-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GGxdYcewOjtaNH8jOb9BBzqeOIRVzIl70nl/fT9c8Ey7tkoA0fUr/pVZuIvTZw1G ZMnvXnixaSeYVJNN4XSexQ== 0000930661-96-000894.txt : 19960805 0000930661-96-000894.hdr.sgml : 19960805 ACCESSION NUMBER: 0000930661-96-000894 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960712 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960802 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLYPHASE CORP CENTRAL INDEX KEY: 0000748212 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-CONSTRUCTION & MINING (NO PETRO) MACHINERY & EQUIP [5082] IRS NUMBER: 232708876 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09083 FILM NUMBER: 96602949 BUSINESS ADDRESS: STREET 1: 16885 DALLAS PARKWAY CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 2147320010 MAIL ADDRESS: STREET 1: 16885 DALLAS PKWY CITY: DALLAS STATE: TX ZIP: 75248 FORMER COMPANY: FORMER CONFORMED NAME: KAPPA NETWORKS INC DATE OF NAME CHANGE: 19910721 8-K 1 FORM 8-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) JULY 12, 1996 POLYPHASE CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEVADA 1-9083 23-2708876 - ------------------------------- ---------------- ------------------- (State or other jurisdiction of (Commission File (IRS Employer incorporation) Number) Identification No.) 16885 DALLAS PARKWAY, DALLAS, TEXAS 75248 - ---------------------------------------------------- ------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 732-0010 ================================================================================ ITEM 5. OTHER EVENTS - --------------------- On July 12, 1996, but effective as of July 1, 1996, Polyphase Corporation (the "Company"), sold 51% of the outstanding capital stock (the "Stock") of its wholly owned subsidiary, PC Networx America, Inc. ("PCNA") to Letronix Acquisition Corp. ("Acquisition") pursuant to a Stock Purchase Agreement dated as of June 28, 1996 (the "Stock Purchase Agreement"). PCNA's sole assets consisted of the outstanding capital stock of the following corporations: Network America, Inc., PC Repair of Florida, Inc., Letronix, Inc. and Register- Mate, Inc. (the "Subsidiaries"). The consideration for the Stock consisted of $475,000 in cash, 1,175,000 shares of Acquisition's Class A Preferred Stock (the "Preferred Stock"), and a secured promissory note (the "Note") from Acquisition in the original principal amount of $850,000 and bearing interest at 7% per annum. Interest on the Note is payable in arrears every six months, commencing on the last business day of December, 1996 and continuing up to and including the last business day of December, 1997. On January 1, 1998, all principal and accrued but unpaid interest on the Note is due and payable. The principal amount of the Note is subject to adjustment (up or down) depending on the difference between (i) 51% of the book value of the outstanding Common Stock of PCNA on June 30, 1996 and (ii) $2,500,000. The Note is secured by the Stock. The sale of the Stock left the Company with a 49% equity ownership of PCNA, consisting of an aggregate of 980,000 shares (the "Remaining Shares") of Common Stock. In connection with the sale of the Stock, the Company granted Acquisition an option to purchase up to 200,000 of the Remaining Shares (the "Optioned Shares") at a price per share ranging from 1.25 times to 1.75 times the book value of the Common Stock of PCNA as of June 30, 1996. Such option is exercisable at any time on or prior to the 545th day (the "Termination Date") following the date on which the registration statement relating to a proposed registered spin-off (the "Spin-off") by the Company of 600,000 of the Remaining Shares is first declared effective by the Securities and Exchange Commission (the "Effective Date"). The Company has also granted Acquisition a right of first refusal to purchase at an agreed to valuation (i) prior to the Termination Date, any of the Remaining Shares other than the Optioned Shares and (ii) on or after the Termination Date, any of the Remaining Shares. This right of first refusal is exercisable on any sales proposed to be made by the Company on or prior to June 28, 1999. If the Effective Date does not occur on or before December 28, 1996, Acquisition has the option to purchase from the Company 600,000 of the Remaining Shares for the consideration described in Section 2(a) of the Stock Purchase Agreement. Acquisition has agreed to vote in its shares of Common Stock of PCNA to elect one (1) designee of the Company to the board of directors of PCNA, which may not consist of more than seven (7) numbers. The terms of the stock sale, the options granted by the Company and the right of first refusal granted by the Company are set forth in the Stock Purchase Agreement, that certain Secured Promissory Note, dated as of June 28, 1996, that certain Security and Pledge Agreement, dated as of June 28, 1996, and that certain Stock Option and Right of First Refusal Agreement, dated as of June 28, 1996. Reference is made to the documents listed above, each of which is 2 included as an exhibit to this current report, for a more complete description of the terms and provisions of each such document. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS - ------------------------------------------- (a) Financial Statements of business acquired. Not applicable. (b) Pro forma financial information. Not applicable. (c) Exhibits. 1. Stock Purchase Agreement, dated as of June 28, 1996. 2. Secured Promissory Note, dated as of June 28, 1996. 3. Security and Pledge Agreement, dated as of June 28, 1996. 4. Stock Option and Right of First Refusal Agreement, dated as of June 28, 1996. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. POLYPHASE CORPORATION (Registrant) Date: August 1, 1996 By: /s/ Paul A. Tanner ------------------------------------- Paul A. Tanner President EX-1 2 STOCK PURCHASE AGREEMENT EXHIBIT 1 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement ("Agreement") is entered into as of June 28, 1996, by Letronix Acquisition Corp., a Nevada corporation ("Buyer"), and Polyphase Corporation, a Nevada corporation ("Seller"). RECITALS Seller desires to sell, and Buyer desires to purchase, 1,020,000 shares (the "Shares") of capital stock of PC Networx America, Inc., a Nevada corporation (the "Company"), being fifty-one percent (51%) of the outstanding shares of the Common Stock, par value $.001 per share, of the Company (the "Common Stock"), for the consideration and on the terms set forth in this Agreement. AGREEMENT The parties, intending to be legally bound, agree as follows: 1. SALE AND TRANSFER OF SHARES; CLOSING. ------------------------------------ 1.1 SHARES. Subject to the terms and conditions of this Agreement, at ------ the Closing, Seller will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares from Seller. 1.2 PURCHASE PRICE. The purchase price (the "Purchase Price") for the -------------- Shares will be equal to 51% of the book value of the outstanding shares of Common Stock of the Company as of March 31, 1996, which is hereby deemed to be equal to $2,500,000. The Purchase Price shall be subject to a post-Closing adjustment as set forth in SECTION 1.5 hereof. 1.3 CLOSING. The purchase and sale (the "Closing") provided for in this ------- Agreement will take place at the offices of Seller at 16885 Dallas Parkway, 4th Floor, Dallas, Texas, at 10:00 a.m. (local time) on June 28, 1996 or at such other time and place as the parties may agree (the "Closing Date"). Subject to the provisions of SECTION 9, failure to consummate the purchase and sale provided for in this Agreement on the date and time and at the place determined pursuant to this SECTION 1.3 will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. 1.4 CLOSING OBLIGATIONS. At the Closing: ------------------- (a) Seller will deliver to Buyer: (i) certificates representing the Shares, duly endorsed (or accompanied by duly executed stock powers) (which Buyer will return to Seller as collateral as hereinafter described); (ii) a certificate executed by Seller to the effect that, except as otherwise stated in such certificate, each of Seller's representations and warranties in this Agreement was accurate in all material respects as of the date of this Agreement and is accurate in all material respects as of the Closing Date as if made on the Closing Date (giving full effect to any supplements to the Disclosure Schedule (as hereinafter defined) that were delivered by Seller to Buyer at or prior to the Closing Date); (b) Buyer will deliver to Seller the Purchase Price at Closing, as follows: (i) cash in the amount of Four Hundred Seventy Five Thousand Dollars ($475,000) by bank cashier's or certified check payable to the order of Seller, or, at Seller's election, by wire transfer to accounts specified by Seller; (ii) One Million One Hundred Seventy Five Thousand (1,175,000) shares of the Buyer's Class A Preferred Stock, par value $1.00 per share (the "Preferred Stock"), having the designations, preferences and relative, participating, optional and other rights as set forth on the Designation of Class A Preferred Stock attached hereto as ANNEX A; (iii) A secured promissory note in the amount of $850,000 (the "Note") having the terms and provisions set forth in the form thereof attached hereto as ANNEX B; and (iv) a certificate executed by Buyer to the effect that, except as otherwise stated in such certificate, each of Buyer's representations and warranties in this Agreement was accurate in all material respects as of the date of this Agreement and is accurate in all material respects as of the Closing Date as if made on the Closing Date. 1.5 POST-CLOSING ADJUSTMENT. The Note issued to Seller at Closing shall ----------------------- be subject to increase or decrease after the Closing, based upon the book value of the Common Stock of the Company as of June 30, 1996, as set forth in this SECTION 1.5. Promptly following the Closing, an auditor of nationally recognized standing reasonably acceptable to both Seller and Buyer shall audit the consolidated balance sheet of the Company and its subsidiaries as of June 30, 1996 and shall determine therefrom the book value of the outstanding shares of Common Stock as of June 30, 1996 (the "Book Value") and shall report its finding to both Seller and Buyer. The report of such auditor shall be final and binding on both Seller and Buyer. In the event that the Book Value multiplied by 51%, as such figure is rounded to the nearest whole number (the "Pro Rata Book Value"), is less than $2,500,000, then the Seller shall promptly surrender to Buyer the Note referred to in SECTION 1.4(B)(III) above in exchange for a new promissory note (the "New Note") with terms identical to the Note except that the principal amount of such New Note shall be reduced to equal (i) $850,000 less (ii) the difference between the Pro Rata Book Value and $2,500,000; provided, however, that in no event shall Seller be required to pay money to Buyer as a result of the adjustment, if any, hereunder. In the event that the Pro Rata Book Value is more than $2,500,000, then Seller shall promptly surrender the Note referred to in SECTION 1.4(B)(III) above in exchange for a new promissory note (the "Alternate New Note") with terms identical to the Note except that the principal amount of such Alternate New Note shall be increased to equal (i) $850,000 plus (ii) the difference between $2,500,000 and the Pro Rata Book Value. For purposes of this Agreement, if the New Note or the Alternate New Note are issued, the capitalized term "Note" as used herein shall be interpreted to mean the "New Note" or the "Alternate New Note" where the context requires. 2 2. SPECIAL POST-CLOSING ITEMS. -------------------------- (a) In connection with the acquisition contemplated hereby, Seller agrees that following the Closing, it will use its best efforts to effect the distribution to its public shareholders of shares of Common Stock representing thirty percent (30%) of the outstanding shares of Common Stock (the "Spinoff"), and that it will register such distribution with the Securities and Exchange Commission and use its best efforts to cause the registration statement for such distribution to be declared effective. If the registration statement relating to the Spinoff is not declared effective by the Securities and Exchange Commission on or prior to the date that is six (6) months following the Closing Date (the "Termination Date"), Seller hereby grants Buyer an option (the "Spinoff Option") to purchase such shares representing thirty percent (30%) of the outstanding shares of Common Stock (the "Option Shares"). Such Spinoff Option shall be exercisable by Buyer by written notice to Seller on or prior to the date that is ten (10) days after the Termination Date. Assuming Buyer gives written notice as described above, the closing of the purchase and sale of the Option Shares shall be held no later than sixty days following the Termination Date. The purchase price for the Option Shares shall be 30% of the Book Value as of June 30, 1996 (as defined in Section 1.5), and such purchase price shall consist of 20% of the purchase price in cash, a promissory note from Buyer to Seller in original principal amount of 30% of the such purchase price (but otherwise on substantially the same terms as the Note), and the remaining 50% of such purchase price shall be payable by issuance of shares of Buyer's Preferred Stock with a deemed value of $1.00 per share (but the number of such shares issued shall be appropriately adjusted to account for any stock splits, dividends and recapitalizations). Buyer covenants and agrees with Seller that Seller shall not be obligated to sell Buyer the Option Shares unless Buyer (i) enters into a purchase agreement containing representations and warranties substantially similar to those made by the Buyer contained herein, (ii) enters into a purchase agreement containing such other terms and provisions as are necessary, in the opinion of counsel for the Seller, to comply with applicable law, and (iii) agrees that the Option Shares shall become subject to the same restrictions and other provisions provided for the Shares in Section 11.16 hereof. In such purchase agreement, (i) Seller shall not be obligated to make representations and warranties to Seller, other than such representations and warranties as are substantially similar to those contained in Sections 3.1, 3.2, 3.3 and 3.4 hereof and (ii) such representations and warranties of Seller shall survive for a period not to exceed two (2) years after the closing of the purchase and sale of the Option Shares. (b) Seller agrees that it will cause its Affiliates that own shares of Common Stock, to grant to Buyer the option to acquire the shares of Common Stock owned by Seller and such Affiliates upon the terms and conditions set forth in the form of the Option Agreement attached hereto as ANNEX C. 3. REPRESENTATIONS AND WARRANTIES OF SELLER. ---------------------------------------- Seller represents and warrants to Buyer as follows: 3 3.1 ORGANIZATION AND GOOD STANDING. PART 3.1 of the Disclosure Schedule ------------------------------ delivered by Seller to Buyer at or prior to the Closing Date (the "Disclosure Schedule") contains a complete and accurate list for each of the Company and each of its subsidiaries (collectively, the "Acquired Companies") of its name, its federal employer identification number, its jurisdiction of incorporation and the other jurisdictions in which it is authorized to do business. Each Acquired Company is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use. Each Acquired 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 either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification. 3.2 AUTHORITY; NO CONFLICT. ---------------------- (a) This Agreement constitutes the legal, valid, and binding obligation of Seller, enforceable against Seller in accordance with its terms. Seller has the absolute and unrestricted right, power, authority, and capacity to execute, deliver and perform this Agreement. (b) Neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions contemplated by this Agreement will, directly or indirectly (with or without notice or lapse of time): (i) contravene, conflict with, or result in a violation of any provision of the certificate of incorporation or bylaws of the Acquired Companies; (ii) contravene, conflict with, or result in a violation of, or give any governmental body or other person the right to challenge any of the transactions contemplated by this Agreement or to exercise any remedy or obtain any relief under, any federal, state or local order, law, ordinance or regulation or any injunction, judgment, order or decree of any court, administrative agency or other governmental body to which any Acquired Company, or any of the assets owned or used by any Acquired Company, may be subject; (iii) contravene, conflict with, or result in a violation or breach of any provision of, or give any person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any contracts applicable to the Acquired Companies that would have a material adverse effect on the Acquired Companies; or (iv) result in the imposition or creation of any charge, claim, lien, option, pledge, security interest or restriction of any kind upon or with respect to any of the assets owned or used by any Acquired Company. 3.3 OWNERSHIP; CAPITALIZATION. ------------------------- (a) Seller is or will be on the Closing Date the record and beneficial owner and holder of all the Shares, free and clear of any charge, claim, lien, option, pledge, security interest or restriction of any kind. 4 (b) The authorized equity securities of the Company consist of (i) 100,000,000 shares of common stock, par value $.001 per share, of which 2,000,000 shares are issued and outstanding and (ii) 50,000,000 shares of preferred stock, par value $.001 per share, of which no shares are issued and outstanding. The Shares represent all of the issued and outstanding capital stock of the Company on the Closing Date. Upon transfer of the Shares to Buyer at the Closing, Buyer will own the entire legal and beneficial interest in the Shares, free and clear of all liens, claims and encumbrances and subject to no legal or equitable restriction of any kind. With the exception of the Company, all of the outstanding equity securities and other securities of each Acquired Company are owned of record and beneficially by one or more of the Acquired Companies, free and clear of any charge, claim, lien, option, pledge, security interest or restriction of any kind. All of the outstanding equity securities of each Acquired Company have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth in PART 3.3 of the Disclosure Schedule, there are no agreements, contracts, obligations, promises or undertakings relating to the issuance, sale, or transfer of any equity securities or other securities of any Acquired Company. 3.4 FINANCIAL MATTERS. Seller has delivered to Buyer: (i) the pro forma ----------------- consolidated balance sheets of the Acquired Companies as at the years September 30, 1995, and the related pro forma consolidated statements of income, changes in stockholders' equity, and cash flow for each of the fiscal years then ended (the "Financial Statements"), and (ii) an unaudited pro forma consolidated balance sheet of the Acquired Companies as at March 31, 1996, and the related unaudited consolidated statements of income, changes in stockholders' equity, and cash flow for the six months then ended, including in each case the notes thereto (the "Interim Financial Statements"). Such Financial Statements fairly present in all material respects the financial condition and the results of operations, changes in stockholders' equity, and cash flow of the Acquired Companies as at the respective dates of and for the periods referred to in such financial statements, all in accordance with generally accepted accounting principles, subject, in the case of the Interim Financial Statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes (which, if presented, would not differ materially from those included in the Financial Statements); the financial statements referred to in this SECTION 3.4 reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such Financial Statements. 3.5 BOOKS AND RECORDS. The books of account, minute books, stock record ----------------- books, and other records of the Acquired Companies, all of which have been made available to Buyer, are complete and correct in all material respects. The minute books of the Acquired Companies contain accurate and complete records of all meetings held of, and corporate action taken by, the stockholders and the Boards of Directors. At the Closing, all of those books and records will be in the possession of the Acquired Companies. 3.6 TITLE TO PROPERTIES. The Acquired Companies own (with good and ------------------- marketable title in the case of real property, subject only to the matters permitted by the following sentence) all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) that they purport to own, including all of the properties and assets reflected in the Financial Statements and the Interim Financial Statements (except for assets held under capitalized leases and personal property sold since the date of the Financial Statements and the Interim Financial Statements, as the case may be, in the ordinary course of business), and all of the properties and assets purchased or otherwise 5 acquired by the Acquired Companies since the date of the Financial Statements (except for personal property acquired and sold since the date of the Financial Statements in the ordinary course of business and consistent with past practice). 3.7 CONDITION AND SUFFICIENCY OF ASSETS. The buildings, structures, and ----------------------------------- equipment of the Acquired Companies are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such buildings, structures, or equipment is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The building, structures, and equipment of the Acquired Companies are sufficient for the continued conduct of the Acquired Companies' businesses after the Closing in substantially the same manner as conducted prior to the Closing. 3.8 NO UNDISCLOSED LIABILITIES. The Acquired Companies have no material -------------------------- liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Financial Statements or the Interim Financial Statements and current liabilities incurred in the ordinary course of business since the respective dates thereof. 3.9 TAXES. (a) Except as set forth on PART 3.9 of the Disclosure ----- Schedule, all federal, state and local tax returns, reports, declarations, information returns and estimates that the Acquired Companies were required to file ("Tax Returns") have been filed for the Acquired Companies for all periods for which such were due. All Taxes (as defined below) of the Acquired Companies, whether or not disclosed in the Tax Returns, have been paid in full and all such Tax Returns are true, correct and complete in all material respects. The federal income tax returns of the Acquired Companies have not been audited by the Internal Revenue Service. There is not in force any extension of the date on which any Tax Return was or is due to be filed by or with respect to the Acquired Companies, or any waiver or agreement by them for the extension of time for the payment of any Tax. The reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) shown on the Financial Statements is adequate to cover the liability of the Acquired Companies for all Taxes (including employee income tax withholding, social security and unemployment taxes) to the date thereof. (b) There is no claim against any of the Acquired Companies with respect to any Taxes and no assessment, deficiency or adjustment has been asserted or proposed with respect to any Tax Return which would, if determined adversely to the Acquired Companies, have a material adverse effect on the Acquired Companies. All prior audits and examinations of the Acquired Companies have been disclosed to Buyer. (c) Each Acquired Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party. (d) For purposes of this Agreement, "Tax" (and, with correlative meaning, "Taxes") shall mean any federal, state, local or foreign income, gross receipts, windfall profit, severance, property, alternative minimum or add-on minimum production, sales, use, license, excise, franchise, employment, payroll, withholding, ad valorem, or other taxes, assessments, duties, fees, levies or 6 other governmental charges, together with any interest, penalty or addition to tax, or additional amount imposed by any governmental authority. 3.10 EMPLOYEE BENEFITS. PART 3.10 of the Disclosure Schedule contains a ----------------- complete and accurate list of all plans or other obligations, arrangements, or customary practices, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former officers, directors, employees, or agents ("Benefits"). The Acquired Companies, with respect to all Benefits are, and each Benefit is, in material compliance with the Employee Retirement Income Security Act of 1974 ("ERISA"), the IRC, and other applicable laws. 3.11 PROCEEDINGS. There are currently no pending lawsuits, ----------- administrative proceedings or investigations ("Proceedings") against any of the Acquired Companies or to which any of their assets is subject and Seller is not aware of any threatened Proceedings. None of the Acquired Companies is subject to any currently existing order, writ, injunction or decree relating to its operations. 3.12 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in PART ------------------------------------- 3.12 of the Disclosure Schedule, since the date of the Financial Statements, there has not been any material adverse change in the financial condition, results of operation, business, prospects, assets or liabilities, of any of the Acquired Companies, except for changes in the ordinary course of business consistent with historical experience. 3.13 CONTRACTS. PART 3.13 of the Disclosure Schedule contains a complete --------- and accurate list of (i) all current or pending contracts, commitments and leases (of real or personal property), written or otherwise, between any of the Acquired Companies and any party which are material to the operations of the Acquired Companies and that cannot be canceled without penalty upon thirty (30) days' notice (collectively, the "Material Contracts"); (ii) all patents, copyrights, trade names, trademarks and service marks used or owned by any of the Acquired Companies, and all licenses or agreements relating thereto; (iii) a list of all leases, contracts or agreements for which consents of any private persons or governmental bodies is required for the consummation of the transactions contemplated by this Agreement, or for the preventing of any termination of any material right, privilege, license or agreement of, or any loss or disadvantage to, any of the Acquired Companies or Buyer upon consummation of the transactions contemplated by this Agreement; and (iv) all real property owned or leased by the Acquired Companies. 3.14 ENVIRONMENTAL MATTERS. To Seller's knowledge, each Acquired Company --------------------- is, and at all times has been, in material compliance with, and has not been and is not in material violation of or liable under, any environmental law. To Seller's knowledge, no toxic chemicals or hazardous wastes have been deposited or disposed of on any property owned by the Acquired Companies and none of such property has suffered any material environmental damage due to the Acquired Companies operations. 3.15 EMPLOYEES. PART 3.15 of the Disclosure Schedule contains a complete --------- and accurate list of the following information for each employee of the Acquired Companies, including each employee on leave of absence or layoff status: employer; name; job title; current compensation paid or payable and any change in compensation since September 30, 1995. 7 3.16 CERTAIN PAYMENTS. To Seller's knowledge, no Acquired Company or ---------------- director, officer, agent, or employee of any Acquired Company, or any other person associated with or acting for or on behalf of any Acquired Company, has directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any person, private or public, regardless of form, whether in money, property, or services (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of any Acquired Company or any Affiliate (as defined in the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of an Acquired Company, or (iv) in violation of any federal, state or local order, law, ordinance or regulation, (b) established or maintained any fund or asset that has not been recorded in the books and records of the Acquired Companies. 3.17 DISCLOSURE. ---------- (a) The Company has filed with the Securities and Exchange Commission all reports required to be filed by the Exchange Act since at least October 1, 1995 and none of such filings contains any misstatement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, as regards the Acquired Companies, as the case may be. (b) The Company has delivered to Buyer true and correct copies of all reports filed with the Securities and Exchange Commission by the Company pursuant to the Exchange Act since October 1, 1995. 3.18 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty of ----------------------------- Seller in this Agreement and no statement in the Disclosure Schedule omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. 3.19 RELATIONSHIPS WITH AFFILIATES. Except as set forth in PART 3.19 of ----------------------------- the Disclosure Schedule: (a) No Seller or any Affiliate of Seller or of any Acquired Company has, or since January 1, 1995, has had, any interest in any property (whether real, personal, or mixed and whether tangible or intangible), used in or pertaining to the Acquired Companies' businesses. (b) No Seller or any Affiliate of Seller or of any Acquired Company is, or since January 1, 1995, has owned (of record or as a beneficial owner) an equity interest or any other financial or profit interest in, a person that has had business dealings or a material financial interest in any transaction with any Acquired Company other than business dealings or transactions conducted in the ordinary course of business with the Acquired Companies at substantially prevailing market prices and on substantially prevailing market terms. Except as set forth in PART 3.19 of the Disclosure Schedule, no Seller or any Affiliate of Seller or of any Acquired Company is a party to any agreement, contract, obligation, promise or undertaking with, or has any claim or right against, any Acquired Company. 8 3.20 BROKERS OR FINDERS. Seller and its agents have incurred no ------------------ obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. 4. REPRESENTATIONS AND WARRANTIES OF BUYER. --------------------------------------- Buyer represents and warrants to Seller as follows: 4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly ------------------------------ organized, validly existing, and in good standing under the laws of the State of Nevada. 4.2 AUTHORITY; NO CONFLICT. ---------------------- (a) This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Buyer has the absolute and unrestricted right, power, and authority to execute, deliver and perform its obligations under this Agreement. (b) Neither the execution and delivery of this Agreement by Buyer nor the consummation or performance of any of the transactions contemplated by this Agreement by Buyer will give any person the right to prevent, delay, or otherwise interfere with any of the transactions contemplated by this Agreement pursuant to: (i) any provision of Buyer's certificate of incorporation or bylaws; (ii) any resolution adopted by the board of directors or the stockholders of Buyer; (iii) any federal, state or local order, law, ordinance or regulation or injunction, judgment, order or decree of any court, administrative agency or other governmental body to which Buyer may be subject; or (iv) any agreement, contract, obligation, promise or undertaking to which Buyer is a party or by which Buyer may be bound. (c) Buyer is not and will not be required to obtain any consent from any person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the transactions contemplated by this Agreement. 4.3 INVESTMENT IN SHARES. -------------------- (a) Buyer is acquiring the Shares for its own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act. (b) Buyer has received all information it believes necessary to make an informed decision about its acquisition of the Shares. 9 (c) Each of the equity owners of Buyer is an "accredited investor" as such term is defined in Rule 501(a) under the Securities Act. (d) Buyer understands that the Shares are not registered under federal or state securities laws and may not be offered, sold, transferred or otherwise disposed of except pursuant to a registration statement or an exemption from registration under those laws. (e) Buyer acknowledges that the certificates representing the Shares may bear a legend substantially as follows: THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE LAW, OR (2) AN OPINION OF COUNSEL (SATISFACTORY TO THE COMPANY) THAT REGISTRATION IS NOT REQUIRED. 4.4 CERTAIN PROCEEDINGS. There is no pending proceeding against Buyer ------------------- that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement. To Buyer's knowledge, no such proceeding has been threatened. 4.5 BROKERS OR FINDERS. Buyer and its officers and agents have incurred ------------------ no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement and will indemnify and hold Seller harmless from any such payment alleged to be due by or through Buyer as a result of the action of Buyer or its officers or agents. 5. COVENANTS OF SELLER PRIOR TO CLOSING DATE. ----------------------------------------- 5.1 ACCESS AND INVESTIGATION. Between the date of this Agreement and the ------------------------ Closing Date, Seller will, and will cause each Acquired Company and its directors, officers and agents to, (a) afford Buyer and its directors, officers and agents and prospective lenders and their representatives (collectively, "Buyer's Advisors") full and free access to each Acquired Company's personnel, properties, contracts, books and records, and other documents and data, (b) furnish Buyer and Buyer's Advisors with copies of all such contracts, books and records, and other existing documents and data as Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors with such additional financial, operating, and other data and information as Buyer may reasonably request. 5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES. Between the ----------------------------------------------------- date of this Agreement and the Closing Date, Seller will, and will cause each Acquired Company to conduct the business of such Acquired Company only in the ordinary course of business and in material compliance with all applicable laws, rules and regulations. 10 5.3 NEGATIVE COVENANTS. Between the date of this Agreement and the ------------------ Closing Date, Seller will not, and will cause each Acquired Company not to, without prior notice to Buyer: (i) make any changes in its capital structure, (ii) incur any liability or obligation other than current liabilities incurred in the ordinary and usual course of business, (iii) incur any indebtedness for borrowed money, (iv) make any loans or advances other than advances to employees and owner-operators, in the ordinary and usual course of business, (v) mortgage, pledge or subject to any encumbrance any of its assets or properties, (vi) sell or transfer any of its assets or properties except in the ordinary and usual course of business, (vii) make any investment of a capital nature, except in the ordinary and usual course of business, (viii) adopt or amend in any material respect any collective bargaining agreement or employee benefit plan, or (ix) enter into any contract, agreement, or other commitment which is material to the business, assets, properties, or financial position of the Acquired Companies. 5.4 BEST EFFORTS. Between the date of this Agreement and the Closing ------------ Date, Seller will use its best efforts to cause the conditions in SECTIONS 7 and 8 to be satisfied. 6. COVENANTS OF BUYER. ------------------ 6.1 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicable after -------------------------------- the date of this Agreement, Buyer will, and will cause each of its Affiliates to, make all filings required by federal, state or local laws, orders, ordinances or regulations to be made by them to consummate the transactions contemplated by this Agreement. Between the date of this Agreement and the Closing Date, Buyer will, and will cause each Affiliate to, (i) cooperate with Seller with respect to all filings that Seller is required by federal, state or local laws, orders, ordinances or regulations to make in connection with the transactions contemplated by this Agreement, and (ii) cooperate with Seller in obtaining all consents identified in PART 3.13 of the Disclosure Schedule. 6.2 BEST EFFORTS. Between the date of this Agreement and the Closing ------------ Date, Buyer will use its best efforts to cause the conditions in SECTIONS 7 and 8 to be satisfied. 6.3 ACTIONS WITH RESPECT TO THE ACQUIRED COMPANIES AND BUYER. Buyer -------------------------------------------------------- covenants and agrees that, after the Closing and for so long as any shares of Preferred Stock issued to Polyphase or any amounts under the Note remain outstanding: (a) it will comply, and cause the persons it elects or causes to be elected as directors and officers of the Company and the Acquired Companies to comply, with its and their obligations under federal and state securities laws and its and their fiduciary duties to the Company's shareholders; (b) it will acquire shares, receive payments and otherwise engage in transactions with the Acquired Companies only on terms that are fair to the Company and its shareholders; (c) it will, and it will cause each of the Acquired Companies, to: (i) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state of incorporation or organization and all other states where it is legally required to be qualified to do business as a foreign corporation; 11 (ii) preserve and maintain in full force and effect all material rights, privileges, qualifications, licenses and franchises necessary in the normal conduct of its business; (iii) use its reasonable efforts, in the ordinary course, to preserve its business organization and preserve the goodwill and business of the customers, suppliers and others having business relations with it; (iv) maintain and preserve all its property and the property of the Acquired Companies in good working order and condition, ordinary wear and tear excepted, except where failure to do so would not have a material adverse effect. (v) maintain, and shall cause each Acquired Company to maintain, with financially sound insurance companies, insurance with respect to its properties and business, against such casualties and contingencies, of the kinds, covering the risks, and in the relative proportionate amounts, usually carried by companies engaged in businesses similar to that of the Company; (vi) except to the extent that the failure to do so would have a material adverse effect, it will and it will cause the Acquired Companies to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including without limitation: (A) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; and (B) all lawful claims which any of Buyer or the Acquired Companies is obligated to pay, which are due and which, if unpaid, would likely by law become a Lien upon its property; (vii) comply, and will cause each Acquired Company to, comply, in all material respects with all requirements of law and with the directions of any governmental authority having jurisdiction over it or its business, except such (A) as may be contested in good faith or as to which a bona fide dispute may exist, and (B) as to which such failure to comply would not have a material adverse effect on Buyer or the Acquired Companies. (d) neither it nor any Acquired Company will, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) (e) neither it nor the Company will declare, pay or make a dividend or other distribution on its capital stock; 12 (f) neither it nor any Acquired Company will create any stock option, bonus, profit sharing, stock purchase, deferred compensation, retainer, pension, retirement or other compensation, benefit, welfare or incentive plans or contracts without the prior approval of Seller, which approval shall not be unreasonably withheld; (g) no Acquired Company will, without the prior written consent of Seller (which consent will not be unreasonably withheld), organize any subsidiary or acquire any interest in or control of another person, whether by merger, consolidation or purchase of the stock, assets or inventories of another person; (h) neither it nor any Acquired Company will, without the prior written consent of Seller (i) amend its Articles of Incorporation (including by a Certificate of Designation), (ii) amend its Bylaws in a manner which would result in such Bylaws conflicting with any provisions of this Agreement or of the Shareholders' Agreement, or (iii) effect a reclassification or recapitalization of its outstanding capital stock; (i) neither it nor any Acquired Company will lend money to any person; (j) neither it nor any Acquired Company will take any action to place it in dissolution, liquidation or receivership. 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. --------------------------------------------------- Buyer's obligation to purchase the Shares and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part): 7.1 ACCURACY OF REPRESENTATIONS. All of Seller's representations and --------------------------- warranties in this Agreement must have been accurate in all material respects as of the date of this Agreement, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date. 7.2 SELLER'S PERFORMANCE. -------------------- (a) All of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement at or prior to the Closing, must have been duly performed and complied with in all material respects. (b) Each document required to be delivered pursuant to SECTION 1.4 must have been delivered. 7.3 CONSENTS. Each of the consents identified in PART 3.13 of the -------- Disclosure Schedule must have been obtained and must be in full force and effect. 7.4 ADDITIONAL DOCUMENTS. Each of the following documents must have been -------------------- delivered to Buyer: 13 (a) the documents necessary to effect the resignation of each of the noncontinuing directors and officers of each of the Acquired Companies, to be effective not later than the Closing Date; (b) the documents necessary to effect the election of one (1) director designated by Buyer to the Board of Directors of the Company; and (c) such other documents as Buyer may reasonably request for the purpose of (i) evidencing the accuracy of any of Seller's representations and warranties, (ii) evidencing the performance by Seller of, or the compliance by Seller with, any covenant or obligation required to be performed or complied with by Seller, or (iii) evidencing the satisfaction of any condition referred to in this SECTION 7. 7.5 NO PROCEEDINGS. Since the date of this Agreement, there must not have -------------- been with respect to Buyer (i) any effective injunction, writ, or temporary restraining order of any nature issued by a court or governmental agency of competent jurisdiction directing that the proposed acquisition not be consummated or (ii) any action, suit, or proceeding pending or threatened by or before any court or governmental body in which it is or may be sought to prohibit, substantially delay, or rescind the proposed acquisition, or to limit in any way Buyer's right to acquire the Acquired Companies. 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. ----------------------------------------------------- Seller's obligation to sell the Shares and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller, in whole or in part): 8.1 ACCURACY OF REPRESENTATIONS. All of Buyer's representations and --------------------------- warranties in this Agreement must have been accurate in all material respects as of the date of this Agreement and must be accurate in all material respects as of the Closing Date as if made on the Closing Date. 8.2 BUYER'S PERFORMANCE. ------------------- (a) All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been performed and complied with in all material respects. (b) Buyer must have delivered each of the documents required to be delivered by Buyer pursuant to SECTION 1.4 and must have paid the Purchase Price required to be made by Buyer pursuant to SECTION 1.4(B). 8.3 CONSENTS. Each of the consents identified in PART 3.13 of the -------- Disclosure Schedule must have been obtained and must be in full force and effect. 8.4 ADDITIONAL DOCUMENTS. Buyer must have caused the following documents -------------------- to be delivered to Seller: 14 (a) such documents as Seller may reasonably request for the purpose of (i) evidencing the accuracy of any representation or warranty of Buyer, (ii) evidencing the performance by Buyer of, or the compliance by Buyer with, any covenant or obligation required to be performed or complied with by Buyer, or (iii) evidencing the satisfaction of any condition referred to in this SECTION 8. 8.5 NO PROCEEDINGS. Since the date of this Agreement, there must not have -------------- been with respect to Seller (i) any effective injunction, writ, or temporary restraining order of any nature issued by a court or governmental agency of competent jurisdiction directing that the proposed acquisition not be consummated or (ii) any action, suit, or proceeding pending or threatened by or before any court or governmental body in which it is or may be sought to prohibit, substantially delay, or rescind the proposed acquisition, or to limit in any way Seller's right to sell the Acquired Companies. 9. TERMINATION. ----------- 9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to or ------------------ at the Closing, be terminated: (a) by either Buyer or Seller if a material breach of any provision of this Agreement has been committed by the other party and such breach has not been waived; (b) (i) by Buyer if any of the conditions in SECTION 7 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; or (ii) by Seller, if any of the conditions in SECTION 8 has not been satisfied of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to comply with its obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date; (c) by mutual consent of Buyer and Seller; or (d) by either Buyer or Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before July 15, 1996, or such later date as the parties may agree upon. 9.2 EFFECT OF TERMINATION. Each party's right of termination under --------------------- SECTION 9.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to SECTION 9.1, all further obligations of the parties under this Agreement will terminate, except that the obligations in SECTIONS 11.1 and 11.3 will survive; provided, however, that if this Agreement is terminated by a party because of the breach of the Agreement by the other party or because one or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. 10. INDEMNIFICATION; REMEDIES. ------------------------- 15 10.1 SURVIVAL. The representations of Seller contained in SECTION 3 -------- hereof will survive the Closing for a period of two (2) years. 10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER. Seller will ------------------------------------------------ indemnify and hold harmless Buyer, the Acquired Companies, and their respective directors, officers, stockholders, controlling persons, and affiliates (collectively, the "Indemnified Persons") for, and will pay to the Indemnified Persons the amount of, any loss, liability, claim, damage, expense (including costs of investigation and defense and reasonable attorneys' fees) or diminution of value, whether or not involving a third-party claim (collectively, "Damages"), arising, directly or indirectly, from or in connection with any breach of the representations made in SECTIONS 3.17 and 3.19. The remedies provided in this SECTION 10.2 will be the exclusive remedies available to Buyer or the other Indemnified Persons for any breach of this Agreement or the conduct of the business of the Acquired Companies prior to the Closing Date. 10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will ----------------------------------------------- indemnify and hold harmless Seller from and will pay to Seller the amount of any Damages arising, directly or indirectly, from or in connection with any breach of the representations made in SECTIONS 4.2(A), 4.3 or 4.5. The remedies provided in this SECTION 10.3 will be the exclusive remedies available to Seller for any breach of this Agreement. 10.4 TIME LIMITATIONS. If the Closing occurs, neither party will have ---------------- liability (for indemnification or otherwise) with respect to any representation, unless on or before the first anniversary of the Closing Date the other party notifies the party of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by the other party. 10.5 FLOOR ON AMOUNT--SELLER. Seller will have no liability (for ----------------------- indemnification or otherwise) to Buyer unless the amount of Damages sought is in the aggregate at least $50,000. 10.6 [INTENTIONALLY LEFT BLANK]. -------------------------- 10.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS. ------------------------------------------------- (a) Promptly after receipt by an indemnified party of notice of the commencement of any proceeding against it, such indemnified party will, if a claim is to be made against an indemnifying party, give notice to the indemnifying party of the commencement of such claim, but the failure to notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party, except to the extent that the indemnifying party demonstrates that the defense of such action is prejudiced by the indemnifying party's failure to give such notice. (b) If any proceeding referred to in SECTION 10.9(A) is brought against an indemnified party and it gives notice to the indemnifying party of the commencement of such proceeding, the indemnifying party will be entitled to participate in such proceeding and, to the extent that it wishes (unless (i) the indemnifying party is also a party to such proceeding and the indemnified party 16 determines in good faith that joint representation would be inappropriate, or (ii) the indemnifying party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend such proceeding and provide indemnification with respect to such proceeding), to assume the defense of such proceeding with counsel satisfactory to the indemnified party and, after notice from the indemnifying party to the indemnified party of its election to assume the defense of such proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be liable to the indemnified party under this SECTION 10 for any fees of other counsel or any other expenses with respect to the defense of such proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such proceeding, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a proceeding, (i) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified party's consent unless (A) there is no finding or admission of any violation of federal, state or local laws, orders, ordinances or regulations or any violation of the rights of any person and no effect on any other claims that may be made against the indemnified party, and (B) the sole relief provided is monetary damages that are paid in full by the indemnifying party; and (ii) the indemnified party will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an indemnifying party of the commencement of any proceeding and the indemnifying party does not, within ten days after the indemnified party's notice is given, give notice to the indemnified party of its election to assume the defense of such proceeding, the indemnifying party will be bound by any determination made in such proceeding or any compromise or settlement effected by the indemnified party. (c) Notwithstanding the foregoing, if an indemnified party determines in good faith that there is a reasonable probability that a proceeding may adversely affect it or its affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, at its own expense, participate in the defense, compromise, or settlement of such proceeding, but the indemnifying party will not be bound by any determination of a proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld). 10.8 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS. A claim for ------------------------------------------- indemnification for any matter not involving a third-party claim may be asserted by notice to the party from whom indemnification is sought. 11. GENERAL PROVISIONS. ------------------ 11.1 EXPENSES. Except as otherwise expressly provided in this Agreement, -------- each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the transactions contemplated by this Agreement, including all fees and expenses of agents, representatives, counsel, and accountants. 11.2 PUBLIC ANNOUNCEMENTS. Buyer will keep this Agreement strictly -------------------- confidential and may not make any disclosure of this Agreement or the transactions contemplated by this Agreement to any person. The Company will issue any press release or other publicity, if at all, at such time and in such manner as it shall determine in its sole discretion. Buyer will not contact or have any dealings with the Acquired Companies' employees, customers, and suppliers without the consent of Seller. 17 11.3 CONFIDENTIALITY. Between the date of this Agreement and the --------------- Closing Date, Buyer and Seller will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer and the Acquired Companies to maintain in confidence, and not use to the detriment of another party or an Acquired Company any written, oral, or other information obtained in confidence from another party or an Acquired Company in connection with this Agreement or the transactions contemplated by this Agreement, unless (a) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (b) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the transactions contemplated by this Agreement, or (c) the furnishing or use of such information is required by legal proceedings. If the transactions contemplated by this Agreement are not consummated, each party will return all of such written information as the other party has provided. 11.4 NOTICES. All notices, consents, waivers, and other communications ------- under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): Seller: Polyphase Corporation 16885 Dallas Parkway 4th Floor Dallas, Texas 75248 Attention: Paul A. Tanner Facsimile No.: (214) 732-6430 with a copy to: Jenkens & Gilchrist, A Professional Corporation 1445 Ross Ave. Suite 3200 Dallas, Texas 75202 Attention: Ronald J. Frappier Facsimile No.: (214) 855-4300 18 Buyer: Letronix Acquisition Corp. 2620 South Maryland Parkway, Suite 202 Las Vegas, Nevada 89109 Attention: President Facsimile No.: (214) 980-0790 with a copy to: Al Greco, Esq. 2 Galleria Tower 13455 Noel Road Box 15, Suite 1420 Dallas, Texas 75240 Facsimile No.: 11.5 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking to -------------------------------- enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of Texas, County of Dallas, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. 11.6 FURTHER ASSURANCES. The parties agree (a) to furnish upon ------------------ request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. 11.7 WAIVER. The rights and remedies of the parties to this Agreement ------ are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 19 11.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all --------------------------------- prior agreements between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment. 11.9 DISCLOSURE SCHEDULE. The Disclosure Schedule is incorporated ------------------- into and shall be part of this Agreement. 11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. No party may -------------------------------------------------- assign any of its rights under this Agreement without the prior consent of the other parties, except that Buyer may assign any of its rights under this Agreement to any subsidiary of Buyer. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 11.11 SEVERABILITY. If any provision of this Agreement is held invalid ------------ or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 11.12 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this ------------------------------ Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 11.13 TIME OF ESSENCE. With regard to all dates and time periods set --------------- forth or referred to in this Agreement, time is of the essence. 11.14 GOVERNING LAW. This Agreement will be governed by the laws of ------------- the State of Texas without regard to conflicts of laws principles. 11.15 COUNTERPARTS. This Agreement may be executed in one or more ------------ counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. 11.16 FURTHER COVENANTS OF BUYER AND THE COMPANY. ------------------------------------------ (a) Until the Termination Date, the Company shall not, and Buyer shall not allow the Company to, issue common stock or other 20 securities convertible into or exchangeable for common stock which represent more than 5% of its common stock on a fully diluted basis. (b) The Buyer covenants and agrees that, it in any election of directors of the Company, it shall vote all shares of common stock of the Company then held by Buyer ("Buyer Shares") to elect a board of directors comprised of not less than three (3) directors and not more than seven (7) directors, one (1) of which shall be designated by Seller. In the event of any vacancy in the board of directors of the Company, Buyer covenants and agrees to vote all Buyer Shares and to otherwise use its best efforts to fill such vacancy so that the board of directors will include directors designated as provided above. (c) Buyer agrees that the face of each certificate evidencing shares of common stock held or to be held by Buyer shall bear an endorsement (which shall be made conspicuous using capital letters, bold face or contrasting type, underlining or similar means) in substantially the following form: "AS SET FORTH ON THE REVERSE HEREOF, THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS AS CONTAINED IN A STOCK PURCHASE AGREEMENT, DATED AS OF JUNE 28, 1996." The reverse of each such certificate shall bear an endorsement substantially as follows: "THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS, INCLUDING A VOTING AGREEMENT, AS SET FORTH IN A STOCK PURCHASE AGREEMENT, DATED AS OF JUNE 28, 1996, A COPY OF WHICH HAS BEEN DEPOSITED AT THE PRINCIPAL OFFICE OF THE COMPANY." (d) Buyer shall not, and the Company shall not recognize any attempted, transfer, voluntarily or involuntarily, of Buyer Shares unless such proposed transferee agrees to be bound by the terms of this Agreement as a holder of Buyer Shares, and specifically this Section 11.16 . Any attempted transfer in violation of this Section 11.16 shall be void ab initio. 21 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. Seller: POLYPHASE CORPORATION By: /s/ Paul A. Tanner ------------------------------------------- Name: Paul A. Tanner ----------------------------------------- Title: President ---------------------------------------- Buyer: LETRONIX ACQUISITION CORP. By: /s/ Albert B. Greco, Jr. ------------------------------------------- Name: Albert B. Greco, Jr. ----------------------------------------- Title: President ---------------------------------------- 22 EX-2 3 SECURED PROMISSORY NOTE EXHIBIT 2 SECURED PROMISSORY NOTE $850,000 June 28, 1996 Dallas, Texas FOR VALUE RECEIVED, this Promissory Note (this "Note") is made by ---- Letronix Acquisition Corp., a Texas corporation ("Maker"), to Polyphase ----- Corporation, a Nevada corporation ("Payee"). ----- 1. Payments. Maker hereby promises to pay to the order of Payee the -------- principal sum of Eight Hundred Fifty Thousand Dollars ($850,000) at its office at 16885 Dallas Parkway, Suite 400, Dallas, Texas 75248, or such other place as the holder hereof may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, together with interest on the unpaid principal balance hereof at the rate provided herein from the date of this Note until payment in full of the indebtedness evidenced by this Note. Principal and interest on the Note shall be due and payable as follows: (a) Interest only on this Note shall be due and payable in arrears once every six months, commencing on the last business day of December, 1996, and continuing up to and including the last business day of December, 1997. (b) On January 1, 1998 (the "Maturity Date") all principal and accrued but unpaid interest on the Note shall be due and payable. 2. Final Payment. On the Maturity Date, all amounts hereunder shall ------------- immediately become due and payable without demand or notice. All payments received by Payee after the Maturity Date (whether of principal, interest or other amounts) which are applied at any time by Payee to indebtedness evidenced by this Note may be allocated, applied and reapplied by Payee to principal, interest or other amounts then due and payable as Payee may determine in Payee's sole discretion. 3. Interest Rate. The principal amount outstanding from time to time ------------- hereunder shall bear interest calculated daily on the basis of a 360-day year, at a rate equal to seven percent (7%) per annum. Any statements or invoices sent by Payee to Maker and setting forth the amount of interest payable hereunder, unless contested in writing to Payee by Maker within thirty (30) days from the date of such statement or invoice, shall be deemed conclusive as to the interest actually payable hereunder. 4. Maximum Rate. It is the intention of the parties hereto to conform ------------ strictly to any usury laws in force that apply to this transaction. Accordingly, all agreements among the parties hereto (including, without limitation, the Transaction Documents, as defined herein), whether previously existing, now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of acceleration of the maturity of the amounts owing under this Note or otherwise, shall the interest (and all other sums that are deemed to be interest) contracted for, charged or received by Payee with respect to this Note, exceed the Highest Lawful Rate. The "Highest Lawful Rate" means the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received under the laws of the United States and the laws of such states as may be applicable thereto which are presently in effect or, to the extent allowed under such applicable laws of the United States and the laws of such states, which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. If, from any circumstance whatsoever, interest under any agreement to which Maker and Payee are parties (including, without limitation, under the Transaction Documents) would otherwise be payable in excess of the Highest Lawful Rate, and if from any circumstance Payee shall ever receive anything of value deemed interest by applicable law in excess of the Highest Lawful Rate, then Payee's receipt of such excess interest shall be deemed a mistake and the same shall, so long as no Event of Default under this Note or the Security Agreement shall be continuing, at the option of Maker, either be repaid to Maker or credited to the unpaid principal; provided, however, that if an Event of Default -------- ------- shall have occurred and be continuing, and Payee shall receive excess interest during such period, then Payee shall have the option of either crediting such excess amount to principal or refunding such excess amount to Maker. All interest paid or agreed to be paid to Payee shall, to the extent allowed by applicable law, be amortized, prorated, allocated, and spread throughout the full period of Maker's credit relationship with Payee until payment in full of the principal (including the period of any renewal or extension) so that the interest for such full period shall not exceed the Highest Lawful Rate. 5. Prepayment. ---------- (a) This Note may be prepaid, in whole or in part, without premium or penalty. (b) In the event of any public or private offering by Maker of any of the Maker's common stock, or other debt or equity securities which are convertible or exchangeable into shares of common stock, Maker shall prepay the Note in an amount equal to the lesser of the (i)(A) 10% of the gross proceeds from such offering if such offering raises less than $2,000,000 in gross proceeds or (B) 30% of the gross proceeds from such offering if such offering raises $2,000,000 or more in gross proceeds or (ii) the aggregate amount of all amounts due and owing under the terms of this Note at such time, such prepayment to be made within five (5) business days of receipt of such net cash proceeds. (c) All prepayments shall be applied first to accrued interest and then to principal. 6. Default Rate. Upon the failure of Maker to make any payment of ------------ principal or interest on, or any amount owing in respect of, the indebtedness evidenced by this Note, or any other amounts payable by Maker to Payee pursuant to the terms hereof or any other agreement, when due and payable or declared due and payable, the interest rate applicable 2 to this Note shall be increased by three percent (3%) per annum above the rate otherwise applicable. 7. Transaction Documents. This Note, including the principal, interest --------------------- and fees and costs payable pursuant hereto, is secured by, among other things, that certain Security and Pledge Agreement between Maker and Payee, dated as of even date herewith (the "Security Agreement"), and all ------------------ covenants, agreements and undertakings of Maker and each Obligated Party (as hereinafter defined) set forth therein are incorporated in and made part of this Note with the same force as if fully set forth herein. This Note is issued in connection with, among other things, that certain Stock Purchase Agreement dated as of even date herewith (the "Stock Purchase -------------- Agreement") by and between Maker and Payee. This Note, the Security --------- Agreement, the Stock Purchase Agreement, and all documents, instruments and certificates executed and delivered in connection therewith, are sometimes hereinafter collectively referred to as the "Transaction Documents". Maker and any guarantor or other natural or legal person who is or becomes party to any agreement that guarantees or secures payment and performance of the indebtedness and obligations evidenced by this Note, are all referred to individually as an "Obligated Party" and collectively as the "Obligated Parties". 8. Event of Default. The occurrence of any one or more of the following ---------------- shall constitute an "Event of Default" hereunder. (a) Maker shall fail to pay any principal, interest or other amounts when due and payable or declared due and payable (whether at maturity, by acceleration or otherwise) under this Note, and such failure shall remain uncured or unremedied for a period of five (5) days after notice of the failure to Maker by payee of such failure; (b) Maker or any other Obligated Party shall fail or neglect to perform, keep or observe any provision, condition, covenant or warranty contained in this Note or any of the other Transaction Documents to which it is a party (other than as set forth in paragraph 8(a) of this Note); -------------- (c) Any statement, report, financial statement or certificate made or delivered by Maker, any other Obligated Party or any of their officers, employees or agents, to Payee is untrue, incomplete or incorrect in any material respect; (d) There shall occur any material uninsured damage to, or loss, theft, or destruction of, any of the Pledged Collateral (as defined in the Security Agreement); 3 (e) A judgment or judgments for the payment of money in excess of $5,000 in the aggregate shall be rendered against either Maker or any other Obligated Party and any such judgment or judgments shall, if unsatisfied, remain unstayed for a period in excess of thirty (30) days; (f) The Pledged Collateral or any other of any Obligated Party's assets are attached, seized, levied upon or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within sixty (60) days thereafter; an application is made by any person, other than such Obligated Party, for the appointment of a receiver, trustee, or custodian for such Obligated Party's assets, respectively and the same is not dismissed within sixty (60) days after the application therefor; (g) An application is made by Maker or any other Obligated Party for the appointment of a receiver, trustee or custodian for any of Maker's or any such Obligated Party's assets; a petition under any section or chapter of the Bankruptcy Code or any similar law or regulation shall be filed by Maker or any other Obligated Party; Maker or any other Obligated Party makes an assignment for the benefit of its creditors or any case or proceeding is filed by Maker or any other Obligated Party for its dissolution, liquidation, or termination; (h) Maker or any other Obligated Party ceases to conduct its business as now conducted or is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business affairs; a petition under any section or chapter of the Bankruptcy Code or any similar law or regulation is filed against Maker or any other Obligated Party or any case or proceeding is filed against Maker or any other Obligated Party for its dissolution or liquidation, and such injunction, restraint or petition is not dismissed within sixty (60) days after the entry or filing thereof; (i) A notice of lien, levy or assessment is filed of record with respect to all or any of Maker's or any other Obligated Party's assets by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, including, without 4 limitation, the Pension Benefit Guaranty Corporation, or if any taxes or debts owing at any time or times hereafter to any one of these becomes a lien or encumbrance upon any of Maker's or any other Obligated Party's assets and the same is not released within sixty (60) days after the same becomes a lien or encumbrance; provided that Maker or such Obligated Party shall have the right to contest in good faith and by appropriate proceedings any such lien, levy or assessment if Maker or such Obligated Party provides Payee with a bond or indemnity satisfactory to Payee assuring the payment of such lien, levy or assessment; or (j) Maker or any other Obligated Party becomes insolvent or admits in writing its inability to pay its debts as they mature or communicates its intention to petition for protection under the Bankruptcy Code or apply for the appointment of a receiver, trustee or custodian. 9. Remedies; No Offset. Upon and after the occurrence and continuance of ------------------- an Event of Default, Payee shall have the option, without demand or notice or legal process of any kind, to declare the unpaid principal of this Note, together with interest thereon and any other sums owing hereunder, at once due and payable, and to exercise any and all other rights and remedies available hereunder or under the Security Agreement, or the other Transaction Documents, or otherwise available at law or in equity. Maker shall not be entitled to offset against this Note any amounts due and owing from Payee to Maker, if any. 10. Remedies Cumulative. The remedies of Payee, as provided herein, shall ------------------- be cumulative and concurrent, and may be pursued singularly, successively or together, at the sole discretion of Payee, and may be exercised as often as occasion therefor shall arise. No act of omission or commission of Payee, including specifically any failure to exercise any right, remedy or recourse, shall be deemed to be a waiver or release of the same, such waiver or release to be effected only through a written document executed by Payee and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as continuing, as a bar to, or as a waiver or release of, any subsequent right, remedy or recourse as to a subsequent event. 11. Costs of Collection. Maker promises to pay all of Payee's costs of ------------------- collection of every kind, including but not limited to all reasonable attorneys' fees, court costs, and expenses of every kind, incurred by Payee in connection with the collection (including, but not limited to collection through a bankruptcy or other Court) or enforcement of this Note. If Payee or its affiliates advances any additional amounts to or on behalf of Maker, then the principal amount of this Note may, at the option of Payee, be increased by the amounts 5 so advanced, and Maker agrees to repay such additional amounts pursuant to the terms hereof. 12. Waivers. Maker and each surety, endorser, guarantor and other party ------- now or hereafter liable for the payment of any sums of money payable on this Note, hereby severally (a) waive demand, presentment for payment, notice of dishonor, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices, filing of suit and diligence in collecting this Note or enforcing any other security with respect to same, (b) agree to any substitution, subordination, exchange or release of any such security or the release of any parties primarily or secondarily liable hereon, (c) agree that Payee shall not be required first to institute suit or exhaust its remedies hereunder against Maker, or others liable or to become liable hereon or to enforce its rights against them or any security with respect to same, (d) consent to any and all renewals, extensions, indulgences, releases or changes regardless of the number of such renewals, extensions, indulgences, releases or changes, without notice thereof, and (e) agree to the application of any deposit balance with Payee as payment or part payment hereon or as an offset hereto. No such conduct shall affect, impair, release or change the liability of Maker, surety, endorser, guarantor and any other party. No waiver by Payee of any of its rights or remedies hereunder or under any other document evidencing or securing this Note or otherwise shall be considered a waiver of any other subsequent right or remedy of Payee; no delay or omission in the exercise or endorsement by Payee of any rights or remedies shall ever be construed as a waiver of the same or any other right or remedy of Payee; and no exercise or enforcement of any such right or remedy shall ever be held to exhaust any right or remedy of Payee. 13. Notices. Except as otherwise provided herein, any notice or demand ------- which, by the provisions hereof, is required or which may be given to or served upon the Maker or Payee shall be in writing and, if by telecopy, shall be deemed to have been validly served, given or delivered when transmitted with a copy immediately mailed by registered or certified mail, if by personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed, shall be deemed to have been validly served, given or delivered three (3) business days after deposit in the United States mails, as registered or certified mail, with proper postage prepaid and addressed to the party to be notified, at the following addresses (or such other address(es) as a party may designate for itself by like notice): If to Maker: Letronix Acquisition Corp. - ----------- 2620 South Maryland Parkway, Suite 202 Las Vegas, Nevada 89109 Attention: President Telecopier No.: (214) 980-0790 6 If to Payee: Polyphase Corporation - ----------- 16885 Dallas Parkway, Suite 400 Dallas, Texas 75248 Attention: President Telecopier No.: 214-732-6430 14. Successors and Assigns. This Note shall be binding upon Maker and its ---------------------- successors and assigns (including, without limitation, a receiver, trustee or debtor-in-possession of or for Maker) and shall inure to the benefit of Payee and its successors and assigns. Maker may not assign its rights hereunder without the prior written consent of Payee, in its sole discretion. Payee may assign all or a part of its interest in this Note and its rights hereunder to any party. 15. GOVERNING LAW. THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT ------------- MADE UNDER THE LAWS OF THE STATE OF TEXAS AND ACCEPTED BY PAYEE IN SAID STATE, THE LOCATION OF PAYEE'S PRINCIPAL PLACE OF BUSINESS, AND ANY AND ALL CLAIMS, DEMANDS OR ACTIONS IN ANY WAY RELATING THERETO OR INVOLVING ANY DISPUTE BETWEEN ANY OF THE PARTIES TO THIS NOTE, WHETHER ARISING IN CONTRACT OR TORT, AT LAW, IN EQUITY OR STATUTORILY, SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND/OR GOVERNED BY THE LAWS OF THE STATE OF TEXAS (EXCEPTING ITS CHOICE OF LAW RULES) AND THE LAWS OF THE UNITED STATES OF AMERICA. MAKER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON- EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THE TRANSACTION DOCUMENTS, THE RELATIONSHIPS CREATED THEREBY OR THE DEBT BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW. VENUE FOR ANY LEGAL PROCEEDING MAY BE DALLAS COUNTY, TEXAS; PROVIDED, THAT PAYEE MAY CHOOSE ANY VENUE IN ANY STATE WHICH IT DEEMS APPROPRIATE IN THE EXERCISE OF ITS SOLE DISCRETION. 16. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE -------------------- LAW, MAKER AND PAYEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF PAYEE OR MAKER IN CONNECTION HEREWITH, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, MAKER AND PAYEE HEREBY CONSENT AND AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, SUIT OR 7 PROCEEDING SHALL BE DECIDED BY A COURT TRIAL, WITHOUT A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS NOTE WITH ANY COURT AS WRITTEN EVIDENCE OF THE OTHER PARTIES' CONSENT TO SUCH. 17. Severability. If any provisions of this Note or any payments pursuant ------------ to the terms hereof shall be invalid or unenforceable to any extent, the remainder of this Note and any other payments hereunder shall not be affected thereby and shall be enforceable to the greatest extent permitted by law. 18. Time of the Essence. Time is of the essence with respect to all of ------------------- Maker's obligations and agreements under this Note and the other Transaction Documents. IN WITNESS WHEREOF, the undersigned have executed and delivered this Note at Dallas, Texas as of the date and year first above written. LETRONIX ACQUISITION CORPORATION By: /s/ Albert B. Greco, Jr. ------------------------------------------------ Name: Albert B. Greco, Jr. ---------------------------------------------- Title: President --------------------------------------------- 8 EX-3 4 SECURITY AND PLEDGE AGREEMENT EXHIBIT 3 SECURITY AND PLEDGE AGREEMENT ----------------------------- THIS SECURITY AND PLEDGE AGREEMENT (the "Agreement") is made as of this 28th day of June, 1996, by Letronix Acquisition Corporation ("Pledgor"), in favor of Polyphase Corporation ("Secured Party"). R E C I T A L S: ---------------- A. Pledgor owns beneficially and of record 1,020,000 shares (the "Stock") of the common stock of Letronix, Inc., a Nevada corporation (the "Company"); B. The Secured Party has agreed to loan to the Company the aggregate principal sum of $850,000 (the "Loan") pursuant to a Secured Promissory Note (the "Loan Agreement"). The principal sum of the Loan is subject to adjustment as provided for in the Stock Purchase Agreement (as defined herein). All capitalized terms used but not defined herein shall have the meanings set forth in the Loan Agreement. C. It is a condition precedent to the extension of the Loan by the Secured Party that the Pledgor shall have executed and delivered to the Secured Party, inter alia, a pledge agreement providing for the pledge to the Secured Party of all of the Stock of the Company now or hereafter owned by Pledgor. AGREEMENT: --------- NOW, THEREFORE, in consideration of the covenants and agreements contained herein, and other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, and in order to induce the Secured Party to extend the Loan to the Company, and with the intent to be legally bound hereby, the Pledgor hereby agrees with the Secured Party as follows: SECTION 1. DEFINITIONS. All terms used in this Agreement that are defined ----------- in Article 9 of the Uniform Commercial Code currently in effect in the State of Texas (the "Code") and are not otherwise defined herein shall have the same meanings as set forth in the Code. SECTION 2. PLEDGE AND GRANT OF SECURITY INTEREST. As collateral security ------------------------------------- for all of the obligations of the Company under the Loan Agreement (collectively, the "Obligations"), the Pledgor hereby pledges and assigns to the Secured Party, and grants to the Secured Party a continuing security interest in, the following (the "Pledged Collateral"): (a) All right, title and interest of Pledgor in and to all stock and other securities of the Company, whether now owned or hereafter acquired, including, without limitation, the Stock, all options and other rights, contractual or otherwise, of Pledgor now existing or hereafter arising with respect to the Stock or other securities of the Company and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of Pledgor's interest in such stock or other securities of the Company; and (b) All proceeds of any and all of the foregoing; in each case, whether now owned or hereafter acquired by the Pledgor and howsoever its interest therein may arise or appear (whether by ownership, security interest, claim or otherwise). SECTION 3. SECURITY FOR OBLIGATIONS. The security interest created hereby ------------------------ in the Pledged Collateral constitutes continuing collateral security for all of the Obligations, whether now existing or hereafter incurred. SECTION 4. DELIVERY OF THE PLEDGED COLLATERAL. ---------------------------------- (a) All certificates and instruments, if any, representing the Pledged Collateral shall be delivered to the Secured Party or to its designated agent upon the execution and delivery of this Agreement. All other certificates and instruments constituting Pledged Collateral from time to time shall be delivered to the Secured Party or to its designated agent promptly upon the receipt thereof by or on behalf of the Pledgor. All such certificates and instruments shall be held by the Secured Party or its designated agent pursuant hereto and shall be delivered in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory in the Secured Party. (b) If the Pledgor shall receive, by virtue of its being or having been an owner of any Pledged Collateral, any (i) stock certificate (including, without limitation, any certificate representing a stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spinoff or split-off), promissory note or other instrument; (ii) option or right, whether as an addition to, substitution for, or in exchange for, any Pledged Collateral, or otherwise; (iii) distributions payable in cash (except such distributions permitted to be retained by the Pledgor pursuant to Section 7 hereof) or in securities or other property; or (iv) distributions in connection with a partial or total liquidation or dissolution, Pledgor shall receive such stock certificate, promissory note, instrument, option, right, payment or distribution in trust, for the benefit of the Secured Party, shall segregate it from the Pledgor's other property and shall deliver it forthwith to the Secured Party or to its designated agent in the exact form received, with any necessary indorsement and/or appropriate stock powers duly executed in blank, to be held by the Secured Party or its designated agent as Pledged Collateral and as further collateral security for the Obligations. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and ------------------------------ warrants as follows: (a) The Pledgor is and will be at all times the legal and beneficial owner of the Pledged Collateral free and clear of any lien, security interest or other charge or encumbrance except for (i) the security interest created by this Agreement and (ii) any restrictive legends contained on any certificates representing the Pledged Collateral. 2 (b) Pledgor is a corporation duly organized, validly existing and in good standing in Nevada and has taken all necessary corporate actions in order to duly authorize the execution, delivery and performance of this Agreement and the Loan Agreement. This Agreement and the Loan Agreement constitute the legal, valid and binding obligations of Pledgor, enforceable against Pledgor in accordance with their terms. The execution, delivery and performance of this Agreement will not contravene any law or governmental regulation or any contractual restriction binding on or affecting the Pledgor or any of its properties and will not result in or require the creation of any lien, security interest or other, charge or encumbrance upon or with respect to any of Pledgor's properties. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required in connection with the pledge hereunder by the Pledgor of, or the grant by the Pledgor of the security interest created hereby in, the Pledged Collateral, except as may be required in respect of any such exercise by laws affecting the offering and sale of securities generally. (d) This Agreement creates a valid security interest in favor of the Secured Party in the Pledged Collateral. The filing by Secured Party of a UCC-1 financing statement in the office of the Secretary of State of Texas and the taking of possession by Secured Party or its designated agent of all certificates, instruments and cash constituting Pledged Collateral from time to time will perfect, and establish the first priority of, the Secured Party's security interest hereunder in the Pledged Collateral, securing the Obligations. Except as set forth in this Section 5(d) and except for the delivery of certain of the Pledged Collateral to Secured Party, no action is necessary or desirable to perfect or otherwise protect such security interest. (e) The Pledgor's principal place of business is located at 2620 South Maryland Parkway, Suite 202, Las Vegas, Nevada 89109. SECTION 6. COVENANTS AS TO THE PLEDGED COLLATERAL. So long as any of the -------------------------------------- Obligations shall remain outstanding, the Pledgor will, unless the Secured Party shall otherwise consent in writing: (a) Provide the Secured Party with thirty (30) days' advance notice of any change in the location of its primary residence from the address specified for the Pledgor in Section 5(e) above; and (b) Keep adequate records concerning the Pledged Collateral and permit the Secured Party or any agents or representatives thereof at any reasonable time and from time to time to examine and make copies of and abstracts from such records; and (c) At its expense, promptly deliver to the Secured Party a copy of each notice or other communication received by it in respect of the Pledged Collateral; and (d) At its expense, defend the Secured Party's right, title and special property and security interest in and to the Pledged Collateral against the claims of any person; and 3 (e) At its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the Secured Party may reasonably request in order (i) to perfect and protect the security interest created or purported to be created hereby; (ii) to exercise and enforce its rights and remedies hereunder in respect of the Pledged Collateral; or (iii) to otherwise effect the purposes of this Agreement, including, without limitation, delivering to the Secured Party irrevocable proxies in respect of the Pledged Collateral; and (f) Not sell, assign, exchange or otherwise dispose of any Pledged Collateral or any interest therein; and (g) Not create or suffer to exist any lien, security interest or other charge or encumbrance upon or with respect to any Pledged Collateral except for the pledge hereunder and the security interest created hereby; and (h) Not make or consent to any amendment or other modification or waiver with respect to any Pledged Collateral or enter into any agreement or permit to exist any restriction with respect to any Pledged Collateral; and (i) Not (i) take any action that would, in any manner, impair the enforceability of the Secured Party's security interest in any Pledged Collateral or (ii) fail to take any action where such failure would result in such impairment. SECTION 7. VOTING RIGHTS, DISTRIBUTIONS, ETC. IN RESPECT OF THE PLEDGED ------------------------------------------------------------ COLLATERAL. ---------- (a) So long as no default shall have occurred hereunder, and so long as neither the Company nor any other party thereto (other than Secured Party) has failed to make any payment or perform any other covenant, agreement or obligation under the Loan Agreement or the Note, subject to any applicable cure periods contained therein (each, an "Event of Default") then: (i) The Pledgor may exercise any and all voting, managerial and other rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement, the Loan Agreement or any shareholders' agreement to which Pledgor may be bound; provided, however, that the Pledgor will not exercise or refrain from exercising any such right, as the case may be, if such action would have a material adverse effect on the value of any Pledged Collateral; (ii) The Pledgor may receive and retain any and all distributions or interest paid in respect of the Pledged Collateral; provided, however, that any and all (A) Distributions and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Collateral, 4 (B) Distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution, and (C) Cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral, shall be, and shall forthwith be delivered to the Secured Party or its designated agent to hold as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Secured Party, shall be segregated from the other property or funds of the Pledgor, and shall be forthwith delivered to the Secured Party or its designated agent in the exact form received with any necessary endorsement and/or appropriate stock powers or other instruments of assignment duly executed in blank, to be held by the Secured Party or its designated agent as Pledged Collateral and as further collateral security for the Obligations. (b) Upon the occurrence and during the continuance of any Event of Default: (i) All rights of the Pledgor to exercise the voting, managerial and other rights that it would otherwise be entitled to exercise pursuant to paragraph (i) of subsection (a) of this Section 7, and to receive the distributions and interest payments that it would otherwise be authorized to receive and retain pursuant to paragraph (ii) of subsection (a) of this Section 7, shall cease, and all such rights shall thereupon become vested in the Secured Party who shall thereupon have the sole right to exercise such voting, managerial and other rights and to receive and hold as Pledged Collateral such distributions and interest payments; and (ii) Without limiting the generality of the foregoing, the Secured Party may at its option exercise any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Collateral as if Secured Party were the absolute owner thereof, including, without limitation the right to exchange, in its discretion, any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other adjustment of the Company, or upon the exercise by the Secured Party of any right, privilege or option pertaining to any Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depository, transfer agent, registrar or other designated agent upon such terms and conditions as such committee, depository, transfer agent, registrar or other designated agent may determine; and (iii) All distributions and interest payments that are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 7(b) shall be received in trust for the benefit of the Secured Party, shall be segregated from other funds of the Pledgor, and shall be forthwith paid over to the Secured Party or its designated agent as Pledged Collateral in the exact form received, to be held by the Secured Party as Pledged Collateral and as further collateral security for the Obligations. 5 SECTION 8. ADDITIONAL PROVISIONS CONCERNING THE PLEDGED COLLATERAL. ------------------------------------------------------- (a) The Pledgor hereby authorizes the Secured Party to file, without the signature of the Pledgor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Pledged Collateral. (b) The Pledgor hereby irrevocably appoints the Secured Party as the Pledgor's attorney-in-fact and proxy, with full authority in the place and stead of the Pledgor and in the name, of the Pledgor or otherwise, from time to time prior to the payment in full of the Obligations, at the Secured Party's reasonable discretion, to take any action and to execute any instrument that the Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of the Pledgor under Section 7(a) hereof), including, without limitation, to receive, indorse and collect all instruments made payable to the Pledgor representing any distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. (c) If the Pledgor fails to perform any agreement or obligation contained herein and such failure shall remain unremedied for a period of twenty (20) days, the Secured Party may itself perform, or cause performance of, such agreement or obligation, and the expenses of the Secured Party incurred in connection therewith shall be payable by the Pledgor pursuant to Section 10 hereof. The Secured Party agrees to notify the Pledgor of any such action taken, but failure to so notify the Pledgor shall not affect the rights of the Secured Party hereunder. (d) Other than the exercise of reasonable care to assure the safe custody of the Pledged Collateral while held hereunder, the Secured Party shall have no duty or liability to preserve rights pertaining thereto and shall be relieved of all responsibility for the Pledged Collateral upon surrendering it or tendering surrender of it to the Pledgor. The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Secured Party accords its own property of a similar nature, it being understood that the Secured Party shall not have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not the Secured Party has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. (e) The Secured Party may at any time in its discretion (i) transfer or register in the name of the Secured Party or any nominees of the Secured Party any or all of the Pledged Collateral, subject only to the revocable rights of the Pledgor under Section 7(a) hereof, and (ii) exchange certificates or instruments constituting Pledged Collateral for certificates or instruments of smaller or larger denominations. The Secured Party will inform the Pledgor of any transfer or registration effected pursuant to clause (i) of the preceding sentence. SECTION 9. REMEDIES UPON DEFAULT. If any Event of Default shall have --------------------- occurred and be continuing: 6 (a) The Secured Party may, by notice to the Pledgor, (i) exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Pledged Collateral) then in effect in the State of Georgia or other applicable law; and (ii) without limiting the generality of the foregoing and without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more, parcels at public or private sale, at any exchange or broker's board or elsewhere, as such price or prices and on such other terms as Secured Party may deem commercially reasonable, for cash or on credit or for future delivery. Pledgor agrees that, to the extent notice of sale shall be required by law, notice to Pledgor at least ten (10) days prior to the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Secured Party shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Pledgor recognizes that the Secured Party may deem it impracticable to effect a public sale of all or any part of the any securities constituting Pledged Collateral and that the Secured Party may, therefore, determine to make one or more private sales of any such securities to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the foregoing, agrees that such private sales shall be deemed to have been made in a commercially reasonable manner and that the Secured Party shall have no obligation to delay sale of any such securities for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act of 1933 (the "Securities Act") or any applicable state securities laws. Pledgor further acknowledges and agrees that any offer to sell such securities which has been (i) publicly advertised on a bona fide basis in a newspaper or other publication of general circulation in the financial community of Atlanta, Georgia (to the extent that such an offer may be so advertised without prior registration under the Securities Act or applicable state securities laws), or (ii) made privately in the manner described above to not less than five bona fide offerees shall be deemed to involve a "public sale" for the purposes of Section 9-504(3) of the Code (or any successor or similar applicable statutory provision) as then in effect in the State of Georgia, notwithstanding that such sale may not constitute a "public offering" under the Securities Act or applicable state securities laws and that the Agent on behalf of Secured Party may, in such event, bid for and purchase of such securities. (c) Any cash held by the Secured Party as Pledged Collateral and all cash proceeds received by the Secured Party in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Collateral shall be applied as follows: 7 (i) First, to the extent not otherwise paid or reimbursed by Pledgor, to the repayment of the reasonable costs and expenses, including reasonable attorneys fees and legal expenses, incurred by the Secured Party in connection with (A) the administration of this Agreement, (B) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Pledged Collateral, (C) the exercise or enforcement of any of the rights of the Secured Party hereunder, and/or (D) the failure of the Pledgor to perform or observe any of the provisions hereof; (ii) Second, at the option of the Secured Party, to the payment or other satisfaction of any liens and other encumbrances upon any of the Pledged Collateral; (iii) Third, to the reimbursement of the Secured Party for the amount of any obligations of the Pledgor and/or the Company paid or discharged by the Secured Party pursuant to the provisions of this Agreement, the Loan Agreement or any Other Agreement and of any reasonable expense of the Secured Party payable by the Pledgor hereunder or under the Loan Agreement or any Other Agreement; (iv) Fourth, to the satisfaction of any other indebtedness of the Pledgor and/or the Company to the Secured Party; (v) Fifth, to the payment of any other amounts required by applicable law (including, without limitation, Section 9-504(1)(c) of the Code or any successor or similar, applicable statutory provision); and (vi) Sixth, the surplus proceeds, if any, to the Pledgor or to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct. (d) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Secured Party is legally entitled, the Pledgor shall be liable for the deficiency, together with interest thereon at the default rate provided in Section 1.1 of the Loan Agreement, together with the costs of collection and the reasonable fees of any attorneys employed by the Secured Party to collect such deficiency. (e) The Secured Party agrees that it will not sell or transfer any securities constituting all or part of the Pledged Collateral except in compliance with all applicable securities laws. 8 SECTION 10. INDEMNITY AND EXPENSES. ---------------------- (a) [intentionally left blank] (b) The Pledgor will upon demand pay to the Secured Party, the amount of any and all costs and expenses, including, without limitation, court costs and the reasonable fees and disbursements of the Secured Party's counsel and of any experts and agents, that the Secured Party or such Purchaser may incur in connection with (i) the administration of this Agreement; (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Pledged Collateral; (iii) the exercise or enforcement of any of the rights of the Secured Party hereunder; or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof; except for expenses resulting solely and directly from the Secured Party's or a Purchaser's gross negligence, willful misconduct or breach of this Agreement. SECTION 11. NOTICES. Unless otherwise required herein, all notices and ------- other communications provided for hereunder shall be given as set forth in the Loan Agreement. SECTION 12. MISCELLANEOUS. ------------- (a) No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Pledgor and the Secured Party, and no waiver of any provision of this Agreement, and no consent to any departure by the Pledgor therefrom, shall be effective unless it is in writing and signed by the Secured Party and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of the Secured Party to exercise, and no delay in exercising, any right hereunder or under the Loan Agreement, any Other Agreement or any related agreement, instrument or documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Secured Party provided herein and in the Loan Agreement, the Other Agreements and all related agreements, instruments and documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Secured Party under each of this Agreement, the Loan Agreement, the Other Agreements and any related agreements, instruments and documents against any party thereto are not conditional or contingent on any attempt by the Secured Party to exercise any of its rights hereunder or under the Loan Agreement, the Other Agreements or any related agreement, instrument or document against such party or against any other person or entity. (c) Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction, to the extent of such prohibition or invalidity without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. 9 (d) This Agreement shall create a present continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until the earlier of the payment and satisfaction in full or release of the Obligations, (ii) be binding on the Pledgor and its successors and assigns and shall inure, together with all rights and remedies of the Secured Party hereunder, to the benefit of the Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing, the Secured Party may assign or otherwise transfer the Note held by it as provided in the Loan Agreement, and the Secured Party may assign or otherwise transfer its rights under the Loan Agreement to any other person or entity, and such other person or entity shall thereupon become vested with all of the benefits in respect thereof granted to the Secured Party, herein or otherwise. None of the rights or obligations of the Pledgor hereunder may be assigned or otherwise transferred without the prior written consent of the Secured Party. (e) Upon the earlier of the final and irrevocable payment and satisfaction in full or release of the Obligations, this Agreement and the security interest created hereby shall terminate and all rights to the Pledged Collateral shall revert to the Pledgor. The Secured Party shall thereafter, upon the Pledgor's request and at the Pledgor's expense, (i) return to the Pledgor such of the Pledged Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof; and (ii) execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. (f) THIS AGREEMENT CONSTITUTES A SECURED COMMERCIAL LENDING TRANSACTION GOVERNED BY THE UNIFORM COMMERCIAL CODE (TO THE EXTENT APPLICABLE). THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE AT DALLAS, TEXAS AND SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF TEXAS, APPLICABLE TO AGREEMENTS EXECUTED, DELIVERED AND PERFORMED WITHIN SUCH STATE, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. PLEDGOR HEREBY CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO SUCH PARTY AT ITS ADDRESS SET FORTH IN SECTION 5(E) HEREOF. PLEDGOR WAIVES TRIAL BY JURY (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW), ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION 12(F) SHALL AFFECT THE RIGHT OF SECURED PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF SECURED PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST PLEDGOR AND/OR ITS 10 PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHERE SUCH PARTY MAINTAINS OFFICES OR HAS PROPERTY. (g) This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all counterparts hereof so executed by the parties hereto, whether or not such counterpart shall bear the execution of each of the parties hereto, shall be deemed to be, and shall be construed as, one and the same Agreement. A photocopy, telecopy or facsimile transmission of a signed counterpart of this Agreement shall be sufficient to bind the party or parties whose signature(s) appear thereon. (h) Secured Party hereby agrees to release a pro rata portion of the -------- Stock securing the Obligations within ten (10) days following proper and timely payment of all or a part of the principal amount paid in accordance with the terms of the Loan Agreement. The number of shares of Stock to be released shall be in the same proportion as the Stock bears to the original principal amount of the Loan (as adjusted pursuant to the Stock Purchase Agreement pursuant to which the stock was sold to Pledgor (the "Stock Purchase Agreement"))on the date hereof. For example, if the Stock is equal to 825 shares on the date hereof, then (assuming the $850,000 Loan remains unadjusted under the Stock Purchase Agreement) .000970 shares of the Stock shall be released for each dollar of principal paid off under the Loan Agreement. Notwithstanding, no release shall be made of fractional shares. 11 IN WITNESS WHEREOF, the Pledgor has executed this Agreement as of the date first above written. PLEDGOR: LETRONIX ACQUISITION CORPORATION By: /s/ ALBERT B. GRECO, JR. ------------------------------------- Name: Albert B. Greco, Jr. ----------------------------------- Title: President ---------------------------------- SECURED PARTY: POLYPHASE CORPORATION By: /s/ PAUL A. TANNER ------------------------------------- Name: Paul A. Tanner ----------------------------------- Title: President ---------------------------------- 12 EX-4 5 STOCK OPTION AND RIGHT OF FIRST REFUSAL AGREEMENT EXHIBIT 4 [POLYPHASE FORM] STOCK OPTION AND RIGHT OF FIRST REFUSAL AGREEMENT ------------------------------------------------- This Stock Option and Right of First Refusal Agreement is made and entered effective the 28th day of June, 1996, by and between Polyphase Corporation ("Grantor"), and Letronix Acquisition Corp. ("Grantee"). RECITALS -------- WHEREAS, Grantor is now the owner of 980,000 shares (the "Shares") of the common stock of PC Networx America, Inc., a Nevada corporation (the "Company" or "Corporation"); and WHEREAS, in connection with the public distribution in a registered "spin- off" of 30% of the outstanding shares of the common stock of the Company (the "Spin-off"), Grantor desires to grant an option to Grantee to purchase certain of the Shares, on and subject to the terms of this Agreement. AGREEMENT --------- NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows: 1. Grant of Option. Subject to the terms and conditions of this --------------- Agreement, Grantor grants to Grantee the right (the "Option") to purchase up to 200,000 of the Shares held by Grantor (the "Optioned Shares"). The Optioned Shares hereunder are subject to adjustment in the manner provided in Paragraph 6 of this Agreement. 2. Term of Option. Subject to earlier termination as otherwise provided -------------- herein, the Option shall be exercisable by Grantee at any time beginning on the date the registration statement relating to the Spin-off is first declared effective by the Securities and Exchange Commission (the "Effective Date") and ending on the close of business on the 545th day after the Effective Date (the "Termination Date"). 3. Method of Exercising Option. Subject to the terms and conditions of --------------------------- this Agreement, the Option shall be exercised by giving written notice to the Grantor. Such notice shall state the number of shares being purchased and shall be signed by Grantee. At the time of exercise of the Option, payment of the purchase price must be made in cash, by certified check or by a wire transfer of funds. The certificate or certificates for the Optioned Shares as to which the Option shall have been so exercised shall be registered in the name of Grantee, upon payment in full of the Option Price (defined below) for each Optioned Share purchased and shall be delivered as provided above to or upon the written order of Grantee. All Optioned Shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable. 4. Option Price. The "Option Price" for the Optioned Shares shall be as ------------ set forth in Exhibit A. --------- 5. Transferability. The Option and the Right of First Refusal specified --------------- in Section 11 hereof may be transferred or assigned by Grantee. 6. Changes in Capital Structure. In the event of any reorganization, ---------------------------- merger, acquisition, separation, recapitalization, split-up, combination or exchange of shares of the common voting stock of Corporation, or like adjustment, the percentage and number of Optioned Shares of stock and the class of shares of stock subject to the Option granted pursuant to this Agreement and, if necessary, the Option Price, shall be adjusted by appropriate changes in Option herein to reflect such changes. In the event of the complete liquidation or, dissolution of Corporation, other than as an incident to a merger, reorganization, or other adjustment referred to in the immediately preceding paragraph, any options granted pursuant to this Agreement and remaining unexercised shall be deemed canceled, notwithstanding anything to the contrary provided in this Agreement. 7. Warranties and Representations. ------------------------------ a. Grantee expressly recognizes that the purchase of stock, if any, pursuant to this Stock Option Agreement shall be for investment purposes only. The shares purchased pursuant to the terms of this Agreement shall not be resold or otherwise distributed unless the stock subject to such sale, transfer, option, or distribution is registered under the Securities Act of 1933, as amended, or unless, in the opinion of counsel for the Corporation, registration is not required pursuant to said Act, is not required pursuant to the Private Placement exemption of said Act or, is not required pursuant to any other exemption in said Act, or pursuant to any other applicable law, regulation, or rule of any governmental agency, whether State or Federal. 2 b. Grantee hereby acknowledges that he has examined the books and records of the Corporation and is satisfied as to the accurateness thereof. Grantee further represents that, based upon his examination of the Corporation's books and records and his knowledge of the industry in which the Corporation operates, the option price for the shares hereunder is fair. 8. Title to Shares. The purchase and sale of shares pursuant to the --------------- terms of this Agreement shall be complete only upon payment of the purchase price in the manner set forth above. Until payment of the purchase price, Grantee shall have no rights as a shareholder with respect to the Optioned Shares and title to the Optioned Shares shall remain in Grantor. Such shares shall be transferred to Grantee free and clear of all liens, claims and/or encumbrances, and shall not be subject to any proxies or other similar restrictions, except for applicable restrictions or limitations imposed by federal and state securities laws. 9. Covenants of Grantor. Grantor covenants and agrees that, prior to the -------------------- Termination Date, it will not sell, assign, hypothecate or otherwise encumber the Optioned Shares. 10. Compliance with Law. If any provision of this Agreement becomes or is ------------------- found to be illegal, unenforceable, void, or voidable pursuant to applicable laws, regulations, or restrictions, or for any other reason, such clause or provision must first be modified to the extent necessary to make this Agreement legal and enforceable and then if necessary, second, severed from the remainder of the Agreement to allow the remainder of the Agreement to remain in full force and effect. 11. Right of First Refusal. In the event Grantor proposes, on or before ---------------------- June 28, 1999, to sell (i) on or prior to the Termination Date, any of the Shares other than the Optioned Shares and (ii) after the Termination Date, any of the Shares (the "ROFR Shares"), then the Grantor shall give the Grantee written notice of the name of the proposed transferee (if known), the price (as determined below), the other terms and the conditions of the proposed sale. The Grantee shall have 14 days from the date of receipt of such notice to agree to purchase all or any part of such ROFR Shares upon the terms and conditions specified in the notice, by delivering written notice to the Grantor stating his agreement to buy such ROFR Shares not later than 10 days following the date of such notice delivered to Grantor. Notwithstanding anything herein to the contrary, the 3 purchase price per ROFR Share shall be (i) in the case of a bona fide offer from a third party, the price offered by such third party or (ii) in all other cases, the Market Price (as defined below). In the event that the Grantor does not agree to buy such ROFR Shares in accordance with the terms hereof, Grantor shall have 90 days following expiration of the 14-day period above to sell such ROFR Shares to the proposed transferee stated in the notice without renewed compliance with this Section 11. As used herein, the term "Market Value" shall mean: (i) If traded on a national securities exchange or the NASDAQ National Market ("NNM"), the value shall be deemed to be the average of the --- security's closing prices on such exchange or NNM over the ten (10) day period ending two (2) days prior to the date of the notice sent by Grantor to Grantee hereunder; (ii) If actively traded over-the-counter (other than NNM), the value shall be deemed to be the average of the closing bid prices over the ten (10) day period ending two (2) days prior to the date of the notice sent by Grantor to Grantee hereunder. 12. Miscellaneous. ------------- a. Survival of Representations. All representations and warranties --------------------------- made hereunder shall survive execution of this Agreement. b. Notices. Any notices required or permitted to be given hereunder ------- shall be sufficient if in writing and if sent by registered mail to the last known address of party to receive such notice. c. Waiver of Breach. The waiver by any party of a breach of any ---------------- provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any party. d. Severability. If any provision of this Agreement becomes or is ------------ found to be illegal, unenforceable or void, then such clause or provision must first be modified to the extent necessary to make this Agreement legal and enforceable and then, if necessary, second, severed 4 from the remainder of this Agreement to allow the remainder of this Agreement to remain in full force and effect. e. Entire Agreement. This instrument contains the entire Agreement ---------------- of the parties with respect to the subject matter hereof. All negotiations relative to the matters contemplated by this Agreement are merged herein and there are no other understandings or agreements relating to the matters and things herein set forth other than those incorporated in this Agreement. No provision of this Agreement shall be altered, amended, revoked or waived, except by an instrument in writing signed by the party sought to be charged with such amendment, revocation or waiver. f. Jurisdiction and Venue. The parties agree that the District ---------------------- Court of the City and County of Dallas, Texas, shall have exclusive jurisdiction, including in personam jurisdiction, and shall be the exclusive -- -------- venue for any and all controversies and claims arising out of or relating to this Agreement or a breach thereof, except as otherwise unanimously agreed by the parties. g. Interpretation. This Agreement shall be interpreted and construed -------------- in accordance with the laws of the State of Texas, without regard to the choice of law principles thereof. h. Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which taken together shall constitute one instrument. i. Construction of Agreement. This Agreement is the product of the ------------------------- negotiation of the parties hereto. For convenience it has been drafted by one of the parties hereto. This Agreement shall not be construed in favor of, or against, any party hereto. j. Attorneys' Fees. Should any party hereto retain counsel for the --------------- purpose of enforcing or preventing breach of any provision hereof, then the prevailing party shall be entitled to be, reimbursed by the losing party for all costs and expenses incurred thereby including, but not limited to, reasonable attorneys' fees. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on this 15th day of July, 1996. Grantor: Grantee: Polyphase Corporation Letronix Acquisition Corp. - ------------------------------ ------------------------------------- [Print Name] [Print Name] By: /s/ PAUL A. TANNER By: /s/ ALBERT B. GRECO, JR. --------------------------- ------------------------------------- Title: President Title: President ------------------- ------------------------ 6 EXHIBIT A Option Price: - ------------- 1. if the date of exercise with respect to the Optioned Shares to be acquired is 180 days or less after the Effective Date, then the Option Price per share shall be 1.25 times the book value of the Company's common stock as of June 30, 1996, as such book value is specified in Section 1.5 of that certain Stock Purchase Agreement, dated as of even date herewith, by and between Letronix Acquisition Corp. and Polyphase Corporation (the "Book Value"). 2. if the date of exercise with respect to the Optioned Shares to be acquired is more than 180 days but less than 365 days after the Effective Date, then the Option Price per share shall be 1.5 times the Book Value. 3. if the date of exercise with respect to the Optioned Shares to be acquired is 365 days or more after the Effective Date, then the Option Price per share shall be 1.75 times the Book Value. 7 -----END PRIVACY-ENHANCED MESSAGE-----