Document:

Exhibit 10.3

 

 

STOCK PURCHASE AGREEMENT

 

 

BY AND BETWEEN

 

 

MINOL, L.P.

 

 

AND

 

 

SOUTHWEST WATER COMPANY

 

 

Dated as of June 27, 2005

 

 

 

Table of Contents

 

	
  ARTICLE I -
  SALE OF SHARES; CLOSING

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 1.1

  	
   

  	
  Purchase of Shares

  	
   

  
	
   

  	
  Section 1.2

  	
   

  	
  Share Purchase Price

  	
   

  
	
   

  	
  Section 1.3

  	
   

  	
  Closing; Effective Time

  	
   

  
	
   

  	
  Section 1.4

  	
   

  	
  Deliveries at Closing

  	
   

  
	
   

  	
  Section 1.5

  	
   

  	
  Purchase Price Adjustments at Closing

  	
   

  
	
   

  	
  Section 1.6

  	
   

  	
  Purchase Price Adjustments After
  Closing

  	
   

  
	
   

  	
  Section 1.7

  	
   

  	
  Establishment of Holdback Fund

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II
  - REPRESENTATIONS AND WARRANTIES OF SELLER

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 2.1

  	
   

  	
  Company’s Organization and
  Qualification

  	
   

  
	
   

  	
  Section 2.2

  	
   

  	
  Company’s Capitalization

  	
   

  
	
   

  	
  Section 2.3

  	
   

  	
  Seller’s Organization and Good
  Standing

  	
   

  
	
   

  	
  Section 2.4

  	
   

  	
  Authority Relative to the Agreement

  	
   

  
	
   

  	
  Section 2.5

  	
   

  	
  No Violation

  	
   

  
	
   

  	
  Section 2.6

  	
   

  	
  Consents and Approvals

  	
   

  
	
   

  	
  Section 2.7

  	
   

  	
  Company Financial Statements

  	
   

  
	
   

  	
  Section 2.8

  	
   

  	
  Absence of Changes

  	
   

  
	
   

  	
  Section 2.9

  	
   

  	
  Litigation

  	
   

  
	
   

  	
  Section 2.10

  	
   

  	
  Compliance with Applicable Laws

  	
   

  
	
   

  	
  Section 2.11

  	
   

  	
  Tax Matters

  	
   

  
	
   

  	
  Section 2.12

  	
   

  	
  Bankruptcy

  	
   

  
	
   

  	
  Section 2.13

  	
   

  	
  Employment Matters

  	
   

  
	
   

  	
  Section 2.14

  	
   

  	
  Intellectual Property

  	
   

  
	
   

  	
  Section 2.15

  	
   

  	
  Environmental Compliance

  	
   

  
	
   

  	
  Section 2.16

  	
   

  	
  Title to Properties; Encumbrances

  	
   

  
	
   

  	
  Section 2.17

  	
   

  	
  Insurance

  	
   

  
	
   

  	
  Section 2.18

  	
   

  	
  Permits and Licenses

  	
   

  
	
   

  	
  Section 2.19

  	
   

  	
  Agreements, Contracts and Commitments

  	
   

  
	
   

  	
  Section 2.20

  	
   

  	
  Warranties

  	
   

  
	
   

  	
  Section 2.21

  	
   

  	
  Books and Records

  	
   

  
	
   

  	
  Section 2.22

  	
   

  	
  Material Assets

  	
   

  
	
   

  	
  Section 2.23

  	
   

  	
  Condition of Personal Property

  	
   

  
	
   

  	
  Section 2.24

  	
   

  	
  Accounts Receivable

  	
   

  
	
   

  	
  Section 2.25

  	
   

  	
  Inventories

  	
   

  
	
   

  	
  Section 2.26

  	
   

  	
  No Undisclosed Liabilities

  	
   

  
	
   

  	
  Section 2.27

  	
   

  	
  Employee Benefit Plans; ERISA

  	
   

  
	
   

  	
  Section 2.28

  	
   

  	
  Certain Business Practices

  	
   

  
	
   

  	
  Section 2.29

  	
   

  	
  Customers and Suppliers

  	
   

  
	
   

  	
  Section 2.30

  	
   

  	
  Brokers

  	
   

  
	
   

  	
  Section 2.31

  	
   

  	
  Bank Accounts

  	
   

  

 

i

 

	
   

  	
  Section 2.32

  	
   

  	
  Disclaimer of Additional and Implied
  Warranties

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III
  - REPRESENTATIONS AND WARRANTIES OF PURCHASER

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 3.1

  	
   

  	
  Organization and Authority

  	
   

  
	
   

  	
  Section 3.2

  	
   

  	
  Authority Relative to Agreement

  	
   

  
	
   

  	
  Section 3.3

  	
   

  	
  No Violation

  	
   

  
	
   

  	
  Section 3.4

  	
   

  	
  Consents and Approvals

  	
   

  
	
   

  	
  Section 3.5

  	
   

  	
  Investment Intent

  	
   

  
	
   

  	
  Section 3.6

  	
   

  	
  Financing

  	
   

  
	
   

  	
  Section 3.7

  	
   

  	
  Disclaimer of Additional and Implied
  Warranties

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV
  - CERTAIN TAX MATTERS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 4.1

  	
   

  	
  Preparation and Filing of Returns

  	
   

  
	
   

  	
  Section 4.2

  	
   

  	
  Tax Indemnification by Seller

  	
   

  
	
   

  	
  Section 4.3

  	
   

  	
  Tax Indemnification by Purchaser

  	
   

  
	
   

  	
  Section 4.4

  	
   

  	
  Allocation of Certain Taxes

  	
   

  
	
   

  	
  Section 4.5

  	
   

  	
  Refunds and Carrybacks

  	
   

  
	
   

  	
  Section 4.6

  	
   

  	
  Cooperation on Tax Matters; Tax Audits

  	
   

  
	
   

  	
  Section 4.7

  	
   

  	
  Termination of Tax-Sharing Agreements

  	
   

  
	
   

  	
  Section 4.8

  	
   

  	
  Tax Claims

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V -
  ADDITIONAL COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 5.1

  	
   

  	
  Access To, and Information Concerning,
  Properties and Records

  	
   

  
	
   

  	
  Section 5.2

  	
   

  	
  Public Announcements

  	
   

  
	
   

  	
  Section 5.3

  	
   

  	
  Good Faith Efforts to Consummate
  Transactions

  	
   

  
	
   

  	
  Section 5.4

  	
   

  	
  Company’s Employees

  	
   

  
	
   

  	
  Section 5.5

  	
   

  	
  Resignations

  	
   

  
	
   

  	
  Section 5.6

  	
   

  	
  Further
  Assurances

  	
   

  
	
   

  	
  Section 5.7

  	
   

  	
  Restrictive
  Covenants

  	
   

  
	
   

  	
  Section 5.8

  	
   

  	
  Certain
  Employee Matters

  	
   

  
	
   

  	
  Section 5.9

  	
   

  	
  Intercompany
  Debt

  	
   

  
	
   

  	
  Section 5.10

  	
   

  	
  Collection
  of Accounts Receivable; Repurchase of Accounts Receivable

  	
   

  
	
   

  	
  Section 5.11

  	
   

  	
  MTI
  Transmitter System Replacement

  	
   

  
	
   

  	
  Section 5.12

  	
   

  	
  Employee
  and Independent Contractor Matters

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI
  - CONDITIONS TO CLOSING

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 6.1

  	
   

  	
  Conditions
  to Each Party’s Obligation Under this Agreement

  	
   

  
	
   

  	
  Section 6.2

  	
   

  	
  Conditions
  to the Obligations of Purchaser Under this Agreement

  	
   

  
	
   

  	
  Section 6.3

  	
   

  	
  Conditions
  to the Obligations of Seller Under this Agreement

  	
   

  

 

ii

 

	
  ARTICLE VII - TERMINATION; AMENDMENT;
  WAIVER

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 7.1

  	
   

  	
  Termination

  	
   

  
	
   

  	
  Section 7.2

  	
   

  	
  Effect
  of Termination

  	
   

  
	
   

  	
  Section 7.3

  	
   

  	
  Amendment
  and Modification

  	
   

  
	
   

  	
  Section 7.4

  	
   

  	
  Extension;
  Waiver

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII
  - REMEDIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 8.1

  	
   

  	
  Remedies
  for Breach of Representations, Warranties and Covenants of Seller Before the
  Closing Date

  	
   

  
	
   

  	
  Section 8.2

  	
   

  	
  Indemnification
  by Seller

  	
   

  
	
   

  	
  Section 8.3

  	
   

  	
  Indemnification
  by Purchaser

  	
   

  
	
   

  	
  Section 8.4

  	
   

  	
  Notice
  and Defense of Third-Party Claims

  	
   

  
	
   

  	
  Section 8.5

  	
   

  	
  Limitations
  of Liability

  	
   

  
	
   

  	
  Section 8.6

  	
   

  	
  Exclusive
  Remedies

  	
   

  
	
   

  	
  Section 8.7

  	
   

  	
  Mediation

  	
   

  
	
   

  	
  Section 8.8

  	
   

  	
  Holdback
  Fund

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX
  - SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 9.1

  	
   

  	
  Survival
  of Representations, Warranties and Indemnities

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X
  - FORCE MAJEURE

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 10.1

  	
   

  	
  Force
  Majeure

  	
   

  
	
   

  	
  Section 10.2

  	
   

  	
  Termination
  Upon Extended Force Majeure

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XI
  - MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 11.1

  	
   

  	
  Expenses

  	
   

  
	
   

  	
  Section 11.2

  	
   

  	
  Brokers
  and Finders

  	
   

  
	
   

  	
  Section 11.3

  	
   

  	
  Entire
  Agreement; Assignment

  	
   

  
	
   

  	
  Section 11.4

  	
   

  	
  Waiver;
  Consents

  	
   

  
	
   

  	
  Section 11.5

  	
   

  	
  Severability

  	
   

  
	
   

  	
  Section 11.6

  	
   

  	
  Notices

  	
   

  
	
   

  	
  Section 11.7

  	
   

  	
  Governing
  Law

  	
   

  
	
   

  	
  Section 11.8

  	
   

  	
  Jurisdiction
  and Venue

  	
   

  
	
   

  	
  Section 11.9

  	
   

  	
  Waiver
  of Jury Trial

  	
   

  
	
   

  	
  Section 11.10

  	
   

  	
  Descriptive Headings

  	
   

  
	
   

  	
  Section 11.11

  	
   

  	
  Parties in Interest; No Third-Party
  Beneficiary

  	
   

  
	
   

  	
  Section 11.12

  	
   

  	
  Counterparts

  	
   

  
	
   

  	
  Section 11.13

  	
   

  	
  Incorporation by Reference

  	
   

  
	
   

  	
  Section 11.14

  	
   

  	
  Certain Definitions

  	
   

  

 

iii

 

STOCK PURCHASE AGREEMENT

 

THIS STOCK PURCHASE AGREEMENT (this “Agreement”)
is entered into as of June 27, 2005 (the “Effective
Date”), by and between Southwest Water Company, a Delaware
corporation (“Seller”), and Minol, L.P., a
Delaware limited partnership (“Purchaser”).  Seller and Purchaser are sometimes referred
to herein individually as a “Party” and
collectively as the “Parties”.

 

RECITALS

 

WHEREAS, Seller is the owner of 25,000 shares of the issued and
outstanding common stock, without par value (the “Common Stock”),
of Master Tek International, Inc., a Colorado corporation (the “Company”), and the Common Stock constitutes all of the
issued and outstanding capital stock of the Company;

 

WHEREAS, Purchaser desires to purchase from Seller, and Seller desires
to sell to Purchaser, all such shares of the Common Stock (the “Shares”), upon the terms and conditions set forth herein;

 

WHEREAS, Seller is making certain representations, warranties, agreements,
covenants and indemnities herein as an inducement to Purchaser to enter into
this Agreement, and Purchaser is making certain representations, warranties,
agreements, covenants and indemnities herein as an inducement to Seller to
enter into this Agreement; and

 

WHEREAS, capitalized terms used but not
otherwise defined in this Agreement shall have the meanings ascribed to them in
Section 11.14.

 

NOW, THEREFORE, in consideration of the recitals and the respective
representations, warranties, covenants and indemnities contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and intending to be legally bound hereby, the Parties
hereby agree as follows:

 

ARTICLE I

SALE OF SHARES; CLOSING

 

Section 1.1                                   Purchase of Shares.  Subject to the terms and conditions of this
Agreement, on the Closing Date (as defined in Section 1.3(a) below),
Seller will sell and deliver to Purchaser, and Purchaser will purchase from
Seller, the Shares.

 

Section 1.2                                   Share
Purchase Price.  The purchase
price for the Shares is $12,150,000.00 USD, plus or minus any adjustments to
such sum required by Section 1.5 or Section 1.6 (the ”Purchase Price”).  Except for the amount withheld in escrow
pursuant to Section 1.7, Purchaser shall pay to Seller on the next
Business Day following the Closing (as defined in

Section 1.3(a) below) the Purchase Price, as adjusted to the
Closing Date, by wire transfer of immediately available funds to the account
designated by Seller.

 

1

 

Section 1.3                                   Closing;
Effective Time.

 

(a)                             Closing.  The purchase and sale of the Shares (the “Closing”) provided for in this Agreement shall take place in
the offices of Jenkens & Gilchrist, LLP, 12100 Wilshire Boulevard,
15th Floor, Los Angeles, California 90025, at 10:00 A.M. (Los Angeles,
California time) on June 27, 2005, or at such other time and place as may
be agreed in writing by the Parties.  For
purposes of this Agreement, the date on which the Closing actually occurs is
the “Closing Date”.

 

(b)                             Effective
Time.  The purchase and sale of
the Shares provided for in this Agreement shall be effective for Tax,
accounting and all other purposes as of 12:01 A.M. (Westminster, Colorado
time) on the Closing Date (the “Effective Time”), except as provided otherwise in this
Agreement or otherwise agreed in writing by the Parties.

 

(c)                             Closing
by Fax/FedEx.  Notwithstanding
the foregoing, the Parties may agree for the Closing to occur by facsimile or
other electronic transmission of the Transaction Documents (as defined in Section 1.4
below) on the Closing Date, with executed original Transaction Documents to be
sent to the appropriate Party (or its legal counsel) by Federal Express (or
other nationally recognized guaranteed and receipted overnight delivery
service) or local courier service.

 

Section 1.4                                   Deliveries
at Closing.  Each of Purchaser
and Seller will deliver, or cause to be delivered, at the Closing the following
documents and instruments (collectively, the “Transaction
Documents”) to which it or any of its Affiliates is a party:

 

(a)                             Seller
Deliveries.  Seller shall
deliver, or cause its appropriate Affiliates to deliver, to Purchaser:

 

(i)                                    Closing
Statement.  The Closing Statement
(as defined in Section 1.5(a) below), duly executed by Seller;

 

(ii)                                Stock
Certificates.  The original
certificate or certificates evidencing 25,000 of the Shares, together with
endorsements or stock powers duly executed in blank by Seller;

 

(iii)                            Officer’s
Certificate of Seller.  A certificate,
upon which Purchaser may rely, duly executed by a duly authorized officer of
Seller certifying as true, accurate and complete, as of the Closing Date:  (A) a copy of the resolutions of Seller’s
board of directors (or equivalent governing body) authorizing the execution,
delivery and performance of this Agreement and the Transaction Documents to
which Seller is a party and the consummation of the transactions contemplated
by this Agreement by Seller; and (B) the incumbency of the officer or
officers authorized to execute on behalf of Seller this Agreement and the
Transaction Documents to which it is a party;

 

(iv)                               Officer’s Certificate of the Company.  A certificate, upon which Purchaser may rely,
duly executed by a duly authorized officer of the Company certifying as

 

2

 

true, accurate and complete, as of the
Closing Date:  (A) a certified copy
of the Articles of Incorporation (or equivalent Organizational Document) of the
Company issued by the Colorado Secretary of State; (B) a copy of the
Bylaws (or equivalent Organizational Document) of the Company; (C) a
certified copy of the Certificate of Foreign Qualification (or equivalent
Organizational Document) of the Company issued by the Secretary of State of
Texas and California; and (D) the incumbency of the officer or officers
authorized to execute on behalf of the Company the Transaction Documents to
which it is a party;

 

(v)                                   Closing
Certificate of Seller.  A
certificate from a duly authorized officer of Seller, dated as of the Closing
Date, certifying that the conditions set forth in Sections 6.2(a) and (c) have
been satisfied;

 

(vi)                               Consents.
Copies or other satisfactory evidence of the Consent of the Person listed or
referred to in Schedule 2.6 as the Person whose Consent will be
obtained at or prior to the Closing Date;

 

(vii)                           Governmental
Certificates.  Certificates of
existence and good standing, if applicable, issued by the Secretary of State
(or other appropriate officer) of the state of the Company’s organization and
the states of Texas and California, as of a date reasonably close to the
Closing Date;

 

(viii)                       UCC,
Judgment and Tax Lien Search Reports. 
Uniform Commercial Code, judgment and tax lien search reports of the
Company for the names “Master Tek International, Inc.” and “Southwest
Water Billing Solutions, Inc.” and “RCI Utilities, Inc.” and “Intelli-Billing”
issued by the Colorado Secretary of State, the County Clerk of Jefferson
County, Colorado, the Texas Secretary of State and the County Clerk of Dallas
County, Texas, dated as of a date reasonably close to the Closing Date;

 

(ix)                              Minute
Books.  The minute book or books
of the Company and all of the contents thereof;

 

(x)                                  Resignations.  Duly executed written resignations from
each director and officer of the Company as required by Section 5.5,
in a form and content acceptable to Purchaser;

 

(xi)                              Escrow
Agreement.  The Escrow Agreement
(as defined in Section 8.8(a) below), duly executed by all
parties thereto other than Purchaser;

 

(xii)                          Armstrong
Release.  A duly executed
Separation Agreement and General Release of Claims between the Company and
Scott Armstrong, dated effective prior to the Closing Date, in a form and
content acceptable to Purchaser (the “Armstrong Release”);

 

(xiii)                      Leased Vehicles.  A pay-off letter from EMKAY, Inc.
stating the full amount required to be paid for Seller to own the Leased
Vehicles (as defined in Section 1.5(c) below), free and clear
of all Liens;

 

3

 

(xiv)                         Leased
Computer Equipment.  A pay-off
letter from CSI Leasing, Inc. stating the full amount required to be paid
for Seller to own the Leased Computer Equipment (as defined in Section 1.5(d) below),
free and clear of all Liens;

 

(xv)                             Work-in
Progress Certificate.  The
Work-in Progress Certificate (as defined in Section 1.6(a)(ii) below), duly executed by Seller; and

 

(xvi)                         Other
Transaction Documents.  All such
other certificates of title, deeds and instruments of sale, assignment,
conveyance and transfer as may be reasonably necessary or as Purchaser may
reasonably request to effect the sale, transfer, assignment, conveyance and
delivery of the Shares to Purchaser in accordance with this Agreement and any
other Transaction Documents, and where necessary or desirable, in recordable
form, in each case, as is necessary to effect the purchase and sale of the
Shares and other transactions contemplated by this Agreement.

 

(b)                             Purchaser
Deliveries.  Purchaser shall
deliver, or cause its appropriate Affiliates to deliver, to Seller:

 

(i)                                    Closing
Statement.  The Closing
Statement, duly executed by Purchaser;

 

(ii)                                Purchase
Price.  On the next Business Day
following the Closing, the Purchase Price, as adjusted to the Closing Date;

 

(iii)                            Manager’s
Certificate of Purchaser.  A
certificate, upon which Seller may rely, duly executed by a manager of
Minol,  LLC, a Delaware limited liability
company and the general partner of Purchaser (“Minol GP”),
certifying as true, accurate and complete, as of the Closing Date:  (A) a copy of the resolutions of Minol
GP’s managers (or equivalent governing body) authorizing the execution,
delivery and performance of this Agreement and the Transaction Documents to
which Purchaser is a party and the consummation of the transactions
contemplated by this Agreement by Purchaser; (B) a certified copy of the
Certificate of Limited Partnership (or equivalent Organizational Document) of
Purchaser issued by the Delaware Secretary of State; (C) a copy of select pages of
the Agreement of Limited Partnership (or equivalent Organizational Document) of
Purchaser; (D) a certified copy of the Certificate of Formation (or
equivalent Organizational Document) of Minol GP; (E) a copy of select pages of
the Limited Liability Company Agreement of Minol GP; and (F) the incumbency
of the officer or officers authorized to execute on behalf of Purchaser this
Agreement and the Transaction Documents to which it is a party;

 

(iv)                               Closing Certificate of Purchaser.  A certificate from a duly authorized
officer of Purchaser, dated as of the Closing Date, certifying that the
conditions set forth in Section 6.3(a) and (b) have been
satisfied;

 

4

 

(v)                                   Governmental
Certificates.  Certificates of
existence and good standing, if applicable, issued by the Secretary of State
(or other appropriate officer) of the state of its organization, as of a date
reasonably close to the Closing Date, for Purchaser;

 

(vi)                               Escrow Agreement.  The Escrow Agreement, duly executed by all
parties thereto other than Seller and Escrow Agent (as defined in Section 8.8(a) below);
and

 

(vii)                           Other
Transaction Documents.  All such
other deeds and instruments of sale, assignment, conveyance and transfer as may
be reasonably necessary to effect the sale, transfer, assignment, conveyance
and delivery of the Shares to Purchaser in accordance with this Agreement and
any other Transaction Documents, and where necessary or desirable, in
recordable form, in each case, as is necessary to effect the purchase and sale
of the Shares and other transactions contemplated by this Agreement.

 

Section 1.5                                   Purchase
Price Adjustments at Closing.

 

(a)                             Closing
Statement.  At the Closing,
Seller and Purchaser will execute and deliver a closing statement in the form
attached hereto as Exhibit A (the “Closing Statement”) setting forth
any increase, decrease or other adjustment to the Purchase Price required by
this Agreement at the time of Closing, along with the resulting amount of the
Purchase Price to be paid at Closing, and any other matters the Parties agree
to set forth therein.  In connection with
preparing the Closing Statement, Seller shall cause the Company to provide the
information necessary for Seller and Purchaser to jointly verify the accuracy
of the number of Billing Units at the Cut-Off Time.

 

(b)                             Billing
Units; Closing Date True-up.

 

(i)                                    To
the extent the aggregate number of Billing Units at the Cut-Off Time is greater
than or less than 208,000, the Purchase Price will be adjusted on a
dollar-for-dollar basis on the Closing Date as follows:

 

(A)                               Increased.  The Purchase Price will be increased, in the
event the number of Billing Units is greater than 208,000, by the product of (A) $58.41,
multiplied by (B) the difference between 208,000 and the actual number of
Billing Units; or

 

(B)                               Reduced.  Subject to Section 1.5(b)(ii), the Purchase Price will be reduced, in the event
the number of Billing Units is less than 208,000, by the product of (A) $58.41
per unit, multiplied by (B) the difference between 208,000 and the actual
number of Billing Units.

 

(ii)                                The
Purchase Price shall not be reduced at the time of the Closing to an amount
less than $12,000,000.00 pursuant to Section 1.5(b)(i)(B).

 

(c)                             Pay-off
of Leased Vehicles.  Schedule 1.5(c) sets
forth a true, accurate and complete list (including year, make, model and
vehicle identification number) of all the vehicles leased by Seller (for use by
the Company) from EMKAY, Inc. under the Material

 

5

 

Leases (as
defined in Section 2.19(a)(iv) below)
that are vehicle leases (the “Leased Vehicles”).  On or before the Closing Date, Seller will
fully pay-off the Material Leases covering the Leased Vehicles and have good
and valid title to them.  On the Closing
Date, the Leased Vehicles will be in the possession of the Company at either
its offices in Westminster, Colorado or Dallas, Texas, or in the possession of
a Company employee in Virginia Beach, Virginia. 
In consideration for the payment of the Purchase Price, Seller hereby
sells the Leased Vehicles to the Company and the Company acquires the Leased
Vehicles from Seller.  Within fifteen
(15) days following the Closing, Seller will deliver to the Company the
original certificates of title (or other equivalent documentation of ownership
of the Leased Vehicles), duly endorsed for transfer to the Company and filing
with the applicable Governmental Body. 
The Leased Vehicles must be free and clear of all Liens within fifteen
(15) days following the Closing Date.

 

(d)                             Pay-off
of Leased Computer Equipment.  Schedule 1.5(d) sets
forth a true, accurate and complete list of all the computer equipment leased
by Seller (for use by the Company) from CSI Leasing, Inc. under the
Material Leases that are computer server, computer equipment or computer
monitor leases (the “Leased Computer Equipment”).  On or before the Closing Date, Seller will
fully pay-off the Leased Computer Equipment and have good and valid title to
it.  On the Closing Date, the Leased
Computer Equipment will be in the possession of the Company at either its
offices in Westminster, Colorado or Dallas, Texas.  In consideration for the payment of the
Purchase Price, Seller hereby sells the Leased Computer Equipment to the
Company and the Company acquires the Leased Computer Equipment from Seller.  The Leased Computer Equipment must be free
and clear of all Liens within fifteen (15) days following the Closing Date.

 

Section 1.6                                   Purchase
Price Adjustments After Closing.

 

(a)                             Inventory
and Work in Progress Estimate.

 

(i)                                    On
the last Business Day prior to the Closing Date, Seller and Purchaser shall
jointly update, using the books and records of the Company, the inventory and
physical count jointly conducted by Seller and Purchaser on June 16, 2005,
of all items of inventory of the Company (the “Pre-closing
Inventory”), wherever located, including all finished goods, raw
materials, spare parts and all other materials and supplies to be used or
consumed by the Company and to be reflected on, and used to determine, the
Closing Date Balance Sheet and Closing Date Net Working Capital (as such terms
are defined in Section 1.6(b)(ii) below); provided,
that Company’s inventory of MTI Transmitter Systems, and Inovonics Transmitter
Systems, although counted, will not be used in determining the Closing Date
Balance Sheet and Closing Date Net Working Capital.  A list setting forth the results of the
Pre-closing Inventory, as updated through the last Business Day prior to the
Closing Date, shall be included in the Closing Statement.  This joint determination of the Pre-closing
Inventory is prepared for purposes of the Net Working Capital Adjustment (as
defined in Section 1.6(b) below) and shall be final and
binding on the Parties, absent fraud.

 

(ii)                                On
the last Business Day prior to the Closing Date, Seller shall estimate, in good
faith, the percentage completion, as of the Effective Time, of all work-in-

 

6

 

progress under
Construction Contracts (as defined in Section 2.19(a)(iii) below)
of the Company (the ”Work-in Progress”).  A certificate setting forth the results of
the Work-in Progress estimation shall be delivered to Purchaser at the Closing
(the “Work-in Progress Certificate”).  This certification of the Work-in Progress is
prepared for purposes of the Net Working Capital Adjustment.  The results of the Work-in Progress
estimation and the results set forth in the Work-in Progress Certificate shall
be final and binding on the Parties, absent material error.

 

(b)                             Net
Working Capital Adjustment.

 

(i)                                    The
Adjustment.  Following the
Closing, the Purchase Price shall be adjusted in the amount equal to the Net
Working Capital Adjustment.  If the Net
Working Capital Adjustment is positive (i.e., Closing Date Net Working Capital
is greater than the Base Net Working Capital), the Purchase Price shall be
increased by the amount of the Net Working Capital Adjustment.  If the Net Working Capital Adjustment is
negative (i.e., Closing Date Net Working Capital is less than the Base Net
Working Capital), the Purchase Price shall be reduced by the amount of the Net
Working Capital Adjustment.

 

(ii)                                Certain
Defined Terms.  As used in this
Agreement, the following terms mean:

 

“Net Working Capital Adjustment” (which
may be a positive or negative amount) means the algebraic sum of (A) the
Closing Date Net Working Capital, minus (B) the Base Net Working Capital.

 

“Closing Date Net Working Capital”
(which may be a positive or negative number) means the difference between (A) the
current assets of the Company at the Effective Time, and (B) the current
liabilities of the Company at the Effective Time, all determined in accordance
with GAAP on a basis consistent with the Company Financial Statements, but with
the adjustments thereto set forth on Schedule 1.6(b)-A applied in
making the calculation.  An example of
the calculation of the Closing Date Net Working Capital at March 31, 2005,
based on the unaudited balance sheet of the Company at March 31, 2005, is
set forth on Schedule 1.6(b)-B.

 

“Base Net Working Capital” means
$1,305,343.00 USD.

 

(iii)                            True-up
Calculation.  Within thirty (30)
days after the Closing Date, Seller and Purchaser will use their respective
reasonable best efforts jointly to prepare (A) the unaudited balance sheet
of the Company at the Effective Time (the “Closing Date Balance Sheet”)
and (B) a schedule (the “Adjustment Schedule”)
setting forth a reasonably detailed calculation of the Closing Date Net Working
Capital and the Net Working Capital Adjustment, if any, along with the
resulting Purchase Price (the “True-Up Calculation”).  The Closing Date Balance Sheet and Adjustment
Schedule shall be prepared on the same basis as the Company Financial
Statements, but with the adjustments thereto set forth on Schedule 1.6(b)-C.  Seller and Purchaser, respectively, shall
each bear their own costs to prepare the Closing Date Balance Sheet and
Adjustment Schedule.  Seller and
Purchaser shall cooperate in all reasonable respects

 

7

 

with each other
in connection with the preparation of the Closing Date Balance Sheet and
Adjustment Schedule.  The True-Up
Calculation shall be deemed to be final and conclusive and agreed to by
Purchaser and Seller, and shall be the basis for the true-up payment of the Net
Working Capital Adjustment required by Section 1.6(b)(i).  If the Parties cannot within such thirty (30)
day period (or such longer period as the Parties may mutually agree upon in
writing) agree upon and prepare the Closing Date Balance Sheet, the Adjustment Schedule and
the True-Up Calculation, then either Party may deliver written notice (the “Dispute Notice”) to the other Party of such dispute.

 

(iv)                               Dispute Resolution.

 

(A)                               Upon
receipt of a Dispute Notice, Purchaser and Seller shall resolve the dispute in
accordance with the procedure set forth in Section 1.6(b)(iv)(B).

 

(B)                               Upon
receipt of the Dispute Notice, the Parties shall engage a mutually agreeable
nationally- or regionally-recognized independent public accounting firm, with
which none of the Parties or any of their respective Affiliates has any prior
or ongoing relationship (“Accountant”),
for the limited purpose of resolving only the disagreements of the Parties with
respect to the True-Up Calculation, provided that all determinations made by
the Accountant shall be made in accordance with this Section 1.6(b) (including
the Schedules referenced therein).  The
determinations of the Accountant shall be conclusive and binding on the
Parties, except in the event of manifest error in such determinations, and the
fees and expenses of the Accountant shall be divided equally between Seller and
Purchaser.  Each Party shall be
responsible for any other fees and expenses it incurs in connection with the
resolution of such dispute.  For purposes
hereof, the “Net Working Capital Adjustment Determination
Date” means the date on which the final determination of the Net
Working Capital Adjustment is made in accordance with either Section 1.6(b)(iii) or Section 1.6(b)(iv).

 

(v)                                   Payment.

 

(A)                               Purchaser
shall pay to Seller any positive Net Working Capital Adjustment, in cash, plus
interest thereon at a rate of six percent (6.0%) per annum (“Borrowing Rate”) from the Closing Date, within five (5) Business
Days after the Net Working Capital Adjustment Determination Date.

 

(B)                               In
the event of a negative Net Working Capital Adjustment, Seller shall pay to
Purchaser, one-half (1/2) of the amount owed through a claim against and
deduction from the Holdback Fund, and the other one-half (1/2) in cash, in both
cases plus interest thereon at the Borrowing Rate from the Closing Date.  The Holdback Fund claim must be paid to
Purchaser within sixteen (16) Business Days after the Net Working Capital
Adjustment Determination Date.  The cash
payment must be paid to Purchaser within five (5) Business Days after the
Net Working Capital Adjustment Determination Date.  To the extent the amount in the Holdback Fund
is insufficient, the entire Net Working Capital
Adjustment shall be paid by Seller in cash.

 

8

 

(c)                             Billing
Units; Post-Closing True-up.

 

(i)                                    On
the 65th day following the Closing Date, the Purchase Price shall be
decreased in the amount equal to the negative Net Set-Off Amount, if any.  If the Net Set-Off Amount is a positive
number, the Purchase Price shall not be increased or otherwise adjusted.  The “Net Set-Off Amount”
is equal to the sum of:

 

(A)                               The
product of (A) $58.41, multiplied by (B) the number of Non-Billing
Units, if any, that start billing within the
sixty (60) days following the Closing Date. 
Schedule 1.6(c)(i) lists the 8,064 individual
apartment, suite or similar units that at the Cut-Off Time are covered by a
Submetering Contract, but under which billing has not started as of that date
(the “Non-Billing Units”); minus

 

(B)                               The
product of (A) $58.41, multiplied by (B) the number of Unnoticed
Cancelled Units, if any.  “Unnoticed Cancelled Units” are Billing Units that were
included in determining the Billing Units at the Cut-Off Time under Section 1.5(b),
but for which a notice of termination (the “Notice of
Termination”) of the applicable Submetering Contract was sent by the
client or customer by electronic mail prior to the Effective Time or by U.S.
mail (or other reputable courier) with a postmark prior to the Effective Time,
but it was not received by the Company or an Affiliate until sometime during
the sixty (60) days following the Closing Date. 
The Company or such Affiliate will use commercially reasonable efforts
to deliver a copy of the Notice of Termination to Seller together with a
statement reflecting the number of Billing Units to which the Notice of
Termination relates within twenty-four (24) hours following receipt.

 

(ii)                                In
the event of a negative Net Set-Off Amount, Seller shall pay to Purchaser,
one-half (1/2) of the amount owed through a claim against and deduction from
the Holdback Fund, and the other one-half (1/2) in cash, in both cases plus
interest thereon at the Borrowing Rate from the Closing Date.  The Holdback Fund claim must be paid to Purchaser
within sixteen (16) Business Days after the 65th day following the
Closing Date.  The cash payment must be
paid to Purchaser within five (5) Business Days after the 65th
day following the Closing Date.  To the
extent the amount in the Holdback Fund is insufficient,
the entire Net-Set Off Amount shall be paid by Seller in cash.

 

(iii)                            Purchaser
shall use all commercially reasonable efforts, and shall cause the Company to
use all commercially reasonable efforts, to start billing each and all of the
Non-Billing Units within the sixty (60) day period referred to in Section 1.6(c)(i)(A).

 

Section 1.7                                   Establishment
of Holdback Fund. 
Notwithstanding any other provision of this Agreement to the contrary,
at the Closing, an amount equal to the Purchase Price, as adjusted to the
Closing Date, multiplied by ten percent (10%) (the “Holdback Fund”), shall not be paid to Seller, but instead
shall be withheld by Purchaser from the Purchase Price, and be subject to and
paid pursuant to the provisions of Section 8.8.  At the Effective Time, Seller shall have the
contingent and deferred right to receive the portion of the Holdback Fund
payable to

 

9

 

Seller pursuant to Section 8.8,
if any.  The
Holdback Fund shall include any interest or other income earned thereon during
the period such funds are held in escrow.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller makes the representations and
warranties set forth in this ARTICLE II to Purchaser.  Seller has delivered to Purchaser the
schedules to this Agreement (the “Seller Schedules”), including those referred to in this ARTICLE II,
on the Effective Date and such Seller Schedules have been reviewed and accepted
by Purchaser.  All matters set forth in
the Seller Schedules shall be deemed to be disclosed not only in connection
with the representation and warranty specifically referenced on a given Seller
Schedule, but for all purposes relating to the representations and warranties
of Seller set forth in this ARTICLE II.

 

Section 2.1                                   Company’s
Organization and Qualification.

 

(a)                             Schedule 2.1(a) sets
forth the Company’s jurisdiction of incorporation and each other jurisdiction
in which it is authorized to do business. 
The Company is duly incorporated, validly existing and in good standing
under the Laws of the jurisdiction of its incorporation.  The Company has all requisite corporate power
and corporate authority to carry on its business as it is now being conducted,
and to own, lease and operate its properties and assets, and to perform all its
obligations under the Contracts to which it is a party or by which it is
bound.  Except as set forth on Schedule 2.1(a),
the Company is duly qualified to do business as a foreign corporation and is in
good standing under the Laws of each state or other jurisdiction in which the
properties and assets owned, leased or operated by it or the nature of the
business conducted by it make such qualification necessary, except in such
jurisdictions where the failure to be duly qualified or in good standing would
not have or be a Material Adverse Effect on the Company.

 

(b)                             The
Company has no Subsidiaries.

 

(c)                             True,
accurate and complete copies of the Organizational Documents of the Company,
with all amendments thereto through the Closing Date, have been made available
to Purchaser.

 

(d)                             The
only names under the Company has conducted any
business since April 3, 2000, are:  “Master
Tek International, Inc.” and “Southwest Water Billing Solutions, Inc.”
and “RCI Utilities, Inc.” and “Intelli-Billing”.

 

(e)                             The
names and titles of the officers and directors of the Company are listed on Schedule 2.1(e).

 

10

 

Section 2.2                                   Company’s
Capitalization.

 

(a)                             The
authorized, issued and outstanding capital stock of the Company is set forth on
Schedule 2.2.  The Shares are
the only securities of the Company that are issued or outstanding.

 

(b)                             Seller
is, and will be on the Closing Date, the legal record and beneficial owner and
holder of, and has, and on the Closing Date will have, sole legal record and
beneficial title to, the Shares.  Seller
owns the Shares free and clear of all Liens.

 

(c)                             Each
of the issued shares of capital stock of, or other equity interest in, the
Company is duly authorized, validly issued and, in the case of shares of
capital stock, fully paid and nonassessable, and has not been issued in
violation of (nor are any of the authorized shares of capital stock of, or
other equity interests in, the Company subject to) any preemptive or similar
rights created by applicable Laws, the Articles of Incorporation or Bylaws (or
the equivalent Organizational Documents) of the Company, or any Contract to
which Seller or the Company is a party or is bound, and all such issued shares
or other equity interests of the Company are owned free and clear of all Liens.

 

(d)                             Except
as set forth on Schedule 2.2, there are no issued or outstanding
subscriptions, options, convertible securities, rights (including registration
rights), warrants, calls, irrevocable proxies or other agreements or
commitments of any kind obligating the Company to grant, sell or issue any
security of or equity interest in the Company, or irrevocable proxies or any
agreements restricting the transfer of or otherwise relating to any security or
equity interest in the Company.

 

(e)                             There
are no bonds, debentures, notes or other indebtedness of the Company having the
right to vote (or convertible into or exchangeable or exercisable for
securities or equity interests having the right to vote) on any matters on
which shareholders may vote (the “Company Voting Debt”)
issued or outstanding.

 

(f)                               The
Company has no obligations, contingent or otherwise, (i) to repurchase,
redeem or otherwise acquire any shares of capital stock or other equity
interests of the Company, or (ii) to provide material funds to, or to make
any material investment in (in the form of a loan, capital contribution or
otherwise), or to provide any guarantee with respect to the material
obligations of, any other Person.

 

(g)                            The
Company (i) does not, directly or indirectly, own, (ii) has not
agreed to purchase or otherwise acquire, and (iii) does not hold any
interest convertible into or exchangeable or exercisable for, any capital stock
or other equity interest of any corporation, partnership, joint venture,
limited liability company, or other business association or entity.

 

(h)                            Except
as set forth on Schedule 2.2 with regard to the payment of Taxes,
the Company is not a party to or bound by any Contract of any character,
contingent or otherwise, pursuant to which any Person is or may be entitled to
receive any payment based on, or calculated in accordance with, the revenues or
earnings of the Company.

 

11

 

(i)                               There
are no voting trusts, proxies or other agreements or understandings to which
the Company is a party or by which it is bound with respect to the voting of
any shares of capital stock or other equity interests of the Company.

 

(j)                               All
dividends and distributions that have ever been declared by the Company have
been paid in full prior to the Effective Date.

 

Section 2.3                                   Seller’s
Organization and Good Standing. 
Seller is a Delaware corporation, validly existing and in good standing
under the Laws of the State of Delaware.

 

Section 2.4                                   Authority
Relative to the Agreement. 
Seller has full corporate power and corporate authority to execute and
deliver this Agreement, and the Transaction Documents to which it is a party,
and no further proceedings on the part of the Seller are necessary to
consummate the transactions contemplated hereby.  This Agreement has been, and the Transaction
Documents to which Seller is a party will be, duly and validly executed and
delivered by Seller, and this Agreement constitutes, and the Transaction Documents
to which Seller is a party will constitute, the valid and binding obligation of
Seller enforceable against Seller in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium, or other similar
Laws relating to creditors’ rights generally and general equitable
principles.  The Company has full
corporate power and corporate authority to execute and deliver the Transaction
Documents to which it is a party, and no further proceedings on the part of the
Company are necessary to consummate the transactions contemplated hereby.

 

Section 2.5                                   No
Violation.  Except as set forth
on Schedule 2.5, neither the execution, delivery
nor performance of this Agreement, in its entirety, nor the consummation of the
transactions contemplated hereby, as of the Closing Date:

 

(a)                             To
the Knowledge of Seller and the Company, materially violates (“Violation”) any laws, orders, writs, judgments, injunctions,
awards, decrees, rules, statutes, permits, ordinances or regulations (the “Laws”) applicable to Seller or the Company;

 

(b)                             Is
in material conflict with, results in a material breach or any termination of
any provision of, causes the acceleration of the maturity of any debt or
obligation pursuant to, constitutes a material default (or gives rise to any
right of termination, cancellation or acceleration) under, or results in the
creation of any Lien upon any currently owned property of Seller or the Company
pursuant to, any terms, conditions or provisions of any note, license,
instrument, indenture, mortgage, deed of trust or other agreement or
understanding or any other restriction of any kind or character, to which
Seller or the Company is a party or by which any currently owned property of
Seller or the Company is subject or bound (collectively, “Default”);
or

 

(c)                             Conflicts
(“Conflict”) with or results in any
breach of any provision of the Certificate or Articles of Incorporation, Bylaws
of Seller or the Company or any other Organizational Documents of Seller or the
Company.

 

12

 

Section 2.6                                   Consents
and Approvals.  Except as
described on Schedule 2.6, and except for obtaining the required regulatory approvals described
on Schedule 2.6 (the “Required Regulatory Approvals”), no prior Consent of, or declaration, filing or
registration with, any Person, domestic or foreign, is required of or by Seller
or the Company in connection with the execution, delivery and performance by
Seller of this Agreement and the transactions contemplated hereby.

 

Section 2.7                                   Company
Financial Statements.

 

(a)                             Schedule 2.7(a) contains
true, accurate and complete copies of the unaudited financial statements of the
Company, consisting of the balance sheets and related statements of operations
and shareholder’s equity as of and for the years ended December 31, 2002,
December 31, 2003 and December 31, 2004, (collectively, the “Historical Company Financial Statements”).  The Historical Company Financial
Statements:  (i) were prepared from
the books and records of the Company; (ii) were prepared in accordance
with GAAP (except for the absence of footnotes) consistently applied throughout
the periods involved; and (iii) fairly present in all material respects
the assets and liabilities of the Company as of the dates of the balance sheets
and the financial results of the Company for the periods presented.

 

(b)                             Schedule 2.7(b) contains
true, accurate and complete copies of the interim unaudited financial
statements of the Company, consisting of the balance sheet and related
statement of operations and shareholder’s equity as of and for the three (3) months
ended March 31, 2005, (collectively, the “Interim
Company Financial Statements”). 
The Interim Company Financial Statements:  (i) were prepared from the books and
records of the Company; (ii) were prepared in accordance with GAAP (except
for the absence of footnotes) consistently applied throughout the periods
involved; and (iii) fairly present in all material respects the assets and
liabilities of the Company as of the date of the balance sheet and the
financial results of the Company for the period presented.  The Historical Company Financial Statements
and Interim Company Financial Statements are collectively referred to in this
Agreement as the “Company Financial
Statements”.

 

Section 2.8                                   Absence
of Changes.  Except as set
forth on Schedule 2.8, since the date of the Interim Company
Financial Statements, the Company has conducted business only in the Ordinary
Course of Business and there has not been:

 

(a)                             Any
amendment to its Articles of Incorporation or Bylaws or other Organizational
Documents, or any change in the character or conduct of its business in any
material respect;

 

(b)                             Any
declaration, setting aside or payment of any dividends or distributions in
respect of the Shares or any redemption, purchase or other acquisition of any
of the securities or other equity interests of the Company;

 

13

 

(c)                             Any
material increase in the benefits under, or the establishment or amendment of,
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, performance awards (including, without limitation, the granting
of stock  appreciation rights or
restricted stock awards), stock purchase or other employee benefit plan, or any
increase in the compensation payable or to become payable to any of the
directors or officers of the Company or the employees of the Company as a
group; or

 

(d)                             Any
Material Adverse Effect on the Company; or

 

(e)                             Any
material agreement, commitment or transaction entered into, except in the
Ordinary Course of Business, or except for this Agreement and the transactions
contemplated hereby.

 

Section 2.9                                   Litigation.  Except as set forth on Schedule 2.9,
there are no Proceedings pending or, to the Knowledge of Seller and the Company,
threatened in writing against the Company or involving any of the material
properties or material assets of the Company, at law or in equity or before or
by any foreign, federal, state, municipal, or other governmental court,
department, commission, board, bureau, agency, or other instrumentality or
Person or any board of arbitration or similar entity.  Neither the Company nor any of its properties
or assets is subject to any executory judgment, order, writ, injunction, decree
or award of any Governmental Body, including without limitation, any cease and
desist order and any consent decree, settlement agreement or other similar
contract or agreement with any Governmental Body.  To the Knowledge of Seller and the Company,
as of the Closing Date, there are no facts or events that have occurred or
failed to occur that reasonably could be expected to result in the commencement
of any Proceeding involving the Company or any of its material properties or
material assets which if determined adversely to the Company would have a
Material Adverse Effect on the Company.

 

Section 2.10                            Compliance
with Applicable Laws.  No
uncured material violation of any applicable Laws by the Company exists.  The Company has not received written notice
from any Governmental Body or other Person of any failure to materially comply
or the material violation of any applicable Laws with respect to the Company or
its facilities.

 

Section 2.11                            Tax
Matters.  Except as and to the
extent set forth on Schedule 2.11:

 

(a)                             Since
April 3, 2000, all Returns in respect of Taxes required to have been filed
with respect to the Company (including any consolidated federal income tax
return and any state Return that includes the Company on a consolidated,
combined or unitary basis) have been timely filed;

 

(b)                             All
Taxes required to be shown on such Returns or otherwise due or payable have
been timely paid and all payments of estimated Taxes required to be made with
respect to the Company have been made;

 

(c)                             All
such Returns are true, correct and complete in all material respects;

 

14

 

(d)                             No
adjustment relating to any of such Returns has been proposed  formally or informally in writing by
any taxing authority and, to the Knowledge of Seller, no basis exists for any
such adjustment;

 

(e)                             There
are no outstanding subpoenas or written requests for information with respect
to any such Returns of the Company or the Taxes reflected on such Returns;

 

(f)                               There
are no pending or, to the Knowledge of Seller and the Company, threatened
Proceedings for the assessment or collection of Taxes against (i) the
Company or (ii) any corporation that was included in the filing of a
Return with the Company on a consolidated, combined or unitary basis which
would have a Material Adverse Effect on the Company;

 

(g)                            There
are no Tax liens on the Company and there are no recorded Tax liens on any
asset of the Company;

 

(h)                            The
Company is not a party to any agreement or arrangement that would result,
separately or in the aggregate in, the payment of any “excess parachute
payment” within the meaning of section 280G(b) of the Code;

 

(i)                               No
acceleration of the vesting schedule for any property that is
substantially nonvested within the meaning of the regulations under section 83
of the Code will occur in connection with the transactions contemplated by this
Agreement;

 

(j)                               The
Company does not owe any amount pursuant to any written or unwritten Tax
sharing agreement or arrangement or will have any liability after the Closing
Date in respect of any written or unwritten Tax sharing agreement or
arrangement executed or agreed to prior to the Closing Date;

 

(k)                           All
Taxes required to be withheld, collected or deposited by the Company have been
timely withheld, collected or deposited and, to the extent required, have been
paid to the relevant taxing authority;

 

(l)                               Any
adjustment of Taxes of the Company made by the Internal Revenue Service that is
required to be reported to any state, local or foreign taxing authority has
been so reported and any additional Tax due as a result thereof has been paid
in full;

 

(m)                         There
are no outstanding waivers or agreements extending the statute of limitations
for any period with respect to any Tax to which the Company may be subject;

 

(n)                            There
are no requests for rulings or information currently outstanding that could
affect the Taxes of the Company, or any similar matters pending with respect to
any taxing authority;

 

(o)                             There
are no proposed reassessments of any property owned or leased by the Company or
other proposals that could increase the amount of any Tax to which the Company
would be subject; and

 

15

 

(p)                             No
power of attorney that is currently in force has been granted with respect to
any matter relating to Taxes that could affect the Company.

 

Section 2.12                            Bankruptcy.  There are no bankruptcy,
reorganization or arrangement Proceedings pending against, being contemplated
by or, to the Knowledge of Seller and the Company, threatened in writing
against Seller or the Company.

 

Section 2.13                            Employment
Matters.

 

(a)                             Schedule 2.13
sets forth a true, accurate and complete list of the following information
about each current employee of the Company, including any employees on leave of
absence or layoff status:  name; job
title; compensation; any change in compensation since January 1, 2005;
vacation accrued; hours of unrecorded sick leave, and service credited for
purposes of vesting and eligibility to participate under any of the Company’s
Employee Benefit Plans (as defined in Section 2.27 below).

 

(b)                             The
Company is in compliance in all material respects with all applicable Laws
respecting employment practices and terms of employment (“Employment
Laws”) and no uncured material violation of any applicable
Employment Laws by the Company exists.

 

(c)                             The
Company has not received written notice from any Governmental Body or other
Person of any failure to materially comply or the material violation of any
applicable Employment Laws with respect to the Company or its facilities.

 

(d)                             The
Company is not (i) to the Knowledge of Seller and the Company, now subject
to a union organizing effort; or (ii) subject to any collective bargaining
agreement with respect to any of its employees. 
The Company does not have any current general labor disputes.  To the Knowledge of Seller and the Company,
there are no strikes, material slowdowns, work stoppages or lockouts, or
threats thereof, by or with respect to any employees of the Company.

 

Section 2.14                            Intellectual
Property.

 

(a)                             Schedule 2.14(a) lists
all foreign and domestic patents, patent applications, trademarks and service
marks, trademark and service mark applications, trade names, copyrights, and
copyright applications (whether registered or unregistered) (collectively, the “Intellectual Property”) held, owned or used by the Company
as of the Closing Date (“Included  Intellectual Property”). 
Except as set forth on Schedule 2.14(a), the Company owns or
licenses or otherwise has the right to use all the Included Intellectual
Property, without the payment of any royalties or other payments to any
third-party.  The Included Intellectual
Property constitutes all the Intellectual Property necessary for the conduct of
the Business of the Company as it is currently conducted, except where the
failure to own, license or have the right to use such Included Intellectual
Property would not have or be a Material Adverse Effect on the Company.

 

(b)                             The
Included Intellectual Property does not include any of the trade names of the
Company listed on Schedule 2.14(b), which are assets of Seller that
have been used by the Company.

 

16

 

(c)                             The
Company is not currently in receipt of any written notice of any material
violation of, and to the Knowledge of Seller and the Company, is not violating
or infringing upon the intellectual property rights of any other Person in any
of the Included Intellectual Property.

 

(d)                             Except
as set forth on Schedule 2.14(d), to the Knowledge of Seller and
the Company, no other Person is infringing or threatening to infringe any
intellectual property rights of the Company with respect to any of the
Intellectual Property.

 

Section 2.15                            Environmental
Compliance.  Except as set
forth on Schedule 2.15, to the Knowledge of Seller and the Company:

 

(a)                             No
Hazardous Substances exist on the Real Property in quantities which violate,
and would require reporting to any Governmental Body and cleanup under,
applicable Environmental Laws;

 

(b)                             The
Company has not received written notice from any Governmental Body or other
Person alleging a violation of applicable Environmental Laws; and

 

(c)                             Neither
the Company nor any of the Company’s facilities are in material violation of
any Environmental Laws.

 

Section 2.16                            Title
to Properties; Encumbrances. 
Except as set forth on Schedule 2.16, the Company has good
and valid title to all of the assets reflected in the balance sheets included
among the Company’s Financial Statements other than any assets therein
reflected that (x) have been sold or otherwise disposed of in the Ordinary
Course of Business since the date thereof or (y) are not, individually or in
the aggregate, material to the Company, free and clear of all Liens other than (i) liens,
mortgages, pledges, security interests or other encumbrances securing
indebtedness shown on the Company Financial Statements, (ii) liens for
taxes, payments of which are not yet delinquent or that are being contested in
good faith by appropriate Proceedings, (iii) liens in respect of pledges
or deposits under workers’ compensation laws, unemployment insurance, social
security or public liability laws, or similar legislation, carriers’,
warehousemen’s, mechanics’, laborers’ and materialmen’s and similar liens, if
the obligations secured by such liens are not then delinquent or are being
contested in good faith by appropriate Proceedings, (iv) liens relating to
accounts payable incurred in the Ordinary Course of Business and consistent
with past practice, and (v) such imperfections of title which do not
materially detract from the value of the assets of the Company (subparagraphs
(i), (ii), (iii), (iv) and (v) are referred to herein as “Permitted Liens”). 
Except as set forth on Schedule 2.16, the Company holds
under valid lease agreements all real and personal properties that are subject
to leases and enjoys peaceful and undisturbed possession of such properties
under such leases, other than (a) any properties as to which such leases
have terminated in the Ordinary Course of Business, and (b) any properties
that, individually or in the aggregate, are not material to the Company.

 

17

 

Section 2.17                            Insurance.  Schedule 2.17(a) sets forth
a list of all policies of insurance currently in effect relating to the
business or operations of the Company (true, accurate and complete copies of
which have been made available to Purchaser). 
All premiums due and payable for such insurance policies have been paid
in the Ordinary Course of Business and the insurance policies are in full force
and effect.  Except as set forth on Schedule 2.17(a),
there are no claims pending under any such policies.  Except as indicated on Schedule 2.17(a),
no such policies of insurance will remain in effect upon the consummation of
the transactions contemplated by this Agreement.

 

Section 2.18                            Permits
and Licenses.  Schedule 2.18
sets forth a true, accurate and complete list of all the Governmental
Authorizations the Company has which, except as set forth on Schedule 2.18,
comprise all the Governmental Authorizations the Company is required to have
under applicable Laws to conduct its business as it is now being conducted,
except where the failure to have such permits, licenses, certificates and
authorities would not result in a Material Adverse Effect on the Company.  Except as set forth in Schedule 2.18,
the consummation of the transactions contemplated by this Agreement will not
constitute a violation of any permit, license, certificate or authority from
any Governmental Body, which would result in a Material Adverse Effect.

 

Section 2.19                            Agreements,
Contracts and Commitments.

 

(a)                             Schedule 2.19
sets forth a true, accurate and complete list of:

 

(i)                                    All
Contracts to which the Company is a party or by which any its assets or
properties is bound (i) that involves consideration or other expenditure
in excess of $10,000.00 during a fiscal year, (ii) that involves
performance by the Company over a period of more than six (6) months, (iii) that
cannot, by its terms, be terminated by the Company without penalty or payment
on thirty (30) days or less notice, or (iv) that is otherwise material to
the ongoing business or ongoing operations of the Company (the “Material Contracts”);

 

(ii)                                All
Contracts (which schedule shall reflect which such Submetering Contracts
are written or oral) to which the Company is a party or by which any of its
assets or properties is bound that obligate the Company to furnish meter
reading, billing (including allocation billing and ratio billing) or collection
services in the Business (the “Submetering
Contracts”);

 

(iii)                            All
Contracts to which the Company is a party or by which any its assets or
properties is bound that obligate the Company to furnish installation,
construction or maintenance services in the Business (the “Construction Contracts”); and

 

(iv)                               All
Contracts to which the Company (or the Seller, in the case of Leased Vehicles
and Leased Computer Equipment that are used by the Company) is a party or by
which any its assets or properties is bound that are real or personal property
leases (the “Material Leases”);

 

18

 

(v)                                   All
Contracts to which the Company is a party or by which any its assets or
properties is bound that are guarantees or under which the Company indemnifies
or is contingently liable for the payment or performance of any liability or
obligation of any other Person (the “Guarantees”);

 

(vi)                               All
Contracts between the Company, on the one hand, and any of its Affiliates or
any of the shareholders, officers, directors, employees, consultants, sales
representatives, agents (or any of their respective Affiliates), on the other
hand (the “Affiliate Agreements”);

 

(vii)                           All
Contracts to which the Company is a party or by which any its assets or
properties is bound that are licenses of any of the Included Intellectual
Property (the “Material IP Licenses”); and

 

(viii)                       All the
Internet domain name registrations used by the Company in conducting its
business, together with the name of the applicable registrar of Internet domain
names (the “Domain Name Contracts”).

 

The Material Contracts, Submetering Contracts, Construction Contracts,
Material Leases, Guarantees, Affiliate Agreements, Material IP Licenses and
Domain Name Contracts are collectively referred to in this Agreement as the “Company Contracts”.

 

(b)                             True,
accurate and complete copies of the written Company
Contracts have been made available to Purchaser.  There are no amendments or modifications to
any of the Company Contracts that have not been made available to Purchaser.

 

(c)                             To
the Knowledge of Seller and the Company, each of the Company Contracts
constitutes the valid and legally binding obligation of the parties
thereto.  Except as set forth on Schedule 2.19,
the Company is in full compliance with all material terms and requirements of
the Company Contracts.  To the Knowledge
of the Seller and the Company, none of the Company Contracts materially
violates any applicable Laws.  To the
Knowledge of Seller and the Company, each other Person that has or had any
obligation or liability under any of the Company Contracts is in full
compliance with all material terms and requirements thereof.

 

(d)                             Neither
Seller nor the Company has given or received from any other Person any written
notice regarding any actual, alleged, possible or potential violation or breach
of, or default under, any of the Company Contracts.  There are no renegotiations of, attempts to
renegotiate, or outstanding rights to renegotiate any reduction of material
amounts paid or payable to the Company under any of the Company Contracts.  Neither Seller nor the Company has received
from any Person any written notice regarding the termination or amendment of
the term of any of the Company Contracts.

 

(e)                             The
Company is not a party to or bound by any Contract or Organizational Document
which purports to restrict by virtue of a noncompetition, territorial
exclusivity or other

 

19

 

provision
covering such subject matter, the scope of the business or operations of the
Company or any of its Affiliates geographically or otherwise.

 

(f)                               There
is no power of attorney that is currently effective and outstanding with
respect to the business, operations or any of the assets or properties of the
Company.

 

Section 2.20                            Warranties.

 

(a)                             Except
as set forth on Schedule 2.20, there are no pending nor, to the
Knowledge of Seller and the Company, threatened in writing, material claims
under or pursuant to any warranty, whether expressed or implied, on products or
services sold or performed prior to the Closing Date by the Company that are
not disclosed or referred to in the Company Financial Statements and that are
not fully reserved against in
accordance with GAAP.

 

(b)                             All
of the services performed by the Company (whether directly or indirectly
through independent contractors) during the 12 months preceding the Closing
Date, to the Knowledge of Seller and the Company, have been performed in
material conformity with all express written warranties, and, except with
respect to Transmitter Warranty Claims (as defined in Section 8.2(c)(ii) below)
for which Seller has agreed to indemnify Purchaser and the Company, to the
Knowledge of the Seller and the Company, the Company will not have any material
liability for replacement or repair or for other damages relating to or arising
from any such services, except for amounts incurred in the Ordinary Course of
Business which are immaterial and not required by GAAP to be disclosed in the
Company Financial Statements.

 

(c)                             Schedule 2.20(c) is
a true, accurate and complete list of all MTI Transmitter Systems installed as
of the Closing Date (and not otherwise replaced or removed) in any dwellings or
buildings for which the Company furnishes billing (including allocation billing
and ratio billing) services under a Submetering Contract.

 

(d)                             Schedule 2.20(d) is
a true, accurate and complete list of all billing meters reading “zero” at June 8,
2005.

 

Section 2.21                            Books
and Records.  The books,
accounts, ledgers and files of the Company are true, accurate and complete in
all material respects and have been maintained in accordance with sound
business and accounting practices.

 

Section 2.22                            Material
Assets.

 

(a)                             A
true, complete and accurate list of all the properties, rights and assets owned
by the Company (whether tangible or intangible, and whether real, personal or
mixed) and reflected on the balance sheet included in the Interim Company
Financial Statements is set forth on Schedule 2.22 (the “Material Assets”).  A
true and complete and accurate list of all the properties, rights and assets
leased by the Company under the Material Leases is listed on Schedule 2.22
as leased properties, rights and assets.

 

20

 

(b)                             Except
as set forth on Schedule 2.22, the Material Assets together with
the Material Leases (i) constitute all the material properties, rights and
assets, including contract rights and equipment, used or held for use by the
Company in the operation of the facilities and other business operations of the
Company as they were operated in the 12-month period ending on the date of the
Interim Company Financial Statements, and are operated on the Effective Date
and will be operated through the Closing Date, and (ii) constitute all of
the material properties, rights and assets that are necessary for operation of
the facilities and other business operations of the Company as they are
operated on the Effective Date and will be operated through the Closing Date.

 

(c)                             The
Company has good and valid title, free and clear of all Liens, to all the
Material Assets reflected in the Interim Company Financial Statements as being
owned by the Company, as of the date thereof, other than (i) any assets or
properties that have been sold or otherwise disposed of in the Ordinary Course
of Business since the date of such Interim Company Financial Statements, (ii) Liens
disclosed in the notes to such financial statements, (iii) statutory Liens
for current Taxes not yet due, (iv)  Liens arising in the Ordinary Course
of Business, and (v) Liens and imperfections of title described in Section 2.16.

 

Section 2.23                            Condition
of Personal Property. 
Each material item of personal property of the Company is in good working order and repair (taking its age and
ordinary wear and tear into account), has been operated and maintained in the
Ordinary Course of Business and remains in suitable and adequate condition for
use consistent with its primary use.

 

Section 2.24                            Accounts
Receivable.  The accounts
receivable of the Company reflected in the balance sheet dated as of March 31,
2005 included in the Interim Company Financial Statements, and the additional
accounts receivable reflected on the books and records of the Company since the
date of the Interim Company Financial Statements (collectively, the “Accounts Receivable”), unless paid prior to the Closing
Date, and except to the extent and net of the aggregate amount reserved against
thereon as set forth in the Interim Company Financial Statements (the “A/R Reserve”), represent valid obligations arising from
sales actually made or services actually performed by the Company in the
Ordinary Course of Business.  Schedule 2.24
sets forth a true, accurate and complete list (identifying the name and address
of the obligor, amount owed and aging) of the Accounts Receivable as of the
date of the Interim Company Financial Statements and at the Cut-Off Time.  Except as set forth on Schedule 2.24,
the Accounts Receivable are owned by the Company free and clear of all Liens,
other than Permitted Liens and except to the extent otherwise reserved against
or reflected in the Interim Company Financial Statements.  To the Knowledge of Seller and the Company,
there is no contest, claim or right of set-off under any Contract with the obligor
of any Accounts Receivable.

 

Section 2.25                            Inventories.

 

(a)                             Except
as set forth in Schedule 2.25(a):

 

(i)                                    The
inventories held by the Company are reflected in the balance sheet dated as of March 31,
2005 included in the Interim Company Financial Statements, and in

 

21

 

the Pre-closing
Inventory for additional inventory reflected on the books and records of the
Company since the date of the Interim Financial Statements, at the lower of
cost or market value in accordance with GAAP;

 

(ii)                                None
of such inventories have been written up in value or repurchased by, or
returned to, the Company at an increased value;

 

(iii)                            All
such inventories are owned by the Company free and clear of all Liens, other
than Permitted Liens and except to the extent otherwise reserved against or
reflected in the Interim Company Financial Statements; and

 

(iv)                               To
the Knowledge of the Company, there are no material adverse conditions that
affect the supply of materials available to the Company, and to the Knowledge
of Seller and the Company, the consummation of the transactions contemplated
hereby will not adversely affect any such supply.

 

(b)                             Schedule 2.25(b) lists
a true, complete and accurate inventory of all Inovonics Transmitter Systems
owned by the Company and designed for use to replace MTI Transmitter Systems
listed on Schedule 2.20(c) (the “Replacement
Transmitters”).

 

Section 2.26                            No
Undisclosed Liabilities.  Except (a) as
and to the extent of the amounts specifically reflected or accrued for in the
balance sheet dated as of March 31, 2005 included in the Interim Company
Financial Statements, (b) for current liabilities and obligations incurred
in the Ordinary Course of Business since such balance sheet date, (c) as
to the specific matters disclosed in or arising out of matters set forth on Schedule 2.26
and the other Seller Schedules or which are the subject of other
representations and warranties in this ARTICLE II and (d) liabilities
or obligations which do not have a Material Adverse Effect on the Company, to
the Knowledge of Seller, the Company does not have any liabilities or
obligations of any nature (whether matured, absolute, accrued, contingent,
conditional or otherwise, and whether due or to become due), and to the Seller’s
Knowledge, there is no basis for the assertion or recovery against the Company
of any liability or obligation not excepted by the preceding clauses (a) through
(d) of this Section 2.26.

 

Section 2.27                            Employee
Benefit Plans; ERISA.

 

(a)                             Set
forth on Schedule 2.27(a), is a complete and accurate list of all
Employee Benefit Plans under which any of the Company’s employees, or any
dependents thereof, participates or benefits or are eligible to participate or
benefit.

 

(b)                             As
used in this Agreement, the term “Employee Benefit Plans”
means:  (i) any “employee benefit
plan” or “plan” within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”);
and (ii) all plans or policies providing for “fringe benefits” (including
vacation, paid holidays, personal leave, employee discounts, educational
benefits or similar programs), and each other bonus, incentive compensation,
deferred compensation, profit sharing, stock, severance, retirement, health,
life,

 

22

 

disability, group insurance, employment,
stock option, stock purchase, stock appreciation right, performance share,
supplemental unemployment, layoff, consulting, or any other similar plan,
agreement, policy or understanding (whether written or oral, qualified or
nonqualified, currently effective or terminated), and any trust, escrow or
other agreement related thereto, which:  (A) is
or has been established, maintained or contributed to by Seller or the Company
or any other corporation or trade or business under common control with Seller
(an “ERISA Affiliate”) as determined under Section 414(b),
(c) or (m) of the Code with respect to Seller, or with respect to which
Seller has or may have any liability that could affect Seller or Seller’s
assets, properties, operations, or activities; or (B) provides benefits,
or describes policies or procedures applicable, to any present or former
director, officer or employee of Seller or any dependent thereof, regardless of
whether funded.  Employee Benefit Plans
also includes any written or oral representations made to any present or former
director, officer or employee of 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 Section 4980B of the
Code).

 

(c)                             Seller
has made available to Purchaser a true, accurate and complete copy of each
Employee Benefit Plan under which any of the Company’s employees, or any
dependents thereof, participates or benefits or are eligible to participate or
benefit and, if applicable, related trust agreements, all amendments thereto
and written interpretations thereof, the most recently disseminated summary
plan description and an explanation of any material plan modifications made
after the date thereof, and the most recent determination letter received from
the Internal Revenue Service, if applicable. 
Seller has no formal plan or commitment, whether legally binding or not,
to create any additional Employee Benefit Plans or modify or change any
existing Employee Benefit Plans that would affect any employee of the Company,
or any dependent or beneficiary thereof.

 

(d)                             Seller
or an ERISA Affiliate other than the Company is the primary sponsoring employer
of each Employee Benefit Plan that covers any employees of the Company, or any
dependents thereof.

 

(e)                             Each
Employee Benefit Plan under which any of the Company’s employees, or dependents
thereof, participates or benefits or are eligible to participate or benefit,
and each agreement, contract or other commitment, obligation or arrangement
relating to any Employee Benefit Plan or the assets of any Employee Benefit
Plan (or its related trust) including, but not limited to, each administrative
services agreement, insurance policy or annuity contract, may be amended or
terminated to reflect the withdrawal of the Company as a covered or
participating employer at any time without any liability to the Company, other
than liabilities which would not have a Material Adverse Effect on the Company.

 

(f)                               To
the Knowledge of Seller and the Company, each Employee Benefit Plan has been
operated in all material respects in compliance with applicable ERISA and Tax
qualification requirements and all other applicable Laws.

 

23

 

(g)                            There
is no Employee Benefit Plan that is maintained or contributed to by Seller or
any ERISA Affiliate that is or was subject to Part 3 of Title I of ERISA
or Title IV of ERISA and none of the Employee Benefit Plans is or was a “multiple
employer plan” or a “multi-employer plan” (as described or defined in ERISA or
the Code).

 

(h)                            Except
for coverage required under Code Section 4980B, no written or oral
representations have been made by, or on behalf of, the Company, the Seller or
any ERISA Affiliate to any employee or officer or former employee or officer of
the Company promising or guaranteeing any coverage under any employee welfare
benefit plan (as defined in ERISA Section 3(1)) for any period of time
beyond the end of the current plan year.

 

(i)                               Other
than routine claims for benefits, there are no material actions, suits, claims,
audits or investigations pending for which the Company has received written
notice or, to the Knowledge of Seller and the Company, threatened in writing
against, or with respect to, any of the Employee Benefit Plans or their assets,
trustees or administrators; and all contributions required to be made to the
Employee Benefit Plans have been made timely and, in all material respects, in
accordance with applicable Laws.

 

(j)                               Purchaser
does not, directly or indirectly, assume or otherwise
take any responsibility for contributions or benefits under, or the
administration, maintenance or sponsorship of, any of the Employee Benefit
Plans of Seller, and Purchaser shall have no liability therefore.

 

Section 2.28                            Certain
Business Practices.  Since April 3,
2000, to the Knowledge of Seller, neither the Company nor any directors,
officers, representatives, agents or employees of the Company (in their
capacities as such) has, directly or indirectly:  (a)  (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful purposes
relating to political activity, (ii)  made any unlawful payment to foreign
or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended and including any corresponding provisions of
succeeding law, and the regulations promulgated thereunder (the “FCPA”), or (iii) made any other unlawful payment; (b) made
or received any contribution, gift, bribe, rebate, payoff, influence payment,
kickback or other payment to or from any Person, private or public, regardless
of the 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 (iv) in
violation of any applicable Laws; or (c) established or maintained any
fund or asset that has not been recorded in the books and records of the
Company.

 

Section 2.29                            Customers
and Suppliers.  Except as set
forth on Schedule 2.29, no customer of the Company that accounted
for more than five percent (5%) of the consolidated revenues or income of the
Company during both the last full fiscal year ending December 31, 2004 and
the interim period ending May 31, 2005 has advised the Company in writing
that, with respect to customers of the Company, such customer will stop or
materially terminate buying materials, products or services from the
Company.  No supplier of the Company that
is a sole

 

24

 

supplier of any
significant product or component to the Company, has advised the Company in
writing that it will stop, or materially decrease the rate of, supplying
materials, products, or services to the Company.

 

Section 2.30                            Brokers.  Except as set forth on Schedule 2.30,
no broker, finder or investment banker is entitled to any brokerage, finder’s
or other fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of Seller or the
Company.  Seller is responsible for and
will pay in full the fee owed each Person listed on Schedule 2.30
in connection with the transactions contemplated hereby.

 

Section 2.31                            Bank
Accounts.  Schedule 2.31
lists all of the deposit, savings, money market and other accounts at banks or
other financial institutions (with each identified by name of the bank, name of
the account, account number and the name of any Person authorized to withdraw
from or access the account) where any funds or monies of the Company are kept
or deposited.

 

Section 2.32                            Disclaimer
of Additional and Implied Warranties.  Seller is making no representations or
warranties, expressed or implied, of any nature whatsoever except as
specifically set forth in ARTICLE II.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser hereby makes the representations
and warranties set forth in this ARTICLE III to Seller.

 

Section 3.1                                   Organization
and Authority.

 

(a)                             Purchaser
is a limited partnership duly organized, validly existing and in good standing
under the Laws of the State of Delaware. 
Purchaser has all requisite limited partnership power and limited
partnership authority to carry on its business as it is now being conducted,
and to own, lease and operate its properties and assets, and to perform all its
obligations under the agreements and instruments to which it is a party or by
which it is bound.  Purchaser is duly
qualified to do business as a foreign limited partnership and is in good standing
under the Laws of each state or other jurisdiction in which the properties and
assets owned, leased or operated by it or the nature of the business conducted
by it make such qualification necessary, except in such jurisdictions where the
failure to be duly qualified or in good standing would not have or be a
Material Adverse Effect on Purchaser.

 

(b)                             True,
correct and complete copies of the Organizational Documents of Purchaser, with
all amendments thereto through the date of this Agreement, have been delivered
by Purchaser.

 

Section 3.2                                   Authority
Relative to Agreement. 
Purchaser has full limited partnership power and authority to execute
and deliver this Agreement, and the Transaction Documents to which it is a
party, and no further proceedings on the part of Purchaser are necessary to

 

25

 

consummate the
transactions contemplated hereby.  This
Agreement and the Transaction Documents to which Purchaser is a party has been
duly and validly executed and delivered by Purchaser, and this Agreement, and
the Transaction Documents to which Purchaser is a party will constitute the
valid and binding obligation of Purchaser enforceable against Purchaser in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, or other similar Laws relating to creditors’ rights
generally and general equitable principles.

 

Section 3.3                                   No
Violation.  Neither the
execution, delivery nor performance of this Agreement, in its entirety, nor the
consummation of the transactions contemplated hereby, as of the Closing Date, (i) to
Purchaser’s knowledge, violates (“Purchaser’s Violation”)
in any material respect any Law , order, writ, judgment, injunction, award,
decree, rule, statute, ordinance or regulation applicable to Purchaser, (ii) is
in conflict with, results in a breach or termination of any provision of,
causes the acceleration of the maturity of any debt or obligation pursuant to,
constitutes a default (or gives rise to any right of termination, cancellation
or acceleration) under, or results in the creation of any Lien upon any
currently owned property of Purchaser pursuant to, any terms, conditions or
provisions of any note, license, instrument, indenture, mortgage, deed of trust
or other agreement or understanding or any other restriction of any kind or
character, to which Purchaser is a party or by which any currently owned
property of Purchaser is subject or bound (collectively, “Purchaser’s
Default”), or (iii) conflicts (“Purchaser’s
Conflict”) with or results in any breach of any provision of the
Certificate or Articles of Incorporation or Bylaws of Purchaser, which
Purchaser’s Violation, Purchaser’s Default or Purchaser’s Conflict could
reasonably be expected to have or be a Material Adverse Effect on Purchaser.

 

Section 3.4                                   Consents
and Approvals.  No prior consent, approval or
authorization of, or declaration, filing or registration with any person,
domestic or foreign, is required of or by Purchaser in connection with the
execution, delivery and performance by Purchaser of this Agreement and the
transactions contemplated hereby.

 

Section 3.5                                   Investment
Intent.

 

(a)                             Purchaser
is acquiring the Shares for its own account for investment and not with a view
toward resale or redistribution in a manner which would require registration
under the Securities Act of 1933, as amended (the “Securities
Act”), or the securities laws of any state, and Purchaser does not
presently have any reason to anticipate any change in its circumstances or other
particular occasion or event which would cause it to sell the Shares or any
part thereof or interest therein. 
Purchaser has not offered or sold the Shares or any part thereof or
interest therein, and has no present intention of dividing the Shares with others
or of reselling or otherwise disposing of the Shares or any part thereof or
interest therein either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or nonoccurrence of any
predetermined event or circumstance.

 

26

 

(b)                             Purchaser
acknowledges that (i) its acquisition of the Company involves a high
degree of risk and (ii) it understands that the purchase of the Shares is
an illiquid investment.

 

(c)                             Purchaser
acknowledges that Seller has made available, or caused the Company to make
available, to Purchaser the opportunity to evaluate the merits and risks
associated with ownership of the Shares, including information related to the
financial position and results of operations of the Company.  Specifically, Purchaser acknowledges receipt
of the Company Financial Statements and Purchaser has had access to officers of
the Company to make such further inquiry as Purchaser has deemed
appropriate.  Purchaser represents that
it has made other investments of a similar nature or, by reason of Purchaser’s
business and financial experience and of the business and financial experience
of those persons it has retained to advise it with respect to its purchase and
ownership of the Shares, it is a sophisticated, well-informed investor and has
acquired the capacity to protect its own interest in investments of this
nature.  In reaching the conclusion that
it desires to acquire the Shares, Purchaser has carefully evaluated its financial
resources and investment position, and the risks associated with this
investment and acknowledges that it is able to bear the economic risks of this
investment.

 

Section 3.6                                   Financing.  Purchaser has sufficient capital resources to
enable Purchaser to pay the Purchase Price in accordance with Section 1.2
and to effect the other transactions contemplated by this Agreement at the
Closing Date.

 

Section 3.7                                   Disclaimer
of Additional and Implied Warranties.  Purchaser is making no representations or
warranties, express or implied, of any nature whatsoever except as specifically
set forth in ARTICLE III of this Agreement.

 

ARTICLE IV

CERTAIN TAX MATTERS

 

Section 4.1                                   Preparation
and Filing of Returns.

 

(a)                             Seller
shall prepare and timely file, or shall cause to be prepared and timely filed,
at its cost and expense, the following Returns with respect to the Company or
in respect of its businesses, assets or operations:

 

(i)                                    All
Returns for any Taxes for any taxable period ending on or before the Closing
Date imposed upon, or measured by, income; and

 

(ii)                                All
other Returns required to be filed (taking into account extensions) prior to
the Closing Date.

 

(b)                             Any
Return to be prepared and filed by Seller in accordance with Section 4.1(a) shall,
to the extent permitted by applicable Laws, be prepared on a basis consistent
with the last previous Return of the Company.

 

27

 

(c)                             Purchaser
shall prepare and timely file, or shall cause to be prepared and timely filed,
at its cost and expense, all other Returns with respect to Company or in
respect of its businesses, assets or operations.

 

(d)                             Any
Return to be prepared and filed by Purchaser for taxable periods beginning
before the Closing Date and ending after the Closing Date shall, to the extent
permitted by applicable Law, be prepared on a basis consistent with the last
previous Return of the Company.

 

Section 4.2                                   Tax
Indemnification by Seller. 
Seller shall indemnify the Purchaser Indemnified Parties (as defined in Section 8.2
below) in respect of, and hold the Purchaser Indemnified Parties harmless
against (i) the failure to perform any covenant or agreement set forth in
this Article IV, and (ii) without duplication, the following
Taxes:

 

(a)                             Any
and all Taxes due and payable by the Company for any taxable period ending
(or deemed pursuant to Section 4.4(b) to end) on or
before the Closing Date; and

 

(b)                             Any
liability of the Company for Taxes for periods ending (or deemed pursuant to Section 4.4(b) to
end) on or before the Closing Date under Treasury Regulation Section 1.1502-6
or under any comparable or similar provision under state, local or foreign laws
or regulations except to the extent of the accruals or reserves for Taxes set
forth on the Closing Date Balance Sheet.

 

Section 4.3                                   Tax
Indemnification by Purchaser. 
Purchaser shall indemnify the Seller Indemnified Parties in respect of,
and hold the Seller Indemnified Parties harmless against, any and all Taxes for
any taxable period beginning (or deemed pursuant to Section 4.4(b) to
begin) after the Closing Date.

 

Section 4.4                                   Allocation
of Certain Taxes.

 

(a)                             The
Parties agree that if the Company is permitted but not required under
applicable state or local Tax Laws to treat the Closing Date as the last day of
a taxable period, the Parties shall treat such day as the last day of a taxable
period.  The Parties agree that they will
treat the Company as if it ceased to be part of the affiliated group of
corporations of which Seller is a member within the meaning of Section 1504
of the Code, and any comparable or similar provision of state, local or foreign
Laws, at the Effective Time.

 

(b)                             Any
Taxes for a taxable period ending after the Closing Date with respect to the
Company shall be paid by Purchaser or the Company, and the Taxes for such
period shall be apportioned for purposes of Section 4.2 and Section 4.3
between the Parties based on the actual operations of the Company during the
portion of such period ending on the Closing Date, if any, and the portion of
such period beginning on the day following the Closing Date, and for purposes
of the provisions of Section 4.2, Section 4.3 and Section 4.5,
each portion of such period shall be deemed to be a taxable period (whether or
not it is in fact a taxable period).  Any
Taxes allocated or apportioned by means of this Section 4.4(b) shall,
to the extent allocated to

 

28

 

the period before
the Closing Date, be for the account of Seller and any Taxes allocated or
apportioned by means of this Section 4.4(b) shall, to the
extent allocated to the period after the Closing Date, be for the account of
Purchaser.

 

(c)                             Seller
shall make any payment of Taxes apportioned under Section 4.4(b) for
which it is liable under Section 4.2(a) to Purchaser not later
than five Business Days prior to the due date for the payment of such Taxes
(including estimated Taxes).

 

(d)                             The
Parties agree that neither Seller nor Purchaser shall, in connection with the
purchase of the Shares under this Agreement, make any election under Section 338
of the Code.

 

Section 4.5                                   Refunds
and Carrybacks.

 

(a)                             Seller
shall be entitled to an amount equal to any refunds (including any interest
paid thereon) or credits of Taxes attributable to taxable periods ending (or
deemed pursuant to Section 4.4(b) to end) on or before the
Closing Date to the extent such refunds (including any interest paid thereon)
or credits were not included in the Closing Date Balance Sheet.  Purchaser shall promptly notify Seller in
writing of any Tax refund(s) received by or payable to the Company after the
Closing in respect of periods before or including the Closing Date.

 

(b)                             Purchaser,
the Company, and/or their Affiliates, as the case may be, shall be entitled to
any refunds (including any interest paid thereon) or credits of Taxes
attributable to (i) taxable periods beginning (or deemed pursuant to Section (b) to
begin) after the Closing Date and (ii) taxable periods ending (or deemed
pursuant to Section 4.4(b) to end) on or before the Closing
Date to the extent such refunds (including any interest paid thereon) or
credits were included in the Closing Date Balance Sheet.

 

(c)                             Purchaser
shall, or shall cause the Company promptly to, forward to or reimburse Seller
for any refunds (including any interest paid thereon) or credits due Seller
(pursuant to the terms of this Agreement) after receipt thereof, and Seller
shall promptly forward to Purchaser or reimburse Purchaser for any refunds
(including any interest paid thereon) or credits due Purchaser after receipt
thereof.

 

(d)                             Purchaser
and Seller agree that the Company shall not carry back in respect to any
consolidated, combined or unitary Return any item of loss, deduction or credit
which arises in any taxable period ending after the Closing Date to any taxable
period ending on or before the Closing Date.

 

Section 4.6                                   Cooperation
on Tax Matters; Tax Audits.

 

(a)                             The
Parties and their respective Affiliates shall cooperate in the preparation of
all Returns for any Tax periods for which one Party could reasonably require
the assistance of the other Party in obtaining any necessary information.  Such cooperation shall include, but not be
limited to, furnishing prior years’ Returns or return preparation packages to

 

29

 

the extent related to a Company or Subsidiary
illustrating previous reporting practices or containing historical information
relevant to the preparation of such Returns, and furnishing such other
information within such Party’s possession requested by the Party filing such
Returns as is relevant to their preparation. 
Such cooperation and information also shall include without limitation
provision of powers of attorney for the purpose of signing Returns and defending
audits and promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any applicable governmental authority
responsible for the imposition of Taxes (the “Taxing
Authority”) which relate to the Company, and providing copies of all
relevant Returns to the extent related to either Company, together with
accompanying schedules and related workpapers, documents relating to rulings or
other determinations by any Taxing Authority and records concerning the
ownership and tax basis of property, which the requested Party may
possess.  The Parties and their
respective Affiliates shall make their respective employees and facilities
available on a mutually convenient basis to explain any documents or
information provided hereunder.

 

(b)                             Purchaser
shall promptly notify Seller in writing of any written notice of a proposed
assessment or claim in an audit or administrative or judicial proceeding
involving the Company which, if determined adversely to the taxpayer, would be
grounds for indemnification under this ARTICLE IV; provided,
however, that a failure to give such notice will not affect Purchaser’s
right to indemnification hereunder, except to the extent, if any, that, but for
such failure, Seller could have avoided the Tax liability in question.  In the case of an audit or administrative or
judicial Proceeding that relates to any pre-Closing taxable year or period,
provided that within thirty (30) days after Seller receives the written notice
from Purchaser required under this  Section 4.6(b) and
prior to taking any action with respect to such audit or administrative or
judicial proceeding, Seller acknowledges in writing its liability under this Section 4.6
to hold the Purchaser Indemnified Parties harmless against the full amount of
any adjustment which may be made as a conduct of such audit or proceeding; provided,
however, that Seller shall not settle or otherwise compromise any issue or
matter without Purchaser’s prior written consent if such issue or matter will
have a material affect on the Tax liability of Purchaser or the Company for a
post-Closing taxable year or period. 
Purchaser also may participate in any such audit or proceeding.  Purchaser may, without any effect to its
right to indemnification under this ARTICLE IV, to defend the same
in such manner as it may deem appropriate, including, but not limited to,
settling such audit or proceeding.  Except as provided otherwise in this ARTICLE IV,
Purchaser shall control at its own expense any and all audit, administrative
and judicial proceedings related to the Company or the Company’s Taxes.

 

Section 4.7                                   Termination
of Tax-Sharing Agreements. 
All Tax sharing agreements or similar arrangements with respect to or
involving the Company shall be terminated prior to the Closing Date and, after
the Closing Date, the Company shall not be bound thereby or have any liability
thereunder for amounts due in respect of periods ending on or before the
Closing Date.

 

Section 4.8                                   Tax
Claims.  Notwithstanding any
provision of this Agreement to the contrary, this ARTICLE IV shall
govern all indemnity or other claims related to, or in respect of, Taxes
(collectively, “Tax Claims”) and the provisions
set forth in ARTICLE VIII of this Agreement shall not apply or have
any effect on Tax Claims.  Purchaser and
Seller agree that any

 

30

 

amounts paid by
either of them to the other Party pursuant to this ARTICLE IV or
pursuant to ARTICLE VIII of this Agreement shall be treated as an
adjustment to the Purchase Price for all Tax purposes.

 

ARTICLE V

ADDITIONAL COVENANTS

 

Section 5.1                                   Access
To, and Information Concerning, Properties and Records.   Intentionally Omitted.

 

Section 5.2                                   Public
Announcements.  Without the prior
written approval of Seller (in the case of a release or statement by Purchaser)
or Purchaser (in the case of a release or statement by Seller), no Party hereto
will issue, or permit any agent or Affiliate of such Party to issue, any press
releases or otherwise make, or cause any agent or Affiliate of such Party to
make, any public statements with respect to this Agreement and the transactions
contemplated hereby, except when such release or statement is deemed in good
faith by the releasing Party to be required by applicable Laws or under the
applicable rules and regulations of a stock exchange or market on which
the securities of the releasing Party or any of its Affiliates are listed.  In each case to which such exception applies,
the releasing Party will use its reasonable efforts to provide a copy of such
release or statement to Purchaser (in the case of a release or statement by
Seller) or Seller (in the case of a release or statement by Purchaser) and
incorporate any reasonable changes which are suggested by such non-disclosing
Party prior to releasing or making the statement.  Without limiting the foregoing, Seller will
file a Form 8-K in connection with this Agreement and the transactions
contemplated by this Agreement containing such information as Seller deems
appropriate.

 

Section 5.3                                   Good
Faith Efforts to Consummate Transactions.  Subject to the terms and conditions of this
Agreement, Purchaser and Seller agree to use reasonable good faith efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper, or advisable under this Agreement and applicable Laws
and regulations, to consummate and make effective, as soon as practicable after
the Effective Date, the transactions contemplated by this Agreement, including,
without limitation, securing all third-party approvals and the Required
Regulatory Approvals necessary to consummate the transactions provided herein
and to satisfy the other conditions to Closing contained herein as soon as
reasonably practicable.  Each Party agrees
to make copies of its respective regulatory filings and related correspondence
to regulatory agencies available to the other Party.  Notwithstanding any provision contained in
this Agreement to the contrary, Seller shall direct the initiation and prosecution of, and through
counsel of its own choosing will have control over, all filings and Proceedings
before any Governmental Bodies in order to obtain the Required Regulatory
Approvals.

 

Section 5.4                                   Company’s
Employees.  During the pendency
of the transactions contemplated hereby, Seller shall cause the Company, to the
extent not prohibited by Law or Contract, to give to Purchaser and its representatives access, upon reasonable request and at
reasonable times, throughout the period prior to the Closing, to all employees
of Company.

 

31

 

Section 5.5                                   Resignations.  On or prior to the Closing Date, each of
Peter J. Moerbeek, James Wisener, David Rodrigue, and Cheryl L. Clary shall resign, in writing, from all positions held by him as
an officer, director, employee, consultant and/or independent contractor of the
Company, effective as of the Closing Date.

 

Section 5.6                                   Further
Assurances.  Seller and Purchaser
each agree that from time to time after the Closing Date, they will execute and
deliver, and will cause their respective Affiliates to execute and deliver such
further documents and instruments, and take, and cause their respective
Affiliates to take such other action, as may be reasonably necessary to carry
out the purposes and intents of this Agreement.

 

Section 5.7                                   Restrictive
Covenants. Seller and Purchaser covenant and agree as follows:

 

(a)                             Statement
of Enforceability.  Seller
acknowledges that this Section 5.7 is entered into in conjunction
with the sale of a going concern business and is fully enforceable as written
under Tex. Bus. Comm. Code §15.50 and other applicable Laws.  Seller further acknowledges that the
provisions in this Section 5.7 are conditions precedent and
material inducements to Purchaser entering into this Agreement and consummating
the transactions contemplated by this Agreement.

 

(b)                             Noncompetition
Covenant.  Seller agrees that,
during the Restricted Period, it will not, and will not permit any other Seller
Restricted Person, to, for itself or any other Person, engage in any Restricted
Activity anywhere in the Restricted Territory, except on behalf of the Company
in providing any transition services agreed upon in writing by the Parties in
connection with this Agreement.

 

(c)                             Nonsolicitation
Covenant.  Seller agrees that,
during the Restricted Period (except for employment advertisements which are
placed in newspapers or other periodicals of general circulation), it will not,
and will not permit any other Seller Restricted Person, for itself or any other
Person, to directly or indirectly, induce or attempt to induce any Person Known
to Seller to be employed by the Purchaser Group in a managerial or supervisory
capacity to leave the employ of the Purchaser Group, except, in each case, if
such Person first solicits any Seller Restricted Person.

 

(d)                             Mutual
Nondisparagement Covenant. Neither any of the Seller Restricted
Persons, on the one hand, nor the Purchaser Group, on the other hand, will, or
encourage any of their respective shareholders, directors, officers, employees,
or agents to, at any time during or after the Restricted Period, disparage the
other Party or any of its shareholders, directors, officers, employees, agent,
Subsidiaries, or Affiliates.

 

(e)                             Remedies.

 

(i)                                    Injunctive
Remedy.  Seller acknowledges that
the foregoing restrictions in this Section 5.7 (the “Restrictions”),
including those relating to geographic area,

 

32

 

duration and scope of activity, in view of
the nature of the business in which the Purchaser Group has been, is and will
be engaged, are reasonable and necessary in order to protect the goodwill and
other legitimate business interests of the Purchaser Group, and that any
violation thereof would result in immediate and irreparable injury to the
Purchaser Group, and Seller, therefore, further acknowledges that, in the event
it violates, or threatens to violate, any of the Restrictions, the Purchaser
Group will be entitled to obtain from any court of competent jurisdiction,
without the posting of any bond or other security, preliminary and permanent
injunctive relief as well as damages and an equitable accounting of all
earnings, profits and other benefits arising from such violation, which rights
will be cumulative and in addition to any other rights or remedies in law or
equity to which it may be entitled.  If
Seller violates any of the Restrictions, the applicable restricted period will
be tolled from the time of commencement of the violation until such time as the
violation has been cured to the Purchaser Group’s satisfaction.  If any Restrictions, or any part thereof, are
determined in any Proceeding to be invalid or unenforceable, the remainder of
the Restrictions will not thereby be affected and will be given full effect
without regard to the invalid provisions. 
If the Restrictions should be adjudged unreasonable in any Proceeding,
then the reviewing Governmental Body or other Person will have the power to
reform the Restrictions to the extent reasonably necessary to make the
Restrictions valid and enforceable and, in the modified form, such provisions
will then be enforceable and must be enforced.

 

(ii)                                Survival.  Notwithstanding any other provision of this
Agreement, the provisions of this Section 5.7 will survive for the
Restricted Period, and longer with respect to Section 5.7(d).

 

Section 5.8                                   Certain
Employee Matters.

 

(a)                             Foltz
Employment Agreement.

 

(i)                                    Schedule 5.8(a)-1
is a true, correct and complete copy of the Master Tek International, Inc.
Key Employee Agreement between Greg Foltz (“Foltz”)
and the Company dated June 18, 2004 (the “Employment
Agreement”).  Schedule 5.8(a)-2
is a true, correct and complete list of the commission schedule which
Purchaser would cause Company to offer to Foltz, assuming the closing of the
transactions contemplated hereby (the “Purchaser Commission Schedule”),
but for the existence of the Employment Agreement.

 

(ii)                                Following
the Closing, Seller will reimburse the Company, monthly in arrears through the
remaining term of the Employment Agreement (i.e., through December 31,
2007), an amount equal to (i) the amount the Company actually paid to
Foltz under Sections 3.1, 3.2, and 3.4 of the Employment Agreement (and for no
other payments thereunder) during such period, plus an amount equal to the
employer’s portion of amounts payable under the Federal Insurance Contributions
Act for each payment made to Foltz, plus applicable state and Federal
unemployment insurance for each payment made to Foltz, plus a reasonable fee
for Purchaser’s cost to process payroll payments to Foltz, less (ii) the
amount which Company would have had to pay Foltz pursuant to the Purchaser
Commission Schedule during the same period for the actual work or services
performed by Foltz during such period.

 

33

 

As a condition to each of Seller’s monthly
payments, the Company will provide Seller with reasonable written documents
illustrating and evidencing the determination of the amount to be reimbursed
pursuant to this Section 5.8(b) and evidence of actual
payments made to Foltz.

 

(iii)                            Purchaser
will cause the Company to refrain from amending the Employment Agreement in any
manner (i) that results in Seller being required to make additional or
greater reimbursement payments under Section 5.8(a)(ii); and (ii) without
Foltz’s prior written consent.  Purchaser
will cause the Company to comply with each and all of its obligations under the
Employment Agreement, as such may be amended, which accrue or arise following
the Effective Time.  Purchaser will cause
the Company to materially comply with all applicable Laws with respect to the
Company’s employment of Foltz under the Employment Agreement, as such may be
amended.

 

(b)                             Armstrong
Release.  For and on behalf of
the Company, following the Closing, Seller will timely make each and all of the
payments and reimbursements due to Scott Armstrong under the Armstrong
Release.  Seller will promptly notify
Purchaser in the event that Seller is notified of any dispute or claim relating
to the Armstrong Release.

 

Section 5.9                                   Intercompany
Debt.  Seller will convert the
net amount of Intercompany Debt owed to Seller into equity prior to the Closing
Date without any resulting Tax or other consequences, whether or not adverse,
on the financial condition of the Company. 
The Company shall not be subject to, bound by or obligated to pay any of
the Intercompany Debt following the Effective Time, and all of it is hereby
terminated if not converted.  As used in
this Agreement, the term “Intercompany Debt”
means the aggregate indebtedness as of the Effective Time payable by the
Company to Seller or any of its Affiliates.

 

Section 5.10                            Collection
of Accounts Receivable; Repurchase of Accounts Receivable.

 

(a)                             Following
the Closing Date, Purchaser will cause the Company to collect the Accounts
Receivable in substantially the same manner and with the same effort and
diligence as the Company used in collecting its other accounts receivable
during the 12-month period preceding the date of the Interim Company Financial
Statements.  But, the Company will not be
required to commence litigation or other Proceedings in attempting to collect
any Accounts Receivable.  The Company may
not compromise, settle or adjust the amount of any Accounts Receivable without
Seller’s prior written consent, which shall not be unreasonably withheld or
delayed.  For purposes of this Agreement,
the Accounts Receivable will be deemed to be uncollectible if, after taking
into account and exhausting A/R Reserve, full payment is not collected by the
Company through the collection efforts contemplated by this Section 5.10
within one hundred eighty (180) days following the Closing Date (the “Repurchase Date”).

 

(b)                             Purchaser
shall have the right, by written notice (the “Receivables
Notice”) to Seller given on, or not later than ten (10) days
after the Repurchase Date, to require Seller to repurchase for cash and without
recourse, within sixteen (16) Business Days of the date of the Receivables
Notice, the uncollected account(s) receivable identified in the Receivables

 

34

 

Notice, provided that such account(s)
receivable remains uncollected at such time. 
Seller shall repurchase the applicable uncollected account(s) receivable
for a purchase price equal to its/their aggregate face value, and Seller shall
purchase and pay for such account(s) receivable as provided herein.

 

(c)                             The
repurchase price of the accounts receivables to be purchased shall be paid,
one-half (1/2) of the amount owed through a claim against and deduction from
the Holdback Fund, and the other one-half (1/2) in cash.  The Holdback Fund claim and the cash payment
must be paid to Purchaser within sixteen (16) Business Days after the date of
the Receivables Notice.  To the extent
the amount in the Holdback Fund is insufficient to pay the claim against the
Holdback Fund, such amount will be paid by Seller in cash.

 

(d)                             Purchaser
shall execute and deliver to Seller all instruments as shall be reasonably
necessary to effectively vest in Seller all of the right, title and interest of
Purchaser with respect to any uncollected Accounts Receivable repurchased by
Seller pursuant to this subsection without representation or recourse, but
free and clear of all Liens created by Purchaser following the Closing Date,
other than Permitted Liens.

 

Section 5.11                            MTI
Transmitter System Replacement.

 

(a)                             Following
the Effective Time, Purchaser will cause the Company to continue, with
commercially reasonable diligence, Company’s program of replacing all MTI
Transmitter Systems installed as of the Closing Date in those dwellings or
buildings for which the Company furnishes billing services (including
allocation billing and ratio billing) under a Submetering Contract with
Inovonics Transmitter Systems in a manner consistent with the Company’s past
business practices (the “Replacement Program”).

 

(b)                             Purchaser
shall cause Company to use the Replacement Transmitters only for the
Replacement Program and for no other purpose. 
For each MTI Transmitter System replaced in connection with the
Replacement Program, Purchaser shall have the right to receive for each MTI
Transmitter System replaced an amount equal to Company’s actual and reasonable
third party costs incurred to replace said transmitter or, if a third party is
not engaged to replace the transmitters, a reasonable allocation of the
internal costs actually incurred by the Company (but such allocation of
internal costs actually incurred shall not exceed the reasonable costs of an
independent third party to replace said transmitter).  Purchaser shall not receive any amount on account
of the cost of a Replacement Transmitter. 
To the extent that Replacement Transmitters are insufficient for the
Replacement Program, then Purchaser shall have the right to receive for each
MTI Transmitter System replaced an amount equal to Company’s actual and
reasonable third party cost incurred to acquire additional Inovonics
Transmitter Systems.

 

(c)                             Monthly
Claim Report; Payment.

 

(i)                                    Within
thirty (30) days following the end of each calendar month following Closing
Date through and including December 31, 2005, Purchaser and Company will
deliver to Seller a report certified by officers of Purchaser and Company
reflecting the total

 

35

 

number of MTI Transmitter Systems replaced
during the preceding calendar month pursuant to the Replacement Program, the
address of replacement for each such MTI Transmitter System replaced, the name
of the applicable customer, the number of Replacement Transmitters remaining in
Company’s possession, the total amount due to Purchaser in accordance with Section 5.11(b) on
account of transmitter replacements concluded during the preceding month, and
other facts reasonably requested by Seller (the “Monthly
Claim Report”).  The failure
to deliver the Monthly Claim Report within the 30-day period does not affect
Purchaser’s right to be paid by Seller.

 

(ii)                                Seller
shall have a period of fifteen (15) days after such delivery of the Monthly
Claim Report to (A) acknowledge that the claim stated in the Monthly Claim
Report is accurate and that the amount claimed is correct, in which case
Purchaser shall have the right to receive, by making a written request therefor
to the Escrow Agent, the sum equal to the claim set forth in the applicable
Monthly Claim Report from the Holdback Fund, or (B) deny that either the
Monthly Claim Report is accurate or that the amount claimed is incorrect, in
which case, the Escrow Agent shall retain in the Holdback Fund an amount
reasonably sufficient to pay such unresolved claim if required pursuant to Section 8.8(e).  The failure of Seller to give such notice
within such fifteen (15) day period shall be deemed to be an acknowledgment
that such claim set forth in the Monthly Claim Report and the amount claimed
are correct.

 

(d)                             Concluding
Claim Report; Payment.

 

(i)                                    Within
thirty (30) days following December 31, 2005, Purchaser and Company will
deliver to Seller a report certified by officers of Purchaser and Company
reflecting:  (i) the total number of
MTI Transmitter Systems replaced in the Replacement Program since the Closing
Date, (ii) the address of replacement for each such MTI Transmitter System
replaced, (iii) the name of the applicable customer, (iv) the number
of Replacement Transmitters remaining in Company’s possession, if any, (v) the
number of MTI Transmitter Systems which have not been replaced as of December 31,
2005 in accordance with the Replacement Program, and (vi) Purchaser’s
reasonable estimate of the amounts which will be payable by Seller in
accordance with Section 5.11(b) on account of all transmitter
replacements to be made pursuant to the Replacement Program, and other facts
reasonably requested by Seller (the “Concluding Claim Report”).  The failure to deliver the Concluding Claim
Report within the 30-day period does not affect Purchaser’s right to be paid by
Seller.

 

(ii)                                Seller
shall have a period of fifteen (15) days after such delivery of the Concluding
Claim Report to (A) acknowledge that the claim stated in the Concluding
Claim Report is accurate and that the estimated to be payable is correct, in
which case Purchaser shall have the right to receive, by making a written
request therefor to the Escrow Agent, the sum equal to the claim set forth in
the applicable Concluding Claim Report from the Holdback Fund, or (B) deny
that either the Concluding Claim Report is accurate or that the amount
estimated is incorrect, in which case, the Escrow Agent shall retain in the
Holdback Fund an amount reasonably sufficient to pay such estimate if required
pursuant to Section 8.8(e). 
The failure of Seller to give such notice within such fifteen (15) day
period shall be deemed to be an

 

36

 

acknowledgment that such claim set forth in
the Concluding Claim Report and the amount claimed are correct.

 

Section 5.12                            Employee
and Independent Contractor Matters.

 

(a)                             Immediately
following the Closing and without cost or expense to Seller, Purchaser will
cause the Company to credit each of Company’s employees with such hours of “sick
leave” as each such employee shall have accrued as listed in Schedule 2.13.  Any and all liabilities or costs associated
with crediting and honoring such sick leave will be borne entirely by the Purchaser
and the Company and, as described on Schedule 1.6(b)–C, such costs
shall not be an adjustment to the Closing Date Balance Sheet.

 

(b)                             For
each of Company’s employees and dependents of such employees participating in
medical, dental, life insurance, and long-term disability insurance plans on
the Closing Date, Seller shall maintain and continue coverage through and
including June 30, 2005, at no cost or expense to Purchaser, the Company
or such employees or dependents, of each such employee and dependents in the
same manner as provided immediately prior to the Closing Date.

 

(c)                             If
Seller maintains a group health plan, then Seller will to the extent, and for
the entire period necessary, satisfy the requirements of Code Section 4980
and the group health plan requirements of Chapter 100 of the Code
(collectively, “COBRA”).

 

(d)                             Within
thirty (30) days following the Closing, Seller will assume from the Company all
the liabilities and obligations of the Company under that certain Exclusive
Retainer Agreement, dated January 1, 2004, between Mr. DiGregorio and
the Company (the “DiGregorio Retainer
Agreement”).  Purchaser will
cause the Company to reasonably cooperate with Seller in effecting this
assumption.  Neither Purchaser nor the
Company will have any liability or obligation following the Closing under the
DiGregorio Retainer Agreement.

 

ARTICLE VI

CONDITIONS TO CLOSING

 

Section 6.1                                   Conditions
to Each Party’s Obligation Under this Agreement.  The respective obligations of (i) Purchaser
to purchase and pay for the Shares and (ii) Seller to sell the Shares, at
the Closing are subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:

 

(a)                             The
receipt of any required approvals required by a Governmental Body under
applicable Law for the consummation of the transactions contemplated by this
Agreement and the expiration or termination of any applicable waiting period
with respect thereto;

 

(b)                             All
consents, approvals and waivers from third parties required to be obtained to
consummate the transactions contemplated by this Agreement shall have been obtained;
and

 

37

 

(c)                             The
Closing will not violate any injunction, order or decree of any court or
governmental body having competent jurisdiction.

 

Section 6.2                                   Conditions
to the Obligations of Purchaser Under this Agreement.  The obligations of Purchaser to purchase and
pay for the Shares at the Closing are subject to the satisfaction or waiver of
the following conditions on or prior to the Closing Date:

 

(a)                             All
representations and warranties of Seller shall be true and correct as of the
Effective Date (subject to Seller’s right to cure any inaccuracy or breach of
any representation or warranty set forth herein) and at and as of the Closing,
with the same force and effect as though made on and as of the Closing;

 

(b)                             On
the Closing Date, no Proceeding (excluding any such matter initiated by Seller
or any of its Affiliates) shall be pending or threatened before any
Governmental Body or private tribunal of competent jurisdiction seeking to
enjoin or restrain the consummation of the Closing or recover substantial
damages from Seller or Purchaser or any of their respective Affiliates
resulting therefrom; and

 

(c)                             Seller
shall have performed all obligations and agreements and complied with all
covenants contained in this Agreement to be performed or complied with by it
prior to the Closing Date.

 

Section 6.3                                   Conditions
to the Obligations of Seller Under this Agreement.  The obligation of Seller to sell its Shares
at the Closing is subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:

 

(a)                             All
representations and warranties of Purchaser contained herein shall be true and
correct as of the Effective Date (subject to Purchaser’s right to cure any
inaccuracy or breach of any representation or warranty set forth herein) and at
and as of the Closing, with the same force and effect as though made on and as
of the Closing; and

 

(b)                             Purchaser
shall have performed all obligations and agreements and complied with all
covenants contained in this Agreement to be performed or complied with by it
prior to the Closing Date.

 

ARTICLE VII

TERMINATION; AMENDMENT; WAIVER

 

Section 7.1                                   Termination.

 

(a)                             This
Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time prior to the Closing Date:

 

(i)                                    By
mutual written consent executed by the Parties;

 

38

 

(ii)                                By
Purchaser if there is an inaccuracy or breach of any representation, warranty
or covenant of Seller set forth in this Agreement which breach has not been
cured within thirty (30) days following receipt by Seller of written notice of
such breach and which breach results in or can reasonably be anticipated to
result in a Material Adverse Effect on the Company;

 

(iii)                            By
Seller if there is an inaccuracy or breach of any representation, warranty or
covenant of Purchaser set forth in this Agreement which breach has not been
cured within thirty (30) days following receipt by Purchaser of written notice
of such breach and which breach results in or can reasonably be anticipated to
result in a Material Adverse Effect on the Company; or

 

(iv)                               By
Purchaser or Seller if any court of competent jurisdiction in the United States
of America or other (federal or state) governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have not been terminated, dismissed,
or otherwise vacated within six (6) months after being issued.

 

(b)                             This
Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time prior to the Closing by Purchaser if the amount of the
Purchase Price to paid at the time of Closing, after giving effect to any
adjustments to the Purchase Price required by Section 1.5(b)(i), is
or would be less than $12,000,000.00. 
But, if Purchaser does not terminate this Agreement pursuant to this
Section, then notwithstanding Section 1.5(b)(i) but subject to
Section 1.5(b)(ii), the amount of the Purchase Price paid at the
time of the Closing, as adjusted to the Closing Date, shall not be less than
$12,000,000.00.  However, nothing in this
Agreement restricts the Purchase Price from being reduced below $12,000,000.00
based on adjustments required under Section 1.6 following the
Closing Date.

 

Section 7.2                                   Effect
of Termination.  In the event of
the termination and abandonment of this Agreement pursuant to Section 7.1,
this Agreement shall thereafter become null and void and have no effect,
without any liability on the part of any Party or its directors, officers or
shareholders, other than the provisions of Section 5.2, ARTICLE VIII
and ARTICLE X.

 

Section 7.3                                   Amendment
and Modification.  This Agreement
may be amended, modified, terminated, rescinded, or supplemented only by
written agreement of the Parties.

 

Section 7.4                                   Extension;
Waiver.  At any time prior to the
Closing Date, the Parties may (i) extend the time for the performance of
any of the obligations or other acts of the other Party hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein or in
any document, certificate or writing delivered pursuant hereto, or (iii) waive
compliance with any of the agreements or conditions contained herein.  Any agreement on the part of any Party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by or on behalf of such Party.

 

39

 

ARTICLE VIII

REMEDIES

 

Section 8.1                                   Remedies
for Breach of Representations, Warranties and Covenants of Seller Before the
Closing Date.  Upon execution of
this Agreement through and including the Closing, the exclusive remedy, for any
material inaccuracy or breach of any representation, warranty or covenant in
this Agreement by Seller shall be termination of this Agreement by Purchaser in
accordance with and subject to Section 7.1(b).

 

Section 8.2                                   Indemnification
by Seller.  Except as otherwise
expressly provided in Section 5.1 with respect to Taxes or this ARTICLE VIII,
and subject to Section 8.5 and the other limitations stated in this
ARTICLE VIII and ARTICLE IX, beginning immediately
after the Closing and continuing for the applicable periods after the Closing
Date provided in ARTICLE IX, Seller agrees to and shall defend,
indemnify and hold harmless Purchaser and the Company and their respective
successors, assigns, officers, directors, employees, agents, attorneys,
accountants, financial advisers and representatives (the “Purchaser
Indemnified Parties”) from and against, and shall reimburse the
Purchaser Indemnified Parties for, each and every claim, action, loss, suit,
demand, cost, expense, liability, penalty, assessment, judgment, settlement,
fine, diminution in value and other damage (including incidental and
consequential damages), including, without limitation, reasonable attorney’s
fees (collectively, a ”Loss”) incurred
by any of the Purchaser Indemnified Parties, relating to, resulting from or
arising out of, or any allegation by any third-party of, the following:

 

(a)                             Any
breach of or inaccuracy in any representation or warranty of Seller set forth
in this Agreement or in any of the Transaction Documents;

 

(b)                             Any
breach or nonfulfillment of any covenant, agreement or other obligation of
Seller set forth in this Agreement or in any of the Transaction Documents; or

 

(c)                             Without
limiting the generality of the preceding provisions of this Section 8.2,
any Losses relating to, resulting from or arising out of:

 

(i)                                    Claims
or Proceedings by any of the Company’s directors, officers or employees
relating to this Agreement or the transactions contemplated hereby, or claims
by any of the Company’s current or former shareholders, directors or officers
relating to any matter occurring prior to the Effective Time, including without
limitation, claims for reimbursement of expenses or indemnification under the
Company’s Organizational Documents or otherwise;

 

(ii)                                Subject
to Section 5.11, expenses relating to the Replacement Program, and
to the extent not duplicative, warranty and related claims or Proceedings with
respect to the MTI Transmitter Systems sold and installed by the Company prior
to the Effective Time (the ”Transmitter Warranty Claims”);

 

(iii)                            Claims
or Proceedings by, or on behalf of, Scott Armstrong, or any of his agents,
successors, assigns, heirs or legal representatives, relating to (i) his
employment or

 

40

 

termination of employment with the Company
(including, without limitation, the entering into the Armstrong Release or the
payments and reimbursements due to Scott Armstrong under the Armstrong Release,
or (ii) the Retention and Change of Control Agreement, dated April 11,
2005, between the Company and Scott Armstrong (collectively, the ”Armstrong Claims”);

 

(iv)                               Claims
or Proceedings by, or on behalf of, Foltz, or any of his successors, assigns,
heirs or legal representatives, relating to (1) his employment with the
Company (including, without limitation, under the Employment Agreement),
subject to, following the Closing the Company’s compliance with its obligations
under the Employment Agreement and not violating applicable Laws with respect
to Foltz’s employment, or (2) without limiting the generality of the
preceding clause (1), Claims or Proceedings under Section 3.3, Section 3.4(a),
Section 3.4(b) (but limited only to Claims, if any, as a result of
differences between the “401(k) plan” in effect prior to the Effective Time and
the “401(k) plan” in effect after the Effective Time, or Section 3.5 of
the Employment Agreement, or (3) Claims or Proceedings related to or
arising out of the allegations in that certain letter dated June 8, 2005
from Brett B. Flagg to James C. Wisener, a true, accurate and complete copy of
which has been made available to Purchaser prior to the Closing Date, but only
to the extent the allegations in the letter apply to acts or omissions prior to
or at the Closing (collectively, the “Foltz Claims”);

 

(v)                                   Any
of the following matters disclosed in the Seller Schedules (collectively, the “Disclosed Matters”): 
The conduct of the utility aggregation business in Texas without a
Governmental Authorization issued by the Texas Public Utility Commission or
other applicable Government Body.

 

The foregoing matters giving rise to the
rights of the Purchaser Indemnified Parties to indemnification hereunder are
referred to as the “Purchaser Claims”.

 

With respect to matters not involving any
Proceeding brought or asserted by third-parties, within ten (10) days
after notification from Purchaser supported by reasonable documentation setting
forth the nature of the circumstances entitling Purchaser to indemnity
hereunder, Seller, at no cost or expense to Purchaser, shall diligently
commence resolution of such matters in a reasonably acceptable manner and shall
diligently and timely prosecute such resolution to completion.  With respect to those claims that may be
satisfied by payment of a liquidated sum of money, including, without
limitation, claims for reimbursement of expenses incurred in connection with
any circumstances entitling Purchaser to indemnity hereunder, Seller shall pay
the full amount so claimed to the extent supported by reasonable documentation
within fifteen (15) days of such resolution. 
If litigation or any other Proceeding is commenced or threatened by any
third-party for which Purchaser is entitled to indemnification under this Section 8.2,
the provisions of Section 8.4 shall control.

 

Section 8.3                                   Indemnification
by Purchaser.  Except as
otherwise expressly provided in this ARTICLE VIII, Purchaser agrees
to and shall defend, indemnify and hold harmless Seller from and against, and
shall reimburse Seller and each of Seller’s successors, assigns, officers,
directors, employees, agents, attorneys, accountants, financial advisors, and
representatives

 

41

 

(the ”Seller
Indemnified Parties”) for, each and every Loss, relating to,
resulting from or arising out of, or any allegation by any third-party of, the
following:

 

(a)                             Any
breach of inaccuracy in any representation or warranty of Purchaser set forth
in this Agreement or in any of the Transaction Documents;

 

(b)                             Any
breach or nonfulfillment of any covenant, agreement or other obligation of
Purchaser set forth in this Agreement or in any of the Transaction Documents;
or

 

(c)                             To
the extent applicable, any compliance or non-compliance by the Company on or
after the Closing Date with the Worker Adjustment and Retraining Notification
Act or any similar state or local Law;

 

(d)                             The
failure to obtain (or the refusal to grant) the Consent of or required by or
pursuant to, as the case may be, those Persons listed or referred to in Schedule 2.6
which have not been obtained prior to the Closing Date, except for those
Consents indicated on Schedule 2.6 as being obtained on or prior to
the Closing Date;

 

(e)                             Any
Proceeding relating to events, conditions, operations, facts, circumstances or
acts of Purchaser, the Company or any of their respective Affiliates which
shall occur subsequent to the Closing Date, other than any Proceeding relating
to this Agreement or the transactions contemplated by this Agreement, or as
contemplated by this Agreement as being the responsibility or obligation of
Seller following the Closing.

 

With respect to matters not involving
Proceedings brought or asserted by third parties, within ten (10) days
after notification from Seller or the Company supported by reasonable
documentation setting forth the nature of the circumstances entitling such
party to indemnity hereunder, Purchaser, at no cost or expense to such party
shall diligently commence resolution of such matters in a reasonably acceptable
manner and shall diligently and timely prosecute such resolution to
completion.  With respect to those claims
that may be satisfied by payment of a liquidated sum of money, Purchaser shall
pay the amount so claimed to the extent supported by reasonable documentation
within fifteen (15) days of such resolution. 
If litigation or any other Proceeding is commenced or threatened by any
third-party for which Seller is entitled to indemnification under this Section 8.3,
the provisions of Section 8.4 shall control.

 

Section 8.4                                   Notice
and Defense of Third-Party Claims.  If any Proceeding shall be brought or asserted
by a third-party against an indemnified party or any successor thereto (the “Indemnified Person”) in respect of which indemnity may be
sought under this ARTICLE VIII from an indemnifying person or any
successor thereto (the “Indemnifying Person”)
pursuant to any Proceeding, the Indemnified Person shall give prompt written
notice of such Proceeding to the Indemnifying Person who shall either assume
the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Person and the payment of all reasonable
expenses, or notify the Indemnified Person of its election to tender its
maximum liability, if limited, under this Agreement for such claim to the
Indemnified Person in full and complete satisfaction and release of its
obligation under ARTICLE VIII; provided, that any delay or failure

 

42

 

so to notify the Indemnifying Person shall
relieve the Indemnifying Person of its obligations hereunder only to the
extent, if at all, that it is prejudiced by reason of such delay or
failure.  In no event shall any
Indemnified Person be required to make any expenditure or bring any cause of
action to enforce the Indemnifying Person’s obligations and liability under and
pursuant to the indemnifications set forth in this ARTICLE VIII.  The Indemnified Person shall have the right
to employ separate counsel in any of the foregoing Proceedings and to
participate in the defense thereof, but the reasonable fees and expenses of
such counsel shall be at the expense of the Indemnified Person if there exist
actual conflicts of interest which make representation by the same counsel
inappropriate.  The Indemnified Person’s
right to participate in the defense or response to any Proceeding should not be
deemed to limit or otherwise modify its obligations under this ARTICLE VIII.  In the event that the Indemnifying
Person, within twenty (20) days after notice of any such Proceeding, fails to
assume the defense thereof, the Indemnified Person shall have the right to
undertake the defense, compromise or settlement of such Proceeding for the
account of and at the expense of the Indemnifying Person, subject to the right
of the Indemnifying Person to assume the defense of such Proceeding with
counsel reasonably satisfactory to the Indemnified Person at any time prior to
the settlement, compromise or final determination thereof.  Notwithstanding anything in this ARTICLE VIII
to the contrary, the Indemnifying Person shall not, without the Indemnified
Person’s prior written consent (which consent shall not be unreasonably
withheld or delayed), settle or compromise any Proceeding or consent to the
entry of any judgment with respect to any Proceeding; provided,
however, if the Indemnified Person withholds its consent to a
settlement involving monetary consideration only, the Indemnifying Person may
notify the Indemnified Person of its election to tender the monetary amount of
the proposed settlement to the Indemnified Person in full and complete
satisfaction and release of its obligation under ARTICLE VIII; and provided, further, the Indemnifying Party may settle or
compromise any Proceeding or claim asserted with respect to Transmitter
Warranty Claims asserted by third-party(ies), except to the extent covered by
the Replacement Program and Section 5.11.

 

Section 8.5                                   Limitations
of Liability.

 

(a)                             An
Indemnifying Person shall have no liability under this ARTICLE VIII
unless written notice of a claim for indemnity, or written notice of specific
facts as to which an indemnifiable Loss is expected to be incurred, shall have
been given within the applicable period provided in ARTICLE IX.

 

(b)                             Notwithstanding
any other provision of this Agreement to the contrary, the aggregate liability
of Seller under this Agreement shall not exceed (i) with respect to
breaches or the inaccuracy of any representations or warranties contained in Section 2.1,
Section 2.2, Section 2.3, Section 2.4, Section 2.6,
Section 2.11, Section 2.16 or Section 2.30
an amount equal, in the aggregate, to the Purchase Price, or (ii) with
respect to any of the other representations or warranties in ARTICLE II
of this Agreement, the aggregate amount of $2,000,000.00.  This Section 8.5(b) shall
not apply to limit the liability of Seller for any of the Retained Seller
Liabilities or Tax Claims.

 

43

 

As used in this Agreement, the term “Retained
Seller Liabilities” means:  (i) payment
of the Purchase Price or any adjustments thereto under Section 1.5
or Section 1.6, (ii) the Transmitter Warranty Claims, (iii) the
Armstrong Claims, (iv) the Foltz Claims, (v) Tax Claims, and (vi) the
Disclosed Matters.

 

(c)                             Notwithstanding
any other provision of this Agreement to the contrary, but subject to the last
sentence of this Section 8.5(c), Seller shall be liable for
indemnification under this Agreement only to the extent that the amount of any
indemnifiable Loss, individually or in the aggregate with all other such Losses
covered by this Agreement, exceeds $75,000.00 (the “Basket
Amount”), and in such event, Seller shall be liable only for the
amount of all such Losses that exceed the Basket Amount up to the applicable
indemnification cap under Section 8.5(b).  But, this Section 8.5(c) shall
not apply to limit the liability of Seller for any of the Retained Seller
Liabilities or Tax Claims.

 

(d)                             Notwithstanding
any other provision of this Agreement to the contrary, if Seller has committed
fraud, there shall be no limitations under this Agreement on Seller’s liability
for indemnity or otherwise.

 

(e)                             Purchaser
shall use commercially reasonable efforts to mitigate any Loss suffered,
incurred or sustained by Purchaser arising out of any matter for which
Purchaser is entitled to indemnification herein, upon Purchaser having obtained
actual knowledge of such breach by Seller. 
In the event that Purchaser shall fail to make such commercially
reasonable efforts to mitigate such Loss, then notwithstanding anything else to
the contrary contained herein, Seller shall not be required to indemnify
Purchaser for any Loss that could reasonably be expected to have been avoided
had Purchaser made such efforts.

 

(f)                               In
calculating the amount of any Loss for which any Indemnifying Person is liable
under this ARTICLE VIII, there shall be deducted (i) the
amount of any insurance recoveries, excluding any amounts which are in effect
self-insured whether through retention amounts or otherwise, the Indemnified
Person in fact receives as a direct consequence of the circumstances to which
the Loss related or from which the Loss resulted or arose; and (ii) any
indemnification, contribution or other similar payment actually recovered by
the Indemnified Person from any third-party with respect thereto.  The Indemnified Person agrees to first make
claim against any applicable insurance coverage, including, if applicable, the
insurance coverage for the Company to seek recovery for any Loss, and the
Indemnifying Person shall have the right to pursue such recovery against any
such insurance coverage in the name of the insured.  Seller, Purchaser and the Company hereby
mutually waive all express and/or implied subrogation rights, and assignment of
such rights, against each other in regard to any such insurance claim. The
above-required waivers shall also extend to all Affiliates of Seller,
Purchaser, and the Company, and their respective officers, directors, agents,
and employees.  Any such amounts or
benefits received by an Indemnified Person with respect to any indemnity claim
after it has received an indemnity payment hereunder shall be promptly paid
over to the Indemnifying Person, but not in excess of the amount paid by the
Indemnifying Person to the Indemnified Person with respect to such claim.  For purposes of determining the insurance
recoveries, if Purchaser elects not to maintain insurance coverage identical to
the insurance coverage of the

 

44

 

Company maintained by Seller as of the
Closing Date, Purchaser and the Company shall be deemed to have received
insurance benefits equal to the greater of the insurance benefits Purchaser
and/or Company, as the case may be, would have received had it maintained such
insurance policies in effect after the Closing or the insurance benefits it
actually receives.

 

(g)                            In
the event that (i) any condition set forth in ARTICLE VI is
not satisfied, (ii) the failure of such condition to be satisfied is
waived in writing by the Party or Parties entitled to the benefit of such
condition, and (iii) the Parties nevertheless consummate the transactions
contemplated by this Agreement at the Closing, then the Parties shall be deemed
to have waived any claim for Loss or other relief only to the extent that such
Loss or other relief relates solely and directly to such condition that was so
waived.

 

(h)                            NOTWITHSTANDING
ANY OTHER PROVISION OF THIS AGREEMENT, ABSENT FRAUD NO PARTY HERETO SHALL HAVE
ANY LIABILITY UNDER THIS AGREEMENT FOR CONSEQUENTIAL DAMAGES (SUCH AS LOSS OF
PROFIT), OR, MULTIPLE, TREBLE, EXEMPLARY OR PUNITIVE DAMAGES OF ANY TYPE UNDER
ANY CIRCUMSTANCES REGARDLESS OF WHETHER SUCH DAMAGES MAY BE AVAILABLE
UNDER TEXAS LAW, THE LAW OF ANY OTHER STATE, OR FEDERAL LAW.

 

Section 8.6                                   Exclusive
Remedies.

 

(a)                             Except
with respect to Tax Claims (which are governed solely by ARTICLE IV),
and absent fraud, the remedies of the Parties specifically provided for by this
ARTICLE VIII shall be the sole and exclusive remedies of the
Parties for (i) any breach or inaccuracy of the representations and
warranties contained in this Agreement or any of the Transaction Documents, or (ii) the
failure to perform any covenants, agreements or obligations contained in this
Agreement, any Transaction Document or in any other agreement or document
furnished or delivered pursuant hereto.

 

(b)                             Without
limiting the generality of the foregoing provisions of Section 8.6(a),
the Parties acknowledge and agree that, before the Closing Date, Section 8.1
provides the exclusive remedies for any material breach or inaccuracy of the
representations, warranties and covenants of Seller contained in this
Agreement.

 

Section 8.7                                   Mediation.  Before either Party may initiate any suit,
arbitration or other Proceeding, the Parties pledge to attempt first to resolve
the controversy or claim arising out of or relating to this Agreement (“Dispute”) by mediation before a mutually acceptable mediator
within thirty (30) days after either Party first gives notice of
mediation.  Mediation shall be conducted
in Dallas, Texas and shall be conducted and completed within sixty (60) days
following the date either Party first gives notice of mediation.  The fees and expenses of the mediator shall
be shared equally by the Parties.  The
mediator shall be disqualified as a witness, expert or counsel for any party
with respect to the Dispute and any related matter.  Mediation is a compromise negotiation and
shall constitute privileged communications. 
The entire mediation process shall be confidential and the conduct,
statements, promises, offers, views and opinions of

 

45

 

the mediator and the Parties shall not be
discoverable or admissible in any legal Proceeding for any purpose; provided,
however, that evidence which is otherwise discoverable or admissible shall
not be excluded from discovery or admission as a result of its use in the
mediation.

 

Section 8.8                                   Holdback
Fund.

 

(a)                             Escrow
of Holdback Fund.  At the
Closing, Purchaser shall cause the Holdback Fund to be delivered, by wire
transfer of immediately available funds to and directly deposited with,
JPMorgan Chase Bank, a National Association (the “Escrow Agent”),
on behalf of Seller, in escrow for the account and future potential benefit of
Seller.  The Holdback Fund shall be held
by the Escrow Agent pursuant to the terms and conditions of an Escrow Agreement
in the form attached hereto as Exhibit B (the “Escrow
Agreement”).  The costs and
expenses of the Escrow Agent shall be paid by Purchaser.

 

(b)                             Procedure
for Claims Against Holdback Fund.

 

(i)                                    The
Holdback Fund shall be held in escrow from the Closing Date through March 31,
2006 (the “Holdback Period”).

 

(ii)                                In
addition to Purchaser’s rights under Section 5.11, if, during the
Holdback Period, any Purchaser Indemnified Party believes that it is entitled
to indemnification with respect to any Tax Claim or Purchaser Claim, subject to
Section 5.11, the Purchaser Indemnified Party shall give Seller
notice thereof by delivering to Seller, no later than the last day of the
Holdback Period, a certificate signed by the Purchaser Indemnified Party (a “Claim Certificate”) stating that Losses exist pursuant to Section 4.2
or Section 8.2, as the case may be, and specifying such Tax Claim
or Purchaser Claim in reasonable detail, to the extent it has actual knowledge
thereof.

 

(iii)                            Seller
shall have a period of fifteen (15) days after such delivery of the Claim
Certificate, to (A) acknowledge that such Tax Claim or Purchaser Claim, as
the case may be, is covered by the indemnification provisions of Section 4.2
or Section 8.2, as applicable, and that the amount claimed is
correct, in which case the Purchaser Indemnified Party shall have the right to
receive, by making a written request therefor to the Escrow Agent, the amount
of such Tax Claim or Purchaser Claim, as the case may be, from the Holdback
Fund, or (B) deny that the amount claimed is correct, in which case Seller
shall indemnify, defend and hold the Purchaser Indemnified Party harmless with
respect to such Tax Claim or Purchaser Claim, as the case may be, as provided
in Section 4.2 or Section 8.2, as applicable, or (C) deny
that the Tax Claim or Purchaser Claim, as the case may be, is covered by the
indemnification provisions of Section 4.2 or Section 8.2,
as applicable, in which case, without waiving or limiting its rights to
indemnification pursuant to Section 4.2 or Section 8.2,
as applicable, the Purchaser Indemnified Party shall have the sole and
exclusive right to determine whether to pay or contest any amount claimed by a
third-party and relating to the Tax Claim or Purchaser Claim, as the case may
be, and, subject to resolution of whether and to what extent such Tax Claim or
Purchaser Claim, as the case may be, is covered by such indemnification
provisions, the Escrow Agent shall retain in the Holdback Fund an amount reasonably
sufficient to pay such unresolved Tax Claim or

 

46

 

Purchaser Claim, as the case may be, if
required pursuant to Section 8.8(e) hereof.  The failure of Seller to give such notice
within such fifteen (15) day period shall be deemed to be an acknowledgment
that such Tax Claim or Purchaser Claim is covered by the indemnification
provisions of Section 4.2 or Section 8.2, as the case
may be, and that the amount of the Tax Claim or Purchaser Claim is correct.

 

(c)                             Release
of Holdback Fund.  Subject to the
provisions of this Agreement and the Escrow Agreement, the Holdback Fund shall
be held in escrow until the earlier of (i)  the date Purchaser and Seller
agree such funds may be released and paid to Seller pursuant to Section 8.8(e),
and (ii) the fifth (5th) Business Day after the last day for
the escrow of the Holdback Fund as specified in Section 8.8(b)(i).

 

(d)                             Delivery
to Seller.  No later than five (5) Business
Days after the date of release of the Holdback Fund pursuant to Section 8.8(c),
the Escrow Agent shall deliver to Seller 
(i)  any remaining portion of the Holdback Fund after payment of
any amounts therefrom to Purchaser pursuant to Section 8.8(b) or
Section 8.8(c), plus (ii)  the aggregate amount of any
remaining portion of interest or other income earned thereon during the period
such funds were held in escrow.

 

(e)                             Exception
from Release.  If there is any
Tax Claim or Purchaser Claim with respect to which Purchaser has given notice
to Seller prior to the earliest date of release of the Holdback Fund pursuant
to Section 8.8(c), which is not then resolved, the amount of the
Holdback Fund reasonably sufficient to pay such unresolved Tax Claim or
Purchaser Claim, as the case may be, may be retained in escrow, subject to the
Escrow Agreement, if desired by Purchaser in its sole discretion.  If Purchaser desires that any portion of the
Holdback Fund be retained pursuant to this Section 8.8(e), it shall
give notice thereof to Seller and the Escrow Agent no later than the subject
release date.  Upon resolution of the Tax
Claim or Purchaser Claim, as the case may be, the portion of the Holdback Fund
retained pursuant to this Section 8.8(e) shall be delivered to
Seller in the same manner as provided herein for funds not retained.

 

ARTICLE IX

SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES

 

Section 9.1                                   Survival
of Representations, Warranties and Indemnities.  The Parties agree that their respective
representations, warranties and indemnities contained in this Agreement or any
of the Transaction Documents shall survive as follows:  (a) any claim related to
representations, warranties and indemnities contained in Section 2.1,
Section 2.2, Section 2.3, Section 2.4, Section 3.1
or Section 3.2 shall survive the Closing and must be commenced
within two (2) years after the Closing Date; (b) any claim related to
representations, warranties and indemnities contained in Section 2.20
or Section 8.2(c)(ii) shall survive the Closing and must be
commenced within the shorter of (i) one year after the Closing Date, or (ii) one
year after the date of installation of applicable product or the performance of
the services to which Sections 2.20 and 8.2(d)(ii) relate; (c) any
claim related to representations, warranties and indemnities contained in Section 2.11
or ARTICLE IV shall survive the Closing and must be commenced
within the longer of three (3) years after the Closing Date and the period
of the applicable statute

 

47

 

of limitations; (d) any claims related
to the indemnities in Section 8.2(c)(iv) shall survive the
Closing and must be commenced within the period of the applicable statue of
limitations; (e) any claims related to the indemnities in Section 8.3(e) shall
survive the Closing and must be commenced within the longer of four (4) years
after the Closing Date and the period of the applicable statue of limitations
and (f) any claim related to any other representations, warranties and
indemnities not specified in the preceding clauses (a) through (e) shall
survive the Closing and must be commenced within one (1) year after the
Closing Date.

 

ARTICLE X

FORCE MAJEURE

 

Section 10.1                            Force
Majeure.  No Party shall be
liable to the other Party, its Subsidiaries, Affiliates, or any other Person in
privity with such other Party, its Subsidiaries or Affiliates, for any delays
or damage or any failure to act hereunder (other than the failure to pay money)
that may be due, occasioned, or caused by reason of any Laws promulgated by any
federal, state, or local Governmental Body or any court of law or by the rules,
regulations, or orders of any public body or official purporting to exercise
authority or control respecting the activities and operations contemplated
hereunder, or due, occasioned, or caused, directly or indirectly, by strikes,
attacks of terrorists, wars (declared or undeclared), insurrections, civil
unrests, hostilities, action of the elements, weather or water conditions,
inability to obtain critical materials or supplies, or any other cause beyond
the control of the non-performing Party. 
In the event of the occurrence of any of the foregoing, the obligations
of the non-performing Party shall be suspended during the continuance of any
such event or condition, and the time permitted for performance under this
Agreement shall be extended for a period of time equal to the period of such
suspension.

 

Section 10.2                            Termination
Upon Extended Force Majeure.  In
the event that either Party cannot perform its obligations hereunder for a
period of ninety (90) consecutive days due to an event of Force Majeure, the
Parties will meet promptly to endeavor to reach a mutual agreement on the
course of action to be taken.  If the
Parties cannot mutually agree on such course of action, the non-affected Party
may, at its sole option, serve notice terminating this Agreement, effective
upon the receipt of such notice by the affected Party.

 

ARTICLE XI

MISCELLANEOUS

 

Section 11.1                            Expenses.  All costs and expenses incurred in connection
with the transactions contemplated by this Agreement shall be paid by the Party
incurring such costs and expenses. 
Seller shall pay from its funds, and not the funds of the Company, all
costs and expenses incurred by either Seller or the Company in connection with
the transactions contemplated by this Agreement.

 

Section 11.2                            Brokers
and Finders.  Except for the
Persons identified in Schedule 2.30, all negotiations on behalf of
Purchaser and Seller relating to this Agreement and the transactions
contemplated by this Agreement have been carried on by the Parties hereto and
their respective

 

48

 

agents directly without the intervention of
any other person in such manner as to give rise to any claim against Purchaser
or Seller for financial advisory fees, brokerage or commission fees, finder’s
fees or other like payment in connection with the consummation of the
transactions contemplated hereby.

 

Section 11.3                            Entire
Agreement; Assignment.  This
Agreement (a) constitutes the entire agreement among the Parties with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, both written and oral, among the Parties or any of them
with respect to the subject matter hereof, and (b) shall not be assigned
by operation of law or otherwise, without consent of the other Party.

 

Section 11.4                            Waiver;
Consents.  Any failure of a Party
to comply with any obligation, covenant, agreement or condition herein may be
waived by the Party affected thereby only by a written instrument signed by the
Party granting such waiver.  No waiver,
or failure to insist upon strict compliance, by any Party of any condition or
any breach of any obligation, term, covenant, representation, warranty or
agreement contained in this Agreement, in any one or more instances, shall be
construed to be a waiver of, or estoppel with respect to, any other condition
or any other breach of the same or any other obligation, term, covenant,
representation, warranty or agreement. 
Whenever this Agreement requires or permits consent by or on behalf of
any Party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver.

 

Section 11.5                            Severability.  The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which 
shall remain in full force and effect.

 

Section 11.6                            Notices.  All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed
delivered at the time delivered by hand, one Business Day after transmission by
facsimile (with confirmation copy sent by regular U.S. mail), or three (3) Business
Days after placement in the United States Mail by Registered or Certified Mail,
Return Receipt Requested, postage prepaid and addressed as follows:

 

if to Seller:

 

Mr. Peter Moerbeek

President and Chief Operating Officer

Southwest Water Company

One Wilshire Building

624 S. Grand Avenue

Los Angeles, CA  90017

Telecopy No. (213)
929-1888

 

with copy (which will not constitute notice) to:

 

John F. Cermak, Esq.

 

49

 

Jenkens & Gilchrist, LLP

12100 Wilshire Boulevard, 15th
Floor

Los Angeles, CA  90025

Telecopy No. (310) 820-8859

 

if to Purchaser:

 

Michael S. Quigley, President

Minol, L.P.

15280 Addison Road, Suite 100

Dallas, TX 75001

Telecopy No. (972) 386-7711

 

with copy (which will not constitute notice) to:

 

Jonathan K.
Henderson, Esq.

Hughes &
Luce LLP

1717 Main Street, Suite 2800

Dallas, TX 75201

Telecopy No. (214) 939-5849

 

or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).

 

Section 11.7                            Governing
Law.  Any dispute between the
Parties relating to this Agreement or any of the other Transaction Documents
will be construed under and in accordance with the laws of the State of Texas
applicable to contracts between residents of Texas that are to be wholly
performed within such state, without regard to conflicts of law principles.

 

Section 11.8                            Jurisdiction
and Venue.  Any process against
Purchaser or Seller in or in connection with, any Proceeding arising out of or
relating to this Agreement or any of the transactions contemplated by this
Agreement may be served personally or by certified mail at the address set
forth in Section 11.6 with the same effect as though served on it
or him personally.  Purchaser and Seller
hereby irrevocably submit in any Proceeding arising out of or relating to this
Agreement or any of the transactions contemplated by this Agreement to the
exclusive jurisdiction and venue of a United States District Court located in
Dallas, Texas.

 

Section 11.9                            Waiver
of Jury Trial.  EACH OF PURCHASER
AND SELLER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL
RIGHTS IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OR OMISSIONS OF PURCHASER OR SELLER RELATING TO THIS AGREEMENT,
PROCEEDING OR OTHER LITIGATION BROUGHT TO RESOLVE ANY DISPUTE ARISING UNDER,
ARISING OUT OF, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER AGREEMENT,
DOCUMENT

 

50

 

OR INSTRUMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THEREWITH.

 

Section 11.10                     Descriptive
Headings.  The descriptive
headings are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement.

 

Section 11.11                     Parties
in Interest; No Third-Party Beneficiary.  Except as contemplated in ARTICLE VIII
for Indemnified Persons other than Seller and Purchaser, this Agreement shall
be binding upon and inure solely to the benefit of each Party hereto, and
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.

 

Section 11.12                     Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.

 

Section 11.13                     Incorporation
by Reference.  Any and all Seller
Schedules, schedules, exhibits, annexes, statements, reports, certificates or
other documents or instruments referred to herein or attached hereto are
incorporated herein by reference hereto as though fully set forth at the point
referred to in the Agreement.

 

Section 11.14                     Certain
Definitions.  For the purposes of
this Agreement, the following terms shall have the meanings specified or
referred to below whether or not capitalized when used in this Agreement.

 

(a)                             “Affiliate” means, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by, or is under common
control with, the Person in question. 
For the purposes of this definition, “control” (including “controlling,”
“controlled by” and “under common control with”) as used with respect to any
person or other entity, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
person or other entity, whether through the ownership of voting securities, by
contract or otherwise.

 

(b)                             “Billing Unit”
means an individual apartment, suite or similar unit covered by a Submetering
Contract for which meter reading, billing (including allocation billing and
ratio billing) or collection services have been furnished prior to the Cut-Off
Time and for which a valid invoice for billing services has been presented
prior to the Cut-Off Time to the occupant for payment or, if the unit is
vacant, to the client or customer under the Submetering Contract that is paying
the billing fee while the unit is vacant. 
In order to qualify as a “Billing Unit”, as of the Cut-Off Time, the
Submetering Contract covering the Billing Unit must not have been terminated
and no written notice of termination can have been received by the Company or
any of its Affiliates.

 

51

 

(c)                             “Business” means the business of selling meter reading
equipment and furnishing meter reading, billing (including allocation billing
and ratio billing), collection, installation, construction and maintenance
services for owners of multi-unit residential dwellings and commercial office
buildings with respect to the water, sewer, electrical and other utilities
provided to the occupants of the dwellings and buildings.

 

(d)                             “Business Day” means any day other than a Saturday, a Sunday
or a holiday on which national banking associations in the State of Texas are
closed.

 

(e)                             “Code” means the Internal Revenue Code of 1986, as
amended.  All citations to the Code or to
the regulations promulgated thereunder shall include any amendments or any
substitute or successor provisions thereto.

 

(f)                               “Consent” means any approval, consent, ratification, waiver,
notification, license, permit, or other authorization (including any
Governmental Authorization).

 

(g)                            “Contract” means any contract, agreement, obligation,
promise, purchase order, sales order, license, lease, commitment, arrangement,
or undertaking (whether written or oral, and whether express or implied) that
is legally binding.

 

(h)                            “Cut-Off Time”
means 5:00 P.M. (Westminster, Colorado time), on the last Business Day
prior to the Closing Date.

 

(i)                               “Environment” means all air, surface water, groundwater, or
land, including land surface or subsurface, including all fish, wildlife, biota
and all other natural resources.

 

(j)                               “Environmental Law” means any and all Laws (including, but
not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. § 9601, et. seq.) relating to the protection of
health and the Environment, worker health and safety, and/or governing the
handling, use, generation, treatment, storage, transportation, disposal,
manufacture, distribution, formulation, packaging, labeling, or Release of Hazardous
Substances, whether now existing or subsequently amended or enacted, and the
state analogies thereto, all as amended or superseded from time to time; and
any common law doctrine, including, but not limited to, negligence, nuisance,
trespass, personal injury, or property damage related to or arising out of the
presence, Release, or exposure  to a
Hazardous Substance.

 

(k)                           “GAAP” means generally accepted accounting principles in the
United States, applied on a basis consistent with the Company Financial
Statements.

 

(l)                               “Governmental Authorization”
means any approval, consent, ratification, notification, franchise, license,
permit, waiver, product registration, or other authorization issued, granted,
given, or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.

 

52

 

(m)                         “Governmental Body”
means any (i) nation, state, county, city, town, village, district or
other jurisdiction of any nature, (ii) federal, state, local, municipal,
foreign or other government, (iii) governmental or quasi-governmental
authority of any nature (including any governmental agency, commission, branch,
department, official, or entity and any court or other tribunal), (iv) multi-national
organization or body, or (v) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory or taxing
authority or power of any nature.

 

(n)                            “Hazardous Substance” means petroleum, petroleum hydrocarbons
or petroleum products, petroleum by-products, radioactive materials, asbestos
or asbestos-containing materials, gasoline, diesel fuel, pesticides, radon,
urea formaldehyde, lead or lead-containing materials, polychlorinated
biphenyls; and any other chemicals, materials, substances or wastes in any
amount or concentration which are now included in the definition of “hazardous
substances,” “hazardous materials,” “hazardous wastes,” “extremely hazardous
wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,”
“pollutants,” “regulated substances,” “solid wastes,” or “contaminants” or
words of similar import, under any Environmental Law.

 

(o)                             “Inovonics Transmitter System” means the following group of
Inovonics transmitter components / part numbers:  225-008 (Inovonics DCC), 260-004
(repeaters-Inovonics), 450-022 (Inovonics serial receiver), 950-016
(Transmitter Inovonics) and 950-017 (Transmitter Inovonics).

 

(p)                             “Knowledge” or “Known” means, when used with reference to Seller or the
Company, that Seller or the Company shall be deemed to have “knowledge” of or
to have “known” a particular fact or other matter only if any of Peter
Moerbeek, James Wisener, Linda Moore or Scott Armstrong has current, actual
knowledge or knows of such fact or other matter.

 

(q)                             “Liens” means all
mortgages, deeds of trust, claims, liens, judgments, security interests,
pledges, leases, conditional sale contracts, rights of first refusal, options,
charges, liabilities, obligations, agreements, powers of attorney, limitations,
reservations, restrictions and other encumbrances or adverse claims of every
kind and nature, including any restriction on use, voting, transfer, receipt of
income or exercise of any attribute of ownership.

 

(r)                             “Material Adverse Effect” means any adverse change,
singularly or in the aggregate when taken together with all other adverse
changes, in the properties or assets, earnings, financial condition, results of
operations, business or prospects of the Company or Purchaser, as applicable,
from the Effective Date, Closing Date or such other date specified in the
applicable provision of this Agreement, of more than $200,000.00.  But, none of the following changes may be
considered in determining whether any particular change has a Material Adverse
Effect:  (i) changes in general
economic conditions that do not adversely affect the Company or Purchaser, as
applicable, relative to other similarly situated Persons; (ii) changes
resulting from the announcement and performance of this Agreement and the
transactions contemplated hereby and compliance with the covenants set forth
herein; (iii) changes or developments in the industries in which the
Company or Purchaser, as applicable, operates that

 

53

 

generally affect all Persons in such
industries and do not adversely affect the Company or Purchaser, as
applicable,, relative to other similarly situated Persons; (iv) changes or
developments in markets or commodity prices that generally affect all entities
and do not adversely affect the Company or Purchaser, as applicable,, relative
to other similarly situated Persons; (v) changes arising out of the
adoption, amendment or issuance, after the Effective Date, of any applicable
Laws or any new interpretation of any Laws by any Governmental Body that
generally affects all Persons and do not adversely affect the Company or
Purchaser, as applicable,, relative to other similarly situated Persons; (vi) changes
in any applicable tax Laws or accounting principles that generally affect all
Persons and do not adversely affect the Company or Purchaser, as applicable,
relative to other similarly situated Persons; or (vii) any changes
resulting from a failure to consummate the transactions contemplated by this Agreement,
or otherwise resulting from or relating to the taking of any action
contemplated by this Agreement.

 

(s)                             “MTI Transmitter System” means the following group of MTI
transmitter components / part numbers: 
225-006 (central station receiver), 260-003 (repeater-pilot LED), 275-013
(computer for central station), 450-012 (isolation module), 450-014 (interface
module-white) and 950-015 (transmitter TX2002).

 

(t)                               “Ordinary Course of Business” means an action taken by a
Person that is:

 

(i)                                    Consistent
with the past practices of such Person and is taken in the ordinary course of
the normal day-to-day operations of such Person; or

 

(ii)                                Similar
in nature and magnitude to actions customarily taken, without any authorization
by the board of directors (or by any Person or group of Persons exercising
similar authority), in the ordinary course of the normal day-to-day operations
of other Persons that are in the same line of business as such Person.

 

(u)                            “Organizational Documents” means, with respect to any entity,
the certificate of incorporation, articles of incorporation, certificate of
formation, by-laws, articles of organization, limited liability company
agreement, limited partnership agreement, formation agreement, joint venture
agreement, general partnership agreement or other similar organizational
documents of such entity, together with any shareholder agreement, voting
agreement or similar agreement among two or more of the equity owners of any
such entity.

 

(v)                              “Person” means an individual, partnership, joint venture,
corporation, limited liability company, trust, association or unincorporated
organization, any governmental authority, or any other entity.

 

(w)                           “Proceeding” means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.

 

54

 

(x)                             “Purchaser Group” means and includes Purchaser and, following
the Closing, the Company.

 

(y)                             “Real Property” means real property owned or leased by the
Company as of the Effective Date or the Closing Date, as applicable.

 

(z)                             “Release” means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping, or
disposing of a Hazardous Substance into the Environment.

 

(aa)                       “Returns” means all returns, declarations, reports,
statements, and other documents required to be filed in respect of Taxes
(including any information returns), and the term “Return” means any one of the
foregoing Returns.

 

(bb)                       “Restricted Activity”
means engaging in or conducting, as an owner, principal, partner, shareholder,
member, manager, consultant or in any other capacity, the business of (A) providing
or furnishing water, natural gas, or electricity submeter reading, submeter
billing (including allocation billing and ratio billing) or submeter collection
services for apartment, suite or similar units, and/or (B) selling or
installing submeters for apartment, suite or similar unit and related equipment
for providing or furnishing submeter reading services for individual apartment,
suite or similar units.

 

But, the term “Restricted Activity” does not including the following
(the “Permitted Activity”):

 

(i)                                    Any
Restricted Activity that a Seller Restricted Person is permitted to perform or
required under applicable Laws to perform by any Governmental Body within the
geographic areas covered by the certificates of convenience and necessity
issued by the Governmental Body to a regulated utility at any time owned by a
Seller Restricted Person; or

 

(ii)                                Any
Restricted Activity that occurs as a result of a Seller Restricted Person:

 

(A)                               Acquiring,
directly or indirectly, by purchase, merger or otherwise, another Person, or
control of another Person, that engages in a Restricted Activity, or

 

(B)                               Acquiring,
directly or indirectly, all or substantially all of the assets of a business of
another Person that engages in a Restricted Activity,

 

Except the foregoing activity described in clause (A) and (B) are
not permitted if such Restricted Activity occurs as a result of a Seller
Restricted Person:  (1) acquiring a
Target Person by merger with such Target Person; (2) directly acquiring
all of the capital stock, limited liability company membership interests,
partnership interests (or other equity ownership interests) of a Target Person
(but this does not restrict indirectly acquiring such equity interests by
virtue of purchasing, merging with or otherwise acquiring the Person that owns
or holds the subject equity ownership interests), or (3) directly
acquiring all or substantially

 

55

 

all of the assets of a business of a Target
Person (but this does not restrict indirectly acquiring such assets by virtue
of acquiring such assets in connection with the acquisition of all or
substantially all of the business of a Person that is not a Target Person).

 

The term “Restricted Activity” also does not include: (x) any business
or activity of any Seller Restricted Person, excluding Company, as conducted on
the Effective Date and the Closing Date; or (y) the business of any Person (or
such Person’s Subsidiaries) that, directly or indirectly, acquires Seller (by
merger or otherwise) or control of Seller.

 

(cc)                       “Restricted Period”
means the period beginning on the Closing Date and ending on the third
anniversary of the Closing Date.

 

(dd)                       “Restricted Territory”
means the geographic area including the continental United States.

 

(ee)                       “Seller Restricted Person” means Seller and any Person
required under GAAP to be consolidated with Seller for financial statement
purposes.

 

(ff)                           “Subsidiary” means, when used with reference to an entity,
any corporation, partnership or limited liability company, a majority of the
outstanding voting securities, partnership interests or membership interests of
which are owned directly or indirectly by such entity or any partnership, joint
venture or other enterprise in which such entity currently has, directly or
indirectly, any controlling equity interest.

 

(gg)                     “Target Person” means and includes the following Persons:
American Utility Management, Inc. of Hillside, IL; CBSI – An Alliance Data
Systems Company of Hillside, IL; Commercial Water and Energy Company of Miami,
FL; Conservice, LLC of North Logan, UT; Energy Billing Systems, Inc. of
Colorado Springs, CO; Holcutt, Inc. of Dallas, TX; Ista (formally Viterra
Energy Services) of San Diego, CA; National Water & Power of Santa
Ana, CA; Ocius, LLC of Chicago, IL; Studebaker Submetering, Inc. of
Alexandria, VA; and ViaStar Energy, Inc. of Indianapolis, IN.

 

(hh)                     “Taxes” means all federal, state, local, foreign, and other
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties, or other taxes, fees, assessments, or charges of any
kind whatever, together with any interest and any penalties, additions to tax,
or additional amounts with respect thereof, and the term “Tax” means any one of
the foregoing Taxes.

 

[SIGNATURE PAGE FOLLOWS]

 

56

 

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed on its behalf by its officers thereunto duly authorized, all as
of the Effective Date.

 

	
   

  	
  SELLER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SOUTHWEST
  WATER COMPANY,

  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PURCHASER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MINOL, L.P.,

  a Delaware limited partnership

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  MINOL, LLC,

  a Delaware limited liability company

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Alexander
  Lehmann,

  
								

 

 

LIST OF
SCHEDULES AND EXHIBITS

 

	
  Schedules

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule 1.5(c)

  	
   

  	
  –

  	
   

  	
  Leased Vehicles

  
	
  Schedule 1.5(d)

  	
   

  	
  –

  	
   

  	
  Leased Computer Equipment

  
	
  Schedule 1.6(b)-A

  	
   

  	
  –

  	
   

  	
  Adjustments to Closing Date Net Working
  Capital

  
	
  Schedule 1.6(b)-B

  	
   

  	
  –

  	
   

  	
  Example of Closing Date Net Working Capital

  
	
  Schedule 1.6(b)-C

  	
   

  	
  –

  	
   

  	
  Accepted Adjustments to Base Working
  Capital

  
	
  Schedule 1.6(c)(i)

  	
   

  	
  –

  	
   

  	
  Non-Billing Units

  
	
  Schedule 2.1(a)

  	
   

  	
  –

  	
   

  	
  Company’s Organization and Qualification

  
	
  Schedule 2.1(e)

  	
   

  	
  –

  	
   

  	
  Officers and Directors of the Company

  
	
  Schedule 2.2

  	
   

  	
  –

  	
   

  	
  Company’s Capitalization

  
	
  Schedule 2.5

  	
   

  	
  –

  	
   

  	
  Violations/Conflicts

  
	
  Schedule 2.6

  	
   

  	
  –

  	
   

  	
  Consents and Approvals

  
	
  Schedule 2.7(a)

  	
   

  	
  –

  	
   

  	
  Historical Company Financial Statements

  
	
  Schedule 2.7(b)

  	
   

  	
  –

  	
   

  	
  Interim Company Financial Statements

  
	
  Schedule 2.8

  	
   

  	
  –

  	
   

  	
  Absence of Changes

  
	
  Schedule 2.9

  	
   

  	
  –

  	
   

  	
  Litigation

  
	
  Schedule 2.11

  	
   

  	
  –

  	
   

  	
  Tax Matters

  
	
  Schedule 2.13

  	
   

  	
  –

  	
   

  	
  Employment Matters

  
	
  Schedule 2.14(a)

  	
   

  	
  –

  	
   

  	
  Included Intellectual Property

  
	
  Schedule 2.14(b)

  	
   

  	
  –

  	
   

  	
  Retained Intellectual Property

  
	
  Schedule 2.14(d)

  	
   

  	
  —

  	
   

  	
  Infringement of Intellectual Property

  
	
  Schedule 2.15

  	
   

  	
  –

  	
   

  	
  Environmental Compliance

  
	
  Schedule 2.16

  	
   

  	
  –

  	
   

  	
  Title to Properties

  
	
  Schedule 2.17(a)

  	
   

  	
  –

  	
   

  	
  Insurance – List of Policies

  
	
  Schedule 2.18

  	
   

  	
  –

  	
   

  	
  Licenses and Permits

  
	
  Schedule 2.19

  	
   

  	
  –

  	
   

  	
  Agreements, Contracts and Commitments

  
	
  Schedule 2.20

  	
   

  	
  –

  	
   

  	
  Warranties

  
	
  Schedule 2.20(c)

  	
   

  	
  –

  	
   

  	
  MTI Transmitter Systems

  
	
  Schedule 2.20(d)

  	
   

  	
  –

  	
   

  	
  Billing Meters Reading “Zero”

  
	
  Schedule 2.22

  	
   

  	
  –

  	
   

  	
  Material Assets

  
	
  Schedule 2.24

  	
   

  	
  –

  	
   

  	
  Accounts Receivable

  
	
  Schedule 2.25(a)

  	
   

  	
  –

  	
   

  	
  Inventories

  
	
  Schedule 2.25(b)

  	
   

  	
  –

  	
   

  	
  Replacement Transmitters

  
	
  Schedule 2.26

  	
   

  	
  –

  	
   

  	
  No Undisclosed Liabilities

  
	
  Schedule 2.27(a)

  	
   

  	
  –

  	
   

  	
  Employee Benefit Plans

  
	
  Schedule 2.29

  	
   

  	
  –

  	
   

  	
  Customers and Suppliers

  
	
  Schedule 2.30

  	
   

  	
  –

  	
   

  	
  Brokers

  
	
  Schedule 2.31

  	
   

  	
  –

  	
   

  	
  Bank Accounts

  
	
  Schedule 5.8(a)-1

  	
   

  	
  –

  	
   

  	
  Employment Agreement (Greg Foltz)

  
	
  Schedule 5.8(a)-2

  	
   

  	
  –

  	
   

  	
  Purchaser Commission Schedule

  

 

	
  Exhibits

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  –

  	
   

  	
  Form of Closing Statement

  
	
  Exhibit B

  	
   

  	
  –

  	
   

  	
  Form of Escrow Agreement

  

 

 

EXHIBIT A

FORM OF
CLOSING STATEMENT

 

 

[SEE ATTACHED]

 

 

EXHIBIT B

FORM OF
ESCROW AGREEMENTExhibit
10.1

FORM OF RESTRICTED STOCK
GRANT AGREEMENT

[DATE]

[GRANTEE

[ADDRESS]

 

Re:        Prestige
Brands Holdings, Inc. Grant of Restricted Stock

Dear [GRANTEE]:

Prestige Brands Holdings,
Inc. (the “Company”) is pleased to advise you that, pursuant to the Company’s
2005 Long-Term Equity Incentive Plan (the “Plan”), the Company’s
Compensation Committee has granted to you shares of the Company’s Common Stock,
par value $0.01 per share, as set
forth below (the “Restricted Shares”), subject to the terms and conditions
set forth herein. Capitalized terms used herein but not defined herein shall
have the meanings ascribed to such terms in the Plan.

	
  Original Grant Date:

  	
   

  	
   

  	
   

  	
   

  
	
  Total Number of Restricted Shares:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Vesting Dates and Number of Restricted Shares that
  shall vest:

  	
   

  	
  Date

  	
   

  	
  Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

1.             Conformity with Plan.  The grant of Restricted Shares is intended to
conform in all respects with, and is subject to all applicable provisions of,
the Plan (which is incorporated herein by reference).  Inconsistencies between this Agreement and
the Plan shall be resolved in accordance with the terms of the Plan.  By executing and returning the enclosed copy
of this Agreement, you acknowledge your receipt of this Agreement and the Plan
and agree to be bound by all of the terms of this Agreement and the Plan.

2.             Rights of Participants.  Nothing in this Agreement shall interfere
with or limit in any way the right of the Company or its stockholders to
terminate your duties as a director at any time (with or without Cause), nor
confer upon you any right to continue as a director of the Company for any
period of time, or to continue your present (or any other) rate of
compensation.

3.             Remedies. 
The parties hereto shall be entitled to enforce their rights under this
Agreement specifically, to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in their
favor. The parties hereto acknowledge and agree that money damages would not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party hereto may, in its sole discretion, apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief (without posting bond or other security) in order to enforce or prevent
any violation of the provisions of this Agreement.

4.             Successors and Assigns.  Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto whether so
expressed or not.

 

 

5.             Severability. 
Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this
Agreement.

6.             Counterparts. 
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall constitute an original, but all of which
taken together shall constitute one and the same Agreement.

7.             Descriptive Headings.  The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.

8.             Governing Law. THE VALIDITY, CONSTRUCTION,
INTERPRETATION, ADMINISTRATION AND EFFECT OF THE PLAN, AND OF ITS RULES AND
REGULATIONS, AND RIGHTS RELATING TO THE PLAN AND TO THIS AGREEMENT, SHALL BE
GOVERNED BY THE SUBSTANTIVE LAWS, BUT NOT THE CHOICE OF LAW RULES, OF THE STATE
OF DELAWARE.

9.             Notices. 
All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given when delivered personally or mailed by
certified or registered mail, return receipt requested and postage prepaid, to
the recipient.  Such notices, demands and
other communications shall be sent to you at the address appearing on the
signature page to this Agreement and to the Company at Prestige Brands
Holdings, Inc., 90 North Broadway, Irvington, NY 10533, Attn: Chief Financial
Officer, or to such other address or to the attention of such other person as
the recipient party has specified by prior written notice to the sending party.

10.           Entire Agreement.  This Agreement and the terms of the Plan
constitute the entire understanding between you and the Company, and supersede
all other agreements, whether written or oral, with respect to your Restricted
Shares.

*****

 

2

 

Signature Page to
Restricted Stock Grant Agreement

Please execute the extra
copy of this Agreement in the space below and return it to the Chief Financial
Officer at Prestige Brands Holdings, Inc. to confirm your understanding and
acceptance of the agreements contained in this Agreement.

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Prestige Brands Holdings,
  Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

Enclosures:                                  1.             Extra
copy of this Agreement
                Copy of the Plan

The undersigned hereby
acknowledges having read this Agreement and the Plan and hereby agrees to be
bound by all provisions set forth herein and in the Plan.

Dated as of [DATE]

	
   

  	
   

  
	
   

  	
  [GRANTEE]

  

 

3

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