Distributor Agreement - Executone Information Systems Inc. and Clarity Telecom Inc.
EXECUTONE INFORMATION SYSTEMS, INC.
DISTRIBUTOR AGREEMENT
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AGREEMENT dated as of May 31, 1996, between EXECUTONE INFORMATION SYSTEMS,
INC. and Clarity Telecom, Inc., a Delaware corporation ("Distributor").
WHEREAS, Company (as defined in Section 26 below) wants to appoint Distributor
as the Authorized Distributor within the Districts described in Exhibit A to
this Agreement ("Distributor's Area") of the products described in Exhibit B to
this Agreement (the "Authorized Products"), including spare parts therefor, and
as a licensee of any software imbedded therein or otherwise an integral part
thereof described in Exhibit B (the "Authorized Software");
WHEREAS, Distributor wants to be appointed to promote the sale and service of
the Authorized Products and to license the use of the Authorized Software in
conjunction with the sale of the Authorized Products in Distributor's Area; and
WHEREAS, the execution and delivery of this Agreement is a condition to
Distributor's Purchase of the Company's DSO Business as defined in the Purchase
Agreement pursuant to an Asset Purchase Agreement by and among the Company,
EXECUTONE Network Services, Inc., Clarity Telecom Holdings, Inc. (formerly known
as Tone Holdings, Inc.) and the Distributor dated April 9, 1996 (the "Purchase
Agreement").
NOW, THEREFORE, in consideration of the mutual promises in this Agreement and
other good and valuable consideration, the parties agree as follows:
1. AUTHORIZED DISTRIBUTOR. Distributor is hereby granted the exclusive and
non-exclusive rights as provided in Section 12 hereof, to sell, service and
maintain the Authorized Products and to license the Authorized Software in
Distributor's Area; provided that Distributor shall
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not have the right to sell to National Accounts and Company Accounts in
the Distributor's Area. In consideration for Company's grant to
Distributor of the rights to sell and service the Authorized Products
and to license the Authorized Software in Distributor's Area,
Distributor agrees to purchase the quantities of Authorized Products
and license the quantities of Authorized Software required by
Distributor's Quota as defined in Section 7 of this Agreement, and not
to sell or promote Competing Products in Distributor's Area, as that
term is defined in Exhibit C and except as provided in Exhibit C or in
Section 12(e) hereof, without the express prior written consent of
Company.
2. COMPANY SUPPORT OF DISTRIBUTOR. The Company shall:
(a) refer to Distributor a portion of the leads for Authorized
Products and Authorized Software in the Distributor's Area of
which Company becomes aware, in the same proportion as the
Distributor's purchases of Authorized Products and Authorized
Software for the District bear to all purchases of Authorized
Products and Authorized Software for the District;
(b) make available promotional programs from time to time at
Company's discretion subject to Company's normal charges for
such programs;
(c) sell, at special prices or terms, an assortment of the
Authorized Products to be used by Distributor to demonstrate
those products to customers and to train personnel;
(d) make available courses and materials for training
Distributor's personnel at Company's normal charges;
(e) make available technical and service support, including
installation and technical manuals, subject to Company's
normal charges for such support;
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(f) market the Authorized Products directly to National Accounts,
Cross-Territorial Accounts and Company Accounts in accordance
with the National Accounts Policy set forth as Exhibit D (the
"NAP") , the Cross-Territorial Policy set forth as Exhibit E
(the "CTP") and the Company Accounts Policy set forth as
Exhibit F (the "Company Accounts Policy"), respectively, all
of which Company expressly reserves the right to amend (except
as provided therein) from time to time when Company in its
reasonable discretion determines such amendment to be
desirable;
(g) utilize its best efforts to provide to Distributor Authorized
Products that are competitive in the marketplace in function,
features and price. Distributor and Company recognize that,
from time to time, Company will develop and introduce new
products bearing the Authorized Trademarks and which Company
believes to be competitive with Competing Products available
in the marketplace. Company shall make such new Authorized
Products available to Distributor for sale and license in
Distributor's Area on the same exclusive or non-exclusive
basis as applies to the Authorized Products hereunder and
thereafter such new Authorized Products shall be Authorized
Products as defined in this Agreement;
(h) use its best efforts to have Distributor elected to Company's
Independent Distributor Advisory Board; and
(i) as soon as available after the end of each fiscal year,
deliver to Distributor financial statements consisting of
balance sheet, income statement and, at Distributor's request,
a statement of sources and uses of funds for such year
prepared in accordance with generally accepted accounting
principles and reviewed by a certified public accountant.
3. TRADEMARK LICENSE AND USE. In order to promote and protect the
Company's trademark rights, the parties agree that:
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(a) AUTHORIZED USES. Company grants to Distributor a nonexclusive,
non-transferrable license to use the trademarks described in
Exhibit C (the "Authorized Trademarks"):
(i) only in connection with the sale and service,
and promotion of sale and service, of the Authorized
Products;
(ii) only in the Distributor's Area in which Distributor
is authorized to sell and service the related
Authorized Products;
(iii) only during the term of this Agreement or to service
products installed prior to the termination of this
Agreement;
(iv) only in the manner described in this Section and
Exhibit C; and
(v) as provided in the Purchase Agreement.
(b) PROHIBITED USES. Distributor is not granted any license or
right to use the mark or name EXECUTONE INFORMATION SYSTEMS,
EISI, OR EIS, or any comparable derivative thereof. Except as
expressly authorized in Exhibit C (the "Authorized Name"),
Distributor shall not use the Authorized Trademarks as part of
Distributor's trade or corporate name, nor shall Distributor
otherwise trade under the Authorized Trademarks or any
derivative thereof.
(c) NONTRANSFERABILITY. Distributor shall not assign or sublicense
its rights to use the Authorized Trademarks or Authorized Name
to any other person or entity except as otherwise permitted by
this Agreement.
(d) DISTRIBUTOR'S COVENANTS. Distributor hereby agrees that
Distributor:
(i) shall use the Authorized Trademarks only as expressly
authorized and only in conjunction with the R or TM
symbol as appropriate;
(ii) shall not use the Authorized Trademarks in any
disparaging way or in any way that might confuse
other products with the Authorized Products in a
manner which would jeopardize the Company's interests
in the Authorized Trademark; and
(iii) shall not challenge or contest in any way the
validity of the Authorized Trademarks, their
registration or their ownership by the Company.
(e) PRODUCT ALTERATIONS. Distributor may affix to the back of any
Authorized Product or copy of Authorized Software a legend in
the following form:
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For Sales and Service
(Name of Distributor)
(Address of Distributor)
(Local Telephone Number of Distributor)
(Installation Date)
For 24-Hour Emergency Service Call:
(Telephone Number)
However, Distributor shall not remove, change, obscure, or add to the
labels, markings, names or trademarks that Company has affixed to any
Authorized Product.
4. DISTRIBUTOR'S SALES RESPONSIBILITIES. In order to develop the market
for the Authorized Products in Distributor's Area, Distributor shall:
(a) promote the sale of the Authorized Products throughout
Distributor's Area and maintain accurate records with respect
to sales of the Authorized Products (which records are
acknowledged to be the proprietary business information of
Distributor);
(b) make sales of Authorized Products to customers in
Distributor's Area sufficient to meet Distributor's Quota as
provided in Section 7;
(c) maintain a sufficient inventory of the Authorized Products to
meet the demand in Distributor's Area;
(d) timely install the Authorized Products in a workmanlike and
professional manner in accordance with instructions and
specifications;
(e) properly train customer's personnel in the operation and use
of the Authorized Products, as reasonably requested by
customers;
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(f) maintain a trained sales force of sufficient size to serve
Distributor's Area and meet Distributor's Quota;
(g) avoid doing anything that might materially and adversely
affect the sales potential for the Authorized Products except
as otherwise permitted under this Agreement;
(h) except as specifically provided for in Sections 4(i) and (k)
herein, refrain from selling the Authorized Products to any
entity other than to end-users located in Distributor's Area;
(i) refrain from selling the Authorized Products and spare parts
therefor outside of Distributor's Area except as specifically
authorized by the NAP, the CTP or the Company Accounts Policy,
each of which Company expressly reserves the right to amend
(except as provided therein) from time to time when Company in
its reasonable discretion determines such amendment to be
desirable, or as otherwise specifically authorized in writing;
(j) refrain from selling the Authorized Products to former
authorized Distributors of Authorized Products and to
secondary market resellers identified to Distributor by the
Company. The Company will assist Distributor in the sale of
Distributor's excess inventory of Authorized Product to other
Authorized Distributors by coordinating an exchange program
between Distributors or any other entity which Company
authorizes for the purchase of Distributor's inventory of
Authorized Product;
(k) Company and Distributor recognize exchange between
Distributors will be necessary from time to time for emergency
service requirements and Company agrees that Distributor may
sell Authorized Products to other Authorized Distributors for
this purpose. Distributor agrees that such sales of Authorized
Products will be of an incidental nature for emergency
purposes. Company and Distributor recognize that
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such incidental sales between Distributors are in the best
interest of the Company and its Distributors in order to
facilitate quick response to service outages; however,
Distributor and Company specifically agree that it is not the
intent of this Section 4(k) for Distributor to become a source
of product supply to any other Distributor in breach of its
financial obligations to Company and/or for Distributor to
purchase the Authorized Products in bulk from the Company to
take advantage of Company's volume purchase discounts and
resell portions of such bulk purchases to another Authorized
Distributor;
(l) obtain at Distributor's expense all state, local, and other
licenses and permits necessary for operation of the
Distributorship, and furnish Company with Distributor's local
sales tax license number; and
(m) utilize its reasonable best efforts to market Authorized
Products within its assigned territory to assist Company in
the attainment of its market share objectives provided to the
Distributor.
5. DISTRIBUTOR'S SERVICE RESPONSIBILITIES. In order to service adequately
customers in Distributor's Area and to ensure consistent nationwide
service of the Authorized Products, Distributor shall:
(a) install and service, subject to Distributor's customary
charges and credit criteria, all Authorized Products and Other
Company Products, as defined in Exhibit F, installed in
Distributor's Area, regardless of whether they were sold by
Distributor but subject to the Company Accounts Policy, the
NAP and the CTP;
(b) except to the extent faster response times are reasonably
required by Company for National Accounts, Cross-Territorial
Accounts or Company Accounts, respond:
(i) within 4 hours to all Emergency Service Requests,
defined as all requests to remedy problems that are
not isolated failures of a minority of station
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instruments and/or a minority of trunks and/or system
components not required for normal processing of
voice, video and/or data communications;
(ii) within 48 hours to 95% of all non-Emergency Service
Requests; and
(iii) within ten (10) business days to 100% of customers'
requests for routine adds, moves or changes of
equipment, subject to availability of product from
Company.
It is the intent of this Section that Distributor utilize its best
efforts to achieve these goals on a consistent basis. Occasional
failures and/or delays will not be a Material Breach of this Agreement.
(c) make available emergency service 24 hours a day, 365 days a
year, for all of its customers, and all National Accounts,
Cross-Territorial Accounts and Company Accounts in
Distributor's Area;
(d) as requested by Company, make available installation and
service to National Accounts, Cross-Territorial Accounts and
Company Accounts in Distributor's Area as required by and
subject to the Company Accounts Policy, NAP or CTP;
(e) maintain trained personnel, spare parts, and equipment
sufficient to service all Authorized Products and Other
Company Products in Distributor's Area; provided, however,
that Distributor shall not be required to maintain any spare
parts for Call Center Products; and
(f) maintain complete records of all service requests and service
calls, including: the name of the customer; the date(s) and
time(s) of the request, response, and correction of the
problem; the nature of the problem; any parts used; any
charges; and whether the service was performed under warranty.
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6. DISTRIBUTOR'S FINANCIAL AND REPORTING RESPONSIBILITIES.
(a) FINANCIAL CONDITION. Distributor shall maintain a financial
condition adequate to perform its obligations as an authorized
distributor.
(b) REPORTING RESPONSIBILITIES. Distributor shall submit to
Company:
(i) as soon as available after the end of each fiscal
year, financial statements consisting of balance
sheet, income statement, and at Company's request, a
statement of sources and uses of funds, for such year
prepared in accordance with generally accepted
accounting principles and reviewed by a certified
public accountant;
(ii) at Company's request, a list of all persons and
entities having an ownership interest in Distributor,
and the nature and percentage of each such ownership
interest; and
(iii) within thirty (30) days of the end of each quarter
Distributor will complete and send to Company a
summary report of retail sales of Authorized Products
and service activity performed by Distributor within
Distributor's Area. The information required may be
modified from time to time as required by changes in
the market or within the industry. The information
provided by Distributor will be analyzed by Company
and consolidated on a national and regional basis and
reported back to Distributor.
(iv) within 15 days after the end of each month, to the
extent required by the agreement between the Company
and Oracle Corporation, a third party software
licensor of software contained in or sold with
ILS(TM)Authorized Products that contain the
management reports feature or licensed with
Authorized Software relating to such Authorized
Products, the names and addresses of sublicensees of
such software sublicensed by Distributor within the
preceding month, the date of purchase and
installation, the specific Authorized Product and
Authorized Software installed, including the make
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or model designation and the software release number
of the software programs licensed, and the maximum
number of users per system. Company agrees to
maintain the confidentiality of and not to use such
information in any manner whatsoever, except to the
extent it is required to provide such information to
Oracle, without the prior written consent of the
Distributor.
7. PURCHASE, PAYMENT, SALES AND SHIPMENTS.
(a) PURCHASE AND PAYMENT BY DISTRIBUTOR.
(i) FORECASTS. In order to assist Company in scheduling
the production and delivery of the Authorized
Products, Distributor will deliver and update during
the term of this Agreement a rolling six-month
forecast of its purchases. Distributor's initial
forecast is attached hereto as Exhibit G. On or
before the first day of each calendar month,
Distributor shall deliver an updated forecast in the
form attached hereto as Exhibit G. Each such forecast
shall cover the succeeding six calendar months. Such
forecasts are nonbinding and for advisory or planning
purposes only.
(ii) QUOTA. Quota is defined as the minimum dollar volume
of Authorized Product and Authorized Software listed
in Exhibit B, that Company requires Distributor to
purchase or license from Company during each calendar
year of this Agreement. The Quota for any calendar
quarter of any year (a "Quarter") is one-quarter of
the annual Quota unless otherwise stated on Exhibit
H. Attached as Exhibit H are the Quotas that the
Company and Distributor have mutually agreed upon for
the initial Term. For any extension period of this
Agreement, the Quotas shall be as mutually agreed
between Company and Distributor. For purposes of
Quota performance measurement, Company will calculate
Distributor's purchases based upon the then current
Distributor Net Price, defined as the price at which
Company sells the Authorized Products to its lowest
volume distributor. Following the
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end of each Quarter, Company will provide Distributor
with a report of Distributor's Quota performance.
(iii) PURCHASE ORDERS. Orders for the purchase of the
Authorized Products shall be made by Distributor by
purchase orders, specifying the quantity and
description of Authorized Products desired. Any term
or condition of such purchase orders that is
inconsistent with any term or condition of this
Agreement shall be of no force and effect whatsoever,
and any additional term or condition of such purchase
order shall be construed so as to be consistent with
the intent of this Agreement.
(iv) PAYMENT. Subject to subsection 7(b), payment by
Distributor to Company for each order of Authorized
Products shall be made in cash, or by check or wire
transfer. Until the earlier of third anniversary
hereof and such time as 60-day terms are no longer
required by Distributor's banks, payment by
Distributor shall be made within the longer of (i)
sixty days of invoice date and (ii) the most
favorable payment terms provided to the Company's
other distributors. Thereafter, payment by
Distributor shall be made within thirty days of
invoice date for the balance of the term of this
Agreement. Distributor shall pay each invoice in full
subject to appropriate credits and offsets.
Distributor must notify Company in writing within 30
days of the date of the invoice or the date of
receipt of product ordered, whichever is longer, of
any disputed invoice amount along with an explanation
of the reason of the dispute.
(b) SALES AND SHIPMENTS BY COMPANY.
(i) PRICES AND TERMS. Company will sell at prices and on
terms determined by Company from time to time, as
reflected in the Company's Authorized Product Price
Book. At all times during the period or periods in
which Distributor is not in Material Breach of this
Agreement, Company agrees to sell to Distributor at
the most favorable terms and conditions, including
without limitation prices and discount level, made
available to any other
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authorized distributor for a territory located in the
United States for the same products, excluding sales
to the Federal Government. Company agrees to promptly
notify Distributor in writing if the Company has or
has entered into an agreement with any other
authorized distributor which contains terms and
provisions which are more favorable to such other
authorized distributor than those contained herein.
Company shall, upon the request of Distributor, amend
this Agreement to reflect such more favorable
provisions. All prices are exclusive of all taxes
(except taxes on Company's income) including federal,
state, and local sales, use, value-added or similar
taxes. Distributor will pay all such taxes unless
Distributor has given Company a valid exemption
resale certificate prior to shipment. Company
expressly reserves the right to change prices with
not less than forty-five days notice to Distributor,
and Company also reserves the right to change credit
terms at any time if in Company's opinion
Distributor's financial condition or payment record
so warrants. If Distributor becomes materially
delinquent in the payment of any material sum due to
Company, Company may suspend performance under this
Agreement and may require Distributor to make payment
in advance of any subsequent shipments of Authorized
Products. By exercising the foregoing right, Company
is in no way waiving any of its other rights and
remedies at law or under this Agreement. Distributor
hereby grants and Company reserves a purchase money
security interest in each Authorized Product in
respect of which the Company has not been paid
pursuant to a purchase order, and any proceeds
thereof, for the amount of the purchase price. At
Company's request, Distributor will sign any
documents required to perfect such security interest.
Full payment of the purchase price of the Authorized
Product will release the security interest on that
Product.
(ii) SHIPMENT. Except as otherwise provided herein,
Company will ship to the locations designated in
Distributor's purchase order within Distributor's
Area in accordance with Company's published shipping
schedules in effect at the time of shipment. Company
will provide Authorized Products and
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Authorized Software to Distributor in an amount at
least equal to the Distributor's forecasts provided
to the Company pursuant to Section 7(a)(i). At all
times during the period or periods in which
Distributor is not in Material Breach and in which
Distributor has the exclusive right to sell, license,
service and maintain the Authorized Products and
Authorized Software as provided in Section 12, the
Company shall provide Distributor priority in
shipment of Authorized Products and Authorized
Software over other authorized distributors of the
same products. Company shall not be liable for any
failures to ship or delays in shipping caused by
circumstances described in Section 19. Company shall
use its best efforts to maintain sufficient inventory
in stock to meet Distributor's purchase orders and
needs. Risk of loss shall pass to Distributor F.O.B.
Company dock, but Company will assist Distributor in
tracking shipments and processing claims related to
lost or damaged goods. Title to each shipment of
Authorized Products shall pass to Distributor upon
receipt by Company of payment for such shipment as
provided in Section 7(a)(iv) herein with the
exception of Software, title to which shall remain
vested in Company at all times as provided by the
Software License contained in Section 15. Company
may, in its sole discretion, honor Distributor's
requests to drop ship to installation locations
within Distributor's Area and to expedite shipments,
but Company reserves the right to pass on to
Distributor any additional costs incurred as a result
of such requests. Company reserves the right to
refuse shipment of Authorized Products if Distributor
has failed to make timely payment for prior shipments
as required by Section 7(a)(iv). In the event that
Company elects to exercise its right not to ship
Authorized Products by reason of Distributor's
failure to make timely payments for prior shipments,
or otherwise places Distributor on credit hold, it
shall immediately notify Distributor as soon as such
election is made.
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(c) EXPORTS TO AND FROM DISTRIBUTOR'S AREA.
(i) Distributor shall not export or reexport Authorized
Products without such valid export or reexport
authorization as may be required, or otherwise
violate any export or reexport restriction imposed by
authorities in the country of origin of such
Authorized Products or by other authorities
concerned.
(ii) Company shall, where applicable, issue Certificates
of Origin for Authorized Products shipped under this
Agreement, duly verified by the authorities
concerned.
8. LIMITED WARRANTY AND RESTRICTION ON ALTERATION.
(a) LIMITED WARRANTY. Company warrants that all Authorized
Products sold to Distributor pursuant to this Agreement will
perform in accordance with Company's written specifications
therefor and will be free from defects in material and
workmanship for the period from the date of shipment F.O.B.,
Company specified in Exhibit B (the "Warranty Period"),
provided that such Authorized Products are installed in
compliance with Company's written installation specifications,
to the extent applicable, and given normal service and
maintenance by Distributor during the Warranty Period. Company
warrants that the Authorized Software will be free from any
defect that causes a material nonconformity between its
performance as described in the Related Documentation
accompanying the Authorized Software, as specified in Exhibit
B, and actual performance during the Warranty Period for the
Authorized Product in which the Authorized Software is
imbedded or otherwise an integral part. Company's obligation
under this warranty shall be limited to repair or replace, at
Company's option, any part(s) or Authorized Software that may
prove defective under normal and proper use and service for
the Warranty Period. For such repairs and replacements,
Distributor shall pay the cost for shipment to Company's
plant; and Company shall pay the cost for shipment from
Company's plant. Company agrees to use its best efforts to
ship any repaired or
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replacement Authorized Product within thirty (30) days of the
date Company shall have received the defective Authorized
Product. This warranty shall not apply to lamps, fuses,
batteries or other such items normally consumed in operation
which have a normal life shorter than the Warranty Period.
(b) DISCLAIMERS. THE WARRANTIES CONTAINED IN THIS SECTION ARE IN
LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE. THESE WARRANTIES SHALL BE VOID AS TO PRODUCT DAMAGED
OR RENDERED UNSERVICEABLE OR NONFUNCTIONAL BY NEGLIGENCE OF
NON-COMPANY PERSONNEL, MISUSE, THEFT, VANDALISM, FIRE,
LIGHTNING, POWER SURGES, WATER OR OTHER PERIL, OR ACTS OF GOD,
BY FAILURE OF DISTRIBUTOR TO COMPLY WITH PUBLISHED TECHNICAL
REQUIREMENTS OR BY SERVICES OR PRODUCTS OF OTHER VENDORS,
INCLUDING WITHOUT LIMITATION THE LINES OF ANY LOCAL EXCHANGE
TELEPHONE COMPANY. REPAIR, RELOCATION OR ALTERATION OF THE
PRODUCT BY PERSONS NOT AUTHORIZED BY COMPANY VOIDS THE
WARRANTY. LIABILITY OF COMPANY HEREUNDER IS EXPRESSLY LIMITED
TO THE REPAIR OR REPLACEMENT DESCRIBED ABOVE, AND IN NO EVENT
SHALL COMPANY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES, SUCH AS LOST SALES, LOST PROFITS OR
INJURY TO PROPERTY, IN RESPECT OF WARRANTY CLAIMS OR ANY OTHER
ECONOMIC DAMAGES RELATING TO THE PERFORMANCE OR FUNCTIONALITY
OF THE AUTHORIZED PRODUCTS OR AUTHORIZED SOFTWARE, WHETHER
THEY ARE ALLEGED TO ARISE IN CONTRACT OR TORT OR OTHERWISE. NO
EXPRESS OR IMPLIED WARRANTY IS MADE AGAINST INTRUSIONS INTO
THE COMPANY'S VOICE PROCESSING SYSTEMS BY FRAUDULENT CALLERS
OR AGAINST ANY
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TOLL FRAUD. COMPANY MAKES NO WARRANTIES AS TO THE LAWFULNESS
OF USING ANY FEATURE OF THE AUTHORIZED PRODUCTS TO MONITOR,
RECORD OR FORWARD ANY ORAL, WIRE OR ELECTRONIC COMMUNICATION.
(c) RESTRICTION ON ALTERATION. Company shall not be liable for any
warranty offered by Distributor that differs from the warranty
quoted above. Company does not warrant any Authorized Products
that have been modified without Company's prior written
consent, and Distributor shall not make or permit to be made,
any alterations or modifications of any Authorized Products
without the prior written consent of Company. Distributor
agrees to hold harmless and indemnify Company against claims
of any kind related to any unauthorized alterations or
modifications of Authorized Products made or authorized in
writing by Distributor, or related to warranties by
Distributor that differ from the warranty quoted above.
(d) SURVIVAL. This Section 8 shall survive the termination or
expiration of this Agreement.
9. POST-WARRANTY PERIOD REPAIRS. After the Warranty Period has expired,
Company shall provide repair and replacement service for Authorized
Products at Distributor's expense in accordance with the charges
therefor specified in Company's Authorized Product Price Book. For such
repairs and replacements, Distributor shall pay the cost of shipment to
Company's plant; Company shall pay the cost for shipment from Company's
plant. Distributor shall adhere to the return procedure described in
Company's Authorized Product Price Book and shall adhere to such other
return procedures as Company shall reasonably require from time to
time. Distributor shall not return any defective Authorized Product
unless Distributor has properly completed the return forms described in
Company's Authorized Product Price Book. Company agrees to use its best
efforts to ship repaired or refurbished Authorized Products to
Distributor within thirty (30) days of the date Company shall have
received the defective Authorized Products at its plant. If
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Company has not shipped the repaired or refurbished Authorized Product
within forty (40) days of the date Company shall have received the
defective Authorized Product at its plant, the repair charge shall be
reduced as specified in Company's Authorized Product Price Book. Under
no circumstances shall Company be liable for any consequential or other
damages resulting from failure to ship repaired or refurbished
Authorized Products within thirty (30) days, other than any direct
damages to Distributor arising from failure of Company to ship repaired
or refurbished Authorized Products within sixty (60) days of receipt by
Company. Notwithstanding the foregoing, if Distributor is in Material
Breach of any of its payment obligations to Company, Company reserves
the right to require Distributor to make payment for post-Warranty
Period Repairs before Company ships repaired or replacement Authorized
Products. By exercising the foregoing right, Company is in no way
waiving any of its other rights and remedies at law or under this
Agreement. This Section 9 shall survive the termination or expiration
of this Agreement.
10. COMPANY'S RESERVATION OF RIGHTS. Company reserves the right at any time
to:
(a) discontinue, modify or upgrade existing Authorized Products;
provided, however, that Company shall notify Distributor
ninety (90) days in advance of any product discontinuance,
shall directly or indirectly provide factory repairs for such
product to Authorized Distributors for a period of seven (7)
years from its discontinuance, and shall directly or
indirectly provide spare parts, replacement parts, Authorized
Software and Related Documentation and all other equipment,
software, diagnostics and manuals required to service and
maintain the Authorized Products, Authorized Software and
Related Documentation for such product to Distributor, for a
period of five (5) years from its discontinuance;
(b) nondiscriminatorily sell to Distributor any Authorized
Products, of the Authorized Trademark brand(s) of which
Distributor is an Authorized Distributor, based upon
Distributor's ability to sell, install, or service the same;
and
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(c) make Distributor's rights under this Agreement subject to the
NAP, CTP and Company Accounts Policy, each of which Company
reserves the right to amend from time to time whenever Company
in its reasonable discretion determines such amendment to be
advisable.
11. SALES AND SERVICE OUTSIDE DISTRIBUTOR'S AREA. Distributor is an
authorized distributor of Authorized Products only in Distributor's
Area, except as specifically provided otherwise in this Agreement. In
the event that Distributor sells any Authorized Products for
installation outside Distributor's Area, Distributor shall comply with
the CTP regarding such sale and the related installation and service
requirements in effect at the time of the sale. Nothing contained
herein shall limit or restrict Distributor's ability to sell other
products and services, including Competing Products, outside
Distributor's Area.
Company shall provide Distributor prior written notice of any customer
that requires service outside Distributor's Area and that is not
subject to the Cross-Territorial Policy set forth in Exhibit E and an
opportunity to demonstrate to Company that Distributor is able to
service such customer. In the event that Distributor elects not to
service such customer or is unable to provide service to such customer
on the terms set forth herein, Company shall be entitled to directly or
indirectly provide such service to such customer.
12. EXCLUSIVITY; EXPANSION AREAS AND PRODUCTS.
(a) Except as otherwise specified in this Section 12, Distributor
shall have the exclusive right to sell, license, service, and
maintain the Authorized Products and Authorized Software in
Distributor's Area, subject to termination of such exclusive
rights as provided in this Section 12. Upon termination by the
Company of Distributor's exclusive rights to sell, license,
service and maintain the Authorized Products and Authorized
Software pursuant to this Section 12, Distributor shall have
the non-exclusive right to sell, license, service and maintain
the Authorized Products and Authorized Software to the extent
that the Company shall be entitled
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to appoint one other distributor in each District, if any of
the following events occurs and is not cured within 90 days
after Distributor's receipt of notice from Company; provided,
however, that Distributor may again have exclusive rights if
after 90 days it cures the event and Company has not at the
time of such cure appointed another distributor in the
Distributor's Area.
(i) The dollar amount of Distributor's aggregate actual
purchases (based on prices actually paid and not
Distributor Net Price) of Authorized Products and
Authorized Software during the last four full
Quarters, measured as of January 1 and July 1 of each
year, has been less than the amounts ("Adjusted
Quota") set forth in Exhibit H; or
(ii) Distributor is in Material Breach of this Agreement,
as defined in Section 16.
In the event of a termination of exclusivity as provided in
this Section 12, Company agrees that in each District in
Distributor's Area listed in Exhibit A, it will establish only
one alternative distributor for the Authorized Products and
Authorized Software that were sold by Distributor on an
exclusive basis immediately preceding such termination.
(b) Distributor acknowledges and agrees that (i) Company intends
to reserve to itself the rights to sell and license
INFOSTAR/ILS'tm' and Telesearch'tm' products directly or
indirectly in Distributor's Area as it has done in other areas
and that notwithstanding anything to the contrary herein
Distributor has only non-exclusive rights to sell or license
those products in any market or geographic area, (ii)
Distributor has only non-exclusive rights to sell and license
the Authorized Products and Authorized Software in the
counties within the sales territory of the Albuquerque, New
Mexico; Birmingham, Alabama; New York; Vermont; Chicago,
Illinois; Cleveland, Ohio; Connecticut; and Seattle in each
case as specified in Exhibit A, (iii) Distributor has limited
exclusivity in the Boston District pursuant to a three-year
supplemental agreement currently in effect with
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another independent distributor, which Company agrees to
enforce to protect Distributor's rights and not to renew or
extend at the end of its term.
(c) Distributor agrees that Company shall have the right to sell
and license (i) Other Company Products, as defined in Exhibit
F, directly or indirectly in any market or geographic area,
(ii) Authorized Products and Authorized Software directly in
Distributor's Area to its National Accounts, Federal Systems,
Healthcare, Call Center, and Videoconferencing Customers, as
defined in Exhibits D and F.
(d) Company agrees that if another authorized distributor ceases
to have exclusive rights to sell and license the Authorized
Products and Authorized Software in any area of the United
States not included in Distributor's Area or has been
terminated as a distributor in such area ("Expansion Area"),
then the Company shall offer to Distributor the right to
negotiate with Company and Company shall negotiate with
Distributor in good faith for a period of 30 days a Quota for
the Authorized Products and Authorized Software in the
Expansion Area in order that Company may expand Distributor's
Area to include the Expansion Area. Company further agrees
that if a quota is agreed to with respect to the Expansion
Area within such period, then Distributor's rights in the
Expansion Area shall be exclusive (i) to the extent possible
given Company's then existing contractual obligations and (ii)
provided Distributor is at such time entitled to maintain its
exclusive rights under this Section 12. Company agrees that it
shall not require terms and conditions, including a Quota for
the Expansion Area, less favorable to the Distributor than
that offered to third party distributors in similar areas for
similar products.
(e) Distributor shall be permitted to sell, market, service,
maintain and license Competing Products in Distributor's Area
in the event there is a Material Breach by Company.
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(f) Company agrees that if the Company determines to appoint a
third party distributor to sell (i) products and software
other than Authorized Products and Authorized Software,
including Other Company Products (defined in Exhibit D) or
(ii) any products and software to a National Account or
Company Account, then Company shall offer Distributor the
right to negotiate with Company and Company shall negotiate
with Distributor in good faith for a period of 30 days in
order that Company may expand Distributor's products or
customers to include such products and/or customers. Company
further agrees that if an agreement is reached with respect to
such products and/or customers, then Distributor's rights in
Distributor's Area with respect to such products and/or
customers shall be exclusive (i) to the extent possible given
Company's then existing contractual obligations and (ii)
provided Distributor is at such time entitled to maintain its
exclusive rights under Section 12.
(g) Company agrees that if Company receives notice from a third
party distributor of a change of control of such third party
distributor, Company will provide Distributor prompt notice
thereof. Company shall not purchase the third party
distributor unless it first offers Distributor 30 days in
which Distributor may negotiate to purchase the third party
distributor.
(h) Notwithstanding any other provision contained in this
Agreement, Distributor agrees that in the event Distributor
sells Competing Products in Distributor's Area, Company shall
be permitted to sell directly or indirectly a product of the
type of which Company is a seller or manufacturer in the same
Product Line. As used herein, "Product Line" means a product
designed for telephone switches for one of the following
segments: (i) between 1-25 lines; (ii) between 26-50 lines;
(iii) between 51 to 250 lines; and (iv) between 251 to 400
lines.
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13. CONSENT OF COMPANY REQUIRED.
(a) Distributor shall not, without the prior express written
consent of Company, which consent shall not be unreasonably
withheld:
(i) assign, delegate, sell or transfer this Agreement or
any rights or obligations created by it with respect
to any one or more Districts, except (A) in
connection with a sale or transfer of the business of
selling to and servicing the customer base in such
District or Districts or in connection with the sale
of Distributor, (B) to any lender providing financing
to the Distributor as contemplated by the Purchase
Agreement or any refinancing thereof, pursuant to
security arrangements entered into in connection with
such financings or refinancings or (C) to any
transferee of any such lender upon exercise of any of
such lender's remedies pursuant to security
arrangements contemplated in (B) above; or
(ii) appoint any sub-distributor or dealer for Authorized
Products in any District.
(b) Distributor shall not, unless Company has given its prior
written consent, which may be withheld in Company's sole
discretion, offer, agree to or permit any sale (including any
merger on consolidation) of Distributor or of substantially
all of its business or assets to (i) any of AT&T Corporation,
Lucent Technologies, Nortel or any of their successors or
direct or indirect majority-owned subsidiaries, during the one
year immediately following the date of this Agreement, or (ii)
Intertel Corporation or Mitel Corporation, or any of their
successors or direct or indirect majority-owned subsidiaries,
during the three years immediately following the date of this
Agreement; provided, however, that the provisions of this
subsection (b) shall automatically terminate upon an initial
public offering of common stock of Distributor.
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14. CONFIDENTIALITY.
(a) NONDISCLOSURE. Without the prior express written consent of
Company, Distributor shall not disclose to any third party, or
use for any purpose other than performance of this Agreement,
any confidential business information or trade secrets of
Company including but not limited to: product design
information, product technical manuals, product technical
bulletins, or Company pricing. Company and Distributor
recognize the necessity of disseminating selected information
included in the above documents to customers or prospective
customers in the sales process. Company agrees that
Distributor may provide such necessary information to
customers and prospective customers in the sales process
without Company's prior express written consent and
Distributor agrees to use its best efforts to protect the
confidentiality of this information.
(b) NO REVERSE ENGINEERING. Distributor shall not engage in, cause
to be engaged in, or permit any reverse engineering of
Authorized Products or Authorized Software. Reverse
engineering is defined as attempting through analysis of
component parts and/or software of the Authorized Products to
define the functionality of the components or software, and
thereby gain the ability to alter or reproduce that
functionality.
(c) SOFTWARE. Distributor hereby acknowledges that the Authorized
Software and Related Documentation specifically listed in
Exhibit B and all technical manuals relating to the Authorized
Products are proprietary to Company and constitute trade
secrets of Company. All applicable rights to patents,
copyrights, trademarks, and trade secrets of the Company are
and shall remain in Company. Distributor agrees to use utmost
reasonable diligence to protect the confidentiality and
proprietary rights of Company in the Authorized Software and
Related Documentation, and not to disclose the Authorized
Software or Related Documentation to any third party.
Distributor shall also promote compliance with the terms and
conditions of this
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Agreement by employees and agrees to place the software
sublicense language in Exhibit H in its sales contracts with
its customers. Distributor agrees to maintain records of these
software sublicense agreements and to represent Company's
interest in the protection of its rights to the Authorized
Software and Related Documentation. In the event that Company
has reason to believe Distributor's customer has violated the
software sublicense agreement, Distributor will make available
to Company these records on a customer specific basis.
(d) SURVIVAL. Distributor's obligations under this confidentiality
provision shall survive termination or nonrenewal of this
Agreement.
15. SOFTWARE LICENSE.
(a) LICENSE. The Company owns, or has licensed from the owner, the
Authorized Software and any other proprietary interests in the
Authorized Products and related materials and has the right to
license such Authorized Software and proprietary interests to
Distributor and to end-users. Subject to the terms and
conditions contained herein, Company grants Distributor a
non-exclusive license to use, in object code form, all
Authorized Software and Related Documentation as contemplated
by this Agreement. This grant shall be limited to use in
connection with the sale and service of the Authorized
Products as contemplated by this Agreement. This license shall
continue until the license is terminated in accordance with
this Agreement, or for the useful life of the Authorized
Product in which the Authorized Software is imbedded or of
which the Authorized Software is an integral part, or for the
useful life of the Authorized Software, whichever is longer.
Removal of the Authorized Software from the United States,
service by any unauthorized person, use of the Authorized
Software on any Authorized Product other than that for which
it was obtained or authorized, or on any non-Authorized
Product, shall constitute a breach of this Section 15 by
Distributor. Except as provided in the
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Purchase Agreement or as provided in Section 10, the software
license will terminate on expiration or termination of this
Agreement.
(b) MODIFICATION AND COPIES. Distributor may not modify or copy
the Authorized Software or Related Documentation without prior
written consent of Company. Distributor agrees to refrain from
taking any steps, including without limitation reverse
engineering, reverse assembly or reverse compilation, to
derive a source or object code equivalent of the Authorized
Software, or for any other purpose.
(c) INDEMNIFICATION. Company agrees that, if notified promptly and
given sole control of the defense and all related settlement
negotiations, it will indemnify and defend Distributor or its
customers who have executed a software sublicense against any
claim based on an allegation the Authorized Software infringes
a U.S. patent, copyright or trademark. Company shall have no
obligations under this Section in the case of claims resulting
from modifications to the Authorized Software made by
Distributor, end-users, or others, or combinations with
software or equipment provided by others. If any Authorized
Software becomes, or in Company's opinion is likely to become,
the subject of such claim of infringement, Company will, at
its expense, either, at its option, procure rights for
Distributor and its customers who have executed a software
sublicense to continue using the Authorized Software, or
replace or modify the Authorized Software to provide
noninfringing software that performs substantially similar
functions to the original Authorized Software. Upon failure of
the foregoing provisions of this subsection (c), Company will
refund the purchase price of the Authorized Product or license
fee for the Authorized Software less a reasonable allowance
for use. THIS SECTION STATES THE ENTIRE LIABILITY OF COMPANY
FOR INFRINGEMENT BY ANY AUTHORIZED SOFTWARE PROVIDED
HEREUNDER.
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16. TERMINATION OF AGREEMENT; REMEDIES FOR BREACH.
(a) This Agreement will expire on May 30, 2001, unless earlier
terminated for Material Breach as defined in subsection (b) of
this Section 16. Upon expiration of the term, this Agreement
may be renewed upon the mutual agreement of the parties.
(b) This Agreement may be terminated by either party for Material
Breach no less than 90 days after mailing written notice of
termination to the other party as provided in (c) below.
Material Breach of this Agreement shall mean:
(i) failure of Distributor to purchase at least 50% of
the applicable Adjusted Quota set forth in Exhibit H
for any period of four consecutive full Quarters;
(ii) material breach of Section 3, 4 (other than under
Section 4(b)), 5, 11, 13, 14 or 15 of this Agreement
by Distributor;
(iii) material breach of Section 2, 7(b), 8(a) or 12 of
this Agreement by the Company;
(iv) assignment of this Agreement by Distributor (except
as provided in Section 13) without the prior written
consent required by this Agreement;
(v) failure of Company to provide products that are
competitive in the marketplace in function, features
and price for a period of six consecutive months; or
(vi) sale or license by Distributor of Competing Products
(as defined in Exhibit C) in Distributor's Area
except as provided in Exhibit C or in Section 12(e)
of this Agreement.
(c) In the event that either party contends the other party is in
Material Breach of any of its obligations to the other party
under this Agreement, the party claiming Material Breach will
provide written notice by certified mail that specifically
itemizes each and every obligation of which the party contends
the other party is in substantial and
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Material Breach. In the event that the nonterminating party
fails to cure the breach within ninety (90) days of receipt of
such notice, the termination shall become effective.
17. DISTRIBUTOR'S OBLIGATIONS UPON TERMINATION. In the event of termination
of this Agreement, whether by non-renewal or for Material Breach,
Distributor shall:
(a) immediately pay all obligations for Authorized Products and
Authorized Software delivered to Distributor prior to
termination when such payments are due and payable to Company;
(b) except as provided in the Purchase Agreement, immediately
insofar as reasonably possible discontinue any and all uses of
the Authorized Trademarks and Authorized Name, as defined in
Exhibit C, if any, including:
(i) cancel all governmental certificates or licenses
reserving or registering Distributor's use of the
Authorized Trademarks or Authorized Name, if any;
(ii) remove the Authorized Trademarks or Authorized Name,
if any, from its premises, vehicles, sales proposals,
stationery, telephone directory listing, and other
advertising and promotional material; and
(iii) change its corporate and trade name to delete any use
of the Authorized Trademarks, Authorized Name, or any
name likely to cause confusion with any Authorized
Trademarks.
(c) not adopt the use of any mark or name deceptively similar to
any Authorized Trademarks, other than as provided in the
Purchase Agreement; and
(d) execute any documents or take any other reasonable steps that
will help transfer to Company ownership of all goods
repurchased, free and clear of any liens, encumbrances, or
security interest.
It is understood and agreed that (i) in the event of a Material Breach
of this Agreement by Distributor solely pursuant to Section 16(b)(i), the
Company's sole remedy is to terminate this Agreement in accordance with the
terms and procedures hereof and that Distributor shall have no
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obligations under this Agreement (and the Company shall have no claims against
Distributor) arising from such Material Breach of this Agreement pursuant to
Section 16(b)(i) other than provided in this Section 17 above and (ii) in the
event the Company has terminated this Agreement in accordance with its terms,
Distributor shall have no obligations under this Agreement for purchases of
Authorized Products and Authorized Software in respect of the Quota or the
Adjusted Quota.
18. COMPANY'S OBLIGATIONS AND DISTRIBUTOR'S OPTIONS UPON TERMINATION.
(a) In the event of termination of this Agreement, Company:
(i) may at Company's option cancel all unfilled orders
except those for such Authorized Products that have
been sold previously by Distributor to customers, as
evidenced by signed customers' orders submitted by
Distributor to Company at least twenty (20) days
prior to the effective termination date;
(ii) may within thirty (30) days after written
notification by Distributor of its existing
inventory, purchase from Distributor at Distributor's
cost less a reasonable allowance for use or damage,
if any, plus freight, either for cash or by set off
against debt or trade receivables, any or all of the
Authorized Products. In the event that Distributor
elects to sell its inventory of Authorized Products
and Company elects to purchase this inventory,
Distributor will allow Company to inspect this
inventory;
(iii) shall continue to directly or indirectly provide to
Distributor factory repairs for a period not to
exceed seven (7) years from the effective date at
which the Authorized Products are discontinued for
new system sales, or indefinitely in the case of
Authorized Products not yet discontinued, so that
Distributor can continue to service its end-user
customers; and
(iv) shall continue to directly or indirectly provide to
Distributor at its request necessary spare parts,
replacement parts, replacement copies of Authorized
Software and Related Documentation and all other
equipment, software, diagnostics and manuals required
to continue to service and maintain the Authorized
Products, Authorized Software and Related
Documentation, for
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a period not to exceed five (5) years from the
effective date at which the Authorized Products are
discontinued for new system sales, or indefinitely in
the case of Authorized Products that are not yet
discontinued, so that Distributor can continue to
service and maintain its end-user customers.
(v) purchase orders for factory repairs, spare parts,
replacement equipment and software, and Related
Documentation must be placed with Company at least 30
days in advance of the requested shipment date. The
order must be paid in full prior to shipment. Prices
will be the weighted average of the then current
prices paid by the Company's distributors for such
products.
(b) Company's obligations upon termination and Distributor's
options set forth in this Section 18 are specifically
conditioned upon Distributor's compliance with its obligations
upon termination set forth in Section 17 above, and with
Sections 3, 14, and 15, and all other provisions of this
Agreement that are applicable following termination. In the
event Distributor breaches any provision of Sections 3, 14,
15, or 17, or any other applicable provision of this Agreement
after receipt of written notice of nonrenewal or termination
from Company, and Distributor fails or refuses to cure such
breach within any stated cure period, Company may, at its sole
option, provide written notice to Distributor that any and all
rights of Distributor set forth in Section 18 are thereby
forfeited, and all of Company's obligations under this Section
18 shall immediately cease as of (1) the date set forth in
such notice, or (2) the date by which such breach(es) must be
cured and the same remains uncured, whichever date is sooner.
19. FORCE MAJEURE. Either party may be excused from timely performance
hereunder if and to the extent such performance is delayed or prevented
by fire, flood, earthquake or other Act of God, strike, lock-out or
labor dispute not involving the party, act of war, civil disturbance or
any similar event or occurrence beyond the reasonable control of the
party delaying or preventing its performance. Performance shall be
resumed as soon as reasonably possible after the event or occurrence
has been remedied. If performance is delayed or suspended for
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more than 90 days, and such delay or nonperformance would be a Material
Breach except for the provisions of this Section, then the party
entitled to the performance shall have the rights set forth in Section
16.
20. COMPLETE AGREEMENT AND NO ORAL MODIFICATION. This Agreement constitutes
the complete agreement between the parties, and supersedes all previous
agreements between the parties other than notes, credit, loan,
shareholder, lease, sublease or security agreements. The headings of
sections of this Agreement are included merely for the convenience of
the parties, and shall not be construed as part of the Agreement. This
Agreement may be modified only by a written agreement signed by both
parties.
21. CHOICE OF LAW AND FORUM. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of New York.
Any dispute arising under this Agreement that cannot be resolved by
agreement shall, whenever diversity or subject matter jurisdiction
exists, be submitted to the United States District Court in the
Southern District of New York, and the parties consent and submit to
the personal jurisdiction of such court. The prevailing party in any
litigation, arbitration, or other proceedings arising out of this
Agreement shall be reimbursed for all reasonable costs and expenses
incurred in such proceedings, including reasonable attorneys' fees.
22. NO WAIVER. A waiver of any breach or default of this Agreement shall
not be deemed to constitute a waiver of any subsequent breach or
default.
23. SEVERABILITY. If any of the terms or provisions of this Agreement or
the application thereof to any person or circumstance shall, for any
reason or to any extent, be held or determined to be invalid or
unenforceable, the remainder of this Agreement and the application of
such provisions to other persons or circumstances shall not be affected
thereby, but rather shall be enforced to the greatest extent permitted
by law.
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24. NOTICE. Any notice required by this Agreement shall be made in writing,
signed by a duly authorized agent of the party giving the notice, and
deposited in the United States mail, first class, postage prepaid,
addressed to the last known address of the addressee, unless
specifically required to be by certified mail.
25. RELATIONSHIP OF PARTIES. Distributor is an independent contractor.
Nothing in this Agreement shall be construed to mean that Distributor
is an agent, employee, franchisee or subcontractor of Company. This
Agreement shall not be construed to create any rights or obligations of
any person or entity other than the parties.
26. CONSTRUCTION; DEFINITION. For purposes of this Agreement, including all
exhibits hereto, the Company shall mean EXECUTONE Information Systems,
Inc., a Virginia corporation, its subsidiaries and any person that
directly or indirectly controls, is controlled by or is under common
control thereof and any successors and assigns thereof.
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27. AUTHORIZATION AND EXECUTION. The parties and the persons signing this
Agreement represent and warrant that those persons are fully authorized
to enter into the terms and conditions of, and to execute, this
Agreement on behalf of the respective parties.
COMPANY: DISTRIBUTOR:
EXECUTONE INFORMATION SYSTEMS, INC. CLARITY TELECOM, INC.
By:_____________________________________ By:_____________________________
Title:__________________________________ Title: _________________________
(Corporate Seal)
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