INTER TEL INC
8-K, 2000-01-14
TELEPHONE & TELEGRAPH APPARATUS
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                UNITED STATES 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): JANUARY 1, 2000


                             INTER-TEL, INCORPORATED
               (Exact Name of Registrant as specified in charter)


                         Commission File Number 0-10211


               ARIZONA                                          86-0220994
     (State or other jurisdiction                            (I.R.S. Employer
           of incorporation)                              Identification Number)


   120 NORTH 44TH STREET, SUITE 200
            PHOENIX, ARIZONA                                    85034-1822
(Address of principal executive offices)                        (Zip Code)


       Registrant's telephone number, including area code: (602) 302-8900
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS

     On January 1, 2000,  Inter-Tel,  Incorporated (the "Company") completed its
acquisition  of the  computer  telephony  assets and  liabilities  of  Executone
Information  Systems,  Inc.  ("Executone")  for $44.3  million  in cash plus the
assumption of certain  liabilities,  subject to purchase price adjustments as of
the  closing  date.  Inter-Tel  intends  to  continue  distributing  Executone's
products through Executone's existing distribution  channel,  including National
and Government  Accounts,  and will begin distributing  Inter-Tel's products and
services through these channels as well.

     In connection with the  acquisition,  Inter-Tel  expects to take a one-time
charge for  purchased  in-process  research and  development  expenses and other
restructuring costs in the first quarter of 2000.

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

     (a) FINANCIAL STATEMENTS OF EXECUTONE INFORMATION SYSTEMS

     It is impracticable for the Company to provide financial statements for the
business acquired at this time. Such financial statements, if required, shall be
filed as soon as practicable,  but not later than sixty (60) days after the date
hereof.

     (b) PRO FORMA FINANCIAL INFORMATION

     It is  impracticable  for  the  Company  to  provide  pro  forma  financial
information  reflecting  the  Company's  acquisition  of the computer  telephony
assets and  liabilities  of  Executone  at this time.  Such pro forma  financial
information,  if required, shall be filed as soon as practicable,  but not later
than sixty (60) days after the date hereof.

     (c) EXHIBITS

          2.1  Computer  Telephony Asset Purchase  Agreement dated as of October
               17,  1999 by and between  Executone  Information  Systems,  Inc.,
               Inter-Tel,   Incorporated   and  Executone   Inter-Tel   Business
               Information Systems, Inc.

                                       -2-
<PAGE>
                                    SIGNATURE

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.


                                        INTER-TEL, INCORPORATED


Dated: JANUARY 14, 2000                 BY: /s/ KURT R. KNEIP
                                            ------------------------------------
                                            KURT R. KNEIP,
                                            CHIEF FINANCIAL OFFICER

                                       -3-

                               COMPUTER TELEPHONY

                            ASSET PURCHASE AGREEMENT

                                 BY AND BETWEEN

                      EXECUTONE INFORMATION SYSTEMS, INC.,


                             INTER-TEL, INCORPORATED

                                       AND

             EXECUTONE INTER-TEL BUSINESS INFORMATION SYSTEMS, INC.
<PAGE>
                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
ARTICLE I DEFINITIONS..........................................................1
      1.01     Accounts........................................................1
      1.02     Acquisition.....................................................2
      1.03     Adjustment......................................................2
      1.04     Affiliate.......................................................2
      1.05     Agreement.......................................................2
      1.06     Arbitration Fees................................................2
      1.07     Assignment and Assumption Agreement.............................2
      1.08     Assumed Leases..................................................2
      1.09     Assumed Liabilities.............................................3
      1.10     Basket..........................................................3
      1.11     Bill of Sale....................................................4
      1.12     Books and Records...............................................4
      1.13     Buyer...........................................................4
      1.14     Buyer's Closing Certificate.....................................4
      1.15     Buyer Review Period.............................................4
      1.16     Closing.........................................................4
      1.17     Closing Balance Sheet...........................................5
      1.18     Closing Date....................................................5
      1.19     Code............................................................5
      1.20     Commission......................................................5
      1.21     Competing Transaction...........................................5
      1.22     Computer Assets.................................................5
      1.23     Computer Assets License Agreement...............................5
      1.24     Computer Telephony Business.....................................5
      1.25     Computer Telephony Products.....................................6
      1.26     Confidentiality Agreement.......................................6
      1.27     Contracts.......................................................6
      1.28     Customer List...................................................6
      1.29     DCC.............................................................7
      1.30     ECS Shares......................................................7
      1.31     Effective Time..................................................7
      1.32     eLottery........................................................7
      1.33     eLottery Business...............................................7
      1.34     Employee Benefit Plan...........................................7
      1.35     Employees.......................................................8
      1.36     End Date........................................................8
      1.37     Environmental Laws..............................................8
      1.38     Environmental Permits...........................................8
      1.39     ERISA...........................................................8
      1.40     ERISA Affiliate.................................................8
      1.41     Escrow Agent....................................................8

                                       -i-
<PAGE>
      1.42     Escrow Amount...................................................8
      1.43     Escrow Fund.....................................................8
      1.44     Escrow Period...................................................9
      1.45     Exchange Act....................................................9
      1.46     Excluded Assets.................................................9
      1.47     Excluded Prepaid Assets.........................................9
      1.48     Fixtures and Equipment..........................................9
      1.49     GAAP............................................................9
      1.50     Governmental Entity............................................10
      1.51     Hazardous Material.............................................10
      1.52     Hazardous Material Activities..................................10
      1.53     Headquarters Facility..........................................10
      1.54     Headquarters Sublease Agreement................................10
      1.55     Healthcare Communications Business.............................10
      1.56     Healthcare Services Assets.....................................11
      1.57     HSR Act........................................................11
      1.58     Indemnifiable Loss.............................................11
      1.59     Indemnified Litigation.........................................11
      1.60     Intellectual Property Rights...................................11
      1.61     Interim Financial Statements...................................12
      1.62     Inventory......................................................12
      1.63     Knowledge......................................................12
      1.64     Law............................................................13
      1.65     Licensed Trademarks............................................13
      1.66     Liens..........................................................13
      1.67     Manufacturing Agreement........................................13
      1.68     Material Adverse Change........................................13
      1.69     Net Assets.....................................................15
      1.70     Officer's Certificate..........................................15
      1.71     Parent.........................................................15
      1.72     Permits........................................................15
      1.73     Permitted Liens................................................15
      1.74     Person.........................................................16
      1.75     Poway Facility.................................................16
      1.76     Premises.......................................................16
      1.77     Prepaid Assets.................................................16
      1.78     Purchase Price.................................................16
      1.79     Purchased Assets...............................................16
      1.80     Required Consents..............................................17
      1.81     Retained Debt..................................................17
      1.82     Retained Liabilities...........................................17
      1.83     Seller.........................................................19
      1.84     Seller Acquisition.............................................19
      1.85     Seller Triggering Event........................................19
      1.86     Seller's Closing Certificate...................................20

                                      -ii-
<PAGE>
      1.87     Services Agreement.............................................20
      1.88     Severed Employees..............................................20
      1.89     Superior Proposal..............................................20
      1.90     Tax or Taxes...................................................20
      1.91     Tax Return.....................................................20
      1.92     Technology.....................................................21
      1.93     Trademark License Agreement....................................21
      1.94     Transferred Employees..........................................21
      1.95     Transferred Intellectual Property Rights.......................21
      1.96     Transferred Technology.........................................21
      1.97     TRP Liabilities................................................22
      1.98     Year-End Financial Statements..................................22
      1.99     Year 2000 Compliant............................................22

ARTICLE II PURCHASE AND SALE; ASSIGNMENT AND ASSUMPTION.......................22
      2.01     Sale of Purchased Assets.......................................22
      2.02     Transfer or Sales Taxes; Property Taxes........................23
      2.03     Allocation of Purchase Price...................................23
      2.04     Adjustments....................................................24
      2.05     Escrow.........................................................27

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER..........................27
      3.01     Organization and Good Standing.................................27
      3.02     Foreign Qualification..........................................27
      3.03     Authorization; Enforceability..................................28
      3.04     Conflicts or Violations; Required Consents.....................28
      3.05     Litigation.....................................................29
      3.06     Compliance with Law............................................29
      3.07     Environmental Matters..........................................29
      3.08     Permits........................................................31
      3.09     Taxes..........................................................31
      3.10     Title to Purchased Assets......................................32
      3.11     Condition and Sufficiency of Assets............................32
      3.12     Accounts Receivable............................................32
      3.13     No Undisclosed Liabilities.....................................33
      3.14     Contracts and Assumed Leases...................................33
      3.15     Books and Records..............................................35
      3.16     Employee Benefit Plans.........................................36
      3.17     Employee Matters...............................................37
      3.18     Fees and Expenses of Brokers and Others........................39
      3.19     Insurance......................................................39
      3.20     Intellectual Property Rights and Technology....................39
      3.21     Inventory......................................................42
      3.22     Financial Statements...........................................42
      3.23     No Material Adverse Change.....................................43
      3.24     Disclaimers of Seller..........................................43

                                      -iii-
<PAGE>
      3.25     Disclosure.....................................................43
      3.26     Year 2000......................................................44
      3.27     Authenticity and Entirety of Documents.........................45
      3.28     Premises.......................................................45

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER............................46
      4.01     Organization...................................................46
      4.02     Authorization; Enforceability..................................46
      4.03     No Conflict or Violation; Required Consents....................46
      4.04     No Litigation..................................................47
      4.05     Fees and Expenses of Brokers and Others........................47

ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT............................47
      5.01     Organization...................................................47
      5.02     Authorization; Enforceability..................................47
      5.03     No Conflict or Violation; Required Consents....................48
      5.04     No Litigation..................................................48
      5.05     Fees and Expenses of Brokers and Others........................48
      5.06     Sufficient Funds...............................................49

ARTICLE VI CERTAIN UNDERSTANDINGS AND AGREEMENTS..............................49
      6.01     Conduct of Seller Prior to Closing.............................49
      6.02     Negative Covenants.............................................50
      6.03     Access.........................................................51
      6.04     No Solicitation................................................51
      6.05     Further Assurances.............................................53
      6.06     Publicity......................................................54
      6.07     Employees......................................................54
      6.08     WARN Act.......................................................56
      6.09     Benefit Obligations............................................56
      6.10     Services Agreement.............................................59
      6.11     Headquarters Facility Sublease Agreement.......................59
      6.12     Manufacturing Agreement........................................59
      6.13     Non Compete....................................................60
      6.14     Trademark License Agreement....................................60
      6.15     Computer Assets License Agreement..............................61
      6.16     Bulk Transfers Laws............................................61
      6.17     Notice of Developments.........................................61
      6.18     Third Party Consents...........................................62
      6.19     Risk of Loss...................................................63
      6.20     Meeting of Seller's Shareholders...............................63
      6.21     Customer List..................................................64
      6.22     Year 2000 Claims...............................................64
      6.23     Executone Name.................................................65
      6.24     Poway Facility Permits.........................................65
      6.25     Schedules......................................................65

                                      -iv-
<PAGE>
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER..................66
      7.01     Accuracy of Representations and Warranties.....................66
      7.02     HSR Act Waiting Period.........................................66
      7.03     No Litigation..................................................66
      7.04     Seller's Performance...........................................66
      7.05     Deliveries at Closing..........................................67
      7.06     No Material Adverse Change.....................................67

ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER................67
      8.01     Accuracy of Representations and Warranties.....................68
      8.02     Shareholder Approval...........................................68
      8.03     No Litigation..................................................68
      8.04     HSR Act Waiting Period.........................................68
      8.05     Buyer's Performance............................................68
      8.06     Deliveries at Closing..........................................68

ARTICLE IX ACTIONS BY SELLER AND BUYER AFTER THE CLOSING......................69
      9.01     Seller's Indemnity.............................................69
      9.02     Buyer's Indemnity..............................................70
      9.03     Limitations on Indemnification.................................71
      9.04     Procedure for Indemnification - Third Party Claims.............71
      9.05     Procedure for Indemnification - Third Party Claims.............73
      9.06     Computation of Indemnity Amounts...............................73
      9.07     Litigation Support.............................................74
      9.08     Post-Closing Cooperation.......................................74
      9.09     Escrow Arrangements............................................74
      9.10     Taxes..........................................................82
      9.11     Books and Records; Personnel...................................83

ARTICLE X TERMINATION.........................................................84
      10.01    Termination....................................................84
      10.02    Termination by Buyer...........................................85
      10.03    Termination by Seller..........................................86
      10.04    Procedure for Termination......................................87
      10.05    Effect of Termination..........................................87

ARTICLE XI MISCELLANEOUS......................................................88
      11.01    Entire Agreement; Amendment....................................88
      11.02    Expenses.......................................................89
      11.03    Governing Law; Consent to Jurisdiction.........................89
      11.04    Assignment.....................................................90
      11.05    Agreement Not to Compete.......................................90
      11.06    Notices........................................................91
      11.07    Counterparts; Headings.........................................92
      11.08    Severability...................................................93
      11.09    No Reliance....................................................93

                                       -v-
<PAGE>
      11.10    Interpretation.................................................93
      11.11    Specific Performance...........................................93
      11.12    Employee Tax Reporting.........................................94
      11.13    Further Assurances.............................................94
      11.14    Disclosure Schedule............................................94

                                      -vi-
<PAGE>
                             SCHEDULES AND EXHIBITS

SCHEDULE    DESCRIPTION
- --------    -----------
1.01        Accounts
1.08(a)     Assumed Leases for Office Space
1.08(b)     Assumed Leases for Equipment
1.22        Computer Assets
1.24(a)     eLottery Business
1.24(b)     Healthcare Communications Business
1.25        Computer Telephony Products
1.27        Contracts
1.35        Employees
1.47        Excluded Prepaid Assets
1.48        Fixtures and Equipment
1.55        Healthcare Communications Business
1.56        Healthcare Services Assets Excluded From Computer Telephony Business
1.59        Indemnified Litigation
1.61        Interim Financial Statements
1.65        Licensed Trademarks
1.68        Material Adverse Change -- Managerial and Engineering Employees
1.73        Permitted Liens
1.76        Premises
1.82        Retained Liabilities
1.95        Transferred Intellectual Property Rights and Transferred Technology
1.98        Year-End Financial Statements
3.02        Foreign Qualifications
3.04(a)     Conflicts or Violations
3.04(b)     Required Consents
3.05        Litigation
3.06        Compliance with Law
3.09        Taxes
3.10        Title to Purchased Assets
3.11        Condition and Sufficiency of Assets
3.13        No Undisclosed Liabilities
3.16        Employee Benefit Plans
3.17(a)     Employee Debts
3.17(b)     Independent Contractors
3.17(c)     Employment Matters (Threatened and Filed Employment and Labor
            Complaints)
3.17(d)     Labor Disturbances
3.17(e)     Employees
3.20        Intellectual Property Rights and Technology -- Infringement Claims
3.23        Material Adverse Change
3.26        Year 2000
4.03        Buyer Required Consents

                                      -vii-
<PAGE>
5.03        Parent Required Consents
6.05        Preclosing Actions With Respect to Customers and Distributors
6.12        Terms of Manufacturing Agreement
6.24        Poway Facility Permits

                                     -viii-
<PAGE>
EXHIBIT     DESCRIPTION
- -------     -----------
A           Assignment and Assumption Agreement
B           Bill of Sale
C           Computer Asset License Agreement
D           Headquarters Sublease Agreement
E           Trademark License Agreement

                                      -ix-
<PAGE>
                            ASSET PURCHASE AGREEMENT

     THIS ASSET PURCHASE AGREEMENT,  made as of October 17, 1999, by and between
EXECUTONE  Information  Systems,   Inc.,  a  Virginia  corporation   ("Seller"),
Inter-Tel,  Incorporated,  an  Arizona  corporation  ("Parent"),  and  Executone
Inter-Tel  Business  Information  Systems,  Inc.  an Arizona  corporation  and a
wholly-owned subsidiary of Parent ("Buyer"), provides as follows:

                                    RECITALS

     WHEREAS,  one  of the  businesses  engaged  in by  Seller  is the  Computer
Telephony Business as defined herein.

     WHEREAS,  Seller  desires to sell  certain of its assets and be relieved of
certain of its liabilities that are employed by Seller in operating the Computer
Telephony Business,  and Buyer desires to purchase those assets and assume those
liabilities.

     NOW,  THEREFORE,  in  consideration  of the  Recitals  and  of  the  mutual
covenants,  conditions  and  agreements  set forth herein and for other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, the parties hereto agree that:

                                    ARTICLE I
                                   DEFINITIONS

     When used in this  Agreement,  the following  terms shall have the meanings
specified:

     1.01 ACCOUNTS.

          "Accounts"  shall mean all accounts  receivable,  notes receivable and
associated rights (including,  without limitation, amounts due from vendors, all
security  deposits,  letters of credit and security interests in collateral) and
all related reserves arising from the sale of goods and services of the Computer
Telephony  Business and  outstanding  as of the  Effective  Time,  including the
Accounts to be listed on SCHEDULE 1.01 hereto, as well as all other Accounts not
<PAGE>
listed on SCHEDULE 1.01 which are Accounts of the Computer  Telephony  Business,
but specifically excluding the Excluded Prepaid Assets.

     1.02 ACQUISITION.

          "Acquisition"  shall  mean  the  purchase  and  sale  of the  Computer
Telephony Business pursuant to this Agreement.

     1.03 ADJUSTMENT.

          "Adjustment" shall have the meaning assigned to it in SECTION 2.04.

     1.04 AFFILIATE.

          "Affiliate"  shall mean,  with  respect to any  Person,  any Person or
entity,  that  directly  or  indirectly  through  one  or  more  intermediaries,
controls, or is controlled by, or is under common control with, such Person.

     1.05 AGREEMENT.

          "Agreement"  shall mean this Asset Purchase  Agreement,  together with
the Exhibits and Schedules attached hereto, as the same may be amended from time
to time in accordance with the terms hereof.

     1.06 ARBITRATION FEES.

          "Arbitration  Fees" shall have the  meaning  assigned to it in SECTION
9.09(f)(III).

     1.07 ASSIGNMENT AND ASSUMPTION AGREEMENT.

          "Assignment  and Assumption  Agreement"  shall mean the Assignment and
Assumption  Agreement  between  Seller  and Buyer  substantially  in the form of
EXHIBIT A hereto.

     1.08 ASSUMED LEASES.

          "Assumed  Leases" shall mean those leases for all  facilities  used by
the Computer  Telephony Business and listed on SCHEDULE 1.08(a) hereto and those
equipment leases listed on SCHEDULE 1.08(b) hereto.

                                      -2-
<PAGE>
     1.09 ASSUMED LIABILITIES.

          "Assumed Liabilities" shall mean the following liabilities (other than
Retained  Liabilities):  (i) all  obligations  and  liabilities  with respect to
circumstances  and events occurring on or after the Closing Date with respect to
the Assumed  Leases listed on SCHEDULE  1.08(a) and SCHEDULE  1.08(b),  (ii) all
trade account payables and accrued  liabilities  (excluding Taxes,  except those
Taxes specifically excluded from the definition of Retained Liabilities) related
to the Computer Telephony  Business,  (iii) all obligations and liabilities with
respect to all Contracts listed on SCHEDULE 1.27, (iv) all warranty  obligations
and liabilities  relating to the Computer Telephony  Business,  excluding (other
than as set forth in clause  (v)  below)  all  claims,  lawsuits  or  actions of
current or former  customers of the Computer  Telephony  Business related to the
Year 2000  readiness of the Computer  Telephony  Products  initiated  or, to the
Knowledge of Seller,  threatened  prior to the Closing,  (v) all  obligations of
Seller for judgments, amounts paid in settlement, and attorneys' fees and costs,
and other expenses and costs,  arising out of the Indemnified  Litigation,  (vi)
all liabilities and obligations  arising from  circumstances or events occurring
prior to the  Effective  Time in the ordinary  course of the Computer  Telephony
Business consistent with past practice,  other than Retained Liabilities,  (vii)
all other  liabilities and obligations of the Computer  Telephony  Business that
arise from circumstances or events occurring after the Closing, and (viii) up to
fifty  percent  (50%)  of  any  liabilities  relating  to  indebtedness  to  any
participants  under  Seller's  Transition  and  Retention  Plan  and up to fifty
percent (50%) of any liabilities relating to any severance,  separation or other
payment  obligations to any Transition  and Retention Plan  participants  (other
than such  liabilities  in respect of Stan Kabala and Ted Stone,  which shall be
Retained Liabilities hereunder).

     1.10 BASKET.

          "Basket" shall have the meaning assigned to it in SECTION 9.03(a).

                                      -3-
<PAGE>
     1.11 BILL OF SALE.

          "Bill of Sale" shall mean the bill of sale  substantially  in the form
of EXHIBIT B hereto.

     1.12 BOOKS AND RECORDS.

          "Books and Records" shall mean original or true and complete copies of
the Customer List and all the books,  records,  files,  data and  information of
Seller  relating  to  the  Computer  Telephony  Business,   including,   without
limitation,  all customer lists, financial and accounting records (including all
Tax Returns other than income tax returns),  purchase orders and invoices, sales
orders and sales order log books, credit and collection records,  correspondence
and  miscellaneous  records with respect to customers and supply sources and all
other general correspondence,  records, books and files relating to the Computer
Telephony Business.

     1.13 BUYER.

          "Buyer" shall mean Executone Inter-Tel Business  Information  Systems,
Inc., an Arizona corporation and a wholly-owned subsidiary of Parent.

     1.14 BUYER'S CLOSING CERTIFICATE.

          "Buyer's Closing Certificate" shall mean the certificate of Buyer in a
form to be reasonably agreed upon between Buyer and Seller.

     1.15 BUYER REVIEW PERIOD.

          "Buyer Review Period" shall have the meaning assigned to it in SECTION
2.04(b).

     1.16 CLOSING.

          "Closing"  shall mean the meeting of the  parties  held at 10:00 A.M.,
local time, on the Closing  Date, at the offices of Hunton & Williams,  951 East
Byrd  Street,  Richmond,  Virginia  23219,  or such  other time and place as the
parties may mutually agree in writing.

                                      -4-
<PAGE>
     1.17 CLOSING BALANCE SHEET.

          "Closing  Balance  Sheet"  shall have the  meaning  assigned  to it in
SECTION 2.04(a).

     1.18 CLOSING DATE.

          "Closing Date" shall mean the business day following  approval of this
Agreement and the transaction  contemplated thereby by Seller's shareholders and
satisfaction  of the conditions set forth in Articles VIII and IX, or such other
date as the parties may mutually agree in writing.

     1.19 CODE.

          "Code" shall mean the Internal  Revenue Code of 1986, as amended,  and
any predecessor thereto to the extent applicable to prior periods.

     1.20 COMMISSION.

          "Commission" shall mean the Securities and Exchange Commission.

     1.21 COMPETING TRANSACTION.

          "Competing  Transaction"  shall  have the  meaning  assigned  to it in
SECTION 6.04.

     1.22 COMPUTER ASSETS.

          "Computer Assets" shall mean the computer hardware and software listed
on SCHEDULE 1.22 hereto.

     1.23 COMPUTER ASSETS LICENSE AGREEMENT.

          "Computer  Assets License  Agreement"  shall mean the computer  assets
license agreement substantially in the form of EXHIBIT C hereto.

     1.24 COMPUTER TELEPHONY BUSINESS.

          "Computer Telephony Business" shall mean the development, manufacture,
marketing, selling and servicing of telephone key and PBX, voice mail, automatic
call  distribution and other business  telephone  products,  software and system
applications for and to

                                      -5-
<PAGE>
end-user customers and independent  distributors,  as well as the manufacturing,
logistics,  repair,  warehousing,  billing and related services  provided to the
Healthcare  Communications  Business,  subject to the terms of the Manufacturing
Agreement,  as  conducted by Seller as of the date of the  Agreement,  and as it
historically has been conducted, including all research and development relating
to the Computer Telephony Business, and excluding assets related to the eLottery
Business to be expressly  listed on SCHEDULE  1.24(a) and assets  related to the
Healthcare Communications Business to be expressly listed on SCHEDULE 1.24(B).

     1.25 COMPUTER TELEPHONY PRODUCTS.

          "Computer  Telephony  Products"  shall  mean all  products,  including
software,  of the Computer Telephony Business listed on SCHEDULE 1.25, including
installation,  programming,  customer training, service and maintenance thereof,
and predecessor and updated versions thereof and extensions,  modifications  and
developments thereof.

     1.26 CONFIDENTIALITY AGREEMENT.

          "Confidentiality  Agreement"  shall have the meaning assigned to it in
SECTION 1.27.

     1.27 CONTRACTS.

          "Contracts" shall mean those contracts,  agreements, blanket and other
purchase  orders,  options,  leases of personal or  moveable  property  (such as
computers,   copiers  and   vehicles),   sales   orders,   license   agreements,
relationships and commitments and invoices related thereto  specifically  listed
on SCHEDULE 1.27 hereto.

     1.28 CUSTOMER LIST.

          "Customer List" shall mean the customer list of the Computer Telephony
Business.

                                      -6-
<PAGE>
     1.29 DCC.

          "DCC"  shall mean  Dialogic  Communications  Corporation,  a Tennessee
corporation.

     1.30 ECS SHARES.


          "ECS Shares" shall mean Seller's equity interest in ECS Communications
Group, Inc.

     1.31 EFFECTIVE TIME.

          "Effective  Time" shall mean 5:00 P.M.  Eastern  Time,  on the Closing
Date.

     1.32 ELOTTERY.

          "eLottery"  shall mean eLottery,  Inc., a  wholly-owned  subsidiary of
Seller, and its predecessor  entity,  Unistar Gaming Corp., and its wholly-owned
subsidiary, UniStar Entertainment, Inc.

     1.33 ELOTTERY BUSINESS.

          "eLottery  Business"  shall mean the business as conducted by eLottery
as of the date of the  Agreement,  and as it  historically  has  been  conducted
through the Closing Date,  including all  developments  and extensions  thereof.

     1.34 EMPLOYEE BENEFIT PLAN.

          "Employee  Benefit  Plan"  shall  mean  any  plan,  program,   policy,
practice,  contract,  agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation,  performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind,  whether  written or  unwritten or  otherwise,  funded or unfunded,
including without  limitation,  each "employee benefit plan," within the meaning
of Section  3(3) of ERISA which is or has been  maintained,  contributed  to, or
required

                                      -7-
<PAGE>
to be  contributed  to, by Seller or any ERISA  Affiliate for the benefit of any
Employee,  or with  respect  to which  Seller has or may have any  liability  or
obligation for any Employee.

     1.35 EMPLOYEES.

          "Employees"  shall  mean the  employees  of Seller  necessary  for the
operation of the Computer Telephony Business as listed on SCHEDULE 1.35 hereto.

     1.36 END DATE.


          "End Date" shall have the meaning assigned to it in Section 10.01(b).

     1.37 ENVIRONMENTAL LAWS.

          "Environmental  Laws" shall have the meaning assigned to it in SECTION
3.07(a)(i).

     1.38 ENVIRONMENTAL PERMITS.

          "Environmental  Permits" shall have the meaning assigned to in SECTION
3.07(c).

     1.39 ERISA.

          "ERISA"  shall mean the  Employee  Retirement  Income  Security Act of
1974, as amended.

     1.40 ERISA AFFILIATE.

          "ERISA  Affiliate"  shall  mean  each  entity  that is a  member  of a
controlled group or affiliated service group of which Seller is a member or that
is under  common  control  with Seller  (within  the meaning of Section  414(b),
414(c) or 414(m) of the Code).

     1.41 ESCROW AGENT.

          "Escrow  Agent"  shall  have the  meaning  assigned  to it in  SECTION
9.09(a).

     1.42 ESCROW AMOUNT.

          "Escrow Amount" shall have the meaning assigned to it in SECTION 2.05.

     1.43 ESCROW FUND.

          "Escrow  Fund"  shall  have  the  meaning  assigned  to it in  SECTION
9.09(a).

                                      -8-
<PAGE>
     1.44 ESCROW PERIOD.

          "Escrow  Period"  shall  have the  meaning  assigned  to it in SECTION
9.09(b).

     1.45 EXCHANGE ACT.

          "Exchange  Act" shall mean the Securities and Exchange Act of 1934, as
amended.

     1.46 EXCLUDED ASSETS.

          "Excluded Assets" shall mean (i) all cash and cash equivalents  (other
than any deposits  reflected on the Closing Balance Sheet),  (ii) the shares and
options to purchase shares of DCC owned by Seller, (iii) Excluded Prepaid Assets
and (iv) all other  assets of Seller not used in  connection  with the  Computer
Telephony  Business  and to be listed on  SCHEDULES  1.24(a) and  1.24(b).

     1.47 EXCLUDED PREPAID ASSETS.

          "Excluded  Prepaid  Assets" shall mean those assets listed on SCHEDULE
1.47 hereto.

     1.48 FIXTURES AND EQUIPMENT.

          "Fixtures and  Equipment"  shall mean all tangible  assets (other than
Inventory)  associated  with or  used in the  ordinary  course  of the  Computer
Telephony  Business,  including,  but not limited to, all  furniture,  fixtures,
leasehold  improvements,  vehicles  and  equipment  located  on or  off  of  the
Premises, including, without limitation, those items to be listed by location on
SCHEDULE 1.48 hereto.

     1.49 GAAP.

          "GAAP" shall mean generally accepted  accounting  principles as of the
date of this  Agreement  and as  applied by Seller in a manner  consistent  with
prior periods.

                                      -9-
<PAGE>
     1.50 GOVERNMENTAL ENTITY.

          "Governmental  Entity" shall mean any court,  administrative agency or
commission,  or other  governmental  authority or  instrumentality,  domestic or
foreign.

     1.51 HAZARDOUS MATERIAL.

          "Hazardous  Material" shall have the meaning assigned to it in SECTION
3.07(a).

     1.52 HAZARDOUS MATERIAL ACTIVITIES.


          "Hazardous Material  Activities" shall have the meaning assigned to it
in SECTION 3.07(b).

     1.53 HEADQUARTERS FACILITY.

          "Headquarters  Facility" shall mean the  headquarters for the Computer
Telephony  Business,  the  Healthcare  Communications  Business and the eLottery
Business located at 472 and 478 Wheelers Farms Road, Milford, Connecticut 06460.

     1.54 HEADQUARTERS SUBLEASE AGREEMENT.

          "Headquarters  Sublease  Agreement" shall mean the sublease or license
agreement  substantially  in the form of  EXHIBIT D hereto  granted  by Buyer to
Seller to use certain  space  located at the  Headquarters  Facility  for use in
connection with the Healthcare Communications Business.

     1.55 HEALTHCARE COMMUNICATIONS BUSINESS.

          "Healthcare  Communications  Business"  shall  mean  the  development,
manufacture,  selling and servicing of nurse and patient communication  systems,
infrared  locator  systems and the other  products  listed on SCHEDULE  1.55, as
conducted by Seller as of the date of the Agreement and as it  historically  has
been  conducted  through  the  Closing  Date,  including  all  developments  and
extensions  thereof,  and shall  exclude the eLottery  Business and the Computer
Telephony Business.

                                      -10-
<PAGE>
     1.56 HEALTHCARE SERVICES ASSETS.

          "Healthcare  Services  Assets" shall mean the assets  contained in the
Poway Facility, including those assets relating to the manufacturing, logistics,
repair,  warehousing,  billing and related  services  provided to the Healthcare
Communications  Business,  pursuant to the terms of the Manufacturing Agreement,
except those assets listed on SCHEDULE 1.56.

     1.57 HSR ACT.

          "HSR Act" shall mean the Hart-Scott-Rodino  Antitrust Improvements Act
of 1976, as amended,  or any  successor  law, and  regulations  and rules issued
pursuant to that Act or any successor law.

     1.58 INDEMNIFIABLE LOSS.

          "Indemnifiable  Loss" shall have the meaning assigned to it in SECTION
9.09(d).

     1.59 INDEMNIFIED LITIGATION.

          "Indemnified  Litigation" means the litigation listed on SCHEDULE 1.59
hereto.

     1.60 INTELLECTUAL PROPERTY RIGHTS.

          "Intellectual  Property Rights" shall mean any or all of the following
and all rights  therein:  (i) all United States and foreign  patents and utility
models and applications therefor and all reissues,  divisions,  re-examinations,
renewals,  extensions,  provisionals,  continuations  and  continuations-in-part
thereof,  and equivalent or similar  rights  anywhere in the world in inventions
and discoveries  including without limitation  invention  disclosures;  (ii) all
trade  secrets and other  rights in know-how  and  confidential  or  proprietary
information;  (iii) all copyrights,  copyrights  registrations  and applications
therefor and all other rights  corresponding  thereto throughout the world; (iv)
all mask works,  mask work  registrations  and  applications  therefor,  and any
equivalent or similar rights in semiconductor masks,  layouts,  architectures or
topology;  (v) all industrial  designs and any  registrations  and  applications
therefor  throughout the

                                      -11-
<PAGE>
world;  (vi) all  rights  in World  Wide Web  addresses  and  domain  names  and
applications and registrations  therefor;  (vii) all trade names,  logos, common
law trademarks and service marks,  trademark and service mark  registrations and
applications  therefor  and all goodwill  associated  therewith  throughout  the
world; (viii) all guarantees,  warranties,  bonds, easements,  licenses, permits
and approvals;  and (ix) any similar,  corresponding or equivalent rights to any
of the foregoing anywhere in the world.

     1.61 INTERIM FINANCIAL STATEMENTS.

          "Interim Financial Statements" shall mean the (i) balance sheet of the
Computer Telephony Business as of June 30, 1999, (ii) statement of cash flows of
the Computer Telephony Business for the six-month period ended June 30, 1999 and
(iii)  income  statement of the Computer  Telephony  Business for the  six-month
period ended June 30, 1999, attached hereto as SCHEDULE 1.61.

     1.62 INVENTORY.

          "Inventory"  shall mean all of Seller's  inventories of raw materials,
work in process  and  finished  goods and all  related  reserves  related to the
Computer  Telephony  Business and the raw  materials and work in process used in
the Healthcare Communications Business and all related reserves.

     1.63 KNOWLEDGE.

          A Person will be deemed to have  "Knowledge"  of a particular  fact if
such  Person is  actually  aware  after  reasonable  inquiry of such fact.  With
respect to a Person other than an individual, such Person will be deemed to have
"Knowledge" of a particular  fact if any individual who is presently  serving as
an officer,  partner,  executor or trustee of such Person has  Knowledge of such
fact.

                                      -12-
<PAGE>
     1.64 LAW.

          "Law" shall mean any federal, state, local, international or other law
or governmental  requirement of any kind, and the rules,  regulations and orders
promulgated thereunder.

     1.65 LICENSED TRADEMARKS.

          "Licensed  Trademarks" shall mean the trademarks to be licensed to the
Healthcare Communications Business listed on SCHEDULE 1.65 hereto.

     1.66 LIENS.

          "Liens" shall mean all liens,  pledges,  claims,  security  interests,
mortgages, deeds of trust, encumbrances,  assessments, easements, rights of way,
covenants,   restrictions,   rights  of  first   refusal,   defects   in  title,
encroachments and other burdens.

     1.67 MANUFACTURING AGREEMENT.

          "Manufacturing Agreement" shall mean the manufacturing agreement to be
entered into between Buyer and Seller containing the terms on which Buyer or its
permitted  assignee  will provide  manufacturing  and other  services to Seller,
utilizing the Poway Facility, as described in SECTION 6.12.

     1.68 MATERIAL ADVERSE CHANGE.

          "Material   Adverse   Change"   shall  mean  any  change,   violation,
inaccuracy,  circumstance or effect that is materially  adverse to the business,
properties,  assets  (including  intangible  assets),  liabilities  or financial
condition  of the  Computer  Telephony  Business;  PROVIDED,  HOWEVER,  that the
following shall not be taken into account in determining  whether there has been
or could or would be a  "Material  Adverse  Change"  on or with  respect  to the
Computer  Telephony  Business:  (i) the delay or  cancellation of orders for the
Computer  Telephony  Business' products from customers or distributors (or other
resellers) directly

                                      -13-
<PAGE>
attributable  to the  announcement  of this  Agreement  or the  pendency  of the
Acquisition,  (ii) the lack of or delay in  availability  of  components  or raw
materials from the Computer Telephony Business' suppliers directly  attributable
to the announcement of this Agreement or the pendency of the Acquisition,  (iii)
any litigation  brought or threatened against Seller or any officer or member of
the Board of Directors of Seller in respect of this Agreement or the Acquisition
(including any shareholder class action litigation arising from allegations or a
breach of fiduciary duty relating to the Agreement),  (iv) the loss of employees
of the Business as a result of reductions in force that are mutually agreed upon
by Seller and Buyer;  (v) the loss prior to Closing of not more than twenty-five
percent (25%) of the  Managerial  Employees of the Computer  Telephony  Business
identified  on  SCHEDULE  1.68  hereto   ("Managerial   Employees"),   excluding
Managerial  Employees  lost pursuant to reductions in force  described in clause
(iv)  prior  to the  Closing  and  Managerial  Employees  who  are  not  offered
employment  packages by Buyer  pursuant to SECTION  6.07 that are  substantially
comparable to those such Managerial  Employees have in place as of September 26,
1999; (vi) the loss prior to Closing of not more than twenty-five  percent (25%)
of the Computer Telephony Business' Engineering Employees identified on SCHEDULE
1.68 hereto  ("Engineering  Employees"),  excluding  Engineering  Employees lost
pursuant to mutually  agreed upon  reductions in force  described in clause (iv)
prior to  Closing  and  Engineering  Employees  who are not  offered  employment
packages by Buyer pursuant to SECTION 6.07 that are substantially  comparable to
those such Engineering Employees have in place as of the date of this Agreement,
and (vii) changes in trading prices for Seller's securities. Notwithstanding the
foregoing,  the loss of two or more of the Computer Telephony Business' top five
government  or national  accounts,  or three or more of the  Computer  Telephony
Business'  top ten  dealers,  in  each  case  between  the  date of the  Interim
Financial

                                      -14-
<PAGE>
Statements and the Closing,  shall constitute a Material Adverse Change. For the
purposes of this definition, the "loss" of a top ten Computer Telephony Business
dealer shall mean (i) the  termination by Seller of the  exclusivity of a dealer
that was an exclusive dealer as of the date of the Interim Financial Statements,
(ii) such dealer has made no  purchases  of Computer  Telephony  Products in the
prior 90 days or (iii)  Seller has  received  notice from such dealer that it is
terminating its distributor agreement with Seller.

     1.69 NET ASSETS.

          "Net Assets" shall mean an amount equal to the amount of the Purchased
Assets that are  reflected on the Closing  Balance  Sheet less the amount of the
Assumed  Liabilities  that are reflected on the Closing  Balance  Sheet,  all as
derived from the Closing Balance Sheet prepared in accordance with SECTION 2.04

     1.70 OFFICER'S CERTIFICATE.

          "Officer's  Certificate"  shall  have the  meaning  assigned  to it in
SECTION 9.09(d).

     1.71 PARENT.

          "Parent" shall mean Inter-Tel, Incorporated, an Arizona corporation.

     1.72 PERMITS.

          "Permits"  shall  mean  all  governmental  approvals,  authorizations,
registrations,  permits and licenses owned by Seller,  other than qualifications
to do  business  as a  foreign  corporation,  that  are used in or  required  in
connection with the operation of the Computer Telephony Business.

     1.73 PERMITTED LIENS.

          "Permitted Liens" shall mean the Liens listed on SCHEDULE 1.73 hereto,
together  with  liens  for  taxes  not yet  due  and  payable  and  Liens  that,
individually  or in the  aggregate,  could not reasonably be expected to cause a
Material Adverse Change.

                                      -15-
<PAGE>
     1.74 PERSON.

          "Person"  shall  mean  any  individual,  corporation,  proprietorship,
partnership, limited liability company, trust or other legal entity.

     1.75 POWAY FACILITY.

          "Poway Facility" shall mean the Seller's  manufacturing  plant located
in Poway, California.

     1.76 PREMISES.

          "Premises"  shall mean the real  property  and  improvements  owned or
leased by Seller and used in the operation of the Computer  Telephony  Business,
as described on SCHEDULE 1.76 hereto.

     1.77 PREPAID ASSETS.

          "Prepaid  Assets"  shall mean all  prepaid  expenses  and  deposits of
Seller used in the operation of the Computer Telephony  Business,  excluding the
Excluded Prepaid Assets.

     1.78 PURCHASE PRICE.

          "Purchase Price" shall mean $44,300,000,  subject to Adjustment as set
forth in SECTION 2.04.

     1.79 PURCHASED ASSETS.

          "Purchased  Assets"  shall mean all of the assets used in or necessary
to the operation of the Computer Telephony  Business,  including but not limited
to:

          (a) the Accounts;

          (b) the Assumed Leases;

          (c) the Books and Records;

          (d) the Computer Assets;

          (e) the Contracts;

                                      -16-
<PAGE>
          (f) the Customer List;

          (g) the Fixtures and Equipment;

          (h) the Healthcare Services Assets;

          (i) the Inventory;

          (j) the Permits;

          (k) the Prepaid Assets;

          (l) the Transferred Intellectual Property Rights;

          (m) the Transferred Technology; and

          (n) ECS Shares,

but shall specifically exclude the Excluded Assets.

     1.80 REQUIRED CONSENTS.

          "Required Consents" shall mean the consents required to be obtained to
permit the transfer of the  Purchased  Assets and the  assignment of the Assumed
Liabilities  pursuant to this Agreement,  as set forth on SCHEDULES  3.04(b) and
4.03 hereto.

     1.81 RETAINED DEBT.

          "Retained Debt" shall mean long-term debt, other long-term liabilities
and current  portion of  long-term  debt,  as each is  reflected  in the Interim
Financial Statements.

     1.82 RETAINED LIABILITIES.

          "Retained Liabilities" shall mean:

          (a) the liabilities listed on SCHEDULE 1.82 hereto; and

          (b) any other liabilities of Seller that are not Assumed  Liabilities,
including, without limitation, the following:

               (i) any  liability  or  obligation  of  Seller  for Taxes for any
taxable period (except with respect to property Taxes,  which will be treated in
accordance with SECTION 2.02)

                                      -17-
<PAGE>
and any liability for Taxes  attributable to the Computer  Telephony Business or
the Purchased Assets for any period or portion thereof ending on or prior to the
Closing Date regardless of whether reserved on the Year End Financial Statements
or Interim Financial Statements;

               (ii) any liability of Seller for unpaid Taxes of any Person under
Reg.  ss.1.1502 6 (or any similar provision of state, local or foreign law) as a
transferee or successor, or by contract;

               (iii) any liability or obligation of Seller incurred prior to the
Closing Date to indemnify  any Person by reason of the fact that such Person was
a director,  officer,  employee or agent of any of Seller or its subsidiaries or
was serving at the request of any such entity as a partner,  trustee,  director,
officer,  employee or agent of another entity (whether such  indemnification  is
for judgment,  damages,  penalties,  fines,  costs,  amount paid in  settlement,
losses,  expenses or otherwise and whether such  indemnification  is pursuant to
any statute, charter document, bylaw, agreement or otherwise);

               (iv) any liability or obligation of Seller for costs and expenses
incurred in connection with the negotiation,  drafting, execution and closing of
this Agreement and the transactions contemplated hereby, including any liability
or connection with compliance with the Bulk Transfer Laws;

               (v) any  liability  or  obligation  of  Seller  pursuant  to this
Agreement or pursuant to any side  agreement  between Seller on the one hand and
Buyer on the other hand entered into on or after the date of this Agreement;

               (vi) any claim for injury to person to the extent not  covered by
warranties relating to the Computer Telephony Business,  regardless of when made
or asserted,  that is imposed or asserted to be imposed in  connection  with any
acts or omissions, any service

                                      -18-
<PAGE>
performed or any product sold,  leased or delivered by or on behalf of Seller on
or prior to the Closing Date;

               (vii) any liability  relating to any claims,  lawsuits or actions
initiated or, to Seller's Knowledge,  threatened prior to the Closing, except as
otherwise expressly assumed hereunder;

               (viii)  any  liability  of  Seller  to Stan  Kabala  or Ted Stone
relating to any  severance,  separation  or other  payment  obligations  to such
individuals, whether TRP Liabilities or otherwise;

               (ix) the Retained Debt;

               (x) all obligations and liabilities with respect to circumstances
or events occurring prior to the Closing Date with respect to the Assumed Leases
listed on SCHEDULES 1.08(a) and 1.08(b); and

               (xi)  all   obligations   and   liabilities   with   respect   to
circumstances  or events occurring prior to the Closing Date with respect to the
infringement  or  misappropriation  of the  Intellectual  Property Rights of any
Person.

     1.83 SELLER.

          "Seller" shall mean EXECUTONE  Information  Systems,  Inc., a Virginia
corporation.

     1.84 SELLER ACQUISITION.

          "Seller  Acquisition" shall have the meaning assigned to it in SECTION
10.05.

     1.85 SELLER TRIGGERING EVENT.

          "Seller  Triggering  Event"  shall have the meaning  assigned to it in
SECTION 10.02.

                                      -19-
<PAGE>
     1.86 SELLER'S CLOSING CERTIFICATE.

          "Seller's Closing Certificate" shall mean the certificate of Seller in
a form to be reasonably agreed upon between Buyer and Seller.

     1.87 SERVICES AGREEMENT.

          "Services  Agreement" shall mean the transition  services agreement to
be entered into pursuant to SECTION 6.10.

     1.88 SEVERED EMPLOYEES.

          "Severed  Employees"  shall have the meaning assigned to it in SECTION
6.07.

     1.89 SUPERIOR PROPOSAL.

          "Superior  Proposal" shall have the meaning  assigned to it in SECTION
6.04.

     1.90 TAX OR TAXES.

          For the purposes of this Agreement,  "Tax" or, collectively,  "Taxes,"
means any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including taxes based
upon or measured by gross receipts,  income, profits, sales, use and occupation,
and  value  added,  ad  valorem,  transfer,  franchise,   withholding,  payroll,
recapture,  employment,  excise and property taxes,  together with all interest,
penalties and additions imposed with respect to such amounts and any obligations
under any agreements or arrangements  with any other person with respect to such
amounts and including any liability for taxes of a predecessor entity.

     1.91 TAX RETURN.

          "Tax Return" shall mean any report,  return,  information  return,  or
other  information  required to be supplied to a taxing  authority in connection
with Taxes, including any return of an affiliated or combined or unitary group.

                                      -20-
<PAGE>
     1.92 TECHNOLOGY.

          "Technology"  shall  mean any or all of the  following:  (i)  works of
authorship  including,  without limitation,  computer programs,  source code and
executable  code,   whether   embodied  in  software,   firmware  or  otherwise,
documentation,  designs,  files, net lists,  records,  data and mask works; (ii)
inventions  (whether or not  patentable),  improvements,  and technology;  (iii)
proprietary and confidential information,  including technical data and customer
and  supplier  lists,   trade  secrets  and  know  how;  (iv)  databases,   data
compilations  and  collections  and  technical  data;  (v)  tools,  methods  and
processes;  and all  instantiations of the foregoing in any form and embodied in
any media.

     1.93 TRADEMARK LICENSE AGREEMENT.

          "Trademark   License  Agreement"  shall  mean  the  trademark  license
agreement  entered into between  Buyer and Seller in  substantially  the form of
EXHIBIT E hereto.

     1.94 TRANSFERRED EMPLOYEES.

          "Transferred  Employees"  shall  have the  meaning  assigned  to it in
SECTION 6.07.

     1.95 TRANSFERRED INTELLECTUAL PROPERTY RIGHTS.

          "Transferred Intellectual Property Rights" shall mean all Intellectual
Property Rights that are embodied in the Transferred  Technology and are used in
the  Computer  Telephony  Business  by  Purchaser  related  to  the  Transferred
Technology,  including without  limitations all Intellectual  Property Rights in
Licensed Trademarks and those Intellectual Property Rights described on SCHEDULE
1.95.

     1.96 TRANSFERRED TECHNOLOGY.

          "Transferred Technology" shall mean all of the following: (i) Computer
Telephony  Products  in both  Source  Code and Object  Code format and any other
format;  (ii) Computer Assets;  (iii) all other Technology used in the operation
of the Computer Telephony

                                      -21-
<PAGE>
Business by Seller including the Technology listed in SCHEDULE 1.95. Transferred
Technology  shall  specifically  exclude  the  Technology  used in or  otherwise
related to the eLottery Business to be set forth in SCHEDULE 1.24(A).

     1.97 TRP LIABILITIES.

          "TRP Liabilities" shall mean any and all obligations arising out of or
in connection with Seller's  Transition and Retention Plan as listed on SCHEDULE
1.27,  whether  in the form of stock  loan  guarantees,  unpaid  Loan  Balances,
Retention  Payments or  Separation  Payments  (as those terms are defined in the
Transition  and  Retention  Plan)  or  otherwise,  with  the  exception  of  any
liabilities arising from obligations of Stan Kabala and Ted Stone to Seller.

     1.98 YEAR-END FINANCIAL STATEMENTS.

          "Year-End  Financial  Statements" shall mean the (i) balance sheets of
the  Computer  Telephony  Business  as of  December  31,  1998  and  1997,  (ii)
statements of cash flows of the Computer  Telephony Business for the years ended
December 31, 1998 and 1997 and (iii) income statements of the Computer Telephony
Business for the years ended December 31, 1998 and 1997, listed on SCHEDULE 1.98
hereto.

     1.99 YEAR 2000 COMPLIANT.

          "Year 2000 Compliant" shall have the meaning assigned to it in SECTION
3.26(A).

                                   ARTICLE II
                  PURCHASE AND SALE; ASSIGNMENT AND ASSUMPTION

     2.01 SALE OF PURCHASED ASSETS.

          (a) At the Closing,  Seller shall sell, convey,  transfer,  assign and
deliver to Buyer the Purchased Assets,  free and clear of all Liens,  except for
Permitted Liens. Seller will execute and deliver the Bill of Sale and such other
documents of transfer and  assignment  as may be  necessary  to  consummate  the
foregoing.

                                      -22-
<PAGE>
          (b) At the  Closing,  Buyer  shall  purchase  or assume the  Purchased
Assets and in full payment  therefor (i) shall assume and agree to discharge all
of Seller's  obligations under the Assumed Liabilities and (ii) shall pay Seller
by wire transfer in immediately  available funds an amount equal to the Purchase
Price, excluding the Escrow Amount.

     2.02 TRANSFER OR SALES TAXES; PROPERTY TAXES.

          Seller will be responsible  for and pay one hundred  percent (100%) of
all sales,  stamp,  recordation,  transfer and similar  Taxes arising out of, or
related  to,  the  transactions  contemplated  by this  Agreement.  Buyer  shall
cooperate with Seller, as Seller reasonably requests,  to minimize the amount of
such taxes.  The parties  agree that all property  Taxes imposed with respect to
Purchased Assets (including,  without limitation,  property Taxes payable by the
tenant or lessee  under any lease) will be  pro-rated as of the Closing Date and
that, notwithstanding any other provision of this Agreement, the economic burden
of any such  property  Tax will be borne by Seller for all periods (or  portions
thereof)  through the Closing Date  ("Pre-Closing  Period") and by Buyer for all
periods (or portions  thereof) after the Closing Date  ("Post-Closing  Period").
Accordingly,  notwithstanding  any other  provision  of this  Agreement,  (i) if
Seller pays a property Tax imposed with respect to Purchased Assets attributable
to a Post-Closing Period, Buyer will reimburse Seller upon demand for the amount
of such property Tax; and (ii) if Buyer pays a property Tax imposed with respect
to Purchased Assets attributable to a Pre-Closing Period,  Seller will reimburse
Buyer upon demand for the amount of such property Tax.

     2.03 ALLOCATION OF PURCHASE PRICE.

          The  Purchase  Price and the Assumed  Liabilities  (to the extent they
constitute  part of the  amount  realized  by  Seller  for  federal  income  tax
purposes) shall be allocated and determined by Buyer,  subject to the review and
consent of Seller, which consent shall not be

                                      -23-
<PAGE>
unreasonably  withheld,  in accordance with the  requirements of Section 1060 of
the Code and the  regulations  thereunder,  and no party shall take any position
inconsistent  with this allocation for income tax purposes,  except that Buyer's
cost for the  Purchased  Assets may differ from the amount so  allocated  to the
extent necessary to reflect Buyer's capitalized acquisition costs other than the
amount realized by Seller.

     2.04 ADJUSTMENTS.

          The Purchase Price will be subject to adjustment (the "Adjustment") as
follows:

          (a) CLOSING  BALANCE  SHEET.  Within 30 days  following  the  Closing,
Seller  will  prepare (or cause to be  prepared)  and deliver to Buyer a balance
sheet (the  "Closing  Balance  Sheet") of the Computer  Telephony  Business (not
reflecting any Retained  Liabilities) as of the Closing Date audited or reviewed
(at the sole  discretion  of Buyer)  by  Arthur  Andersen  LLP,  whose  fees and
disbursements will be paid by Seller. The Closing Balance Sheet will be prepared
in  accordance  with  GAAP and  consistent  with the  basis  of  accounting  and
classification  procedures,  judgments and estimation  methodologies employed by
Seller in preparation of the Interim Financial Statements.

          (b) BUYER'S  REVIEW OF THE CLOSING  BALANCE  SHEET.  Buyer and Buyer's
accountants  will have 45 days from Buyer's receipt of the Closing Balance Sheet
(the "Buyer Review Period") to review the Closing Balance Sheet, and during such
Buyer Review Period Seller and its  accountants  will  cooperate  with Buyer and
Buyer's  accountants  and answer Buyer and Buyer's  accountants'  questions  and
provide such additional schedules and materials as Buyer and Buyer's accountants
may  reasonably  request in order for Buyer and  Buyer's  accountants  to have a
meaningful review of the Closing Balance Sheet.

          (c) PURCHASE  PRICE  ADJUSTMENT.  Subject to the provisions of SECTION
2.04(d)  below,  the  Purchase  Price will be adjusted in  accordance  with this
SECTION 2.04(c). If the Net

                                      -24-
<PAGE>
Assets are greater than $18,070,000,  then the Purchase Price shall be increased
by an amount  equal to the  amount  by which the Net  Assets  are  greater  than
$18,070,000, which amount shall be delivered by Buyer to Seller by wire transfer
of immediately  available  funds, to an account of Seller at a bank specified by
Seller within five (5) days after the date on which the Closing Balance Sheet is
finally accepted. If the Net Assets are less than $15,070,000, then the Purchase
Price  shall be  decreased  by an  amount  equal to the  amount by which the Net
Assets are less than  $15,070,000,  up to  $1,000,000  of which  amount shall be
remitted  from the Escrow Fund by the Escrow Agent to Buyer in  accordance  with
SECTION  9.09 hereof and the  balance,  if any, of which shall be  delivered  by
Seller to Buyer by wire transfer of immediately  available  funds, to an account
of Buyer within five (5) days after the date on which the Closing  Balance Sheet
is finally  accepted.  In the event that during the Buyer  Review  Period  Buyer
determines that additional Adjustments shall be made to the Purchase Price, then
additional amounts up to a total of $1,000,000 (taking into account all previous
payments pursuant to this Section) shall be remitted from the Escrow Fund by the
Escrow  Agent to Buyer in  accordance  with SECTION 9.09 hereof and Seller shall
deliver the balance, if any, to Buyer by wire transfer of immediately  available
funds,  to an  account of Buyer at a bank  specified  by Buyer  within  five (5)
business  days after such a  determination  by Buyer is made, an amount equal to
(i) the dollar amount of such additional Adjustments,  or (ii) in the event of a
dispute between Buyer and Seller relating to any additional Adjustments, amounts
otherwise determined pursuant to SECTION 2.04(d)(ii) below.

     (d) DISPUTES.

          (i) Subject to SECTION  2.04(d)(ii)  below,  the Closing Balance Sheet
delivered  by  Seller to Buyer  will be final,  binding  and  conclusive  on the
parties hereto.

                                      -25-
<PAGE>
          (ii) Buyer may dispute any amounts  reflected or not  reflected on the
Closing  Balance Sheet,  PROVIDED THAT Buyer notifies  Seller in writing of each
disputed item and specifies  the amount  thereof in dispute,  not later than the
expiration of Buyer Review  Period.  If Buyer and Seller are able to resolve all
of the disputed  items,  then the Closing Balance Sheet agreed upon by Buyer and
Seller will be final,  binding and  conclusive on the parties  hereto.  Disputes
shall be  limited  to  arithmetic  errors or  inconsistencies  arising  from the
failure of the Closing  Balance Sheet to be prepared in accordance  with GAAP or
consistent with the basis of accounting and classification procedures, judgments
and  estimation  methodologies  employed by Seller in preparation of the Interim
Financial  Statements.  If Buyer and Seller are unable to resolve some or all of
such disputed items and are therefore  unable to agree as to the Closing Balance
Sheet (and the disputed line items  therein)  within twenty (20) days  following
the expiration of Buyer Review Period,  Buyer and Seller will submit within five
(5) days the items remaining in dispute for resolution to PricewaterhouseCoopers
LLP in Chicago,  Illinois (the member of which who will be primarily responsible
for resolving  such dispute will have had  substantial  auditing  experience and
substantial  experience in arbitration or other dispute  resolution  proceedings
concerning    accounting    issues).    In   resolving   any   disputed    item,
PricewaterhouseCoopers  LLP may not assign a value to such item greater than the
greatest  value for such item  claimed by either party or less than the smallest
value for such item  claimed  by either  party.  The fees and  disbursements  of
PricewaterhouseCoopers  LLP (A) will be borne  by Buyer if the Net  Asset  Value
finally determined pursuant to this SECTION 2.04(d)(ii) shall be 100% or greater
than  100% of the  Net  Asset  Value  reflected  on the  Closing  Balance  Sheet
originally  submitted to Buyer by Seller  pursuant to SECTION  2.04(a) hereof or
(B) will be borne by Seller if the Net Asset Value finally  determined  pursuant
to this SECTION 2.04(d)(ii) shall be less than


                                      -26-
<PAGE>
100% of the Net Asset Value  reflected on the Closing  Balance Sheet  originally
submitted to Buyer by Seller pursuant to SECTION 2.04(a) hereof.

          (e) ACCESS.  Upon reasonable  request,  each of Buyer and Seller shall
provide the  employees,  advisors and  representatives  of the other with access
(including  copies  if so  requested)  to  all  working  papers  related  to the
preparation and review of the Closing Balance Sheet and to all books and records
of the Computer  Telephony  Business necessary to prepare and review the Closing
Balance Sheet.

     2.05 ESCROW.

          On the Closing  Date,  Buyer and Seller  jointly  shall  instruct  the
Escrow Agent to place  $4,000,000 of the Purchase  Price into the escrow account
required by SECTION 9.09 (the "Escrow Amount").

                                   ARTICLE III
                    REPRESENTATIONS AND WARRANTIES OF SELLER

          Seller represents and warrants to Buyer that:

     3.01 ORGANIZATION AND GOOD STANDING.

          Seller is a corporation  duly organized,  validly existing and in good
standing under laws of the Commonwealth of Virginia and has full corporate power
and authority to enter into and perform its  obligations  hereunder.  Seller has
full corporate  power to carry on the Computer  Telephony  Business as it is now
being  conducted  and to own,  operate  and hold  under  lease  its  assets  and
properties  as,  and in the places  where,  such  properties  and assets now are
owned, operated or held.

     3.02 FOREIGN QUALIFICATION.

          SCHEDULE 3.02 hereto lists each foreign  jurisdiction  where Seller is
qualified  to do  business  as a foreign  corporation  and is in good  standing.
Seller is duly qualified to do business

                                      -27-
<PAGE>
as a foreign  corporation  and is in good  standing  under  each  state or other
jurisdiction  in which either the  ownership or use of the  properties  owned or
used by it or where the nature of the activities  conducted by it, requires such
qualification.

     3.03 AUTHORIZATION; ENFORCEABILITY.

          Other than the approval of the  shareholders  of Seller required under
Virginia law and receipt of the Required Consents,  the execution,  delivery and
performance  by  Seller  of  this  Agreement  and of all  of the  documents  and
instruments  contemplated hereby to which it is a party are within the corporate
power of Seller and have been duly authorized by all necessary  corporate action
of Seller.  This Agreement is, and the other documents and instruments  required
hereby to which Seller is a party will be, when executed and delivered by Seller
and the parties thereto,  subject to Article IX of the Agreement,  the valid and
binding  obligations of Seller,  enforceable  against Seller in accordance  with
their respective terms.

     3.04 CONFLICTS OR VIOLATIONS; REQUIRED CONSENTS.

          Except  as set  forth  in  SCHEDULE  3.04(a)  hereto,  the  execution,
delivery and  performance of this Agreement by Seller do not violate or conflict
with, directly or indirectly,  or give any person the right to declare a default
or exercise of any remedy under,  any provision of the Articles of Incorporation
or Bylaws of Seller, as the case may be, any resolution  adopted by the Board of
Directors or shareholders of Seller, any Law, judgment,  order or decree binding
on Seller, or any Contract,  Assumed Lease, mortgage,  deed of trust, indenture,
Permit, license,  franchise,  commitment,  authorization or concession, or other
agreement or instrument to which Seller is a party or by which it is bound or to
which any of the Purchased Assets may be subject.

          Except as set forth on  SCHEDULE  3.04(b)  hereto,  and except for the
filing of Premerger  Notification and Report Forms under the HSR Act, no consent
of any Person,  and no notice to, filing or registration with, or authorization,
consent or approval of, any governmental,

                                      -28-
<PAGE>
regulatory or  self-regulatory  agency is necessary or is required to be made or
obtained by Seller other than the requisite  shareholder  approval in connection
with the consummation of the transactions contemplated by this Agreement.

     3.05 LITIGATION.

          Except as set forth on SCHEDULE 3.05 hereto,  there is no  litigation,
arbitration proceeding,  governmental  investigation,  citation or action of any
kind pending or, to the  Knowledge  of Seller,  proposed or  threatened  against
Seller,  relating to the Computer Telephony Business,  the Purchased Assets, the
Assumed  Liabilities,  this Agreement or the  transactions  contemplated by this
Agreement.

     3.06 COMPLIANCE WITH LAW.

          Except  as set forth on  SCHEDULE  3.06  hereto,  the  conduct  of the
Computer Telephony Business, the use of the Purchased Assets,  performance under
the  Contracts  by Seller and, to Seller's  Knowledge,  the Premises has not and
currently  does not violate or conflict  with any Law that could  reasonably  be
expected to cause a Material Adverse Change.  Seller has not received any notice
that any investigation or review by any Governmental  Entity with respect to the
Computer  Telephony Business is pending or that any such investigation or review
is contemplated.  This SECTION 3.06 does not relate to environmental matters (to
which SECTION 3.07 applies).

     3.07 ENVIRONMENTAL MATTERS.

          (a) DEFINITIONS.

               (i)  "ENVIRONMENTAL  LAWS"  shall  mean  any and  all  applicable
federal, state, local or municipal laws, rules, orders,  regulations,  statutes,
ordinances,   codes,  decrees,   guidance  documents,  or  requirements  of  any
Governmental  Authority  regulating,   relating  to  or  imposing  liability  or
standards  of conduct  concerning  any  Hazardous  Materials,  public  health or

                                      -29-
<PAGE>
environmental protection, together with any amendment or reauthorization thereto
or  thereof,  as now or at any time  hereafter  in effect;  and

               (ii) "HAZARDOUS MATERIALS" shall mean any solid waste,  hazardous
material,  hazardous  waste,  infectious  medical  waste,  or hazardous or toxic
substance defined or regulated as such in or under any Environmental Law.

          (b) HAZARDOUS MATERIALS ACTIVITIES. Seller has not, in connection with
the Purchased Assets or the conduct of the Computer  Telephony  Business,  used,
stored,  treated,  transported,  manufactured,  refined,  handled,  produced  or
disposed of any Hazardous  Materials on, under, at, from or in any way affecting
any of its properties or assets except in material compliance with Environmental
Laws (including,  without limitation,  any properties now or previously owned or
operated by Seller in the conduct of the  Computer  Telephony  Business,  or any
Purchased  Asset) and, to the  Knowledge  of Seller,  no prior owner of any such
property or assets or any tenant,  subtenant,  prior  tenant or prior  subtenant
thereof has used  Hazardous  Materials on, from or in any way affecting any such
property or asset, or otherwise,  in any manner which constituted or constitutes
a violation of any applicable Environmental Law.

          (c) ENVIRONMENTAL LIABILITIES.  Seller has not, in connection with the
Purchased Assets or the conduct of the Computer  Telephony  Business (i) shipped
any Hazardous  Materials  off-site,  (ii) used, treated,  stored,  disposed,  or
released Hazardous Materials, or assumed liability for another's use, treatment,
storage,  disposal, or release, on, under, at, from, or in any way affecting any
real  property,  or (iii) exposed any individual to Hazardous  Materials,  which
off-site shipment,  release, disposal or exposure gives rise to liability of the
Seller  under  Environmental  Laws.  Seller  has  not,  in  connection  with the
Purchased Assets or the conduct of the Computer Telephony Business, received any
notices or claims that it is a responsible party in

                                      -30-
<PAGE>
connection with any notice or claim asserted pursuant to 42 U.S.C.  Section 9601
ET SEQ., or any state Superfund law.

          (d) PERMITS.  Seller has, in connection with the Purchased  Assets and
the Computer Telephony Business, received all environmental approvals,  permits,
licenses,   clearances  or  consents  as  may  be  required   under   applicable
Environmental  Laws to conduct the  Computer  Telephony  Business  as  currently
conducted,  and the Computer Telephony Business is in compliance in all material
respects with the terms and conditions of each of such environmental  approvals,
permits,  licenses,  clearances or consents. Seller will cooperate to effect the
transfer of such  environmental  approvals,  permits,  licenses,  clearances  or
consents.

     3.08 PERMITS.

          The Permits represent all material permits,  except  qualifications to
do business as a foreign corporation, required to operate the Computer Telephony
Business as currently  conducted  and as  currently  proposed to be conducted by
Seller,  and except as described  herein,  there are no  additional  permits the
failure of which to obtain  could  reasonably  be  expected  to cause a Material
Adverse Change.  The Permits are in full force and effect, and have been and are
being  complied  with  in all  material  respects.  Seller  agrees  to  use  its
commercially  reasonable  efforts to assist  Buyer in  effecting  the renewal or
transfer to Buyer of the Permits.

     3.09 TAXES.

          Seller  has  filed or caused to be filed  all  required  material  Tax
Returns  relating  to the  Purchased  Assets,  the Assumed  Liabilities  and the
Computer  Telephony  Business.  There are no unpaid Taxes due and  payable,  the
non-payment of which would result in a lien upon any of the Purchased  Assets or
could cause  Buyer to incur any  liability  other than the Assumed  Liabilities.
Except as set forth on SCHEDULE  3.09 hereto,  no taxing  authority has asserted
any claim for the assessment of any such Tax liability.  Seller is not a foreign
person for purposes of

                                      -31-
<PAGE>
Section  1445(b)(2) of the Code.  There is no reasonable basis for the assertion
of any claims for Taxes which, if adversely  determined,  would result in a lien
or other encumbrance on the Purchased Assets or otherwise  materially  adversely
affect Buyer or the Purchased Assets.

     3.10 TITLE TO PURCHASED ASSETS.

          Seller owns or has a leasehold  interest in all the  Purchased  Assets
(whether real,  personal or mixed, and whether tangible or intangible),  located
in the facilities owned or operated by Seller or reflected as owned in the books
and records of Seller,  including all of the Purchased  Assets  reflected in the
Year-End Financial  Statements and the Interim Financial  Statements.  Except as
set forth in SCHEDULE  3.10,  the  Purchased  Assets  reflected  in the Year-End
Financial  Statements and the Interim Financial Statements are free and clear of
all Liens  except,  with respect to all such  properties  and assets,  Permitted
Liens which,  individually  or in the aggregate,  do not  materially  impair the
continued use, value and operation of the Purchased  Assets used in the Computer
Telephony Business.

     3.11 CONDITION AND SUFFICIENCY OF ASSETS.

          Except as set forth in SCHEDULE  3.11, the Purchased  Assets  comprise
all of the assets,  properties and rights of every type and  description,  real,
personal,  tangible  and  intangible  used by Seller in the  Computer  Telephony
Business  and,  with the  Services  Agreement  and the Computer  Assets  License
Agreement,  are sufficient for the continued  conduct of the Computer  Telephony
Business after the Closing in  substantially  the same manner as conducted prior
to the Closing.

     3.12 ACCOUNTS RECEIVABLE.

          The Accounts  represent or will represent  valid customer  obligations
arising from sales actually made or services actually  performed in the ordinary
course of  business  consistent  with past  practices.  Unless paid prior to the
Closing Date, the Accounts are or will be as of the

                                      -32-
<PAGE>
Closing Date  collectible  net of the  respective  reserves shown on the Interim
Financial  Statements or on the  accounting  records of Seller as of the Closing
Date  (which   reserves  are  adequate  and  calculated   consistent  with  past
practices).

     3.13 NO UNDISCLOSED LIABILITIES.

          Except  as  set  forth  in  SCHEDULE  3.13,  Seller  has  no  material
liabilities  or  obligations  of any nature whether known or unknown and whether
absolute,  accrued,  contingent,  or  otherwise  except for (a)  liabilities  or
obligations  reflected or reserved against in the Year-End Financial  Statements
or the Interim Financial  Statements,  (b) current  liabilities  incurred in the
ordinary  course  of  business  since  the  respective  dates  thereof  and  (c)
liabilities not expressly assumed pursuant to SECTION 2.01(b).

     3.14 CONTRACTS AND ASSUMED LEASES.

          (a) Except as set forth on SCHEDULE 1.27, with respect to the Computer
Telephony Business, Seller does not have, is not a party to nor is it bound by:

               (i) any collective bargaining agreements,

               (ii) any  agreements or  arrangements  that contain any severance
pay or  post-employment  liabilities or obligations,

               (iii) any bonus, deferred compensation,  pension,  profit sharing
or retirement plans, or any other employee benefit plans or arrangements,

               (iv) any  employment or consulting  agreement or contract with an
employee  or  individual  consultant  or  salesperson  or  consulting  or  sales
agreement or contract with a firm or other organization,

               (v) any agreement or plan,  including,  without  limitation,  any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the  benefits  of which will be  increased,  or the vesting of benefits of which
will be accelerated, by the occurrence of

                                      -33-
<PAGE>
any of the  transactions  contemplated  by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement,

               (vi) any fidelity or surety bond or completion bond,

               (vii) any lease of personal property having a value  individually
in excess of $100,000,

               (viii) any agreement of indemnification or guaranty,

               (ix)  any  agreement,   contract  or  commitment  containing  any
covenant  limiting the freedom of Seller to engage in any line of business or to
compete with any person,

               (x) any  agreement,  contract or  commitment  relating to capital
expenditures and involving future payments in excess of $100,000,

               (xi)  any  agreement,  contract  or  commitment  relating  to the
disposition or acquisition of assets or any interest in any business enterprise,

               (xii) any  mortgages,  indentures,  loans or  credit  agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or  extension  of credit,  including  guaranties  referred to in clause
(viii) hereof,

               (xiii) any  purchase  order or contract  for the  purchase of raw
materials involving $100,000 or more other than purchases in the ordinary course
of business, (xiv) any construction contracts,

               (xv) any distribution, joint marketing or development agreement,

               (xvi) any other  agreement,  contract or commitment that involves
$100,000 or more or is not cancelable  without  penalty within thirty (30) days,
or

               (xvii) any contract not covered by clauses  (i)-(xvi)  above that
is material to the operation of the Computer Telephony Business.

                                      -34-
<PAGE>
          Seller has  provided to Buyer true and  complete  copies of all of the
Contracts  and  Assumed  Leases   (including  all  amendments  or  modifications
thereto).  Each  Contract and each Assumed Lease is in full force and effect and
is enforceable in accordance with its terms,  except as the enforcement  thereof
may be limited or otherwise affected by bankruptcy, insolvency,  reorganization,
moratorium or other laws generally affecting the rights of creditors and subject
to general equity principles (whether considered at law or in equity). Seller is
not,  and to the  Knowledge  of Seller no other party is, in breach or violation
of,  or  default  under,  and  there is no valid  basis for a claim of breach or
violation of, or default  under,  any such Contracts or Assumed  Leases,  and no
event has occurred that  constitutes or, with the lapse of time or the giving of
notice,  or both,  would  constitute  such a breach or  violation  or default by
Seller,  or to the  Knowledge  of  Seller,  any  other  party  under  any of the
Contracts or Assumed Leases, thereunder. Except as set forth on SCHEDULE 3.04(B)
hereto, all obligations or services required to be performed under the Contracts
and Assumed  Leases may be  performed by Buyer  without any further  consents or
assignments. Seller has not made any prior assignment of any Contract or Assumed
Lease or any of its respective rights or obligations  thereunder.  Except as set
forth on SCHEDULE 1.08(A),  Seller has not subleased or otherwise granted rights
of use or occupancy of any of the Premises to any other Person.

     3.15 BOOKS AND RECORDS.

          The Books and Records  reflect all material  financial and  accounting
records,  purchase  orders and invoices,  sales orders and sales order log books
and credit and collection  records relating to the Computer  Telephony  Business
since January 1, 1997.  Seller will provide Buyer reasonable access to the Books
and Records for the period prior to January 1, 1997.

                                      -35-
<PAGE>
     3.16 EMPLOYEE BENEFIT PLANS.

          All  Employee  Benefit  Plans  are set  forth in  SCHEDULE  3.16.  Any
Employee  Benefit Plan intended to be qualified under Section 401(a) of the Code
has obtained a favorable  determination  letter as to its qualified  status from
the Internal  Revenue Service  ("IRS").  To the extent any Employee Benefit Plan
with an  existing  determination  letter  from the IRS must be amended to comply
with the  applicable  requirements  of the Tax Reform Act of 1986 and subsequent
legislation, the time period for effecting such amendments will not expire prior
to the Closing.  Seller has  furnished  to Buyer copies of the Employee  Benefit
Plans and related  Employee  Benefit Plan documents  (including trust documents,
insurance policies or contracts, employee booklets and summary plan descriptions
and, where applicable, will provide, as soon as practicable hereafter, copies of
the most recent IRS determination  letters and the most recently filed Form 5500
with respect to any such  Employee  Benefit  Plan.  No Employee  Benefit Plan is
covered  by Title IV of ERISA  or  Section  412 of the Code nor is any  Employee
Benefit Plan a "multiemployer plan" (as such term is defined under Section 3(37)
of ERISA).  Neither  Seller  nor,  to the  Knowledge  of Seller,  any officer or
director of Seller,  trustee or  administrator  of an Employee  Benefit  Plan is
subject to any material liability or penalty under Sections 4975 through 4980 of
the Code or Title I of ERISA in  connection  with any Employee  Benefit Plan. To
the  Knowledge  of  Seller,  Seller  has not  violated  any of the  health  care
continuation   coverage   requirements  of  the   Consolidated   Omnibus  Budget
Reconciliation  of Act of  1985  ("COBRA")  applicable  to its  employees.  Each
Employee  Benefit Plan has been  maintained and  administered in all respects in
compliance with its terms and with the requirements  prescribed by all statutes,
orders, rules and regulations,  including but not limited to ERISA and the Code,
which are  applicable  to such  Employee  Benefit  Plan,  except  to the  extent
non-compliance  would not cause a Material  Adverse  Change on the  operation of
such Employee  Benefit Plan and would not cause

                                      -36-
<PAGE>
any  liability to Buyer.  No suit,  administrative  proceeding,  action or other
litigation  has been  brought,  or to the  Knowledge  of Seller  is  threatened,
against or with respect to any such Employee  Benefit Plan,  including any audit
or  inquiry  by the IRS or  United  States  Department  of  Labor,  which  could
reasonably be expected to cause a Material  Adverse Change or which could result
in any liability to Buyer.

     3.17 EMPLOYEE MATTERS.

          All of the Employees are employed by Seller. The Employees  constitute
all employees  that are primarily  engaged on the date of this  Agreement in the
operation of the Computer Telephony Business.

          Except as set forth on  SCHEDULE  3.17(a)  hereto and except for wages
and benefits accrued in the ordinary course of the Computer Telephony  Business,
Seller is not  indebted to nor a creditor of any Employee or trust or other fund
used for unemployment  compensation benefits,  social security or other benefits
or  obligations  for Employees.  All of the  independent  contractors  currently
engaged by Seller in the  conduct of the  Computer  Telephony  Business  are set
forth on SCHEDULE 3.17(b) hereto and such independent contractors are all of the
independent  contractors  engaged in the  operation  of the  Computer  Telephony
Business on the date of this Agreement.  To the Knowledge of Seller, none of the
independent  contractors  are common law  employees of the Seller.  Seller is in
compliance  with all  applicable  federal,  state  and  local  laws,  rules  and
regulations respecting employment, employment practices, terms and conditions of
employment, and wages and hours with respect to the Employees, the noncompliance
with which could  reasonably  be expected  to cause a Material  Adverse  Change.
Seller has withheld and reported all amounts  required by law or by agreement to
be withheld and reported with respect to wages,  salaries and other  payments to
Employees.  To Seller's  Knowledge,  no Employee  has  violated  any  employment
contract,  nondisclosure  agreement or  non-competition  agreement by which

                                      -37-
<PAGE>
such  employee  is bound due to such  employee  being  employed  by  Seller  and
disclosing to Seller or using trade secrets or  proprietary  information  of any
other person or entity.  With respect to the Employees,  no complaints have been
filed and,  to Seller's  Knowledge,  there are no  threatened  claims or actions
against  Seller  with any  federal,  state,  or local  court  or  agency  having
jurisdiction  over such  matters  alleging  that  Seller  has  violated  any Law
governing employment discrimination (of any kind),  labor-management  relations,
wages and hours, safety and health, immigration, contracting with government, or
any common law dealing with employment.  Except as set forth on SCHEDULE 3.17(C)
hereto, no former employee of the Computer Telephony Business has filed any suit
alleging  wrongful  termination  or under  worker's  compensation  or  long-term
disability and, to Seller's Knowledge, there are no threatened claims or actions
relating to the foregoing.

          With respect to the Employees,  Seller is not a party to, bound by, or
negotiating  in  respect of any  collective  bargaining  agreement  or any other
agreement with any labor union,  association or other employee group, nor is any
Employee represented by any labor union or similar  association.  No labor union
or employee  organization  has been  certified or recognized  as the  collective
bargaining  representative of any Employee. To Seller's Knowledge,  there are no
formal union organizational campaigns or representation  proceedings underway or
formally  threatened  with  respect  to any  Employee.  Except  as set  forth on
SCHEDULE  3.17(d)  hereto,  there  are no  existing,  pending  or,  to  Seller's
Knowledge,  threatened  labor  strikes,  work  stoppages,  slowdowns,  disputes,
grievances,  unfair labor practice  charges,  labor  arbitration  proceedings or
other  disturbances  affecting any Employee.  SCHEDULE 3.17(e) hereto contains a
true and complete  list of the names and titles and total  compensation  for the
preceding fiscal year for Employees who had an annual total  compensation  equal
to or greater than $100,000. Seller

                                      -38-
<PAGE>
has not engaged in any unfair labor practices within the meaning of the National
Labor Relations Act.

     3.18 FEES AND EXPENSES OF BROKERS AND OTHERS.

          Seller is not  committed to any liability for any brokers' or finders'
fees or any similar fees in connection  with the  transactions  contemplated  by
this Agreement,  and has not retained any broker or other intermediary to act on
its behalf in connection with the  transactions  contemplated by this Agreement,
except that Seller has retained  Wasserstein Perella & Co., Inc. to represent it
in connection  with such  transactions.  Pursuant to a separate  agreement  with
Seller, Wasserstein Perella & Co., Inc. will be paid a fee upon the consummation
of the transactions  contemplated by this Agreement. Such fee and all other fees
and  expenses  (including   attorneys'  and  accountants'  fees)  of  Seller  in
connection with the transactions contemplated herein shall be the responsibility
of Seller.

     3.19 INSURANCE.

          All of the insurable  Purchased  Assets are insured for the benefit of
Seller or are  self-insured by Seller in accordance with Seller's past practices
in the conduct of the Computer  Telephony  Business in amounts and against risks
reasonably  deemed  adequate by Seller and reasonable in light of the nature and
assets of the Computer Telephony Business.  Seller has delivered complete copies
of such policies,  which policies are in full force and effect,  and any pending
applications for policies to Buyer.

     3.20 INTELLECTUAL PROPERTY RIGHTS AND TECHNOLOGY.

          (a) SCHEDULE 1.95 sets forth all the  Intellectual  Property Rights in
Transferred  Technology that are the subjects of patent,  trademark,  copyright,
domain   name  or  other   similar   applications,   certificates,   filings  or
registrations issued by, filed with or recorded by the U.S.

                                      -39-
<PAGE>
Patent & Trademark  Office,  the U.S.  Copyright  Office or other  similar legal
authorities, and that are owned by or filed in the name of Seller (collectively,
the "Registered Intellectual Property").

          (b) Except as  reflected  in certain  Contracts  disclosed on SCHEDULE
1.27, Seller is the exclusive owner or exclusive or nonexclusive licensee of all
Transferred Intellectual Property Rights.

          (c) Except as  reflected  in certain  Contracts  disclosed on SCHEDULE
1.27, Seller has not transferred ownership of or granted any license of or right
to use or  authorized  the  retention  of any  rights  to use  any  Intellectual
Property Rights that is or was Transferred  Intellectual Property Rights, to any
other Person.

          (d) Transferred  Intellectual  Property  constitutes all  Intellectual
Property  Rights  used  in  and/or  necessary  to the  conduct  of the  Computer
Telephony Business as currently conducted.

          (e) To the extent not  disclosed  on  SCHEDULE  1.27 or  reflected  in
Contracts  disclosed on SCHEDULE 1.27,  the operation of the Computer  Telephony
Business,  including but not limited to Purchaser's  design,  development,  use,
import, manufacture and sale of the products,  technology or services (including
Computer Telephony Products and products, technology or services currently under
development)  does  not to the  Knowledge  of  Seller,  except  as set  forth on
SCHEDULE 3.20 (i) infringe or misappropriate the Intellectual Property Rights of
any Person,  (ii) violate the rights of any Person  (including rights to privacy
or publicity) or (iii)  constitute  unfair  competition or trade practices under
the laws of any  jurisdiction.  Seller has not  received  notice from any Person
claiming  that  such  operation  or any  act,  product,  technology  or  service
(including   Computer  Telephony  Products)  infringes  or  misappropriates  the
Intellectual

                                      -40-
<PAGE>
Property  Rights  of any  Person  or  constitutes  unfair  competition  or trade
practices under the laws of any jurisdiction  (nor does Seller have Knowledge of
any basis therefor).

          (f)  Each  issued  and  registered  item  of  Registered  Intellectual
Property is valid and subsisting. In each case in which Seller has acquired from
any Person  anyIntellectual  Property  Rights  associated with or related to the
Computer Telephony Business,  Seller has obtained, in accordance with applicable
law, a valid and enforceable  assignment  sufficient to transfer irrevocably all
rights in such Intellectual Property Rights to Seller and, to the maximum extent
provided for by, and in accordance with, applicable laws and regulations, Seller
has recorded each such  assignment with the relevant  governmental  authorities,
including the PTO, the U.S. Copyright Office or their respective  equivalents in
any relevant foreign jurisdiction, as the case may be.

          (g) To the Knowledge of Seller,  except as set forth on SCHEDULE 3.20,
no Person is infringing or misappropriating Transferred Intellectual Property.

          (h) Seller has taken  reasonable  steps that are  required  to protect
Seller's  rights  in  confidential  information  and  trade  secrets  of  Seller
associated with or related to the Computer Telephony Business.

          (i) Except as  reflected  in certain  Contracts  disclosed on SCHEDULE
1.27,  Seller is not required to make or accrue any royalty payment to any third
party in  connection  with the sale,  distribution,  license,  transfer or other
disposition or exploitation  of any of Computer  Telephony  Products  (including
products currently under development).

          (j) Except as  reflected  in certain  Contracts  disclosed on SCHEDULE
1.27 and provided in this Agreement, neither this Agreement nor the transactions
contemplated  by this  Agreement,  including the  assignment  to  Purchaser,  by
operation of law or otherwise, of any

                                      -41-
<PAGE>
contracts or  agreements  to which  Seller is a party,  will result in Purchaser
being  bound by,  or  subject  to,  any  non-compete  relating  to the  Computer
Telephony Business.

     3.21 INVENTORY.

          The  Inventory  constitutes  all raw  materials,  components,  work in
process and  finished  goods used in or related to the  conduct of the  Computer
Telephony  Business.  All  Inventory,  whether or not  reflected in the Year-End
Financial Statements or the Interim Financial  Statements,  conforms to Seller's
specifications  and consists of a quality and quantity usable and salable in the
ordinary course of business,  except for obsolete items,  all of which have been
written off or written down to net  realizable  value in the Year-End  Financial
Statements or the Interim Financial  Statements or on the accounting  records of
Seller as of the Closing  Date and except for  Inventory  returned by dealers or
customers  that is  awaiting  repair  which are valued at  standard  cost in the
Interim Financial Statements,  as the case may be. All Inventory not written off
has been priced at the lower of cost or market on a first in, first out basis.

     3.22 FINANCIAL STATEMENTS.

          (a) The  Consolidated  Statements  of Operations of Seller for the six
months  ended June 30, 1999  (collectively,  the  "Unaudited  Interim  Financial
Statements")  have  previously  been  delivered  to Buyer and were  prepared  in
accordance  with GAAP. The Interim  Financial  Statements have been derived from
the Unaudited Interim Financial Statements included as part of SCHEDULE 1.61.

          (b) The Consolidated  Statements of Operations of Seller for the years
ended  December  31,  1998  and  1997  (collectively,   the  "Audited  Financial
Statements")  have  previously  been  delivered  to Buyer and were  prepared  in
accordance  with GAAP.  The  Audited  Financial  Statements  present  fairly the
financial condition and results of operations of Seller as of the dates, and for
the periods indicated.  The Year-End Financial Statements have been derived from

                                      -42-
<PAGE>
the Audited  Financial  Statements in  accordance  with the  methodology  of the
Report of  Independent  Public  Accountants  attached to the  Audited  Financial
Statements and the footnotes to the Audited Financial Statements.

     3.23 NO MATERIAL ADVERSE CHANGE.

          Except as set forth on SCHEDULE 3.23 hereto,  since December 31, 1998,
the Computer Telephony Business has been operated in the ordinary course (except
as the  prosecution  of a sale  of  the  Computer  Telephony  Business  and  the
Healthcare   Communications   Business  may  have  altered   Seller's   ordinary
operations),  and to Seller's Knowledge, since the date of the Interim Financial
Statements, there has been no Material Adverse Change.

     3.24 DISCLAIMERS OF SELLER.

          Notwithstanding  anything  contained  in this Article III or any other
provision  of this  Agreement,  it is the explicit  understanding  of each party
hereto that Seller is making no representation or warranty  whatsoever,  express
or implied,  beyond those expressly  given in this Agreement,  including but not
limited to any implied warranty or  representation  as to the value,  condition,
merchantability  or  suitability  as to any of the  properties  or assets of the
Computer  Telephony  Business and it is understood that Buyer takes the Computer
Telephony Business as is and where is with all faults or defects.

     3.25 DISCLOSURE.

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

                                      -43-
<PAGE>
          (b) No notice  given  pursuant to SECTION 6.01 will contain any untrue
statement  or omit to state a material  fact  necessary  to make the  statements
therein or in this Agreement,  in light of the  circumstances in which they were
made, not misleading.

     3.26 YEAR 2000.

          (a) All of the  Computer  Telephony  Products  that are  indicated  on
SCHEDULE 1.25 to be Year 2000 Compliant (as  hereinafter  defined) are Year 2000
Compliant  and will not be  materially  adversely  affected by the advent of the
year 2000, the advent of the  twenty-first  century or the  transition  from the
twentieth  century  through  the year  2000 and into the  twenty-first  century.
Seller has provided to Buyer all  forecasts,  summaries,  memoranda,  schedules,
reports and other data in its  possession  concerning or addressing the issue of
Year 2000 Compliance  relating to Seller,  and Seller's  customers,  vendors and
suppliers,  and to Seller's Knowledge,  such information is true and accurate in
all material  respects.  "Year 2000  Compliant"  means, as applied to a software
product,  that:  (A) such  software  product will operate and  correctly  store,
represent  and  process   (including  sort)  all  dates  (including  single  and
multi-century  formulae and leap year  calculations),  such that errors will not
occur  when  the  date  used is in the  Year  2000,  or in a year  preceding  or
following the Year 2000;  (B) such software  product has been written and tested
to  support  numeric  and  date   transitions  from  the  20th  century  to  the
twenty-first  century,  and back (including without limitation all calculations,
reporting,   printing,   displays,   reversals,   disaster  and  vital   records
recoveries);  and (C) such  software  product  will  function  without  error or
interruptions  from functions which may involve date  information from more than
one century, in each case.

          (b) Except as set forth in  SCHEDULE  3.26 and  except  where the same
could not reasonably be expected to cause a Material Adverse Change,  (A) all of
Seller's internal computer systems comprised of software, hardware, databases or
embedded control systems

                                      -44-
<PAGE>
(microprocessor  controlled,  robotic or other  device)  related to the Computer
Telephony  Business  that  constitute  any  material  part  of,  or are  used in
connection  with the use,  operation or enjoyment  of, any material  tangible or
intangible asset or real property of Seller,  including its accounting  systems,
are Year 2000  Compliant  and (B) to  Seller's  Knowledge,  the  conduct  of the
Computer  Telephony Business with customers and suppliers will not be materially
adversely  affected  by  the  advent  of  the  year  2000,  the  advent  of  the
twenty-first  century or the transition  from the twentieth  century through the
year 2000 and into the twenty-first century.

     3.27 AUTHENTICITY AND ENTIRETY OF DOCUMENTS.

          True  and  complete  copies  of  all  documents  referred  to in  this
Agreement (including, without limitation,  documents referred to in this Article
III) have been furnished or made available to Buyer by Seller.

     3.28 PREMISES.

          (a) Seller has not received any notice from any  insurance  company of
any defects or  inadequacies  in any  Premises or any part  thereof  which could
materially  and  adversely  affect  the  insurability  of such  Premises  or the
premiums for the insurance thereof.  Seller has not received any notice from any
insurance  company  which has issued a policy with respect to any portion of the
Premises or by any board of fire underwriters (or other body exercising  similar
functions) requesting the performance of any repairs,  alterations or other work
with which compliance has not been made.

          (b)  To  Seller's  Knowledge,   there  are  no  material   structural,
electrical,   mechanical,  plumbing,  roof,  paving  or  other  defects  in  the
Headquarters Facility or the Poway Facility,  the roofs are free of leaks and in
sound  structural  condition,  and the  operating  systems for the  Headquarters
Facility and the Poway Facility are in good working order.

                                      -45-
<PAGE>
                                   ARTICLE IV
                     REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer hereby represents and warrants to Seller that:

     4.01 ORGANIZATION.

          Buyer is a corporation  duly organized,  validly  existing and in good
standing under the laws of the State of Arizona,  and has full  corporate  power
and authority to enter into and perform its obligations hereunder.

     4.02 AUTHORIZATION; ENFORCEABILITY.

          The execution, delivery and performance by Buyer of this Agreement and
of all of the documents and instruments  contemplated hereby to which Buyer is a
party are within the corporate  power of Buyer and have been duly  authorized by
all  necessary  corporate  action of Buyer.  This  Agreement  is,  and the other
documents  and  instruments  required  hereby to which Buyer is a party will be,
when  executed and  delivered  by Buyer,  the valid and binding  obligations  of
Buyer, enforceable against Buyer in accordance with their respective terms.

     4.03 NO CONFLICT OR VIOLATION; REQUIRED CONSENTS.

          The  execution,  delivery and  performance  of this Agreement by Buyer
does not and will not violate or conflict with directly or  indirectly,  or give
any person the right to declare a default or exercise of any remedy  under,  any
provision of the Articles of  Incorporation  or Bylaws of Buyer,  any resolution
adopted by the Board of Directors or shareholders of Buyer,  any Law,  judgment,
order or decree  binding  on Buyer or any  contract,  lease,  mortgage,  deed of
trust,  indenture,  permit,  license,  franchise,  commitment,  authorization or
concession, or other agreement or instrument applicable to Buyer.

          Except as set forth on SCHEDULE  4.03 hereto and except for the filing
of  Premerger  Notification  and Request  Forms under the HSR Act and any filing
requirement necessary under

                                      -46-
<PAGE>
the  Exchange  Act,  no  consent  of any  person,  and no notice  to,  filing or
registration  with, or authorization,  consent or approval of, any governmental,
regulatory or  self-regulatory  agency is necessary or is required to be made or
obtained  by  Buyer in  connection  with the  consummation  of the  transactions
contemplated in this Agreement.

     4.04 NO LITIGATION.

          There  is  no   litigation,   arbitration   proceeding,   governmental
investigation,  citation or action of any kind  pending or, to the  Knowledge of
Buyer,  proposed or threatened  against Buyer  relating to this Agreement or the
transactions contemplated hereby.

     4.05 FEES AND EXPENSES OF BROKERS AND OTHERS.

          Buyer is not  committed to any  liability for any brokers' or finders'
fees or any similar fees in connection  with the  transactions  contemplated  by
this Agreement,  and has not retained any broker or other intermediary to act on
its behalf in connection with the transactions contemplated by this Agreement.

                                    ARTICLE V
                    REPRESENTATIONS AND WARRANTIES OF PARENT

          Parent hereby represents and warrants to Seller that:

     5.01 ORGANIZATION.

          Parent is a corporation  duly organized,  validly existing and in good
standing under the laws of the State of Arizona,  and has full  corporate  power
and authority to enter into and perform its obligations hereunder.

     5.02 AUTHORIZATION; ENFORCEABILITY.

          The  execution,  delivery and  performance by Parent of this Agreement
and of all of the documents and instruments  contemplated hereby to which Parent
is a party  are  within  the  corporate  power  of  Parent  and have  been  duly
authorized by all necessary corporate action of

                                      -47-
<PAGE>
Parent.  This  Agreement is, and the other  documents and  instruments  required
hereby to which  Parent is a party  will be,  when  executed  and  delivered  by
Parent, the valid and binding obligations of Parent,  enforceable against Parent
in accordance with their respective terms.

     5.03 NO CONFLICT OR VIOLATION; REQUIRED CONSENTS.

          The  execution,  delivery and  performance of this Agreement by Parent
does not and will not violate or conflict with, directly or indirectly,  or give
any person the right to declare a default or exercise of any remedy  under,  any
provision of the Articles of Incorporation  or Bylaws of Parent,  any resolution
adopted by the Board of Directors or shareholders of Parent,  any Law, judgment,
order or decree  binding on Parent or any  contract,  lease,  mortgage,  deed of
trust,  indenture,  permit,  license,  franchise,  commitment,  authorization or
concession, or other agreement or instrument applicable to Parent.

          Except as set forth on SCHEDULE  5.03 hereto and except for the filing
of  Premerger  Notification  and Request  Forms under the HSR Act and any filing
requirement  necessary under the Exchange Act of 1934, no consent of any person,
and no notice to,  filing or  registration  with, or  authorization,  consent or
approval of, any governmental, regulatory or self-regulatory agency is necessary
or is  required  to be made  or  obtained  by  Parent  in  connection  with  the
consummation of the transactions contemplated in this Agreement.

     5.04 NO LITIGATION.

          There  is  no   litigation,   arbitration   proceeding,   governmental
investigation,  citation or action of any kind  pending or, to the  Knowledge of
Parent,  proposed or threatened against Parent relating to this Agreement or the
transactions contemplated hereby.

     5.05 FEES AND EXPENSES OF BROKERS AND OTHERS.

          Parent is not  committed to any liability for any brokers' or finders'
fees or any similar fees in connection  with the  transactions  contemplated  by
this Agreement, and has not

                                      -48-
<PAGE>
retained  any broker or other  intermediary  to act on its behalf in  connection
with the transactions contemplated by this Agreement.

     5.06 SUFFICIENT FUNDS.

          Parent will provide  Buyer with  sufficient  funds to  consummate  the
acquisition  by Buyer of the Purchased  Assets in  accordance  with the terms of
this Agreement.

                                   ARTICLE VI
                      CERTAIN UNDERSTANDINGS AND AGREEMENTS

     6.01 CONDUCT OF SELLER PRIOR TO CLOSING.

          From the date hereof through the Closing Date,  Seller shall cause the
Computer  Telephony  Business  to be  conducted  in the  ordinary  course and in
accordance with past practice,  except as otherwise  permitted by this Agreement
or consented to by Buyer in writing.  Without  limiting  the  generality  of the
foregoing,  Seller  shall:  (a) keep full and complete  Books and  Records;  (b)
maintain in full force and effect the insurance policies  heretofore  maintained
on the Purchased Assets (or policies providing substantially the same coverage);
(c) take all actions as may be necessary to fully and validly  transfer to Buyer
the  Purchased  Assets,  and to take  such  commercially  reasonable  action  to
preserve the Purchased  Assets and the Premises in good  condition,  normal wear
and tear excepted;  (d) promptly advise Buyer in writing of any Material Adverse
Change that has occurred or which Seller reasonably believes will occur; (e) use
its  commercially  reasonable  best efforts to preserve  the Computer  Telephony
Business  intact,  and to  preserve  for  Buyer  the  existing  goodwill  of the
suppliers,  customers, landlords, creditors, employees, agents and others having
business  relations  with  Seller  in  the  conduct  of the  Computer  Telephony
Business;  (f) confer with Buyer  concerning  operational  matters of a material
nature; (g) otherwise report  periodically to Buyer concerning the status of the
business,  operations and finances of the Computer Telephony  Business;  and (h)
comply with all Laws

                                      -49-
<PAGE>
applicable to Seller in the conduct of the Computer Telephony  Business,  except
where the failure to so comply would not have an adverse change.

     6.02 NEGATIVE COVENANTS.

          From the date hereof  through the Closing Date,  Seller will not, with
respect to the Computer  Telephony  Business,  except as otherwise  permitted by
this  Agreement or  consented to by Buyer in writing:  (i) except as required by
the Loan and  Security  Agreement,  dated as of August 14, 1998,  between  Fleet
Capital  Corporation  and Seller,  pledge or  hypothecate  any of the  Purchased
Assets to secure any  indebtedness;  (ii) assign any of the Contracts or Assumed
Leases;  (iii)  other  than in the  ordinary  course of the  Computer  Telephony
Business,  increase or decrease the wages or benefits of any Employee,  or enter
into any  agreement  to increase  or decrease  the wages or benefits of any such
Employee;  (iv) enter into any  collective  bargaining  agreement,  or amend any
Employee Benefit Plan to increase the benefits  thereunder to Employees,  except
such  amendments  as may be  required by Law, or create or modify any pension or
profit sharing plan, bonus,  deferred  compensation,  death benefit,  health, or
retirement  plan,  or  increase  the level of benefits  under any such plan,  or
increase any severance or termination  pay benefit or any other fringe  benefit;
(v)  sell  or  dispose  of any of the  Purchased  Assets  otherwise  than in the
ordinary  course of the Computer  Telephony  Business;  (vi) other than entering
into any  lease  transactions,  make any  capital  expenditures  outside  of the
ordinary  course of business in excess of $50,000  individually,  or $200,000 in
the aggregate,  with respect to the Computer Telephony  Business;  (vii) modify,
amend or terminate any Assumed Lease or Contract  affecting the use,  possession
or operation of any Premises; (viii) grant or otherwise create or consent to the
creation of any Lien  affecting any Premises or any part thereof;  or (ix) agree
or undertake to do any of the foregoing.

                                      -50-
<PAGE>
     6.03 ACCESS.

          Between  the date  hereof  and the  Closing  Date and  subject  to the
Confidentiality Agreement, dated May 6, 1999 (the "Confidentiality  Agreement"),
between  Seller and Buyer,  Seller shall give to authorized  representatives  of
Buyer  access to the the Books and  Records for a  reasonable  number of on-site
visits to each of the  Premises  as  determined  by  Buyer,  all  during  normal
business hours and upon reasonable  advance notice in a manner as not to disrupt
normal Computer Telephony  Business  activities or prevent strict maintenance of
confidentiality as set forth in the Confidentiality Agreement.  Seller will also
cause its  officers  to furnish to Buyer any and all  financial,  technical  and
operating  data and  other  information  pertaining  to the  Computer  Telephony
Business,  as Buyer shall from time to time reasonably request for such purpose,
subject to the Confidentiality Agreement between Buyer and Seller.

     6.04 NO SOLICITATION.

          From the date  hereof  through  the Closing  Date,  Seller  shall not,
directly or  indirectly,  through any officer or director of Seller,  investment
banker or other  agent or  otherwise,  with  respect to the  Computer  Telephony
Business: (a) solicit, induce, facilitate in any way or initiate offers from any
Person relating to any  acquisition or purchase of any of the Purchased  Assets,
or any exchange offer,  merger,  consolidation,  business combination or sale of
substantial assets, sale of securities,  or similar  transactions  involving the
Computer  Telephony Business (a "Competing  Transaction");  or (b) enter into or
participate in any discussions or  negotiations,  furnish any  information  with
respect to,  assist or  participate  in or facilitate in any manner or effort by
any  reason,  or  seek  to  do  any  of  the  foregoing  regarding  a  Competing
Transaction,  or furnish to any other Person any information with respect to the
Purchased Assets,  PROVIDED,  HOWEVER,  that nothing contained in this Agreement
shall prevent the Board of Directors of Seller from: (i) furnishing  information
to a third party that has made a bona fide written

                                      -51-
<PAGE>
Superior  Proposal (as defined below) which did not result from a breach of this
Section,  PROVIDED  THAT  such  third  party  has  executed  an  agreement  with
confidentiality provisions substantially similar to those then in effect between
Buyer and  Seller;  (ii)  subject  to  compliance  with the other  terms of this
SECTION 6.04,  considering and negotiating a bona fide written Superior Proposal
not  solicited in  violation of this  Agreement,  PROVIDED  THAT,  as to each of
clauses (i) and (ii) above,  (a) such actions  occur at a time prior to approval
of this  Agreement  at  Seller's  shareholders  meeting  and (b)  the  Board  of
Directors  of Seller  determines  in good  faith  (after due  consultation  with
independent counsel) that it is required to do so in order to discharge properly
its  fiduciary  duties if and only to the  extent  that,  in the case of actions
referred  to in clause (i) or (ii),  such  Competing  Transaction  is a Superior
Proposal  (as  defined  below) and Buyer is given at least five  business  days'
notice of the identity of the third party and all material  terms and conditions
of the Superior  Proposal to respond to such  Superior  Proposal.  Seller agrees
that it will, on the date hereof,  immediately  cease and cause to be terminated
any existing  activities,  discussions or negotiations with any Person conducted
heretofore  with respect to any Competing  Transaction.  For the purpose of this
Agreement,  a "Superior  Proposal"  means any proposal  made by a third party to
acquire,  directly or indirectly,  for  consideration  consisting of cash and/or
securities,  the Computer Telephony Business,  either separately or as a part of
any of Seller's  businesses,  on terms that the Board of  Directors of Seller in
good  faith  believes  (i)  (after  consultation  with a  financial  advisor  of
nationally recognized reputation) to be more favorable from a financial point of
view to its shareholders  than the transactions  contemplated by this Agreement,
taking into account at the time of  determination  any changes to the  financial
terms of this  Agreement  proposed by Buyer,  that is not subject to a financing
condition and is from a Person that in the reasonable judgment of Seller's Board
of Directors (based on advice from a nationally

                                      -52-
<PAGE>
recognized   investment  bank)  is  financially  capable  of  consummating  such
proposal,  and  (ii)  to be more  favorable  to  Seller  than  the  transactions
contemplated by this Agreement  after taking into account all pertinent  factors
deemed  relevant  by the  Board of  Directors  of  Seller  under the laws of the
Commonwealth of Virginia. Seller shall promptly notify Buyer in writing with all
of the material terms of any proposal relating to a Competing  Transaction or if
any inquiry or contact  with any Person with  respect  thereto is made and shall
promptly  deliver to Buyer copies of any such written  proposal or offer and any
communications made in response thereto. It is agreed that a sale in any form of
any  assets  of  Seller  that  does not  materially  diminish  the  value of the
Purchased  Assets shall not be a Competing  Transaction  and provided that in no
event  shall the sale of the  Healthcare  Communications  Business  be deemed to
diminish the value of the Purchased Assets.  Seller's  obligations under SECTION
6.04 hereof shall be  terminated  upon  termination  of the  Agreement by either
party.

          Seller shall promptly  notify Buyer (and in any event within 24 hours)
after  receipt  of any  communication  that is, or could  reasonably  lead to, a
Competing Transaction,  or any request for nonpublic information relating to the
Company by any third party or for access to the properties,  books or records of
Seller in  connection  with any  Competing  Transaction  or potential  Competing
Transaction.  Such notice to Buyer shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror.

     6.05 FURTHER ASSURANCES.

          (a)  Seller  and  Buyer  shall  each use its  commercially  reasonable
efforts,  and shall  cooperate  with and assist the other party in its  efforts,
including the  resolution of any issues arising under the HSR Act, to obtain the
Required  Consents and such other consents and approvals of third parties to the
transactions  contemplated  hereby as may be necessary to transfer the Purchased
Assets and assign the Assumed Liabilities to Buyer.

                                      -53-
<PAGE>
          (b) Seller will use its  commercially  reasonable  efforts,  and Buyer
will  cooperate with Seller in its efforts,  to preserve the Computer  Telephony
Business  intact,  and to  preserve  for  Buyer  the  existing  goodwill  of the
suppliers,  customers, landlords, creditors, employees, agents and others having
business  relations  with  Seller  in  the  conduct  of the  Computer  Telephony
Business, including without limitation taking and consenting to the actions with
respect to the  customers  and  distributors  outlined in SCHEDULE  6.05,  which
schedule  shall be completed  by Buyer and Seller  within 30 days of the date of
this Agreement.

     6.06 PUBLICITY.

          Neither  party  shall  at any  time  during  the  consummation  of the
transactions  contemplated  hereby,  make any public disclosure of the terms and
conditions of any  transaction or the fact that  discussions  for an acquisition
are taking place,  except to the extent that such  disclosure is required by law
or the rules and  regulations of the Securities  Exchange  Commission and of the
Nasdaq Stock Market and has been otherwise  agreed to by the other party. In any
event,  the parties will work together to ensure that any disclosure is accurate
and in the best interests of both parties.

     6.07 EMPLOYEES.

          (a) Buyer agrees to offer employment commencing as of the Closing Date
to each active  Employee of the Computer  Telephony  Business listed on SCHEDULE
1.35 at substantially the same salary or hourly wage and at the same location as
in  effect  for such  active  Employee  immediately  prior to the  Closing  Date
PROVIDED THAT each active Employee passes Buyer's  pre-employment drug tests. No
later than 15 days after the date hereof,  Buyer shall  provide  Seller with the
details of such offers.  Those Employees who accept the offered  employment with
Buyer (the  "Transferred  Employees")  and all other  Employees  of the Computer
Telephony  Business  immediately  prior  to the  Effective  Time  (the  "Severed

                                      -54-
<PAGE>
Employees")  shall  terminate  their  employment with Seller as of the Effective
Time.  Buyer  shall  assume all of  Seller's  rights and  obligations  under all
employment  agreements  that are  Contracts in effect  immediately  prior to the
Effective Time.

          (b) With respect to any Transferred  Employee  terminated by Buyer and
any  Severed  Employee,  Buyer and Seller  agree that Buyer will be  financially
responsible to Seller for the entire cost of the severance  benefits due to such
Employee under Seller's severance plans for Employees,  as in effect immediately
prior to the Effective Time. Notwithstanding SECTION 6.07(d), Seller retains the
right,  prior to the  Effective  Time, to modify any  severance  arrangement  to
decrease or modify (but not increase) any severance pay obligations thereunder.

          (c) With respect to any  Transferred  Employee,  Buyer shall be solely
responsible  for  determining  whether  to  terminate  the  employment  of  such
Transferred  Employee or offer  employment in another  capacity.  As to any such
Transferred  Employee  terminated by Buyer after the Effective Time, Buyer shall
be solely  responsible  for  satisfying  any  requirement  to provide  notice of
termination  under any Law,  any  requirement  to provide  benefits  or coverage
continuation under any employee benefit plan or program and any requirement with
respect to  unemployment  compensation  benefits.  In  addition,  as to any such
Transferred  Employee,  Buyer  shall be  solely  responsible  for any  liability
resulting from any termination and for defending against any claim that any such
termination was wrongful or in violation of any Law.

          (d) With respect to any Severed  Employee,  Buyer shall  indemnify and
hold Seller  harmless  against any liability  resulting from any termination and
for  defending  against any claim that any such  termination  was wrongful or in
violation of any Law. As to any Severed Employee, Buyer, at Buyer's option under
either Buyer's or Seller's  employee benefit plans as of the Closing Date, shall
assume all  obligations  of Seller to offer  health care  continuation  coverage

                                      -55-
<PAGE>
under the  Consolidated  Omnibus Budget  Reconciliation  Act of 1985, as amended
("COBRA") to such employees,  excluding the administrative  costs of Seller with
respect to its  Employee  Benefit  Plans,  and shall  indemnify  and hold Seller
harmless  against  any  liability  relating  to such  health  care  continuation
coverage obligations.

     6.08 WARN ACT.

          Buyer shall be responsible for any  liabilities  incurred by Seller in
connection with the transactions contemplated by this Agreement under the Worker
Adjustment  and  Retraining  Notification  Act  ("WARN  Act"),  and Buyer  shall
indemnify Seller against any reasonable  expenses incurred by Seller,  including
attorneys'  fees, if applicable,  in connection with the application of the WARN
Act to Seller as a result of the  transactions  contemplated  by this Agreement;
PROVIDED  THAT,  prior to the  Closing  Date,  Seller  will not  temporarily  or
permanently close or shut down any "single site of employment" or any "facility"
or any  "operating  unit,"  "department"  or  "service"  within a single site of
employment,  as such terms are used in the WARN Act, within or constituting part
of  the  Computer  Telephony  Business.  Seller  represents  that  the  Computer
Telephony  Business  has not had,  and will not have,  any  layoffs  which would
qualify as part of such  closures or shutdowns  within the period of ninety (90)
days prior to the Closing Date. Any employee who is receiving retention payments
or severance  payments from Seller will not be eligible for  severance  payments
from Buyer.

     6.09 BENEFIT OBLIGATIONS.

          (a) Buyer and Seller agree that,  except as specifically  set forth in
this  Agreement,  Seller  shall be solely  responsible  for all  liabilities  or
obligations  of any  kind  with  respect  to the  employment  by  Seller  of the
Employees  arising prior to the Effective Time,  including,  but not limited to,
any  claims by any  Employees  related to their  employment  by Seller or to the
termination of their  employment by Seller prior to the Effective Time.  Without
limiting

                                      -56-
<PAGE>
the generality of the foregoing sentence, Seller shall be solely responsible for
the following  matters  related to Seller's  employment of the Employees and the
termination of such  employment  prior to (but not as of or after) the Effective
Time: (i) any required  compliance  with COBRA;  and (ii) all alleged and actual
obligations  and claims  arising from or relating to any  employment  agreement,
collective  bargaining  agreement or Employee  Benefit  Plans,  any  grievances,
arbitrations  or unfair labor practice  charges  relating to compliance with any
applicable state or federal labor or employment law (including,  but not limited
to, all laws pertaining to discrimination,  workers' compensation,  unemployment
compensation, occupational safety and health, unfair labor practices, family and
medical  leave,  and wages,  hours or employee  benefits).  Notwithstanding  the
foregoing, Buyer shall assume all of Seller's obligations to provide the retiree
medical and life  insurance  benefits  described on SCHEDULE 3.16, to the extent
such  obligations  have been fully  accrued for on the  balance  sheet as of the
Effective Time.

          (b) Buyer and Seller further agree that,  except as  specifically  set
forth in this Agreement,  Buyer shall be solely  responsible for all liabilities
or  obligations  of any kind with respect to the  Transferred  Employees and the
Severed Employees arising as of or after the Effective Time, including,  but not
limited to, the  termination  of their  employment by Seller as of the Effective
Time, or by Buyer after the Effective Time.  Without  limiting the generality of
the  foregoing  sentence,  Buyer shall be solely  responsible  for the following
matters related to the Transferred  Employees' or Severed Employees'  employment
and the  termination of such  employment as of or after the Effective  Time: (i)
any required  compliance with COBRA for Transferred  Employees;  (ii) 50% of TRP
Liabilities;  and (iii)  except as  provided  herein,  all  alleged  and  actual
obligations  and claims  arising from or relating to any  employment  agreement,
collective  bargaining  agreement or Employee  Benefit  Plans,  any  grievances,
arbitrations or

                                      -57-
<PAGE>
unfair labor  practice  charges and relating to compliance  with any  applicable
state or federal labor or  employment  law  (including,  but not limited to, all
laws  pertaining  to   discrimination,   workers'   compensation,   unemployment
compensation, occupational safety and health, unfair labor practices, family and
medical leave, and wages,  hours or employee  benefits) with respect to an event
occurring after the Effective Date for the Transferred Employees.

          (c)  Buyer  shall  assume  liability  as of the  Closing  Date for the
accrued  vacation  entitlement  and sick  pay  entitlement  of each  Transferred
Employee to the extent such  liabilities  have been fully accrued on the Closing
Balance Sheet in accordance with GAAP and shall pay each such  Employee's  wages
or salary  during  their  vacation or sick pay when taken.  If an Employee  with
accrued  vacation or sick pay terminates  employment with Buyer on or before one
year of the  Closing  Date with  personal  leave  (I.E.  vacation  and sick pay)
entitlements  remaining,  Buyer shall pay such Employee a lump sum in cash equal
to such personal leave  entitlement,  less  applicable  deductions for taxes and
other ordinary course payroll withholdings.

          (d) If Buyer maintains a Code Section 401(k) Plan,  Buyer shall permit
Transferred  Employees to roll over into  Buyer's  Code Section  401(k) plan any
accrued benefit which is an eligible rollover  distribution as to such employees
from any Employee  Benefit Plan of Seller or any of its Affiliates  ("Transferor
Plan"),  PROVIDED THAT the Transferor  Plan satisfies  applicable laws including
being tax exempt under Section  401(a) of the Code so that any  roll-overs  will
not affect the tax qualified status of Buyer's Code Section 401(k) Plan.  Seller
shall provide Buyer with all documents  requested by Buyer in order to determine
whether the Transferor Plan satisfies all applicable laws.

          (e) For all  Transferred  Employees,  Buyer shall  grant past  service
credit for  eligibility to  participate  under Buyer's  welfare plans,  with the
exception of Buyer's profit sharing

                                      -58-
<PAGE>
plan, wherein Transferred  Employees must satisfy applicable service periods for
eligibility with Buyer, and seniority credit for Buyer's leave programs in which
its or its affiliates'  similarly situated employees are eligible to participate
for all  service  since last day of hire with  Seller or any of its  Affiliates,
shall waive any preexisting condition  limitations or restrictions,  evidence or
requirement of  insurability  and any actively at work  requirement for coverage
(to the extent not  applicable  under the Employee  Benefit  Plans in which such
Transferred Employees participate immediately prior to Closing) and shall permit
entry into such plans and programs  immediately after Closing (to the extent the
eligibility  requirements  therefor  are then  satisfied).  Notwithstanding  the
foregoing,  the Employees shall not be eligible to participate in Buyer's profit
sharing plan for the year ended December 31, 1999.

     6.10 SERVICES AGREEMENT.

          For a period  of three  months  after the  Closing  Date,  Buyer  will
provide  Seller  certain  transition  services upon the terms and subject to the
conditions  contained in a Services Agreement to be negotiated in good faith and
entered  into  by  Buyer  and  Seller  as of the  Closing  Date  (the  "Services
Agreement").

     6.11 HEADQUARTERS FACILITY SUBLEASE AGREEMENT.

          Buyer  agrees to grant a sublease  or  license  to Seller to use,  and
Seller will agree to use and pay rent for during the term, certain space located
at the Headquarters  Facility for Seller's use in connection with the Healthcare
Communications Business only pursuant to and subject to the conditions described
in the Headquarters Sublease Agreement.

     6.12 MANUFACTURING AGREEMENT.

          On the Closing Date,  Buyer and Seller will enter into a Manufacturing
Agreement  containing  the terms set forth in SCHEDULE 6.12 and such other terms
to which Buyer and Seller may agree.  Buyer and Seller  shall  within 30 days of
the date of this Agreement agree upon a

                                      -59-
<PAGE>
form of Manufacturing  Agreement to be executed on the Closing Date. Pursuant to
the Manufacturing Agreement,  Buyer will agree to provide at the Poway, Facility
and Seller will agree to pay for the following services as required by Seller:

          (a) manufacturing and assembly of Healthcare  Communications  Business
products and parts and  components  thereof,  at standard  product  cost,  which
includes standard material and standard labor and overhead;

          (b)  product  distribution  services,   including  warranty,  freight,
duties, brokerage,  royalties,  insurance, software manufacturing,  warehousing,
material variances, labor and overhead variances,  quality assurance,  inventory
variances, inventoriable costs, rework and other costs related to inventory; and

          (c) product repair services.

          Buyer will agree to provide all such services for three (3) years from
the Closing Date.

     6.13 NON COMPETE.

          Buyer  agrees  not to  engage  in all or any  part  of the  Healthcare
Communications  Business,  including,  without  limitation,  the  repair  of the
systems and products sold by the Healthcare  Communications  Business  except as
provided  in the  Manufacturing  Agreement,  for a  period  of  five  (5)  years
commencing  with the Closing  Date,  PROVIDED,  HOWEVER,  that in the event that
Seller or its assignee terminates the Manufacturing Agreement, such period shall
end two (2) years from the date of termination of the Manufacturing Agreement.

     6.14 TRADEMARK LICENSE AGREEMENT.

          Effective  on the  Closing  Date,  Buyer  agrees  to  grant  Seller  a
non-exclusive,  perpetual,  royalty-free  license to use the Licensed Trademarks
subject to the terms and conditions of the Trademark License  Agreement.  Seller
agrees that without Buyer's consent it

                                      -60-
<PAGE>
will not, nor will it permit the  Healthcare  Communications  Business after the
Closing Date to, make any use of any trade name or service mark held by Buyer in
any  manner  other  than  as  specifically  provided  in this  Agreement  or the
Trademark License Agreement.

     6.15 COMPUTER ASSETS LICENSE AGREEMENT.

          On the  Closing  Date,  Seller and Buyer will enter into the  Computer
Assets  License  Agreement  pursuant to which Seller and Buyer will grant and be
granted cross  licenses,  sublicenses,  leases or subleases,  as applicable,  to
utilize on the terms set forth in such agreement the Computer Assets utilized by
Seller in the Healthcare  Communications  Business and certain  Excluded  Assets
utilized by Buyer in the Computer Telephony Business.

     6.16 BULK TRANSFERS LAWS.

          Seller shall comply in all material  respects,  and provide  Buyer all
information  required to comply,  with the  provisions  of any  applicable  bulk
transfers laws of U.S.  jurisdictions in which there exists a material amount of
Purchased  Assets  (including  any similar laws  relating to any Taxes).  Seller
shall  promptly pay and discharge when due, or contest or litigate all claims of
creditors that are asserted  against Buyer by reason of Seller's  non-compliance
with such laws and agrees to indemnify and hold Buyer  harmless from and against
and shall on demand  reimburse Buyer for any and all Losses suffered by Buyer by
reason of  Seller's  failure  to pay and  discharge  any such  claims (or Taxes)
PROVIDED THAT the foregoing shall not affect in any way Buyer's obligations with
respect to the Assumed Liabilities.

     6.17 NOTICE OF DEVELOPMENTS.

          Between the date of this  Agreement and the Closing Date,  Seller will
promptly  give  written  notice to Buyer of any adverse  development  or fact or
condition that causes or constitutes a breach of any of its  representations and
warranties or covenants in this  Agreement.  No disclosure by Seller pursuant to
this Section 6.17, however, shall be deemed to amend or

                                      -61-
<PAGE>
supplement   the   Disclosure    Schedules   or   to   prevent   or   cure   any
misrepresentations,  breach of warranty, or breach of covenant.  During the same
period,  Seller will promptly give written  notice to Buyer of the occurrence of
any  condition  or event  that could  reasonably  make the  satisfaction  of the
conditions in Article IV impossible or impracticable.

     6.18 THIRD PARTY CONSENTS.

          (a) Seller shall,  at Seller's  cost and expense,  obtain prior to the
Closing any and all consents  necessary for the valid and binding  assignment of
the Assumed  Contracts and Leases to Buyer. All such consents will be in writing
and in form and substance  reasonably  satisfactory to Buyer (including  without
limitation  economic  terms and  conditions  that are no less favorable to Buyer
than  currently  exist for Seller),  and executed  counterparts  thereof will be
delivered to Buyer no later than the Closing.

          (b) Subject to the provisions of SECTION  6.18(a) above, to the extent
that the  assignment or sublease of any Assumed  Contract or Lease  requires the
consent of a third party,  this  Agreement  shall not constitute an agreement to
assign or sublease  the same if an  attempted  assignment  or sublease  thereof,
without the consent of a third party thereto, would constitute a breach thereof,
but Seller  shall use its  commercially  reasonable  best  efforts to obtain the
consent  of such  other  parties  to all such  contracts  to the  assignment  or
sublease  thereof to Buyer prior to the  Closing  Date;  if such  Consent is not
obtained or is  obtainable  only upon payment by Seller of amounts not otherwise
required to be paid under the terms of such contract,  Buyer will cooperate with
Seller in any reasonable  arrangement which is designed to provide for Buyer the
benefits under any such Assumed Contract or Lease including  enforcement for the
benefit of Buyer at the sole expense of Seller,  of any and all rights of Seller
against  any third party  thereto  arising out of the failure or refusal of such
third party to consent to such assignment or sublease.

                                      -62-
<PAGE>
     6.19 RISK OF LOSS.

          From the date of this Agreement through the Closing Date, Seller shall
bear all risks of loss to the  Purchased  Assets  and the  Premises  (including,
without  limitation,  the  Headquarters  Facility and Poway  Facility).  Without
limiting the generality of the foregoing  sentence,  in the event that, prior to
the Closing Date, any Premises shall be destroyed or materially  damaged,  or if
condemnation proceedings are commenced against any Premises or any material part
thereof,  then  Buyer  shall  receive  at  Closing  any  and all  insurance  and
condemnation proceeds attributable to the casualty or condemnation.

     6.20 MEETING OF SELLER'S SHAREHOLDERS.

          (a)  Promptly  after the date  hereof,  Seller  will  take all  action
necessary in accordance with Virginia Law and Seller's Articles of Incorporation
and Bylaws to  convene  the  shareholders'  meeting  to be held as  promptly  as
practicable,  and in any event (to the extent  permissible under applicable law)
within 90 days  after  the date  hereof,  for the  purpose  of voting  upon this
Agreement.  Seller will use its commercially  reasonable efforts to solicit from
its shareholders proxies in favor of the adoption and approval of this Agreement
and will take all other  action  necessary  or  advisable  to secure the vote or
consent of its  shareholders  required by the rules of Nasdaq or Virginia Law to
obtain such  approvals.  Notwithstanding  anything to the contrary  contained in
this Agreement,  Seller may adjourn or postpone the shareholders' meeting to the
extent  necessary to ensure that any  necessary  supplement  or amendment to the
Proxy  Statement  is provided to Seller's  shareholders  in advance of a vote on
this  Agreement  or,  if as of the time for  which  the  Seller's  shareholders'
meeting is originally  scheduled (as set forth in the Proxy Statement) there are
insufficient shares of Seller's common stock represented (either in person or by
proxy) to constitute a quorum  necessary to conduct the business of the Seller's
shareholders'  meeting.  Seller  shall  ensure that the  Seller's  shareholders'
meeting is called,

                                      -63-
<PAGE>
noticed,  convened, held and conducted, and that all proxies solicited by Seller
in  connection  with  the  Seller's  shareholders'  meeting  are  solicited,  in
compliance with the Virginia Law, its Articles of Incorporation and Bylaws,  the
rules of Nasdaq and all other applicable legal requirements.

          (b) (i) The Board of Directors of Seller shall  unanimously  recommend
that Seller's shareholders vote in favor of and adopt and approve this Agreement
at the Seller's  shareholders' meeting; (ii) the Proxy Statement shall include a
statement  to  the  effect  that  the  Board  of  Directors  of the  Seller  has
unanimously  recommended that Seller's  shareholders  vote in favor of and adopt
and approve  this  Agreement at the Seller's  shareholders'  meeting;  and (iii)
neither  the  Board of  Directors  of Seller  nor any  committee  thereof  shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify in
a  manner  adverse  to  Buyer,  the  unanimous  recommendation  of the  Board of
Directors of Seller that  Seller's  shareholders  vote in favor of and adopt and
approve this Agreement and the transaction  contemplated hereby. For purposes of
this Agreement, said recommendation of the Board of Directors shall be deemed to
have been modified in a manner adverse to Buyer if said recommendation  shall no
longer be  unanimous.  Nothing  herein  shall be  construed so as to require the
Board of Directors to violate its fiduciary duty to Seller's shareholders.

     6.21 CUSTOMER LIST.

          Seller shall deliver the Customer List to Buyer upon expiration of any
applicable  waiting  period  pursuant to the HSR Act and  immediately  following
Seller's  mailing of a definitive  proxy  statement to Seller's  shareholders in
connection with this Agreement.

     6.22 YEAR 2000 CLAIMS.

          In the event that  Seller  enters  into a  settlement  agreement  with
respect to any claims, lawsuits or actions of current or former customers of the
Computer  Telephony  Business related to the Year 2000 readiness of the Computer
Telephony Products that obligates Seller to

                                      -64-
<PAGE>
provide  product  upgrades to make such  Computer  Telephony  Products Year 2000
Compliant,  Buyer agrees to provide such product  upgrades as required under any
such settlement  agreement,  including all labor required to install the product
upgrades, all at Buyer's cost.

     6.23 EXECUTONE NAME.

          Parent,  Buyer and Seller  agree that in the event this  Agreement  is
terminated  for any reason,  Seller,  notwithstanding  the  consent  executed by
Seller  dated  October 12,  1999,  shall revoke its consent as to any use of the
Executone name by Parent or Buyer. Buyer acknowledges and agrees that Seller may
use, as all or part of its corporate name, trade name, or assumed name, the term
"EXECUTONE"  together  with the term  "HEALTHCARE"  or some other  similar  term
(E.G.,   without  limitation,   EXECUTONE   HEALTHCARE,   EXECUTONE   HEALTHCARE
COMMUNICATIONS),  and that Seller may make all filings  and  registrations  that
Seller deems  necessary or appropriate in connection  with such corporate  name,
trade  name,  or assumed  name,  including  but not  limited to  corporate  name
filings, assumed name filings and fictitious name filings.

     6.24 POWAY FACILITY PERMITS.

          Within 30 days of the date of this  Agreement,  Seller  shall  deliver
SCHEDULE  6.24 to Buyer  providing  a list of each of the  Permits  required  to
operate the Poway Facility.

     6.25 SCHEDULES.

          Seller shall  deliver  SCHEDULES  1.22,  1.24(a),  1.24(b) and 1.48 to
Buyer no later than 20 days prior to the  Closing.  Seller  shall  consult  with
Buyer its  preparation of such schedules and Buyer may assist in Seller's review
and completion thereof.

                                      -65-
<PAGE>
                                   ARTICLE VII
                CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER

     Each and every  obligation  of Buyer to be  performed  on the Closing  Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent:

     7.01 ACCURACY OF REPRESENTATIONS AND WARRANTIES.

          The  representations  and  warranties  of  Seller  set  forth  in this
Agreement  shall be true and correct in all material  respects as of the Closing
Date as if made as of such time, excepting those  representations and warranties
expressly  made as of a  particular  date which shall be true and correct in all
material respects as of such date.

     7.02 HSR ACT WAITING PERIOD.

          Any waiting period  applicable to the consummation of the transactions
contemplated  by this  Agreement  under  the  HSR  Act  shall  have  expired  or
terminated.

     7.03 NO LITIGATION.

          No temporary  restraining order,  preliminary or permanent injunction,
judgment,   decree  or  order   shall   have   been   issued  by  any  court  or
quasi-jurisdictional  or administrative  agency of any federal,  state, local or
foreign  jurisdiction,  or statute,  rule or regulation shall be in effect, that
would (A) prevent consummation of the transaction contemplated by this Agreement
or (B) adversely  affect the right of Buyer to own the Purchased  Assets,  or to
operate and control the Purchased Assets.

     7.04 SELLER'S PERFORMANCE.

          All  obligations  of Seller to be  performed  or  complied  with on or
before the Closing  Date,  pursuant to the terms of this  Agreement,  shall have
been duly  performed or complied with in all material  respects on or before the
Closing Date.

                                      -66-
<PAGE>
     7.05 DELIVERIES AT CLOSING.

          Seller  shall have  delivered,  or caused to have been  delivered,  to
Buyer  the  following  documents,  each  properly  executed  and dated as of the
Closing Date and reasonably satisfactory in form and substance to Buyer:

          (a) the Bill of Sale;

          (b) the Assignment and Assumption Agreement;

          (c) Seller's Closing Certificate;

          (d) the Headquarters Sublease Agreement;

          (e) the Manufacturing Agreement;

          (f) the Trademark License Agreement;

          (g) the Computer Assets License Agreement;

          (h) the Services Agreement;

          (i) the opinion of Seller's counsel in a form reasonably acceptable to
Buyer; and

          (j) the Required Consents.

     7.06 NO MATERIAL ADVERSE CHANGE.

          Since  August 31, 1999,  there shall not have been a Material  Adverse
Change with respect to Seller's Computer Telephony Business.

                                  ARTICLE VIII
                CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER

         Each and every obligation of Seller to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent:

                                      -67-
<PAGE>
     8.01 ACCURACY OF REPRESENTATIONS AND WARRANTIES.

          The  representations  and  warranties  of  Buyer  set  forth  in  this
Agreement  shall be true and correct in all material  respects as of the Closing
Date as if made as of such time.

     8.02 SHAREHOLDER APPROVAL.

          Seller shall have obtained  shareholder  approval of the Agreement and
the  transaction  contemplated  hereby in  accordance  with the  Virginia  Stock
Corporation Act and the Seller's Articles of Incorporation.

     8.03 NO LITIGATION.

          No temporary  restraining order,  preliminary or permanent injunction,
judgment,   decree  or  order   shall   have   been   issued  by  any  court  or
quasi-jurisdictional  or administrative  agency of any federal,  state, local or
foreign  jurisdiction,  or statute,  rule or regulation shall be in effect, that
would prevent consummation of the transaction contemplated by this Agreement.

     8.04 HSR ACT WAITING PERIOD.

          Any waiting period  applicable to the consummation of the transactions
contemplated  by this  Agreement  under  the  HSR  Act  shall  have  expired  or
terminated.

     8.05 BUYER'S PERFORMANCE.

          All obligations of Buyer to be performed or complied with on or before
the Closing Date, pursuant to the terms of this Agreement,  shall have been duly
performed  or complied  with in all  material  respects on or before the Closing
Date.

     8.06 DELIVERIES AT CLOSING.

          In  addition to the payment of the  Purchase  Price,  Buyer shall have
delivered,  or caused to have been delivered, to Seller the following documents,
each  properly  executed  and  dated  as of  the  Closing  Date  and  reasonably
satisfactory in form and substance to Seller:

          (a) the Assignment and Assumption Agreement;

                                      -68-
<PAGE>
          (b) Buyer's Closing Certificate;

          (c) the Headquarters Sublease Agreement;

          (d) the Manufacturing Agreement;

          (e) the Trademark License Agreement;

          (f) the Computer Assets License Agreement;

          (g) the Services Agreement; and

          (h) the opinion of Buyer's counsel in a form reasonably  acceptable to
Seller.

                                   ARTICLE IX
                  ACTIONS BY SELLER AND BUYER AFTER THE CLOSING

     9.01 SELLER'S INDEMNITY.

          Upon closing of the transactions  contemplated  herein,  Seller hereby
agrees to indemnify and hold Buyer,  its Affiliates,  successors and assigns and
their  respective  representatives  ("Buyer's  Indemnitees")  harmless  from and
against,  and agrees to defend promptly  Buyer's  Indemnitees from and reimburse
Buyer's  Indemnitees  for,  any  and  all  losses,   damages,  costs,  expenses,
liabilities,  obligations and claims of any kind, including, without limitation,
reasonable attorneys' fees and other legal costs and expenses (collectively, the
"Losses"),  that Buyer's  Indemnitees may at any time suffer or incur, or become
subject to, arising, directly or indirectly from, or in connection with: (i) any
breach or inaccuracy of any of the representations and warranties made by Seller
in or pursuant  to this  Agreement  or any  instrument  or document  executed by
Seller in connection with or as a result of this  Agreement;  (ii) any breach by
Seller of any  covenant or  obligation  of Seller in this  Agreement;  (iii) any
claim by any Person for  brokerage or finder's  fees or  commissions  or similar
payments based upon any agreement or understanding  alleged to have been made by
any such Person with Seller (or any Person  acting on its behalf) in  connection
with any of the transactions contemplated by this

                                      -69-
<PAGE>
Agreement;  (iv) any  liability  of  Seller  which is not an  Assumed  Liability
(including  any  liability  of  Seller  that  becomes  a  liability  of Buyer by
operation  of law under any bulk  transfer  law of any  jurisdiction,  under any
common law doctrine of de facto merger or successor  liability,  or  otherwise);
(v) any  liability  in respect of any Taxes  relating  to the  Purchased  Assets
attributable to any period  beginning before and ending on the Closing Date; and
(vi)  the  Retained  Liabilities   (hereinafter   referred  to  collectively  as
"Claims");  PROVIDED,  HOWEVER, that Buyer's Indemnitees shall have the right to
be indemnified, held harmless from, defended or reimbursed under SECTION 9.01(a)
hereof only if Buyer has notified  Seller of such Claims  within one (1) year of
the Closing Date, except the time limitation with respect to the representations
set forth in SECTIONS 3.07 and 3.09 shall be upon  expiration of the  applicable
statute of limitations with respect to the tax or  environmental  matters giving
rise to a claim thereunder.

     9.02 BUYER'S INDEMNITY.

          Upon  closing  of the  transactions  contemplated  herein,  Parent and
Buyer,  jointly and severally  hereby agree to indemnify and hold Seller and its
Affiliates,   successors  and  assigns  and  their  respective   representatives
(collectively,  "Seller's  Indemnitees") harmless from and against, and agree to
defend promptly  Seller's  Indemnitees from and reimburse  Seller's  Indemnitees
for,  any and all Losses  that  Seller's  Indemnitees  may at any time suffer or
incur,  or become  subject  to, as a result of or in  connection  with:  (i) any
breach or inaccuracy of any of the representations and warranties made by Parent
or Buyer in or pursuant to this Agreement or any instrument or document executed
by Parent or Buyer in connection with or as a result of this Agreement; (ii) the
Assumed  Liabilities;  (iii) any  breach by Parent or Buyer of any  covenant  or
obligation  of Parent or Buyer in this  Agreement;  (iv) any claim by any Person
for brokerage or finder's fees or commissions or similar payments based upon any
agreement  or  understanding  alleged to have been made by any such  Person with
Parent or Buyer (or any Person acting on

                                      -70-
<PAGE>
their behalf) in connection  with any of the  transactions  contemplated by this
Agreement;  (v) any liability in respect of any Taxes  relating to the Purchased
Assets  attributable  to any period  beginning on or after the Closing Date; and
(vi) claims by third parties against Seller relating to operation, ownership and
performance  by,  Buyer of the  Purchased  Assets,  and the conduct of Parent or
Buyer in  connection  with the Computer  Telephony  Business  from and after the
Closing  Date,  other than with respect to the Retained  Liabilities;  PROVIDED,
HOWEVER,  that,  except  in the  case of the  Indemnified  Litigation,  Seller's
Indemnitees shall have no right to be indemnified,  held harmless from, defended
or reimbursed  under  SECTION 9.02 hereof  unless Seller has notified  Parent or
Buyer of such Claims within one (1) year of the Closing Date.

     9.03 LIMITATIONS ON INDEMNIFICATION.

          (a)  Seller  shall  not  have  any  obligation  to  indemnify  Buyer's
Indemnitees in respect of Losses  incurred  pursuant to SECTION 9.01, and Parent
or Buyer shall not have any  obligation  to indemnify  Seller's  Indemnitees  in
respect of Losses  incurred  pursuant to SECTION 9.02, in either case unless and
until the aggregate amount of such Losses exceeds  $375,000 (the "Basket"),  and
then only to the extent such Losses in the aggregate exceed $187,500;  PROVIDED,
HOWEVER,  that the foregoing limitation and the Basket shall not apply to Losses
in connection with the Indemnified  Litigation or Taxes, and PROVIDED,  FURTHER,
that the  maximum  amount  recoverable  by either  party and its  Affiliates  in
respect of such Losses shall not exceed the Purchase Price, with Adjustments.

     9.04 PROCEDURE FOR INDEMNIFICATION- THIRD PARTY CLAIMS.

          (a) Promptly after receipt by an indemnified  party under SECTION 9.01
or SECTION 9.02 of notice of the commencement of any Proceeding against it, such
indemnified  party will, if a claim is to be made against an indemnifying  party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the

                                      -71-
<PAGE>
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
indemnified party's failure to give such notice.

          (b) If any  Proceeding  referred  to in  SECTION  9.04(a)  is  brought
against an indemnified  party and it gives notice to the  indemnifying  party of
the commencement of such Proceeding,  the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying  party is also a party to such Proceeding and the indemnified party
determines in good faith that joint  representation  would be inappropriate,  or
(ii)  the  indemnifying  party  fails to  provide  reasonable  assurance  to the
indemnified  party of its  financial  capacity  to defend  such  Proceeding  and
provide indemnification with respect to such Proceeding),  to assume the defense
of such Proceeding with counsel reasonably satisfactory to the indemnified party
and, in the event that the indemnifying party provides appropriate notice 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 9.04 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding. No
compromise  or  settlement  of  such  claims  may  be  effected  by  either  the
indemnified  party or the  indemnifying  party without the other party's consent
(which  consent  shall  not be  unreasonably  withheld)  unless  (i) there is no
finding or admission of any violation of Legal  Requirements or any violation of
the  rights of any  Person  and no effect on any other  claims  that may be made
against the other party,  and (ii) the sole relief provided is monetary  damages
that are paid in full by the party effecting the settlement.  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

                                      -72-
<PAGE>
party of its election to assume the defense of such Proceeding, the indemnifying
party  will  be  bound  by any  determination  made in  such  Proceeding  or any
compromise or settlement effected by the indemnified party.

          (c) Notwithstanding the foregoing,  if an indemnified party determines
in good faith that  there is a  reasonable  probability  that a  Proceeding  may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be  entitled to  indemnification  under this  Agreement,  the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend,  compromise,  or settle such  Proceeding,  but the indemnifying
party will not be bound by any  determination of a Proceeding so defended or any
compromise  or  settlement  effected  without  its  consent  (which  may  not be
unreasonably withheld).

          (d)  Parent,  Buyer and Seller  hereby  consent  to the  non-exclusive
jurisdiction  of any  court  in  which  a  Proceeding  is  brought  against  any
Indemnified Person for purposes of any claim that an Indemnified Person may have
under this  Agreement  with respect to such  Proceeding  or the matters  alleged
therein,  and agree  that  process  may be served on  Parent,  Buyer or  Seller,
respectively,  with respect to such a claim anywhere in the world; provided that
the indemnified party is subject to the personal jurisdiction of such court.

     9.05 PROCEDURE FOR INDEMNIFICATION - THIRD PARTY 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.

     9.06 COMPUTATION OF INDEMNITY AMOUNTS.

          The amount of any indemnification  payable under any of the provisions
of this ARTICLE IX shall be reduced by any insurance  recoveries  offsetting the
amount of the loss.

                                      -73-
<PAGE>
     9.07 LITIGATION SUPPORT.

          In the event and for so long as Parent,  Buyer or Seller  actively  is
contesting  or  defending  against  any  action,  suit,   proceeding,   hearing,
investigation,  charge,  complaint,  claim or demand in connection  with (a) any
transaction  contemplated  under this Agreement,  or (b) the Computer  Telephony
Business,  the other  parties  will  cooperate  with it and its  counsel  in the
contest or defense,  make available its personnel and provide such testimony and
access to its books and records as shall be  necessary  in  connection  with the
contest  or  defense,  all at the sole cost and  expense  of the  contesting  or
defending party.

     9.08 POST-CLOSING COOPERATION.

          Following  the Closing Date,  each party will  cooperate in good faith
with the other and will take all appropriate  action and execute and deliver any
document, instrument or conveyance of any kind which may be reasonably necessary
or advisable to carry out any of the transactions contemplated hereby.

     9.09 ESCROW ARRANGEMENTS.

          (a) ESCROW FUND. On the Closing Date,  Buyer and Seller  jointly shall
instruct an escrow agent selected by Buyer and  reasonably  acceptable to Seller
(the "Escrow  Agent") to place  $4,000,000 of the Purchase  Price into an escrow
account. At the Closing, Seller will be deemed to have deposited with the Escrow
Agent the Escrow Amount  (together  with any interest  earned thereon during the
term of the escrow as set forth in SECTION  9.09(c),  the  "Escrow  Fund").  The
Escrow Fund will be governed by the terms set forth herein. The Escrow Fund will
be available as partial  security  for (i)  Seller's  obligations  to effect any
Adjustment to the Purchase Price made pursuant to SECTION 2.04 and (ii) Seller's
indemnification obligations under SECTION 9.01.

                                      -74-
<PAGE>
          (b) ESCROW  PERIOD;  DISTRIBUTION  UPON  TERMINATION OF ESCROW PERIOD.
Subject to the  following  requirements,  the Escrow  Fund will be in  existence
immediately following the Closing Date and will terminate at 5:00 p.m., New York
time, on the earlier of the date 12 months from the Closing Date or the date the
full amount of the Escrow Fund has been  disbursed  pursuant to SECTION  9.09(d)
below  (the  "Escrow  Period");  PROVIDED,  THAT,  the  Escrow  Period  will not
terminate  with  respect to such  amount  (or some  portion  thereof)  if in the
reasonable  judgment of Parent or Buyer,  subject to the objection of Seller and
the subsequent  arbitration of the matter as provided in SECTION  9.09(f),  such
amount (or some portion thereof) together with the aggregate amount remaining in
the Escrow  Fund is  necessary  to satisfy  any and all  Adjustment  and/or Loss
claims  specified  in any  Officer's  Certificate  delivered to the Escrow Agent
prior to  termination  of such  Escrow  Period,  or if there  exists an  ongoing
arbitration proceeding between Parent and Buyer and Seller with respect to which
party is  entitled  to the funds in the Escrow  Fund in the manner  provided  in
SECTION 9.09(f) hereof.  As soon as all such Adjustment  and/or Loss claims have
been resolved,  the Escrow Agent will deliver to Seller the remaining portion of
the Escrow Fund not required to satisfy such Adjustment and/or Loss claims.

          (c)  PROTECTION  OF  ESCROW  FUND.  The  Escrow  Agent  will  hold and
safeguard  the Escrow Fund during the Escrow  Period,  will treat such fund as a
trust  fund in  accordance  with  the  terms  of this  Agreement  and not as the
property of Parent, Buyer or Seller and will hold and dispose of the Escrow Fund
only in  accordance  with the terms  hereof.  The Escrow  Fund will be  invested
subject to the  discretion  of the Escrow  Agent in demand and time  deposits in
banks or savings  institutions,  short term  certificates of deposit or Treasury
bills, or money market account instruments.

                                      -75-
<PAGE>
          (d) PAYMENT OF  ADJUSTMENT  AND/OR LOSS CLAIMS UPON ESCROW FUND.  Upon
receipt by the Escrow  Agent at any time on or before the last day of the Escrow
Period  of  a  certificate  signed  by  any  officer  of  Buyer  (an  "Officer's
Certificate")  specifying  in  reasonable  detail  the  individual  items of any
Adjustment and/or claim of Losses indemnifiable under SECTION 9.01 as limited by
SECTION  9.03  ("Indemnifiable  Loss"),  the Escrow  Agent will,  subject to the
provisions  of SECTION  9.09(e) AND (f) hereof,  deliver to Buyer out of, and to
the extent of, the Escrow  Fund,  by wire  transfer  (within  three (3) business
days) of immediately  available funds to an account of Buyer at a bank specified
by Buyer,  as promptly as practicable,  an amount equal to, as applicable,  such
Adjustment and/or Loss claim.

          (e) OBJECTIONS TO ADJUSTMENT AND/OR  INDEMNIFIABLE LOSS CLAIMS. At the
time of delivery of any Officer's  Certificate  to the Escrow Agent, a duplicate
copy of such  certificate  will be  delivered to Seller and for a period of five
(5) days after such  delivery,  the Escrow  Agent will make no  delivery  of any
Escrow Funds  pursuant to SECTION  9.09(d)  hereof unless the Escrow Agent shall
have received written authorization from Seller to make such delivery. After the
expiration of such five (5) day period, the Escrow Agent will make delivery from
the Escrow Fund in accordance with SECTION 9.09(d)  hereof,  PROVIDED,  THAT, no
such  payment  or  delivery  may be made if  Seller  shall  object  in a written
statement  to  the  Adjustment  and/or  Indemnifiable  Loss  claim  made  in the
Officer's  Certificate,  and such  statement  shall have been  delivered  to the
Escrow Agent prior to the expiration of such five (5) day period.

          (f) RESOLUTION OF CONFLICTS; ARBITRATION.

               (i) In case Seller  shall  object in a written  statement  to any
Adjustment and/or Loss claims or other claims made in any Officer's Certificate,
Buyer and  Seller  will  attempt  in good  faith to agree upon the rights of the
respective parties with respect to each of

                                      -76-
<PAGE>
such claims.  If Buyer and Seller  should so agree,  a memorandum  setting forth
such agreement will be prepared and signed by both parties and will be furnished
to the Escrow  Agent.  The Escrow  Agent  will be  entitled  to rely on any such
memorandum and distribute the funds from the Escrow Fund in accordance  with the
terms thereof.

               (ii)  If no  such  agreement  can be  reached  after  good  faith
negotiation,  either Buyer or Seller may demand arbitration of the matter unless
the  amount  of damage or loss is at issue in  pending  litigation  with a third
party,  in which event  arbitration  will not be commenced  until such amount is
ascertained or both parties agree to  arbitration;  and in either such event the
matter will be settled by arbitration conducted by three arbitrators.  Buyer and
Seller will each select one arbitrator, and the two arbitrators so selected will
select a third  arbitrator.  The arbitrators  will set a limited time period and
establish  procedures  designed to reduce the cost and time for discovery  while
allowing  the  parties an  opportunity,  adequate  in the sole  judgment  of the
arbitrators,  to discover  relevant  information from the opposing parties about
the subject  matter of the dispute.  The  arbitrators  will rule upon motions to
compel or limit  discovery  and will  have the  authority  to impose  sanctions,
including  attorneys'  fees and costs, to the extent of a court of competent law
or equity,  should the  arbitrators  determine that discovery was sought without
substantial  justification  or that discovery was refused or objected to without
substantial  justification.  The decision of a majority of the three arbitrators
as to the validity and amount of any claim in such Officer's Certificate will be
binding and conclusive  upon the parties to this Agreement and,  notwithstanding
anything in SECTION 9.09(e) hereof,  the Escrow Agent will be entitled to act in
accordance  with such  decision and make or withhold  payments out of the Escrow
Fund in  accordance  therewith.  Such  decision  will  be  written  and  will be
supported

                                      -77-
<PAGE>
by  written  findings  of fact and  conclusions  that will set forth the  award,
judgment, decree or order awarded by the arbitrators.

               (iii) Judgment upon any award rendered by the  arbitrators may be
entered in any court having  jurisdiction.  Any such arbitration will be held in
Chicago,  Illinois,  under the rules then in effect of the American  Arbitration
Association.  For purposes of this SECTION 9.09(f), in any arbitration hereunder
in respect of any Losses in which any claim or the amount  thereof stated in the
Officer's   Certificate   is  at  issue,   Buyer   will  be  deemed  to  be  the
"Non-Prevailing  Party" in the event that the arbitrators  award Buyer less than
the sum of seventy-five percent (75%) of the disputed amount; otherwise,  Seller
will be deemed to be the Non-Prevailing Party. The "Non-Prevailing  Party" to an
arbitration  will  pay its own  expenses,  the  fees  of  each  arbitrator,  the
administrative fee of the American  Arbitration  Association,  and the expenses,
including without limitation,  reasonable  attorneys' fees and costs incurred by
the other party to the arbitration  (collectively,  the "Arbitration  Fees"). In
any arbitration hereunder in respect to any Adjustment in which any claim or the
amount thereof stated in the Officer's  Certificate is at issue, the Arbitration
Fees will be borne by the parties in accordance  with the allocation of fees and
disbursements of PricewaterhouseCoopers LLP described in SECTION 2.04.

          (g) REDUCTION OF ESCROW FUND. After the expiration of six months after
the Closing  Date,  the Escrow Agent shall  distribute to Seller from the Escrow
Fund an amount,  if  available,  equal to half of the  original  Escrow  Amount;
PROVIDED,  HOWEVER,  that the Escrow Fund shall not be reduced to an amount less
than $2,000,000 plus the aggregate of any and all outstanding  Adjustment and/or
Loss claims specified in any Officer's Certificate delivered to the Escrow Agent
prior to  termination  of such  six-month  period,  or to an  amount  less  than
$2,000,000  plus the  aggregate  amount with respect to which there exists as of
the end of such

                                      -78-
<PAGE>
six-month  period an ongoing  arbitration  proceeding  between  Buyer and Seller
relating to the Escrow Fund in the manner provided in SECTION 9.09(f) hereof.

          (h) ESCROW AGENT'S DUTIES.

               (i) The Escrow Agent will be obligated  only for the  performance
of such duties as are  specifically  set forth  herein,  and as set forth in any
additional written escrow  instructions which the Escrow Agent may receive after
the date of this  Agreement  which  are  signed  by an  officer  of Buyer and an
officer of Seller,  and may rely and will be protected in relying or  refraining
from acting on any instrument reasonably believed to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent will not be
liable for any act done or omitted  hereunder  as Escrow  Agent while  acting in
good  faith and in the  exercise  of  reasonable  judgment,  and any act done or
omitted  pursuant to the advice of counsel will be  conclusive  evidence of such
good faith.

               (ii) The Escrow Agent is hereby expressly authorized to disregard
any and all warnings  given by any of the parties hereto or by any other person,
excepting  only  orders or  process  of courts of law,  and is hereby  expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order,  judgment or decree
of any court,  the Escrow Agent will not be liable to any of the parties  hereto
or to any other person by reason of such  compliance,  notwithstanding  any such
order, judgment or decree being subsequently reversed,  modified,  annulled, set
aside, vacated or found to have been entered without jurisdiction.

               (iii) The  Escrow  Agent will not be  liable,  in any  respect on
account  of the  identity,  authority  or rights  of the  parties  executing  or
delivering or  purporting to execute or deliver this  Agreement or any documents
or papers deposited or called for hereunder.

                                      -79-
<PAGE>
               (iv) The Escrow  Agent will not be liable for the  expiration  of
any rights under any statute of  limitations  with respect to this  Agreement or
any documents deposited with the Escrow Agent.

               (v) In  performing  any duties under this  Agreement,  the Escrow
Agent will not be liable to any party for damages,  losses or  expenses,  except
for gross negligence or willful  misconduct on the part of the Escrow Agent. The
Escrow Agent will not incur any such liability for (A) any act or failure to act
made or omitted in good  faith or (B) any  action  taken or omitted in  reliance
upon any instrument,  including any written statement or affidavit  provided for
in this  Agreement  that the  Escrow  Agent  shall in good  faith  believe to be
genuine,  nor will the  Escrow  Agent be liable or  responsible  for  forgeries,
fraud,  impersonations  or  in  determining  the  scope  of  any  representative
authority.  In  addition,  the Escrow  Agent may consult  with legal  counsel in
connection  with the Escrow  Agent's  duties under this  Agreement  and shall be
fully protected in any act taken, suffered or permitted by him/her in good faith
in accordance  with the advice of counsel.  The Escrow Agent is not  responsible
for  determining  and verifying the authority of any person acting or purporting
to act on behalf of any party to this Agreement.

               (vi)  If any  controversy  arises  between  the  parties  to this
Agreement,  or with any party,  concerning the subject matter of this Agreement,
its terms or conditions,  the Escrow Agent will not be required to determine the
controversy  or to take any action  regarding  it. The Escrow Agent may hold all
documents  and  the  Escrow  Fund  and  may  wait  for  settlement  of any  such
controversy  by final  appropriate  legal  proceedings or other means as, in the
Escrow Agent's discretion, the Escrow Agent may be required, despite what may be
set forth elsewhere in this Agreement.  In such event, the Escrow Agent will not
be liable for damage.

                                      -80-
<PAGE>
               (vii)  Furthermore,  the Escrow Agent may at its option,  file an
action of  interpleader  requiring the parties to answer and litigate any claims
and rights among themselves.  The Escrow Agent is authorized to deposit with the
clerk of the court all  documents  and funds held in  escrow,  except all costs,
expenses,  charges and reasonable attorney fees incurred by the Escrow Agent due
to the interpleader  action and which the parties jointly and severally agree to
pay. Upon initiating  such action,  the Escrow Agent shall be fully released and
discharged of and from all  obligations  and  liability  imposed by the terms of
this Agreement.

          (i)  INDEMNIFICATION OF ESCROW AGENT. The parties and their respective
successors  and assigns  agree  jointly and  severally to indemnify and hold the
Escrow Agent harmless against any and all losses, claims,  damages,  liabilities
and expenses,  including  reasonable  costs of  investigation,  counsel fees and
disbursements  that may be imposed on the Escrow Agent or incurred by the Escrow
Agent in connection with the performance of his/her duties under this Agreement,
including  but not limited to any  litigation  arising  from this  Agreement  or
involving its subject matter.

          (j)  RESIGNATION  OF ESCROW AGENT.  The Escrow Agent may resign at any
time upon  giving at least  thirty  (30) days'  written  notice to the  parties;
PROVIDED,  HOWEVER,  that no such  resignation  will become  effective until the
appointment of a successor  escrow agent which will be  accomplished as follows:
Buyer and Seller will use their reasonable best efforts to mutually agree upon a
successor  escrow agent within thirty (30) days after receiving such notice.  If
Buyer and Seller fail to agree upon a successor  escrow  agent within such time,
the  Escrow  Agent  will have the  right to  appoint a  successor  escrow  agent
authorized to do business in the State of New York.  The successor  escrow agent
will execute and deliver an instrument  accepting such  appointment and it will,
without further acts, be vested with all estates, properties,

                                      -81-
<PAGE>
rights, powers and duties of the predecessor escrow agent as if originally named
as escrow agent. The Escrow Agent will be discharged from any further duties and
liability under this Agreement.

          (k) FEES PAID TO ESCROW  AGENT.  Half of all fees of the Escrow  Agent
for  performance of its duties  hereunder will be paid by Seller and half of all
such  fees  will be paid by  Buyer.  It is  understood  that the fees and  usual
charges agreed upon for services of Escrow Agent will be considered compensation
for ordinary  services as contemplated by this Agreement.  In the event that the
conditions of this Agreement are not promptly fulfilled,  or if the Escrow Agent
renders  any  service  not  provided  for in this  Agreement,  or if the parties
request a substantial  modification of its terms, or if any controversy  arises,
or if the Escrow  Agent is made a party to, or  intervenes  in,  any  litigation
pertaining  to this  escrow or its  subject  matter,  the  Escrow  Agent will be
reasonably  compensated for such  extraordinary  services and reimbursed for all
costs,   attorneys'  fees  and  expenses  occasioned  by  such  default,   delay
controversy or litigation.  Each of Buyer and Seller promises to pay one half of
these sums on demand.

     9.10 TAXES.

          To the  extent  relevant  to the  Purchased  Assets  and the  Computer
Telephony  Business,  the parties hereto agree,  that,  until a date that is six
years from the Closing  Date:  (i) Seller  shall  provide  Buyer and Buyer shall
provide Seller with such  assistance as may reasonably be required in connection
with the  preparation  of any Tax Return  and the  conduct of any audit or other
examination  by  any  taxing   authority  or  in  connection  with  judicial  or
administrative  proceedings  relating to any  liability  for Taxes;  (ii) Seller
shall retain and provide  Buyer and Buyer shall  retain and provide  Seller with
all records or other  information that may be relevant to the preparation of any
Tax Returns,  or the conduct of any audit  examination or other tax  proceeding;
and (iii) Seller shall retain all relevant documents, including prior years' Tax
Returns,  supporting work schedules and other records or information that may be
relevant to

                                      -82-
<PAGE>
such Tax Returns and shall not destroy or otherwise  dispose of any such records
without at least 30 days prior written notice to Buyer.

     9.11 BOOKS AND RECORDS; PERSONNEL.

          For a period of five years from the Closing Date:

          (a) Buyer shall not dispose of or destroy any of the Books and Records
without  first  offering  to turn over  possession  thereof to Seller by written
notice to Seller at least 30 days prior to the proposed date of such disposition
or destruction.

          (b) Buyer shall allow Seller and its agents  reasonable  access to all
Books and Records upon five business days' advance  written notice during normal
working hours at Buyer's  principal  place of business or at any location  where
any Books and Records are stored; PROVIDED,  HOWEVER, that any such access shall
be had or done in such a manner so as not to interfere  with the normal  conduct
of Buyer's Computer Telephony Business.

          (c) Buyer  shall make  available  to Seller upon  written  request (i)
copies of any Books and  Records,  (ii) Buyer's  personnel  to assist  Seller in
locating and obtaining any Books and Records, and (iii) any of Buyer's personnel
whose assistance or participation is reasonably required by Seller or any of its
affiliates  in  anticipation  of,  or  preparation   for,   existing  or  future
litigation,  tax  returns  or  other  matters  in  which  Seller  or  any of its
affiliates is involved.  Seller shall reimburse Buyer for the reasonable  salary
and  out-of-pocket  expenses  incurred in  performing  the  services  for Seller
described in this SECTION 9.11.

          (d) Seller will (i) provide Buyer  reasonable  access to the Books and
Records for the period prior to January 1, 1997 upon five business days' advance
written  notice  during  normal  working  hours at Seller's  principal  place of
business  or at any  location  where any such  Books  and  Records  are  stored;
PROVIDED, HOWEVER, that any such access shall be had or done in such a manner so
as not to  interfere  with the normal  conduct of Seller's  business and (ii) at
least

                                      -83-
<PAGE>
30 days  prior to the  destruction  of any Books  and  Records  relating  to the
Computer Telephony  Business,  offer such Books and Records by written notice to
Buyer.  Buyer shall reimburse Seller for the reasonable salary and out-of-pocket
expenses incurred in performing the services for Buyer contained in this SECTION
9.11.

                                    ARTICLE X
                                   TERMINATION

     10.01 TERMINATION.

          This  Agreement  may be  terminated  at any time prior to the  Closing
Date, whether before or after approval by the shareholders of Seller:

          (a) by mutual consent of Buyer and Seller duly authorized by the Board
of Directors of Buyer and Seller;

          (b) by  either  Buyer or  Seller  if the  Closing  shall not have been
consummated  on or before  January 31, 1999 (the "End Date"),  which date may be
extended  (i) by the  mutual  written  consent  of the  parties  hereto  or (ii)
provided that the Proxy  Statement has been filed with the Commission by October
25, 1999, one day for each day after December 1, 1999 that the Commission  fails
to clear the Proxy  Statement,  up to a maximum of 30 days,  in the event  that,
notwithstanding  the  good  faith  and  diligent  efforts  of the  parties,  the
Commission  has not cleared the Proxy  Statement  for  distribution  to Seller's
shareholders by December 1, 1999; provided, however, that the right to terminate
this Agreement  under this SECTION  10.01(b) shall not be available to any party
whose action or failure to act has been a principal  cause of or resulted in the
failure of the Closing to occur on or before such date;

          (c) by either Buyer or Seller, if any court of competent  jurisdiction
in the United States or other  governmental body in the United States shall have
issued an order (other than a temporary  restraining order), decree or ruling or
taken any other action restraining,

                                      -84-
<PAGE>
enjoining or otherwise  prohibiting the Closing, and such order, decree,  ruling
or other  action shall have become final and  nonappealable;  PROVIDED  THAT the
party  seeking to  terminate  this  Agreement  shall have used all  commercially
reasonable efforts to avoid, remove or lift such order, decree,  ruling or other
action; or

          (d) by either Buyer or Seller,  if the approval of the shareholders of
Seller is not  obtained  at the  meeting of  shareholders  duly  called and held
therefor;  PROVIDED,  HOWEVER,  that the right to terminate this Agreement under
this  SECTION  10.01(d)  shall not be  available  to Seller where the failure to
obtain  shareholder  approval of Seller  shall have been caused by the action or
failure  to act of  Seller  and such  action or  failure  to act  constitutes  a
material breach by Seller of this Agreement.

     10.02 TERMINATION BY BUYER.

          This  Agreement may be  terminated by Buyer,  at any time prior to the
Closing,  before or after the  approval by the  shareholders  of Seller,  if (a)
Seller  shall have  failed to comply with any of its  obligations  such that the
closing  conditions set forth in SECTION 7.04 would not be satisfied;  PROVIDED,
HOWEVER,  that if such  failure to comply is capable of being cured prior to the
End Date,  such failure  shall not have been cured within 15 days of delivery to
Seller of written notice of such failure,  (b) there exists a breach or breaches
of any  representation  or warranty of Seller  contained in this  Agreement such
that the closing  conditions  set forth in SECTION 7.01 would not be  satisfied;
PROVIDED,  HOWEVER,  that if such breach or breaches  are capable of being cured
prior to the End Date, such breaches shall not have been cured within 15 days of
delivery to Seller of written notice of such breach or breaches, or (c) a Seller
Triggering Event (as defined below) shall have occurred.

          For the purposes of this Agreement,  a "Seller Triggering Event" shall
be deemed to have  occurred  if:  (i) the  Board of  Directors  of Seller or any
committee thereof shall for any

                                      -85-
<PAGE>
reason have withdrawn  recommendation in favor of the approval of the Agreement;
(ii)  Seller  shall  have  failed  to  include  in  the  Proxy   Statement   the
recommendations  of the Board of Directors of Seller in favor of the approval of
the  Agreement  and the  transactions  contemplated  hereby;  (iii) the Board of
Directors of Seller or any committee  thereof shall have approved or recommended
any Superior Proposal with respect to Seller; or (iv) a tender or exchange offer
relating  to  securities  of  Seller  shall  have  been  commenced  by a  Person
unaffiliated  with Buyer and Seller  shall not have sent to its  securityholders
pursuant  to Rule 14e-2  promulgated  under the  Exchange  Act,  within ten (10)
business days after such tender or exchange  offer is first  published,  sent or
given, a statement disclosing that Seller recommends rejection of such tender or
exchange offer.

     10.03 TERMINATION BY SELLER.

          This  Agreement  may be  terminated  at any time prior to the  Closing
Date,  before or after approval by the shareholders of Seller,  by action of the
Board of  Directors  of Seller,  if (a) Buyer shall have failed to comply in any
material  respect with any of its obligations  such that the closing  conditions
set forth in SECTION 8.05 would not be  satisfied;  PROVIDED,  HOWEVER,  that if
such  failure to comply is capable of being  cured  prior to the End Date,  such
failure shall not have been cured within 15 days of delivery to Buyer of written
notice  of  such  failure,  (b)  there  exists  a  breach  or  breaches  of  any
representation  or warranty of Buyer  contained in this  Agreement such that the
closing  condition set forth in SECTION 8.01 would not be  satisfied;  PROVIDED,
HOWEVER, that if such breach or breaches are capable of being cured prior to the
End Date,  such breaches shall not have been cured within 15 days of delivery to
Buyer of  written  notice  of such  breach or  breaches  or (c) (i) the Board of
Directors of Seller  authorizes  Seller,  subject to complying with the terms of
this  Agreement,  to  enter  into  a  binding  written  agreement  concerning  a
transaction  that  constitutes  a Superior  Proposal  and (ii)  Seller upon such
termination pursuant to this

                                      -86-
<PAGE>
clause (c) pays to Buyer in immediately  available funds the fees required to be
paid pursuant to SECTION 10.05.

     10.04 PROCEDURE FOR TERMINATION.

          In the  event  of  termination  by Buyer or  Seller  pursuant  to this
Article IX, written notice thereof shall forthwith be given to the other.

     10.05 EFFECT OF TERMINATION.

          (a) In the event of  termination  of this  Agreement  pursuant to this
Article X, the Agreement shall become void and of no further force or effect and
no party hereto (or any of its  directors or officers)  shall have any liability
or further obligation to any other party to this Agreement,  except that SECTION
10.05 and SECTION 11.02 shall survive such termination.

          (b) If

               (i) Seller shall  terminate  this  Agreement  pursuant to SECTION
10.03(c);

               (ii) Buyer shall  terminate  this  Agreement  pursuant to SECTION
10.02(c);

or

               (iii)  either  Buyer or Seller  shall  terminate  this  Agreement
pursuant to SECTION  10.01(d) in circumstances  where the requisite  approval of
Seller's  shareholders was not obtained at the shareholder  meeting and prior to
the meeting (A) Seller received a Superior Proposal that was publicly  disclosed
or (B) a Seller Acquisition proposal was publicly proposed and, within 12 months
of such proposal,  Seller consummates a Seller Acquisition;

then in any case as described  in clause (i),  (ii) or (iii) Seller shall pay to
Buyer (by wire transfer of immediately  available  funds not later than the date
of termination of this Agreement (or, in the cause of clause (iii),  the date of
such definitive  agreement) an amount equal to $2,000,000.  For purposes of this
Agreement, the term "Seller Acquisition" shall mean (i) a merger, consolidation,
business  combination,  recapitalization,  liquidation,  dissolution  or similar
transaction involving

                                      -87-
<PAGE>
Seller pursuant to which the shareholders of Seller  immediately  preceding such
transaction hold less than fifty percent (50%) of the aggregate equity interests
in the surviving or resulting entity of such transaction, (ii) the sale or other
disposition  by Seller of the Purchased  Assets or (iii) the  acquisition by any
person or group  (including  by way of a tender  offer or an  exchange  offer or
issuance by Seller),  directly or indirectly, of beneficial ownership or a right
to acquire beneficial ownership of shares, directly or indirectly, of beneficial
ownership or a right to acquire beneficial  ownership of shares  representing in
excess of fifty percent (50%) of the voting power of the then outstanding shares
of capital stock of Seller.

          (c) Payment of the fees  provided for in SECTION 10.05 shall not be in
lieu of damages incurred in the event of a willful or intentional breach of this
Agreement by Seller and nothing  herein shall  relieve  Buyer,  Seller or Parent
from liability for any willful material breach hereof.

                                   ARTICLE XI
                                  MISCELLANEOUS

     11.01 ENTIRE AGREEMENT; AMENDMENT.

          This Agreement, the Confidentiality  Agreement and the documents to be
delivered  pursuant hereto  constitute the entire agreement  between the parties
pertaining  to  the  subject  matter   hereof,   and  supersede  all  prior  and
contemporaneous agreements, understandings,  negotiations and discussions of the
parties,  whether oral or written, and there are no warranties,  representations
or other  agreements  between the parties in connection  with the subject matter
hereof. No amendment,  supplement,  modification,  waiver or termination of this
Agreement  shall be binding unless  executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall  constitute a waiver of any other provision of this Agreement,  whether or
not similar, nor shall such waiver constitute a continuing waiver

                                      -88-
<PAGE>
unless otherwise expressly provided.  The representations and warranties of each
party hereto  contained in this Agreement and the documents  delivered  pursuant
hereto shall constitute all  representations and warranties of each party hereto
and shall be deemed to be  material  and to have been  relied  upon by the other
party  notwithstanding  any  investigation  heretofore or hereafter  made by the
other party.

     11.02 EXPENSES.

          Each of the parties  hereto  shall pay the fees and  expenses of their
respective counsel, accountants, representatives and other experts and the other
expenses  incident to the  negotiation  and  preparation  of this  Agreement and
consummation of the transactions  contemplated hereby.  Seller will pay one-half
and Buyer  will pay  one-half  of the filing  fee  required  to make the HSR Act
filing.  Seller will pay all amounts payable to any finder or investment  banker
engaged  by  Seller  in  connection  with this  Agreement  and the  transactions
contemplated hereby.

     11.03 GOVERNING LAW; CONSENT TO JURISDICTION.

          This  Agreement  shall be construed and  interpreted  according to the
laws of the State of New York,  without regard to the conflict of law principles
or rules  thereof.  Each of the  parties  hereto,  in  respect of itself and its
properties,  agrees to be subject to (and  hereby  irrevocably  submits  to) the
nonexclusive  jurisdiction  of any United States federal or Illinois state court
sitting in  Chicago,  Illinois,  in respect  of any suit,  action or  proceeding
arising out of or relating to this  Agreement or the  transactions  contemplated
herein,  and  irrevocably  agrees  that all  claims in respect of any such suit,
action or proceeding may be heard and determined in any such court.  Each of the
parties hereto  irrevocably  waives, to the fullest extent it may effectively do
so under  applicable  Law, any  objection to the laying of the venue of any such
suit, action or proceeding

                                      -89-
<PAGE>
brought in any such court and any claim that any such suit, action or proceeding
brought in any such  court has been  brought in an  inconvenient  forum.  Either
party hereto may make service on the other party by sending or delivering a copy
of the  process  to the  party to be  served at the  address  and in the  manner
provided  for the giving of notices in  Section  11.06  hereof.  Nothing in this
SECTION 11.03, however,  shall affect the right of any party to bring any action
or proceeding arising out of or relating to this Agreement in any other court or
to serve legal process in any other manner permitted by Law or in equity.

     11.04 ASSIGNMENT.

          This  Agreement  and each party's  respective  rights and  obligations
hereunder may not be assigned by either party without the prior written  consent
of the  other  party,  except  for the  assignment  by Buyer of its  rights  and
obligations  hereunder to a  wholly-owned  subsidiary of Buyer.  All  agreements
entered into pursuant to this Agreement  shall be assignable in accordance  with
their respective terms.

     11.05 AGREEMENT NOT TO COMPETE.

          (a) Seller  understands  that Buyer  shall be  entitled to protect and
preserve  the going  concern  value of the  business  related  to the  Purchased
Assets,  including the Computer Telephony  Business,  to the extent permitted by
law and that  Buyer  would not have  entered  into  this  Agreement  absent  the
provisions of this SECTION 11.05,  and therefore agrees that Seller will not (i)
after the Closing Date and prior to the third  anniversary  of the Closing Date,
directly or indirectly  engage in,  represent in any way, or be connected  with,
any business that competes with the Computer Telephony Business,  (ii) after the
Closing Date and prior to the second  anniversary of the Closing Date,  hire any
Employee or directly or  indirectly  induce any  Employee to leave the employ of
Buyer, or to accept any other position or employment, (iii) after the second and
prior to the third  anniversary  of the Closing  Date,  directly  or  indirectly
include  any  Employee  to leave the  employ of  Buyer,  or to accept  any other
position or employment and (iv) at any time

                                      -90-
<PAGE>
communicate or divulge any confidential  information,  knowledge or data related
to the  Purchased  Assets or the Computer  Telephony  Business,  all of which it
agrees to hold in a fiduciary  capacity for the benefit of Buyer,  to any Person
other than Buyer.  Notwithstanding  the foregoing,  (i) Buyer  acknowledges  and
agrees that the  Healthcare  Communications  Business  will continue to develop,
market,  license  and sell in the acute  care  healthcare  market  and all other
markets in which the Healthcare Communications Business currently sells products
certain products and services substantially similar to the products and services
sold by the Computer Telephony Business, and (ii) any confidential  information,
knowledge or data related to the Computer Telephony Business  represented by the
Purchased  Assets shall not be subject to the restrictions of this SECTION 11.05
if: (A) at the time of disclosure or thereafter  such  information  is generally
available to and known by the public  (other than as a result of its  disclosure
by Seller or its representatives) or is available to Buyer on a non-confidential
basis  from a source  other than  Seller;  (B) Buyer or its  representatives  or
assigns  become legally  compelled (by  deposition,  interrogatory,  request for
documents,  subpoena, civil investigative demand or similar process) to disclose
such  information;  or (C) such  information was in Buyer's  possession prior to
disclosure by the Seller.

          (b) For  purposes  of this  SECTION  11.05,  the phrase  "directly  or
indirectly  engage  in"  shall  include  having a direct or  indirect  ownership
interest (other than ownership of an equity interest in DCC or ownership of less
than five  percent  of the  outstanding  voting  securities  of a Person  who is
registered  under  Section 12 of the Exchange Act) in any Person that engages in
the business in question.

     11.06 NOTICES.

          All communications,  notices and disclosures  required or permitted by
this  Agreement  shall be in writing and shall be deemed to have been given when
received

                                      -91-
<PAGE>
(a) personally or by messenger,  (b) by overnight delivery service to an officer
of the other party, or (c) by United States mail,  certified or registered mail,
postage prepaid,  return receipt requested, in all cases addressed to the Person
for whom it is intended at his address set forth below,  unless and until either
of such parties notifies the other in writing of a change of address:

     If to Seller:      EXECUTONE Information Systems, Inc.
                        478 Wheelers Farms Road
                        Milford, Connecticut 06460
                        Attention: Barbara C. Anderson, Esquire
                        Telecopy No.: (203) 882-6607

     With a copy to:
                        Hunton & Williams
                        Riverfront Plaza, East Tower
                        951 East Byrd Street
                        Richmond, Virginia 23219-4074
                        Attention: Thurston R. Moore, Esquire
                        Telecopy No.: (804) 788-8218

     If to Buyer:       Inter-Tel, Incorporated
                        120 North 44th Street, Suite 200
                        Phoenix, Arizona 85034-1822
                        Attention: John Gardner, Esquire
                        Telecopy No.: (602) 302-8900

     With a copy to:
                        Wilson Sonsini Goodrich & Rosati, P.C.
                        640 Page Mill Road
                        Palo Alto, California  94304-1050
                        Attention: Jeffrey D. Saper, Esquire
                                   Robert G. Day, Esquire
                        Telecopy No: (650) 493-6811

     11.07 COUNTERPARTS; HEADINGS.

          This Agreement may be executed in several counterparts,  each of which
shall be deemed an original, but such counterparts shall together constitute but
one and the same  Agreement.  The Table of  Contents  and  Article  and  Section
headings in this  Agreement are inserted for  convenience  of reference only and
shall not constitute a part hereof.

                                      -92-
<PAGE>
     11.08 SEVERABILITY.

          If any provision, clause or part of this Agreement, or the application
thereof under  certain  circumstances,  is held  invalid,  the remainder of this
Agreement,  or the  application  of such  provision,  clause or part under other
circumstances, shall not be affected thereby.

     11.09 NO RELIANCE.

          No third  party  is  entitled  to rely on any of the  representations,
warranties and agreements  contained in this Agreement.  Buyer and Seller assume
no liability to any third party because of any reliance on the  representations,
warranties and agreements of Buyer and Seller contained in this Agreement.

     11.10 INTERPRETATION.

          Unless  the  context  requires  otherwise,  all  words  used  in  this
Agreement  in the singular  number  shall extend to and include the plural,  all
words in the plural  number  shall  extend to and include the  singular  and all
words in any gender shall extend to and include all genders.  All  references to
contracts,  agreements,  leases or other  understandings  or arrangements  shall
refer to oral as well as written matters.  The specificity of any representation
or warranty  contained herein shall not be deemed to limit the generality of any
other representation or warranty contained herein.

     11.11 SPECIFIC PERFORMANCE.

          Buyer and Seller hereby agree that  irreparable  damage would occur in
the  event  any of the  provisions  of this  Agreement  were  not  performed  in
accordance  with the terms  hereof and that the  parties  shall be  entitled  to
specific performance of the terms hereof, in addition to any other remedy at law
or equity.

                                      -93-
<PAGE>
     11.12 EMPLOYEE TAX REPORTING.

          Seller  shall  furnish to Buyer the most current on file Forms W-4 and
W-5 of each  Transferred  Employee as of the Closing Date.  Seller shall send to
the appropriate Social Security  Administration Office a duly completed Form W-3
and accompanying  copies of the duly completed Form W-2. It is the intent of the
parties that the  obligations of Buyer and Seller under this SECTION 11.12 shall
be carried out in accordance  with Section 5 of the Internal  Revenue  Service's
Revenue Procedure 96-60.

     11.13 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 things and acts, all as the other party may
reasonably request for the purposes of carrying out the intent of this Agreement
and the transactions contemplated hereby.

     11.14 DISCLOSURE SCHEDULE.

          The  disclosures  in  the  Disclosure  Schedule,   and  those  in  any
supplement  thereto,  must relate only to the  representations and warranties in
the Section of the Agreement to which they expressly relate and not to any other
representation or warranty herein.

                            [SIGNATURE PAGE FOLLOWS]

                                      -94-
<PAGE>
          IN WITNESS WHEREOF,  each party has caused this Purchase  Agreement to
be duly  executed in its name by its duly  authorized  officer as of the day and
year first above written.

SELLER:                                 EXECUTONE INFORMATION SYSTEMS, INC.


                                        By: /s/ Stanley J. Kabala
                                            ------------------------------------
                                            Name: Stanley J. Kabala
                                            Title: Chairman, President and Chief
                                                   Executive Officer


BUYER:                                  EXECUTONE INTER-TEL BUSINESS
                                        INFORMATION SYSTEMS, INC.


                                        By: /s/ Norman Stout
                                            ------------------------------------
                                            Name: Norman Stout
                                            Title: President


PARENT:                                 INTER-TEL, INCORPORATED


                                        By: /s/ Norman Stout
                                            ------------------------------------
                                            Name: Norman Stout
                                            Title: Executive Vice President and
                                                   Chief Administrative Officer

                                      -95-


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