluctuations in currency exchange
rates with respect to Indebtedness incurred and not for purposes of speculation;

      (iii) any commodity futures contract, commodity option or other similar
agreement or arrangement designed to protect against fluctuations in the price
of commodities used by that entity at the time; and

      (iv) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or currency exchange rates.

      "Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:

      (i) in respect of borrowed money;

      (ii) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);

      (iii) in respect of banker's acceptances;

      (iv) representing Capital Lease Obligations;

      (v) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued expense or
trade payable; or

      (vi) representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.

      The amount of any Indebtedness outstanding as of any date shall be:

      (i) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and

      (ii) the principal amount of the Indebtedness, together with any interest
on the Indebtedness that is more than 30 days past due, in the case of any other
Indebtedness.

      "Issue Date" means August 12, 2005.

                                       39
<PAGE>

      "Initial Notes" means additional Senior Notes for original issue from time
to time after the Issue Date in such principal amounts as may be set forth in a
Company Order, together with the Original Notes.

      "Initial Purchaser" has the meaning set forth in the Purchase Agreement.

      "Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) by Moody's or BBB- (or the equivalent) by S&P.

      "Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of Section 18(A)(under the
heading "Covenants--Restricted Payments"). The acquisition by the Company or any
Subsidiary of the Company of a Person that holds an Investment in a third Person
shall be deemed to be an Investment by the Company or such Subsidiary in such
third Person in an amount equal to the fair market value of the Investment held
by the acquired Person in such third Person in an amount determined as provided
in the final paragraph of Section 18(A)(under the heading "Covenants--Restricted
Payments").

      "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

      "Liquidated Damages" means all liquidated damages then owing pursuant to
Section 2.5 of the Registration Rights Agreement.

      "Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.

      "Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:

      (i) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with: (a) any Asset Sale; or
(b) the disposition of any

                                       40
<PAGE>

securities by such Person or any of its Subsidiaries or the extinguishment
of any Indebtedness of such Person or any of its Subsidiaries; and

      (ii) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).

      "Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result of the Asset Sale, taxes paid or payable as a result of the
Asset Sale, in each case, after taking into account any available tax credits or
deductions and any tax sharing arrangements, and amounts required to be applied
to the repayment of Indebtedness, other than Senior Debt secured by a Lien on
the asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.

      "Non-Recourse Debt" means Indebtedness:

      (i) as to which neither the Company nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking, agreement or
instrument that would constitute Indebtedness), (b) is directly or indirectly
liable as a guarantor or otherwise, or (c) constitutes the lender;

      (ii) no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both any
holder of any other Indebtedness (other than the Senior Notes) of the Company or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment of the Indebtedness to be accelerated or
payable prior to its stated maturity; and

      (iii) as to which the lenders have been notified in writing that they
shall not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.

      "NPC" means Nevada Power Company, a Nevada corporation.

      "Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

      "Permitted Assets" means any facilities for the generation, transmission
or distribution of electric energy or for the transportation or distribution of
natural or manufactured gas which are acquired and are to be used by the Company
or any of its Restricted Subsidiaries in any Permitted Business.

                                       41
<PAGE>

      "Permitted Business" means any business that derives a majority of its
revenues from any business engaged in by the Company and its Restricted
Subsidiaries on the Issue Date and/or activities that are reasonably similar,
ancillary, incidental, complementary or related to, or a reasonable extension,
development or expansion of, the businesses in which the Company and its
Restricted Subsidiaries are engaged on the Issue Date, as determined in good
faith by the Board of Directors of the Company.

      "Permitted Investments" means:

      (i) any Investment in the Company or in a Restricted Subsidiary of the
Company (other than a Receivables Entity);

      (ii) any Investment in Cash Equivalents;

      (iii) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:

            (a) such Person becomes a Restricted Subsidiary of the Company
      (other than a Receivables Entity); or

            (b) such Person is merged, consolidated or amalgamated with or into,
      or transfers or conveys substantially all of its assets to, or is
      liquidated into, the Company or a Restricted Subsidiary of the Company
      (other than a Receivables Entity);

      (iv) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 10(iv)(under the heading "Offer to Purchase by Application of
Excess Proceeds");

      (v) any acquisition of assets to the extent it is in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of the Company;

      (vi) any Investments received in compromise of obligations of such persons
incurred in the ordinary course of trade creditors or customers that were
incurred in the ordinary course of business, including pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of any
trade creditor or customer;

      (vii) Hedging Obligations;

      (viii) Investments by the Company or a Restricted Subsidiary in a
Receivables Entity or any Investment by a Receivables Entity in any other
Person, in each case, in connection with a Qualified Receivables Transaction,
provided however, that any Investment in any Receivables Entity or such other
Person is in the form of a Purchase Money Note, or any equity interests,
directly or indirectly, in accounts receivable and related assets generated by
the Company or a Restricted Subsidiary and transferred to any Person in
connection with a Qualified Receivables Transaction or any such Person owning
such accounts receivable;

      (ix) any Investments made in accordance with clause (vi) of the definition
of "Asset Sales";

                                       42
<PAGE>

      (x) any Investments by the Company or any Restricted Subsidiary in
Tuscarora Gas Transmission Company having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (x) since the Issue Date, not to exceed $50.0
million; and

      (xi) other Investments in any Person that is not also a Restricted
Subsidiary of the Company having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (xi) since the Issue Date, not to exceed $50.0 million.

      "Permitted Liens" means:

      (i) Liens securing any Indebtedness under a Credit Facility that was
permitted by the terms of this Indenture to be incurred, and all Obligations and
Hedging Obligations relating to such Indebtedness;

      (ii) Liens in favor of the Company or any Subsidiary Guarantors;

      (iii) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or the Restricted Subsidiary;

      (iv) Liens on property existing at the time of acquisition of the property
by the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition;

      (v) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature incurred
in the ordinary course of business;

      (vi) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (IV) of the second paragraph of Section 18(C)(under the
heading "Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock")
covering only the assets acquired with such Indebtedness;

      (vii) Liens existing on the Issue Date and Liens under the First Mortgage
Indentures and the G&R Indentures;

      (viii) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as is required in conformity with GAAP
has been made therefor;

                                       43
<PAGE>

      (ix) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary with respect to obligations (including Hedging
Obligations) that do not exceed $35.0 million at any one time outstanding;

      (x) Liens to secure Indebtedness permitted by clauses (VII), (XIV) or (XV)
of the second paragraph of Section 18(C)(under the heading
"Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock");

      (xi) Liens securing any Indebtedness issued or to be issued under the G&R
Indentures that was permitted to be incurred under the terms of Section
18(C)(under the heading "Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock");

      (xii) Liens securing Permitted Refinancing Indebtedness incurred to
refinance Indebtedness that was previously so secured, provided that any such
Lien is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in respect
thereof) that secured (or, under the written arrangements under which the
original Lien arose, could secure) the Indebtedness being refinanced or is in
respect of property that is the security for a Permitted Lien hereunder;

      (xiii) Liens on assets transferred to a Receivables Entity or on assets of
a Receivables Entity, in either case, incurred in connection with a Qualified
Receivables Transaction; and

      (xiv) Liens, including pledges, rights of offset and bankers' liens, on
deposit accounts, instruments, investment accounts and investment property
(including cash, cash equivalents and marketable securities) from time to time
maintained with or held by any financial and/or depository institutions, in each
case solely to secure any and all obligations now or hereafter existing of the
Company or any of its Subsidiaries in connection with any deposit account,
investment account or cash management service (including ACH, Fedwire, CHIPS,
concentration and zero balance accounts, and controlled disbursement, lockbox or
restricted accounts) now or hereafter provided by any financial and/or
depository institutions to or for the benefit of the Company, any of its
Subsidiaries or any special purpose entity directly or indirectly providing
loans to or making receivables purchases from the Company or any of its
Subsidiaries.

      "Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:

      (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued and unpaid interest on
the Indebtedness and the amount of all expenses and premiums incurred in
connection therewith);

      (ii) if such Permitted Refinancing Indebtedness is issued on or after the
first anniversary of the Issue Date, such Permitted Refinancing Indebtedness has
a final maturity date

                                       44
<PAGE>

later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;

      (iii) if such Permitted Refinancing Indebtedness is issued on or after the
first anniversary of the Issue Date, and the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is contractually
subordinated in right of payment to the Senior Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Senior Notes on terms at least
as favorable to the Holders of Senior Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and

      (iv) such Indebtedness is incurred either by the Company or by the
Subsidiary that is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.

Permitted Refinancing Indebtedness shall also include any Indebtedness of
SPPC, not to exceed $50.0 million, incurred by SPPC at the same time and with
the same terms as any Indebtedness of SPPC issued to refinance its Indebtedness
maturing by 2005.

      "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.

      "Purchase Agreement" means the Purchase Agreement dated August 10, 2005
among the Company and each Initial Purchaser relating to the Offering.

      "Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Restricted Subsidiary of the Company in connection with a Qualified Receivables
Transaction to a Receivables Entity, which note is repayable from cash available
to the Receivables Entity, other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts owing
to such investors and amounts paid in connection with the purchase of newly
generated accounts receivable.

      "Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Restricted
Subsidiaries pursuant to which the Company or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer to (1) a Receivables Entity (in the case
of a transfer by the Company or any of its Restricted Subsidiaries) and (2) any
other Person (in the case of a transfer by a Receivables Entity), or may grant a
security interest in, any accounts receivable (whether now existing or arising
in the future) of the Company or any of its Restricted Subsidiaries, and any
assets related thereto including, without limitation, all collateral securing
such accounts receivable, all contracts and all guarantees or other obligations
in respect of such accounts receivable, the proceeds of such receivables and
other assets which are customarily transferred, or in respect of which security

                                       45
<PAGE>

interests are customarily granted in connection with asset securitization
involving accounts receivable.

      "Rating Agencies" means S&P and Moody's, or if S&P or Moody's or both
shall not make a rating on the notes publicly available, a nationally recognized
statistical rating agency or agencies, as the case may be, selected by the
Company (as certified by a resolution of its Board of Directors) which shall be
substituted for S&P or Moody's or both, as the case may be.

      "Receivables Entity" means a Wholly-Owned Subsidiary of the Company or any
of its Restricted Subsidiaries (or another Person in which the Company or any
Restricted Subsidiary of the Company makes an Investment and to which the
Company or any Restricted Subsidiary of the Company transfers accounts
receivable and related assets) which engages in no activities other than in
connection with the financing of accounts receivable and which is designated by
the Board of Directors of the Company (as provided below) as a Receivables
Entity:

      (i) no portion of the Indebtedness or any other obligations (contingent or
otherwise) of which:

            (a) is guaranteed by the Company or any Restricted Subsidiary of the
      Company (excluding guarantees of Obligations (other than the principal of,
      and interest on, Indebtedness) pursuant to Standard Securitization
      Undertakings);

            (b) is recourse to or obligates the Company or any Restricted
      Subsidiary of the Company in any way other than pursuant to Standard
      Securitization Undertakings; or

            (c) subjects any property or asset of the Company or any Restricted
      Subsidiary of the Company, directly or indirectly, contingently or
      otherwise, to the satisfaction thereof, other than pursuant to Standard
      Securitization Undertakings;

      (ii) which is not party to any agreement, contract, arrangement or
understanding (except in connection with a Purchase Money Note or Qualified
Receivables Transaction) with the Company or any Restricted Subsidiary of the
Company other than on terms no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons that are
not Affiliates of the Company, other than fees payable in the ordinary course of
business in connection with servicing accounts receivable; and

      (iii) to which neither the Company nor any Restricted Subsidiary of the
Company has any direct or indirect obligation (a) to subscribe for additional
Equity Interests or (b) to maintain or preserve such entity's financial
condition or cause such entity to achieve certain levels of operating results.

      Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an officer's certificate
certifying that such designation complied with the foregoing conditions.

                                       46
<PAGE>

      "Registration Rights Agreement" means (i) the Registration Rights
Agreement, dated as of the Issue Date, by and among the Company and the other
parties named on the signature pages thereof relating to the Original Notes and
(ii) any similar agreement that the Company and other parties may enter into in
relation to any other Initial Notes, in each case as such agreement may be
amended, modified or supplemented from time to time.

      "Restricted Investment" means an Investment other than a Permitted
Investment.

      "Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.

      "S & P" means Standard & Poor's Rating Group, Inc., or any successor to
the rating agency business thereof

      "SPPC" means Sierra Pacific Power Company, a Nevada corporation.

      "Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.

      "Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Restricted
Subsidiary of the Company which are reasonably customary in securitization of
accounts receivable transactions.

      "Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.

      "Subsidiary" means, with respect to any specified Person:

      (i) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees of the corporation, association or other
business entity is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and

      (ii) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are that Person or one or more Subsidiaries of that
Person (or any combination thereof).

      "Subsidiary Guarantee" means any Guarantee of the Senior Notes to be
executed by any Subsidiary of the Company pursuant to Section 18(I).

                                       47
<PAGE>

      "Subsidiary Guarantors" means any Subsidiary of the Company that executes
a Subsidiary Guarantee in accordance with the provisions of this Indenture, and
their respective successors and assigns.

      "Trust Preferred Vehicle" means NVP Capital I, NVP Capital III or any
future similar trust, the only assets of which are subordinated Indebtedness of
the Company or any of its Restricted Subsidiaries.

      "Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:

      (i) has no Indebtedness other than Non-Recourse Debt;

      (ii) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the terms of
any such agreement, contract, arrangement or understanding are no less favorable
to the Company or such Restricted Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of the Company;

      (iii) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe
for additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results;

      (iv) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and

      (v) has at least one director on its Board of Directors that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries.

      Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
officer's certificate certifying that such designation complied with the
preceding conditions and was permitted by Section 18(C)(under the heading
"Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock"). If, at
any time, any Unrestricted Subsidiary would fail to meet the preceding
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under Section 18(C)(under
the heading "Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock"), the Company shall be in default of such covenant.

                                       48
<PAGE>

      "Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.

      "Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:

      (i) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect of the
Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth)
that shall elapse between such date and the making of such payment; by

      (ii) the then outstanding principal amount of such Indebtedness.

           Other Definitions.

<TABLE>
<CAPTION>
                                                                        Defined in
                          Term                                           Section
                                                                        ----------
<S>                                                                     <C>
"Affiliate Transaction"............................................         18(E)
"Asset Sale Offer".................................................         10(iv)
"Change of Control Offer"..........................................         10(iii)
"Change of Control Payment"........................................         10(iii)
"Change of Control Payment Date"...................................         10(iii)
"Excess Proceeds"..................................................         18(D)
"incur"............................................................         18(C)
"Interest Payment Date"............................................          7
"Offer Amount".....................................................         10(iv)
"Offer Period".....................................................         10(iv)
"Payment Default"..................................................         10(ii)
"Permitted Debt"...................................................         18(C)
"Purchase Date"....................................................         10(iv)
"Reinstatement Date"...............................................         18(O)
"Restricted Payments"..............................................         18(A)
"Suspended Covenants"..............................................         18(O)
"Triggering Event" ................................................         10(ii)
</TABLE>

      The undersigned officers of the Company do hereby further certify,
pursuant to Sections 13.04 and 13.05 of the Indenture, as follows:

      (i)   We have read the covenants and conditions of the Indenture relating
            to the issuance authentication and delivery of the Senior Notes and
            in respect of compliance with which this certificate is furnished,
            and the definitions in the Indenture relating thereto;

                                       49
<PAGE>

      (ii)  The statements contained in this certificate are based upon our
            familiarity with the Indenture, the documents accompanying this
            certificate and, as to factual matters, upon our discussions with
            officers and employees of the Company familiar with the facts
            relating to the matters set forth herein;

      (iii) In our opinion, we have made such examination or investigation as is
            necessary to enable us to express an informed opinion as to whether
            or not such covenants and conditions have been complied with; and

      (iv)  In our opinion, such conditions and covenants, and all conditions
            precedent, if any (including any covenants compliance with which
            constitutes a condition precedent) relating to the authentication
            and delivery by the Trustee of the Senior Notes requested to be
            authenticated and delivered on the date hereof, have been complied
            with.

                                       50
<PAGE>

      IN WITNESS WHEREOF, the undersigned has executed this Officers'
Certificate as of the date first written above.

                                ---------------------------------
                                   Michael W. Yackira
                                   Corporate Executive Vice President and
                                   Chief Financial Officer

                                ---------------------------------
                                   William D. Rogers
                                   Corporate Treasurer

                                       51
<PAGE>

                                    EXHIBIT A

                                       A-1
<PAGE>
                                       D-1

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