Axxess sues Robert Almblad David Richards declaration & exhibits

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Michael F. Bailey (#004528)Joel W. Nonakin (#011939)Chad S. Campbell (#012080)BROWN & BAIN, P.A.2901 North Central AvenuePost Office Box 400Phoenix, Arizona 85001-0400(602) 351-8000

Of CounselLaurence R. HefterChristopher P. IsaacFINNEGAN, HENDERSON, FARABOW,GARRETT & DUNNER,

1300 1 Street, N.W.Washington, D.C. 20005-3315(202) 408-4000 Phone(202) 408-4400 Fax

Attorneys for Plaintiff

Axxess Technologies, Inc., a Delaware corporation,

V.Plaintiff,

Robert E. and Yvonne Almblad, husband and wife;and Laser Key II LP, an Illinois limited partnership,

Defendant.

UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

FiL.ED • L O D G E DRE'CEIVED C O P Y

8 25 2000CLERK U L OTI I ICT COURT

DISTRICT OF ARIZONABY C 3 I t i o u 1 " e

No. CIV-99-2251-PHX-RCB

DECLARATION OF DAVID M.RICHARDS IN OPPOSITION TODEFENDANTS' MOTION FORLEAVE TO FILE COUNTERCLAIM

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David M. Richards declares:

1. I am Vice President, Sales and Service, of Axxess Technologies, Inc., which is the

plaintiff in this action. I make this declaration in opposition to defendants' motion for leave to

file counterclaim. I have personal knowledge of the matters stated in this declaration and would

be competent to testify to them at trial, i f called upon to do so.

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1 2 . D e f e nda nt Robert E. Ahablad was co-founder of a predecessor company of

2 Axxess, In 1990 he sold his interest in that predecessor. Since then, Mr. Altnblad repeatedly has

3 proposed business ideas and ventures to be funded by Axxess. On two occasions, Mr. Ahnblad

4 o r companies controlled by him have sued or threatened to sue Axxess Technologies seeking to

5 b e paid monies in connection with his version of such arrangements. Among the agreements

6 resolving those matters are an "Addendum to Settlement and Compromise Agreement" dated

7 March 19, 1994 and a "Settlement and License Agreement" executed in October and November

8 1 9 9 7 . Excerpts from a paragraph of the 1994 addendum titled "21. Right of First Refusal.",

9 together with an excerpt of the 1997 agreement titled "Article 13 — Extension of Rights of First

10 Refusal and Non-Compete Provisions" are located under Tab A of the materials attached to this

11 declaration.

12 3 . O n October 28, 1999, Axxess and a publicly traded, NYSE-listed company,

13 SunSource, Inc., announced a definitive merger agreement between them. A copy of the press

14 release disclosing that transaction is located under Tab B of these materials. Alter that

15 announcement, Mr. Almblad sent me a video tape about a new key identification and cutting

16 machine. He described the new system to me as operator-assisted (as opposed to the fully

17 automated robot version we earlier had market-tested), but he said the new version was

18 substantially cheaper than the earlier one. Located under Tab C of these materials is an e-mail

19 received from Mr. Almblad on November 27, 1999 in which he proposed that Axxess should buy

20 r ights to the new machine. Located under Tab D of these materials is a copy of a letter dated

21 December 1, 1999 from Mr. Almblad to the chairman of SunSource. Located under Tab E of

22 these materials is an e-mail message I received from Mr. Almblad on December 8, 1999,

23 4 . i n response to Mr. Almblad's November 27, 1999 e-mail advising me that he

24 planned to send a video tape regarding the new key identification and cutting machine to "just

25 about everybody of any importance to the industry" on Monday, December 6, Axxess reminded

26 M r . Ahnblad of our belief that Axxess had paid him for a right of first refusal and negotiation

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1 w i t h respect to such new products. We requested that he honor his agreement to negotiate with

2 Axxess and to refrain from attempting to market or license the technology elsewhere until he had

3 complied with his agreement.

4 5 . L o c a t e d under Tab F of these materials is a copy of a letter dated January 11,

5 2 0 0 0 from Mr. Almblad's attorney to Axxess' attorney, together with a copy of our response.

6 6 . 1 understand that in connection with our first refusal rights, Mr. Almblad has the

7 r ight to propose confidentiality terms satisfactory to him in connection with the required

8 disclosure of his technology. (See Tab A, 11 21(c)) Instead of proposing confidentiality terms

9 immediately after the January 11, 2000 letter, Mr. Ahnblad and his attorneys made a series of

10 othe r proposals. Located under Tab G of these materials is a copy of an e-mail I received from

11 h i m on January 16, 2000 asking for a written assurance by Axxess before proceeding further.

12 W e provided the requested assurance, a copy of which also is located under Tab G. Located

13 under Tab H is a copy of a letter from Mr. Almblad dated January 24, 2000 proposing that

14 Axxess commit an advance to pay him his asking price as further proof of our "bona fides"

15 before he made disclosure of the technology. Located under Tab 1 is a copy of a letter from Mr.

16 Almblad's attorney to Axxess' attorney stating that no further disclosures were required under

17 t h e first refusal right. Located under Tab J is a copy of Axxess' response, exercising our sixty

1.8 day extension right.

19 7 . L o c a t e d under Tab K of these materials is a copy of a press release issued by

20 SunSource on February 10, 2000, announcing the status of the pending merger with Axxess,

21 among other things. I received a copy of the proposed counterclaim by e-mail from Mr. Alrnblad

22 t h e following Monday, February 14, 2000. A copy of Axxess' letter of February 18, 2000, sent

23 a f te r the motion to add counterclaim was filed and served is located under Tab L of these

24 materials.

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8. A c e Hardware is not a customer of Axxess, and to the best of my knowledge no

one from Axxess has had any conversations with Ace Hardware within the past year about Laser

Key, Mr. Almblad or any technology that either of them claims.

Signed under penalty of perjury under the laws of the United States of America.

Dated: February- l < 2000. gevDavid M. Richards

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Copy of the foregoing mailedFebruary 25, 2000, to:

Ray K. HarrisFENNEMORE CRAIG3003 North Central AvenueSuite 2600Phoenix, Arizona 85012-2913

Michael R. McKenna, Esq.The Law Firm of Michael R. McKenna500 West Madison Street, Suite 3800Chicago, 11., 60661

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ADDENDUM TO SETTLEMENT AND COMPROMISE AGREEMENT

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-1•3 2

Thi s Addendem Le a n addendum t o a S e t t l e m e nt a nd Compr omi ne Agr e e m e nt ( h e r e i n r e f e r r e d toae " Agr e e m e nt " ) be t w e e n a nd among Axxess , 3 4 7 , Y v onne , a n d Robe r t .

The P a r t i e s . A x x e e s E n t r y Te c hnol ogi e s a C a l i f o r n i a Cor por a t i on , f o r m e r l y Axxass E nt r yTe c hnol ogi e s , I n c . a n Ar i z ona c o r p o r a t i o n , i s h e r e i n r e f e r r e d t o a s "Ax x e c a ". 3 4 7Company, a n A r i z o n a c or por a t i on , i s h e r e i n r e f e r r e d t o a s " 3 4 7 " . Y v o n n e Al mbl ed i s he r e i nr e f e r r e d t o a s " Y v onne " , a n d a s " Y A" . R o b e r t A l m l a d i s h e r e i n r e f e r r e d t o a s "Robe r t " ,and a s

For pur pos e s o f t h i n Agr e e m e nt t h e t e r m mAxxese P a r t i e s " s h a l l mean i n d i v i d u a l l y a ndc o l l e c t i v e l y : Ax x e s e , a n y o f Ac c e s s ' s s ha r e hol de r s , a n d a ny o t h e r a f fi l l a t e s o f A x e .

For Pur poses' o f t h i s Agr e e m e nt t h e t e r m "Al m bl a d P a r t i e s s h a l l mean I n d i V i d u a l l y a ndc o l l e c t i v e l y : R o b e r t , Y v onne , 3 4 7 , a n d a ny o t h e r a f fi l i a t e s o f Robe r t i n c l u d i n g a nycompany o r c o r p o r a t i o n ( i n c l u d i n g a ny f o r e i g n e n t i t i e s s uc h a s j o i n t s t o c k compani es whi char e s i m i l a r t o a c o r p o r a t i o n ) w h i c h a r e 29% o r mor e owned o r c o n t r o l l e d by Robe r t o rYvonne ( e i t h e r s e p a r a t e l y o r c o l l e c t i v e l y ) . A n y ge ne r a l o r l i m i t e d pa r t ne r s hi p i n whi chRobe r t , Y v onne , o r a ny o f t h e Al m bi a d P a r t i e s i s a p a r t n e r s h a l l b e deemed t o a l s o be oneo f t h e Al m hl a d P a r t i e s . " A l m b l a d P a r t y- s h a l l b e d e e m e d t h e s i n g u l a r o f A I m b l ad P a r t i es .

Re l a t i ons h i p t i e twagn Adde ndum "uuLj Wi nm na a t , A x x e s a , 3 4 7 , Y v onne , a n d Robe r t e nt e r e d i n t ot he Agr e e m e nt o n Ma r c h 9 , 1 9 9 1 . A l l t h e t e r m s a nd c o n d i t i o n s s e t f o r t h i n t he Agr eements ha l l r e m a i n i n f u l l f o r c e a nd e f f e c t a s o n t h e d a t e o f t h i s addendum, e x c e pt t o t h ee x t e nt t h a t s uc h t e r m s a n d c o n d i t i o n s a r e m o d i fi e d b y o r i n c o n fl i c t w i t h t he pr ov i s i onso f t h i s Addendum, I n w hi c h c a s e t h i s Addendum s h a l l p r e v a i l . S u b j e c t t o t h e f or e goi ng,t h i s Addendum a nd t h e Agr eement s h a l l b e deemed one i n t h e same document a nd a r e f e r e nc et o one w i l l b e deemed a r e f e r e nc e t o t h e o t h e r unl e s s t h e c o n t e x t c l e a r l y r e qui r e sot he r w i s e . .

20. W h e r e a s C l a us e e . T h e f o l l o w i n g i s he r e by a dde d t o t h e pr e a m bl e c ont a i n i ng t h e"wher eas" c l a u s e s a t t h e b e g i n n i n g o f t h e Agr eement .

-This Agreement was amended with an addendum on March_18 , 1994 in

c o n s i d e r a t i o n o f t h e f o l l o w i n g :

WHEREAS, R o b e r t a n d Axxess e nt e r e d i n t o a non- c om pe t i t i on agr eementda t e d September 7 , 1 9 9 0 , a n d c u r r e n t l y d i s a gr e e a s t o t h e w he t he r o r w tt h a t a gr e e m e nt c o n t i n e e d i n e f f e c t p a s t Ma r c h 9 , 1 9 9 1 .

WHeREAS, t h e p a r t i e d i n t e n d b y t h i s Agr eement t o e l i m i na t e , e f f e c t i v eMar ch 9 , 1 9 9 1 a n y o f R o b e r t ' s o b l i g a t i o n s unde r t h e s a i d non- c om pe t i t i onagr eement d a t e d S e pt e m be r 7 , 1 9 9 0 . "

21_h t o f EL_c_.q•et R e f u s a l .

S e c t i on 7 o f t h e Agr eement ( " R i g h t o f F i r s t Re f us a l - Ke y - I D Te c h" ) i s he r e byde l e t e d .

-(a ) l e ) E l g r _ t _ t s a _ t i r a t t . I n t h e ei tetz t t h a t Robe r t de v e l opst e c hnol ogy L n a ny fi e l d r e l a t i n g t o k e y s - i n c l u d i n g , w i t h o u t l i m i t a t i o n , t h e i rde s i gn, m a nuf a c t ur e , u s e , d u p l i c a t i o n o r ot he r w i s e , be t w e e n Ma r c h 9 , 1 9 9 1 a ndSeptember 7 , 1 9 9 7 , ( h e r e i n r e f e r r e d t o a s t h e "New Ke y Te c hnol ogy " ) Robe r t w i l lpe r m i t Ax x e c s t o make a n o f f e r t o pur c ha s e o r l i c e n s e t h e New Ke y Te c hnol ogy f r om

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( i ) s t a r t o t t h e P r oc e s s . W i t h r e s pe c t t o a - , p o r t i o n o f t h e New ee vTe c hnol ogy , R o b e r t w i l l make a one t i m e r e que e t f o r a n o f f e r f r om Axxe . s or Lort o l i c e n s i n g o r s e l l i n g t h e s a i d p o r t i o n o f t h e New Ke y Te c hnol ogy t o are,ot he r p a r t i e s o t h e r t h a n Al m bl a d P a r t i e s .

( i i ) I r e , , y _ y g _ 6 A c ios L l a e e e h n o l o v . U p o n m a k i ng e a ch s u ch r 2 q Ue g t ,

RObeCt w i n make t h e a p p l i c a b l e p o r t i o n o f t h e flew Ke y Te c hnol ogy a v a i l a b l e t oAxxess s u b j e c t t o t h e t e r m s o f S e c t i on 2 1 ( c ) h e r e i n . R o b e r t r e s e r v e s t her i gh t , a t h i s e l e c t i o n , t o de l a y maki ng t h e r e que s t f o r a n o f f e r , a n d w i t hhe l di nf or m a t i on a bout t h e New Ke y Te c hnol ogy , u n t i l p a t e n t a p p l i c a t i o n s on t hea ppl i c a b l e New Ke y Te c hnol ogy ha v e be e n pr ope r l y fi l e d .

( i i i ) N o t i c e b y Robe r t t o_ Ax x e e e o f Per chase Ter ms. W i t h r e s p e c t t o a nyp o r t i o n o f t h e New Ke y Te c hnol ogy s o o f f e r e d , t h e r e que e t f o r a n o f f e r s ha l lbe made i n t h e f or m o f a non - b i nd i ng o u t l i n e o f h i s t h e n c u r r e n t op i n i on o fwhat h i s ne e ds o r w a nt s a r e . I t s h a l l c o n t a i n s uc h d e t a i l a nd i nf or m a t i on a she may e l e c t t o d i s c l os e . O n c e t h a t r e que s t f o r a n o f f e r Le made t he r e w i l lbegin a 3 0 da y pe r iod ( t h e -N e g o t i a t i o n P e r i o d ' ) d u r i n g w h i ch A x x es s w i ll be

e n t i t l e d t o pr opos e o f f e r s t o pur c ha s e o r l i c e ns e t h e New Ke y Technol ogy .E i t h e r p a r t y may e l e c t t o e x t e nd t h e N e got i a t i on P e r i od by u p b e a n a dd i t i ona l60 da y s .

Dur i ng t h e N e g o t i a t i o n P e r i o d no o f f e r o r pr opos a l s made b y a ny p a r t y s ha l t beb i nd i ng o n t h a t p a r t y unl e s s a nd u n t i l i t i s i nc or por a t e d i n t o a fi n a l be a de e ge x e c ut e d a gr e e m e nt . I f a t t h e e n d ' o f t h e N e g o t i a t i o n P e r i ol l Robe r t f a i l s t oe x e c ut e s uc h agr eem ent , t h e n Robe r t w i l l ha v e f u l fi l l e d a l l h i e ob l i ga t i onsunder t h i s S e c tion 1 2 (a ) w i t h respec t t o the a ppl i c a bl e por t i on o f the New KeyTe c hnol ogy , e v e n i f n e g o t i a t i o n s v O l u n t a r i l y c ont i nue p a s t t h e e nd o f t heN e g o t i a t i o n P e r i od .

( i v ) Bel ,1 • gteL : Le _a ret i ce re oe l lA te r th eE nd o ft h ee ' od . With respect to-

any p o r t i o n o f t h e New Ke y Te c hnol ogy f o r w hi c h Robe r t makes a r e que s t f o ro f f e r a s pr ov i de d a bov e , o n c e t h e N e g o t i a t i o n P e r i od i s fi n i s h e d , R o b e r t w i l lhave t h e r i g h t , s u b j e c t t o S e c t i on 2 1 ( b ) be l ow t o g a l l , t r a n s f e r a nd l i c e ns et h a t p o r t i o n o f t h e New Ke y Te c hnol ogy i n a s many ways ( i n c l u d i n g l i c e ns e sw i t h d i f f e r e n t ge ogr a phi c l i m i t s o r fi e l d o f us e L i m i t s ) a n d a s many t i mes a she c hoos e s w i t h o u t t h e s a i d p o r t i o n o f t h e New Ke y Te c hnol ogy a ga i n be i ngs ubj e c t t o t h i s S e c t i on 2 1 ( a ) .

(v ) s t e m b e r 7 1 9 9 7 . R o b e r t ' s o b l i g a t i o n s unde r t h i s S e c t i o n 2 1 ( a )s ha l l t e r m i n a t e on September 7 , 1 9 9 7 .

(b) R i g h t o f F i r st I t a se 2 .

( i ) 1 1 4 1 g L _ I t . . t t c h o z L _ I t t _ f _ L i f e O f e I g : . I f Robe r t r e c e i v e s a bons fi d e o f f e rfr om a t h i r d p a r t y t o pur c ha s e t h e New Key Te c hnol ogy , o r a ny p a r t t he r e of ,R o b e r t . e h a l l n o t i f y Axxess o f t h e s a i d bona t i d e o f f e r . S i m u l t a n e o u s l y ,Robert s h a l l fa x w r i t te n no t i c e t o Ca h i l l , S utton 4 Thomas P . L . C. (he r e i nr e f e r r e d t o a s " CS T" ) , i n t e l l e c t u a l p r ope r t y c ouns e l f o r Axxess , s e t t i n g f o r t ht h e name, a ddr e s s , a n d phone number o f t h e t h i r d p a r t y , a n d p r o v i d i n g aw r i t t e n d e s c r i p t i o n o r c opy o f t h e ter m!, o f t h a t o f f e r . C S T s h a l l n o td i s c l os e t o 'anyone, i n c l u d i n g Access, t h e i d e n t i t y o f t h e p a r t y s ubm i t t i ng t h e

aa f fe r t o Robe r t , b u t s h a l l ha v e t h e r i g h t t o c ont a c t t h a t p a r t y a nd t oot he r w i s e i nde pe nde nt l y i n v e s t i g a t e t h e v a l i d i t y a nd t e r m s o f t h e o f f e r .AJocess s h a l l ha v e 6 0 da y s a f t e r r e c e i v i ng t h e n o t i fi c a t i o n f r o m Robe r t i nwhi ch t o m a t c h ( i n e v e r y r e s pe c t ) t h e o f f e r made by t h e t h i r d p a r t y a nd Robe r ts ha l l b e r e q u i r e d t o a c c e pt s uc h o f f e r . I f Axxess f a i l s t o match t h e t h i r dpa r t y o f f e r w i t h i n t h e s i x t y da y pe r i od, Ax x e e s ' s u p e r i o r r i g h t t o pur chasee a i d t e c hno l ogy s h a l l e x p i r e .

( L i ) R o b e r t ' s F a i l u r e t o A c c e e tet h E e l e t i r d Z e e t v o f f e r B e f o r e E)E c a . t - r -C 1 1 1 3-1

Matchi ng_Eggi 2g. s. I f , u p o n t h e e x p i r a t i o n o f t h e s a i d 6 0 da y o f f e r matchi ngpe riod described i n Se c tion 2 1 ( b ) ( i ) above, Robe r t has f a i l e d t o accept theo f fe r o f th e t h i r d pa r ty , , then th e s a id r i g h ts o f exxess w i th re s pe c t to th a tp o r t i o n o f t h e New Ke y Te c hnol ogy i n que nc i on, s h a l l . be r e v i v e d a nd Rober t

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s ha l l b e r e q u i r e d t o pr e s e nt t h e o p p o r t u n i t y t o Axxess t o m a t c h a ny subsequentbona fi d e o f f e r t o pur c ha s e t h e a pp l i c a b l e p o r t i o n o f t h e New Ke y T e c h n o l og y. th_gi_e__i_t•c_l_!L_IaLLE_y_'Thirdart*. F o r pur pos e s o f S e c t i onz 2 1 ( b ) ( 1 ) a nd2 1 ( b ) ( i i ) t h e .t e r m " t h i r d p a r ty * s h al l m ea n a s in gl e p er so n or entity and

s ha l l n o t i n c l u d e a s s i gne e s o r s ubs i d i a r i e s o f t h e pe r s on o r e n t i t y .

( i v ) A s u l a t i s ! c _ n t A g i F i d e o f f r , F o r pur pos e s o f S e c t i ons 2 1 ( b ) ( i ) a nd2 1 ( b ) ( i i ) t h e t e r m "bons fi d e o f f e r " s h a l l b e d e fi n e d a s o n i n w hi c h t h eper son o r e n t i t y Ma k i ng up t h e o f f e r ha s t h e fi n a n c i a l a b i l i t y t o c e r n ' ou tt he t e r m s o f t h e o f f e r .

Re be r t ' s o b l i g a t i o n s unde r t h i s S e c t i o n 2 1 ( b)s ha l l t e r m i n a t e on September 7 , 1 9 9 7 .

(c ) c s a a t i l e n t l e = e , . N o t w i t h s t a n d i n g a ny t h i ng t o t h e c ont r a r y Robe r t s h a l l have t h e•ftssseestssket-ed r i g h t t o c ond i t i on t h e d i s c l os ur e o f a ny o f t h e New Ke y Te c hnol ogy ont h e s i g n i n g o f c o n fi d e n t i a l i t y a gr e e m e nt s t h a t h e deems, 4. .4-4-i -o-uarre-r -tr let-ed. -d.i.seesetekees, a c c e p t a b l e t o hi m .

I n a n y e v e nt , a n y i n f o r m a t i on a bout t he : Ne w Ke y Te c hnol ogy s h a l l be deemed t o beAl mbl ad C o n fi d e n t i a l I n f o r m a t i o n .

(d) E s 2 k e . e t f.g _ L t e R , g e , ey e A x xe s s s ha ll pay two t hi rd s of R ob er t' s legal fees and

expensea a r i s i n g o u t o f Ax x e s s ' s r i g h t a o r R o b e r t ' s o b l i g a t i o n s unde r t h i s S e c t i on21, i n c l u d i n g , b y way o f example and n o t-l i m i t a t i o n , l e g a l f e e s i n c u r r e d d u r i n g t h e

Ne got i a t i on P e r i o d r e f e r r e d t o i n S e c t i on 2 1 ( a ) a bov e .

(e ) 2 .41 1 1 _1 s A lmg_ t a _u _ 4 1A d _ tu t i sg , Robert shall have the unrestricted right to

t r a n s f e r a ny o r a l l o f h i s r i g h t t i t l e o r i n t e r e s t i n t h e New Ke y Te c hnol ogy t o a nyot he r Al m bl a d P a r t y , p r o v i d e d however s uc h t r a n s f e r must b e c ond i t i one d on suchAl m bl a d P a r t y a c c e p t i n g t h e same o b l i g a t i o n s o n i t s e l f a s S e c t i ons 2 1 ( a ) , 2 1 ( b ) ,2 1 ( f ) a n d 2 2 i m pos e on Robe r t . I n t h e e v e nt o f s uc h a t r a n s f e r t h e s a i d Al mbl adP a r t y s h a l l ha v e t h e same r i g h t s unde r t h i s Agr eement a s t h i s Agr eement c onf e r s onRobe r t , i n c l u d i n g b y way o f exampl e a nd no t L i m i t a t i o n , ( i ) t h e same r i g h t s unde rS e c t i on 2 5 , ( L i ) t h e same r i g h t s unde r t h i s S e c t i on 2 1 ( e ) , a n d ( S AL) t h e same r i g h t st o ha v e i t s c o n fi d e n t i a l o r p r opr i e t a r y i n f or m a t i on t r e a t e d a s Al m bl a d C o n fi d e n t i a lI nf or m a t i on. .

( f ) T r a n s f e r s t o O t he r P a r t i e s . s u b j e c t o n l y t o S e c t i ons 2 1 ( a ) , 2 1 ( b ) a n d 22he r e i n , t h i s Agr e e m e nt s h a l l n o t r e s t r i c t Robe r t f r om s e l l i n g , l i c e n s i n g , o rt r a n s f e r r i n g a n y o r a i l t h e New Key Te c hnol ogy t o a ny p a r t y he c hoos e s pr ov i de d t h a tsuch p a r t y a gr e e t h a t u n t i l September 7 , 1 9 9 7 i t s h a l l b e s u b j e c t t o t h e samer e s t r i c t i o n s o f S e c t i o n 2 2 t h a t Robe r t i s boe nd by .

Secl i 2n-12_11i 2MMELCI CE_Ar i d Aes i ggEl l . T h e s e c ond s e nt e nc e o f S e c t i o n 1 3be gi nn i ng w i t h " N o a s s i gnm e nt s h a l l b e m a de . . . * a nd e ndi ng w i t h " . . . w r i t t e n not i c et h e r e o f t o Ax x e s s . " i s he r e by de l e t e d .

22. N o n - C o m p e t e . E x c e p t a s pr ov i de d be l ow , u n t i l September 7 , 1 9 9 7 , R o b e r t s h a l l n o tl i c e ns e o r t r a n s f e r a ny Un i t e d s t a t e s o r Ca na di a n r i g h t s i n a ny k e y r e l a t e dt e c hnol ogy i n v e n t e d o r de v e l ope d b y hi m t o a ny o f t h e S p e c i fi e d Ax x e s s Com pe t i t or s .

For pur pos e s t h i s Agr eement , t h e * S pe c i fie d Ax x e s s Com pe t i t or s " s h a l l mean t h ef o l l ow i ng 7 e n t i t i e s a nd a ny S ubs i di a r y t h a t i s 30% o r mor e owned b y a ny o f t hef o l l ow i ng e n t i t t e e t

1. A m e r i c a n consumer P r oduc t s2. M r . S t e v e n Col e3. e u r t i o I n d u s t r i e s4. X L C OS. S i l c a6. S t a r7. J e t6. N o e l Cr oup9. C l a o s e n Br onz e Li m i t e d

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ARTICLE 13 - EXTENSION OF RIGHTS OF FIRSTREFUSAL AND NON-COMPETE PROVISIONS

13,1 Robert Almblad grants to Axxess a three (3) year extension on the Rights of First

Refusal and a six (6) year extension on the Non-Compete provisions set forth in paragraphs 21

and 22, respectively, of the March 18, 1994 Addendum, attached hereto as Exhibit 5. Whereas

Robert Almblad's obligations under paragraphs 21 and 22 recently expired on September 7,

1997, these obligations and rights set forth in paragraphs 21 and 22 of the March 18, 1994

Addendum are hereby re-instated and binding upon the Parties for an additional three year term

for paragraph 21 and an additional six year term for paragraph 22, As such, the Rights of First

Refusal and Non-Compete provisions of paragraphs 21 and 22, respectively, of the March 18,

1994 Addendum will extend to September 7, 2000 and September 7, 2003, respectively. This

reinstatement shall take effect retroactively as if the provisions of the March 18, 1994 Addendum

never expired and apply without interruption from the execution of the March 18, 1994

Addendum through September 7, 2000 for paragraph 21 and September 7, 2003 for

paragraph 22. Robert Almblad represents and warrants that he has not taken and will not take

any action inconsistent with the retroactive application of this extension such that the Rights of

First Refusal and Non-Compete provisions apply without interruption from the March 18, 1994

Addendum through September 7, 2000 and September 7, 2003, respectively.

13.2 Paragraph 21 of the March 18, 1994 Addendum is hereby modified to recite that,

in lieu of sending notice to Cahill, Sutton, & Thomas, PLC., the required notice must be sent to

Judy Weiss at Brown & Bain, 2901 North Central Avenue, P.O. Box 400, Phoenix, Arizona

85001-0400. Paragraph 22 of the March 18, 1994 Addendum is hereby modified to include

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PRGE11

Hillman Fastener as a "Specified Axxess Competitor" in place of Curtis Industries. Paragraph 22

of the March 18, 1994 Addendum is further modified to include the successors in interest of the

Specified Axxess Competitors, including the successors in interest of American Consumer

Products, Mr. Steven Cole, Curtis Industries (Hillman Fastener), ILCO, Silca, Star, Noel Group,

and Classen Bronze Limited, in the event of a sale or transfer of the business of these identified

competitors.

133 Laser Key hereby represents and warrants that it will abide by the terms of the

Rights of First Refusal and Non-Compete provisions set forth in paragraphs 21 and 22,

respectively, of the March 18, 1994 Addendum through September 7, 2000 and September 7,

2003, respectively. By its execution of this Agreement, Laser Key agrees to be bound by

paragraph 21 of the March 18, 1994 Addendum through September 7, 2000 and paragraph 22 of

the March 18, 1994 Addendum through September 7, 2003, as if it were an original signatory to

that Addendum. The provisions of paragraphs 21 and 22 of the March 18, 1994 Addendum are

applicable to Laser Key with respect to any and all technology developed by its owners, officers,

directors, employees, independent contractors, and any other person/entity that develops

technology in which Laser Key has rights. Laser Key represents and warrants that it has taken no

action before execution of this Agreement that would be inconsistent with a retroactive

application of paragraphs 21 and 22 of the March 18, 1994 Addendum as if it applied to Laser

Key since March 18, 1994.

13.4 I n all respects other than those set forth in this Article 13, Paragraphs 21 and 22 of

the March 18, 1994 Addendum remain unchanged and in full effect.

i

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11-06-2010 1 5 : 0 2

Yahoo Sun Source to Acquire Mims— Opportunities for The Hillman Group

-1110301.FINANCE

E • MLR• . rd rAT

• I l d i a

Home - Yahoo! - HelpP 5 NEWSWIRE

Thursday October 28, 9;46 am Eastern Time

Company Press Release

SOURCE: SunSource Inc.

Meet your mate. Click Here.

SunSource to Acquire Axxess Technologies,

PAGE13

http;//biz,yahoo.comipmews/991025/pa_5unscur 1.html

[ Business I US Market1By Industry I rIPO AP I 132 International I PRNews I BizWire I CCN

.Related :antites

5/16 • -1/8;:clia0ainva

Inc.; Strategic Acquisition Will Broaden Opportunities for TheHillman GroupPHILADELPHIA, Oct, 28 /PRNewswirei SunSource Inc. (NYSE: SDP - news, HIRER - news) todayannounced it had entered into a definitive merger agreement to acquire Axxess Technologies, Inc. ofTempe, Arizona.

The transaction is being structured as a purchase of 100% of the stock of the privately-held company andrepayment of outstanding A.)ocess debt in exchange for $80 million in cash and a $45 million note of TheHillman Group, Inc., a subsidiary of SunSource, The transaction is expected to close in December, subjectto certain closing conditions, including regulatory approval and financing.

Axxess is a manufacturer and marketer of key duplication and identification systems. These include thepatented Axxess Precision Key Duplication System(TM), the Quick-Tag(TM) engraving vending systemsfor pet, luggage and identification tags and the Cole® brand letters, numbers and signs (INS) program. Itscurrent customers include mass market retailers such as Wal-Mart, Lowe's, and PETsMART which fit wellwith StmSource's Hillman Group whose hardware, keys and LNS product lines sell principally intohardware stores in addition to other national retailers.

Maurice P. Andrien, Jr., SunSource President and Chief Executive Officer, said that he currently expectsAXICOSS will operate within The Hillman Group with Axxess' current CEO, Stephen Miller, along withother key management, remaining in their current positions.

"The combined companies' revenues currently are estimated to be about $240 million in 1999 whichrepresents a compound annual growth rate of over 25% since 1994. Moreover, the two businesses areexpected to complement each other in key duplication, identification systems, fasteners and relatedhardware items," Andricn noted.

"This acquisition should be viewed as confirming SunSource's intention to build its core businesses tostrengthen shareholder value while carefully monitoring our overall financial leverage," Mr. Mdrien said.

1 n f 1 2 / 2 1 /00 4:07 PM

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Yahoo - SullSource to Acquire Axxess...Opportunities for The Hillman GroupPAGE14

http://biz.yahoo.com1pmews/99102Sloa_sunsour_1•htrril

The CEO also noted that in conjunction with the Axxess transaction, SunSource expects to refinance itsexisting senior credit facilities and currently has financing arrangements aggregating $300 million frommajor financial institutions to consummate these events.

—We believe Hillman will benefit from the synergies resulting from integrating the Axxess technology and

customer base," said Mr. Miller, CEO of Axxess•

Max W. Hillman, Chief Executive Officer of The Hillman Group, said that "Axxess is well known for itsinnovative, consumer-oriented technologies which are patent-protected."

While citing the expected substantial cost savings associated with the integration of the two companies,Mr. Andrien noted he believes there will be minimal operating and personnel disruptions given bothcompanies' historical growth records.

The Company also announced it will hold an investor conference call at 11:30 a.m. ET today to review itsthird quarter results released yesterday and the intended acquisition of Axxess Technologies, Inc. describedherein. For those interested in participating in the call, please call the following teleconference numberapproximately 5 minutes before the scheduled hour: 1-888-942-8395. When asked for a code word for theconference call, please reply "SunSourcc".

SunSource Inc. is one of the nation's leading providers of value-added services and products to retail andindustrial markets in North America. Its Industrial Services businesses provide parts supply, engineeringand repair services throughout the U.S., Canada and Mexico, Its Hillman Group subsidiary is a leadingprovider to hardware outlets of merchandising systems, in-store service work and small parts such asfasteners, letters, signs and keys. Its Harding Glass subsidiary operates the largest chain of full serviceglass shops in the U.S.

This press release contains statements by the Company that involve risks and uncertainties and mayconstitute forward-looking statements within the meaning of the Private Securities Litigation Reform Actof 1995. Such statements reflect management's current views and are based upon certain assumptionsrelating to the success of the acquisition, cost reductions related to integration of the two companies,strategic growth plans and overall economic conditions. Actual results could differ materially from thosecurrently anticipated as a result of a number of factors, including the risks and uncertainties discussedunder the captions "Risk Factors" -- Risks Associated with Acquisitions set forth in Item 1 of theCompany's Annual Report on Form 10-K for the year ended December 31, 1998, as filed with theSecurities and Exchange Commission. Given these uncertainties, current or prospective investors arecautioned not to place undue reliance on any such forward-looking statements. Furthemiore, the Companydisclaims any obligation or intent to update any such forward-looking statement to reflect future events ordevelopments.

For more information on the Company, please visit vww.prnewswire.com/comp/115271.htm1.

SOURCE: SunSource Inc.

More Quotes and News: Sunsource Inc (NYSE:SDP - m 0Related News Categories: household/consumer

tr--S-Wri-ch News lielp

2/21/004:07 PN

PAGE15

(shoo - Su4ource to Acquire Axxess—Opportunities for The Hillman Group h t t p ; / / b i z y s h o o . c o r t i p m e w s / 9 9 1 0 2 8 1 p s sunsour_ I ,html

11-06-2010 1 6 : 0 3

Copyright 1994-1999 Yahoo! All Rights Reserved. Copyright C 1999 PRNewswire. All rights reserved. Republication orredistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire

shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon,See I m pn t a r ul L eg a lt ml at ic .

Questions _or Conw 2 =2

2/21/00 4:07 PM

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12/ .06/99 1 4 : 5 7 F l a 215 2 8 2 1309 O N S O U R C E

Mr. Maurice AndrieuChairman and CEOSunSource, Inc.011e Logan Sguare, Suite 3000Philadelphia, PA 19103(215) 282-1290

Dear Maurice,

At a cost of about S6 million we have come up with a revolutionary new way of cutting a key!

It's•nat'a vpnding machine and it's not just an improved way of cutting a key! Its a revolution! Arevolution that will change the key cutting industry!

If you have just 8 minutes, please look at the enclosed video and I am sure you will agree.

The first 1.5 minutes is a commercial advertisement for distributors like Wal-Mart, WEdgraena andother chain stores. The last 6.5 minutes is an in-depth demonstration of the product.

Naturally we are interested in selling or licensing our technology and possibly this would ti intoyour plans? Please let me know.

I hope- t h is l i tt i r.3 nd i f6 u in good Seilth and spirits. I look for;vaid toO-spiakini with ou again.

1 •.pA: hs

Kindest personal regards,

( 2 /7/A -01

Robert E. Almblad

1

PAGE17a 0 0 2

Laser Key1840 Industrial Drive - Unit 110Libertydlies Wines 80048847-815-7786 • FAX: 847-81e-058g- gx-y- ist

1 December 1999

• • • • • = • • o•w

11-06-2010 16:04 P A G E l e

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Dave Richards

From: R o b e r t Almblad [[email protected]'Sent: W e d n e s d a y , December 08, 1999 7:40 PM

Dave" RichardsSubject: L a s e r Key Co-operation

8 December 1999

Dear Dave,

Just a quick note.

I don't think there is anything I can say that willchange the course of action that Axxess will take, soI shouldn't try to convince you otherwise.

However, hope springs eternal, so I will just pass ona couple words.

First, I have worked, at some risk to myself, to tryto keep this technology out of your way until afteryour closing and would have been successful if I hadgotten co-operation from Axxess.

(I am referring to my attempt to sell key ID tech andget you on a separate non disclosure agreement)

I knew that once I disclosed our machine to you andothers, there would be lots of people around you thatadvise that not:isness is a good solution. Le. a lawsuit to force this "out of existence" or anengineering department that will ignore the technicalissues and try to catch up.

However, the "isness" of the situation is that we justrepackaged our first class, but very uneconomical,technology and are now trying to make the best of whatwe have.

Axxess should acquire us, or our machine, before wegain any more momentum, Le, financing, distributionagreements, and so on.

Warburg can take less than they planned and make adeal with us. Sooner or later this will become clearto all parties.

presently you have my co-operation and goodintentions. But this co-operation can fade awaybecause people like Chris Isaac get inv o lved . T h e s eare people who make e living because of other people'sconflict, and therefore have a vested interest ingetting people fighting. I know I am preaching to thechoir, but I just wanted to point this out,

Well, that's my few words on the subject. Hope all iswell & my best wishes, honestly.

Kindest personal regards,Robert

••• .

PRGE19

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1 1-1 36 -2 01 0 16:05

r viiiiwmv•L L cl—Ir_

Ray K. HarrisDirect Phone! (602) 818441 4Direct Fax: (802) 916-581 4rharris(gfclow.com

VIA FACSIMILE

Michael F. BaileyBrown Ba i n2901 North Central AvenuePost OfECe Box 400

Phoenix, AZ 85001-0400

Dear Michael:

P1aIREARRE/1026642.1./99030.080

J . 1 d o, • • • • •

LAW OFFICES

FENNEMORE CRAIGA PROFESSIONAL CORPORATION

January 11, 2000

Re: Ax.-xess Technologies, Inc. v. Robert E. and Yvonne Almblad

OFFICES IN:PHOENIX, TUCSON 4 NOGALES

3003 NORTH CENTRAL AVENUESUITE 2900 •

PH OENM, ARIzONA 65012-2913PHONE! (602) 916-5000

FAX (602) 916-5999

As we discussed in our meeting of counsel, my client will preserve any electronic records(including e-mail and any drafts o f the disputed press release on word processing software)pending the resolution of the litigation. I n an effort to settle this matter my client is willing tomake the new compact machines technology available to Axxess, subject to an acceptableconfidentiality agreement under paragraph 21(a) and (c) of the Addendum to Settlement andCompromise Agreement dated March 18, 1994.

You indicated that a confidentiality agreement was previously utilized by the parties inMay 1999 with regard to the vending machine technology. Please send me a copy o f theConfidentiality Agreement so that we can confirm it is appropriate for the new technology as well.

You indicated your client wants to see the compact machine, operate i t to duplicate arange of keys and examine related drawings and specifications. As I indicated, my client is willingto make the prototype available at my client's offices in Illinois. In fight of the fact that no patentprotection has been secured for proprietary aspects of the new technology, my client is reluctantto ship the technology. In addition, my client is engaged in related ongoing product developmentusing the prototype. M y client cannot surrender possession of the prototype and your clientcannot effectively evaluate the technology without access to the appropriate engineers in Illinois.

You indicated that my client may have made a "request for an offer" and I understand youto have been referring to a letter dated October 27 to Mr. Dave Richards (copy enclosed). Thecontract refers specifically to "a non-binding outline of his then current opinion of what his needsor wants are." T o avoid any confusion my client's needs or wants are. t o commence thenegotiations period immediately; and to either arrive at acceptable terms with your client or make

c.mmelomnr r e - A i n P a r i F . 2 2

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1 1-0 b—E0 10 16:05

fynnemore craag

FENNE MORE CRAIGMichael F. BaileyJanuary 11, 2000Page 2

alternative arrangements to commercialize the new compact machine technology. Mr . Almbladwill sell exclusive rights for the new compact machine technology for North America fo r$25,000,000 plus a 5.25% royalty on sales, less returns. In addition to rights under any applicablepatents (including any not yet filed) pertaining to the new compact machine technology the licensewill include know-how and software related to this new technology and future technicalimprovements to this new technology made by our client in connection with rights retained.

Finally, you have asked for a moratorium on any further discussion of the technology withthird parties. While we do not believe the contract obligations preclude discussion with (or evendisclosure of the technology to) third parties, we are willing to voluntarily agree to a moratoriumfor purposes of settlement during the 30 day negotiation period.

You have asked who my client has contacted with regard to the technology. You would,of course, obtain that information in litigation in any event, and we are willing to provide - itvoluntarily to avoid incurring unnecessary attorneys fees for either party.

With regard to attorneys fees, we note that the agreement provides "Axxess shall provide2/3 o f Robert's legal fees and expenses arising out o f Axxess's rights or Robert's obligationsunder this Section 21 .•." Addendum to Settlement and Compromise Agreement, paragraph21(d). This provision further reinforces our view that it is in the interest of both parties to resolvethis dispute amicably and avoid unnecessary attorneys fees.

My client looks forward to the receipt of an offer from kocess during the next 30 daysand reiterates his willingness to make the technology. available in Illinois during the 30 daynegotiation period.

RICH/mtcc: R o b e r t Almblad

PI ENd" ILHARYJNA 026642. 1t99030. OR 0

Yours tmly,

PAGE22

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i i-ob-dU10 16:05

ruogNix mmLINa ADDRESS S TR U T ADORERS TIEOZ1 ni• 19000

TUCSON RO, BOX 0 0 2901 NORTH CENTRAL AVENUE FIR02) 3g1-95115

PAL O ALTO PHOENIX , ARIZONA OS 0 0 1 4 4 0 0 PHOENIX, ARIZONA 1 5 0 1 2 www,bravembalei.com

B R O W N 8 : B A I N , R A .Attorneyt L a w

January 12, 2000

Axxess Technologies v. Almb ad and

PAGE24

MICHAEL F. BAIL5v(602)361-8350

bailey(abrownbein.com

Dear Ray:

Thanks for your letter ofJanuary 11, 2000. Enclosed is a copy of a confidentialityagreement that I believe was previously used by the parties. I have just recently received it, andhave done only a cursory review. Please let me know i f you think this makes a good startingpoint for additional disclosures.

As Mr. Almblad already is aware, Axxess has its own development efforts under way.After our meeting, we had some internal discussions about the need to insulate our own researchfrom any disclosures that may be made by Mr. Almblad, while at the same time securing enoughinformation to make an intelligent decision about his solicitation of an offer for the technology.

We accept your proposal to test Mr. Almblad's new machine in Illinois. Our desire is touse the initial 30 days of the negotiation period to determine whether the new machine workswell enough with a broad variety of key blanks and keys to make it immediately promising froma commercial standpoint. We would like to avoid, to the extent practical, receipt of informationthat Laser Key regards as proprietary until we have made that initial determination. I f the testgoes well, we anticipate exercising the 60 day extension, at which time we can create a structurefor disclosure that will protect everybody's development efforts i f no deal should be struck.

We also appreciate your agreement to a moratorium on further discussions of thetechnology with third parties. Obviously, we do not agree with your description of what thecontract permits in that regard, but a moratorium makes it unnecessary to press the Court for aresolution of that point.

We also appreciate your willingness to provide voluntarily the information that otherwisewould be provided in discovery about who already has been contacted with regard to thetechnology, including what was disclosed to them. We should make arrangements to do thatsoon.

Finally, you should be aware that we do not agree that the "legal fees and expenses"agreement in "Section 21" applies to the parties' litigation expenses in the present circumstances.We do agree, however, that it is in the interest of both parties to resolve this dispute amicablyand avoid unnecessary attorneys fees.

1 1-0 6- 20 10 16:06

Ray K. Harris, Esq. -2- J a n u a r y 12, 2000

Unless you think we should follow some other procedure, Axxess representatives willcontact Mr. Almblad directly to make arrangements to test the new machine in Illinois.

Ray K. Harris, Esq.Fennemore Craig

3003 N. Central AvenuePhoenix, AZ 85012-2913

MFB/if

Enclosure

Very truly yours,

Michael F. Bailey

PAGE25

I

(

11-06-2010 16:06 P A G E 2 6,

11-06-2010 1 6 : 0 6

Dave RichardsFrom: Robert AlmblaO [elmt)led(Myanoo•conSant: Sunday, January 15, 2000 I:43 PMTo: D a v e Richards; Dave " RichardsCc : Ray Harris; Michaei R. Mo)<enrm

FACSIMILE MESSAGE page o f 1 6 January 2000

Mr. Stephen W. Miller and Mr. Dave Richards

Axxess Entry Technologies Inc,

9185 South Farmer Avenue

Tempe, AZ 85284

Dear Stephen and Dave.

I assume that A.,Netess has a genuine interest in purchasing our technology, or otherwiseyou would not want this 30 day period and possibly an additional 60 days to negotiate. Ifthis is not the case, please let me know so that we can just let our lawyers talk with eachother during this time.

In the same spirit that I was informed by your lawyer that Axxess "has its own developmentefforts underway," I would like to inform kaess that in anticipation of this, several monthsago I took the precautionary action of making a confidential disclosure to a 3rd party toestablish myself as the first inventor. I am now in the process of delineating each new •inventive aspect of this new compact key machine and once I have completed this process,I plan to file several patent -a p p l i c a t i o n s t o p r o t e c t t h e p r i m ar y e l e me n t s Of t hi s c o mp a ct key

machine. These applications will not claim priority to my earlier filed patents or pendingpatent applications. After they issue, I believe Amass will have to 'obtain a new license fromme.

As an expert and the main inventor in this field, I am certain that Poocesj will not be able tocircumvent my yet to be filed patents simply because I have taken care lo cover the entirearea. This will become clear when you read my patent applications, which will be filed lessthan 1 year from now.

The first order of business is to create an acceptable confidentiality agreement. This willtake some effort on the part of our lawyers and I would like to get a confirmation that youintend to honor, in a timely fashion, the payment of 2/3rds of my legal eigpenses. This ofcourse would not include the handling of the press release TRO or othei inapplicableexpenses. However, before going any further, I would like to get this point confirmed.

Regards,

01/17/2000

PRGE27

Page 1 of 2

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•

Robert Almialad

Copy: to Lawyers Harris, McKenna & Bailey

Do o u ahool?Talk to your friends online with YihRgl i,,LIe§glEgi er,

o1/17/2000

11-06-2010 16:07 P A G E 2 9

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CAXXESS

I E Ct I NDLO G I E S

VIA F AC S I MI L EJetnuary 20, 2000

Mr. Robert AlmbladLaser Key II L.P.1840 Industrial Drive, Unit 110Libertyville, IL 60048

Dear Robert:

In response to your facsimile message o f January 16, we are genuinely interested in goingforward with a review of the technology you have described for us. We understand your lawyerhas solicited an offer. Whether we can come to an agreement depends on our respectivevaluations of the technology and the price, vythien will be determined based upon review of themachine and related technical materials.

It is my understanding that our attorneys sent a copy of our present confidentiality agreement toRay Harris last week. Your letter seems to say that this agreement is no longer acceptable toyou. In regards to reimbursement of legal fees under Section 21, please be assured that we willmake required payments in a timely manner.

We are not interested in using our 30 day review negotiating "the shape of the table," discussingthe form of the confidentiality agreement or repeating assurances that we have already given.Paragraph 21(a)(ii) of our Agreement, as amended, requires you to make the applicable portionof the "New Key Technology" available to Axxess upon makine your renumix_m_siat.Although your attorney now has made a request for an offer, there has been no disclosure.

I hope this letter clears up any confusion, and trust that it puts us on the right track to complymeaningfully with our agreements. We would appreciate hearing back from you or Mr. Harris asquickly as possible concerning the confidentiality agreement, in order to begin the reviewprocess contemplated by our agreement.

s..5szely,

Stephen W. MillerChairman and C.E.O.

cc: D a v e RichardsRay K. HarrisMichael F. BaileyLaurence R. Hefter

AXXESS IECHNOLOGiESp INC-1111' Si 65 South Farmer Avenue Tempe, Anzona 952$4

(602) 731-6694 F a x (6021 731-6974

To1,1 20 ' ea 15: 04

PRGE30

STEPHEN W. MILLERCreirman of zho Board and CEO

460 731 G974 P A G E . 1 7 1 2

11-06-2010 16:07 P A G E 3 1

l b : 3

Dear Mr. Bailey:

i i 4 6 . r i n " .

PATENT, TRADEMARK ANT) COPYRIORT LAW J a n u a r y 3t, 2090

BY FACSIMILE 602-351-8516Michael F. BaileyBrown & Bain, P.A.P.O. Box 4002901 North Central AvenuePhoenix, Arizona 85001-0400

fli t LAW FIRM OFMICHAEL R. NIcKENNA

soo WEST mAnisON STREET - SUITE 3800CHICACIO, ILLNOIS 60661

E-MAIL: HIPATENTUAOLCOM

(312) 321-0123 1VOICE)(312) 876-2020 mem

Re: Axxess and Laser Key II, L.P.

In responding to Steven W. Miller's letter of January 20, 2000, RobertAlmblad wrote in his letter of January 24 that he had asked his lawyer to makesure that he had honored Millers request for "appropriate disclosures," Mr.Miller's letter, which references paragraph 21 (a)(ii) of the Agreement, states thatthere has been no disclosure. Mr . Miller should be advised that he is wrong.

The applicable portion of the offered technology was disclosed to Axxessin a video tape sent to Axxess on November 26, 1999 and referred to in Mr.Almblad's letter of November 27 to Dave Richards of Axxess This new compactkey making machine is what is being offered to Axxess. The video tape showedboth the outside and inside of the machine and the operational technology wassubstantially from Laser Key's key vending machine which Axxess tested for fourmonths in its facilities arid at commercial stores last summer.

Obviously, further detail and refinements will arise, as productiondevelopment continues. We do not envision that a first refusal right is applicableto each minute improvement, but to the new key technology as a whole which isdescribed in the current request for an offer. The request is clearly conditioned onthe new compact key making machine operating at least as well as a testedstandard - Laser Key's key vending machine which was tested by Axxess. Therequest also entails that the new compact kcy making machine can be massproduced for a certain limited cost.

My understanding is we are awaiting acceptance Or a counteroffer fromAxxess including a financial commitment that will reduce the risk of Axxessusing the right of first refusal to gain proprietary technical information which

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• MRM/rzlcc: Laser Key

Ray Harris

January 31, 2000

could easily be used to obstruct Laser Key's business,

When such an agreement is executed, I will prepare a new confidentialityagreement that takes into account both Axxessi current development activities fora competing compact key making machine and its financial commitment to LaserKey's new technology.

On the other hand, i l.n O s u c h a g r e e me n t i s f o r t hc o m i ng , t he c o n fid e n ti a l i ty

agreement that will be necessary will include, among other things, a third partyescrow deposit of each parts current developments, including documentedhistories, to be preserved as self-authenticating evidence of inventorship and priorart, and to avoid the inevitable conflict between the obligation of Axxess'technical development team to create a competing compact key making machineand the obligation to maintain the integrity of Almblad's confidential information,'the designation by Axxess' of a distinct individual or limited group forexclusively evaluating Almbladts additional disclosure. This additionaldisclosure will be voluntary on the part of my client, whom I have advised is notobligated to make any additional disclosure under the terms ofthe right of firstrefusal,

Very truly yours,,

Michael R. McKenna

Michael R. McKenna P a g e 2

312 876 2020

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PHOENIX MAILING ADDRESS STREET ACEIRESS Tram 351,8GDOTocsoN P.O. OOX 40S 2901 NORTH CENTRAL vEN LIE p p m ) 3 51-5515

PALE ALTO PHOENIX. ARIZONA 250Q1•04CLO..... PHOENIX. ARIZoNA i0012 www•13 rown betn.p

Dear Mr. McKenna:

BROWN 8c BAIN, RA.Attornays at Law

February 8, 2000

&less V. ,Laser Kev

PRGE4

MiCHAEL F. BAILEY(802)381-8350

thaileyabrownbain_com

Thank you for your letter of January 31, 2000. We share Mr. Almblad's desire to-keepseparate (1) whatever new technology he may have developed, and (2) the results of ongoingwork by Axxess engineers. Unti l we know what Mr. Almblad's new technology is, however,Axxess is not prepared to make any kind of financial commitment for a "pig in a poke," even onthe assumptions you suggest. An edited videotape of Mn Almblad talking about and performinga marketing demonstration of his prototype is not a reasonable disclosure of technology thit heapparently believes is worth $25 million and a 5.25% running royalty.

We propose that an independent third party be commissioned, at the expense of Axxessand under an appropriate non-disclosure agreement, to examine and test the prototype at yourclient's office in Illinois, as offered in Mr. Harris' letter of January 11. We would expect toagree in advance on the form and substance of the information to be provided to Axxess and thetests to be performed by the consultant in connection with that review. Obviously, Axxess isinterested in the number, range and accuracy of keys identified and cut, as well as long-termreliability, cost and manufacturability. AneSS also needs to understand clearly what aspects ofthe new system are "new technology" and what already is licensed to Axxess. Our impression isthat your client's answers to that question have not been entirely consistent, and we are notinterested in paying for the same technology twice.

We appear to disagree about the level of disclosure that is required to trigger the initialthirty day review and negotiation period under Paragraph 21. Our disagreement need notpreclude cooperation, so long as Mr. Almblad is willing to make (on what you perceive to be avoluntary basis), the disclosures that we believe are required under the agreement and to refrainfrom "shopping" elsewhere the technology that is subject to Paragraph 21, pending our right offirst negotiation (as offered in Mr. Harris' letter of January 11). I f we cannot cooperateinformally to that extent, however, the alternative is judicial resolution of the level ofcooperation that is required. The first steps would be production of documents and a depositionof Mr. Almblad. I f c a n n o t cooperate about disclosures and review, please let me know someconvenient dates in March for a deposition, and we will get our written discovery requests to youand Mr. Harris promptly.

Although we do not believe the initial thirty day review period has even begun to run, werecognize that Mr. Harris' letter of January 11 was an attempt to trigger it, So there is nomistake about it, we hereby exercise our right to extend that period for an additional sixty days,

er

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Michael R. McKenna, Esq.

i f in fact the Court should conclude that a sufficient disclosure was made to start the clockticking.

Finally, Mr. Almblad agreed in Ray Harris' letter of January 11, 2000 to disclose thenames of persons Mr. Almblad has contacted with regard to the technology. We have not yetreceived that information, and would appreciate it i f you would send it to my attention at yourearliest convenience.

Michael R. McKenna, Esq.The Law Firm of Michael R. McKenna

500 West Madison Street, Suite 3800Chicago, IL 60661

FACSIMILE and US MAIL

MFB/if

Copy to:

Ray K. Harris, Esq.Fennemore Craig

3003 N. Central AvenuePhoenix, AZ 85012-2913

FACSIMILE and US MAIL

-2- F e b r u a r y 8, 2000

Very truly yours,

Michael F. Bailey

PRGE5

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Search Results List

Sunsource to Form Partnership with Glencoe CapitalPHELADELPRIA, Feb. 10 /PRNewswire/ SunSource Inc. (NYSE: SDP, SDP.PR)(the ,"Company" or "SunSource") announced today that it had signed an agreementwith a newly-formed partnership affiliated with Glencoe Capital, L.L.C. ("Glencoe")of Chicago, a private equity. investment firm. The new partnership will be jointlyowned by SunSource and Glencoe. SunSource will contribute its expediter businessescomprising Kar Products, Inc. and A & H Bolt & Nut Company Limited (collectively,"Kar") and Glencoe will contribute cash equity to the new partnership, GC SunHoldings, L.P. Maurice P. Andrien, Jr., SunSource President and Chief ExecutiveOfficer, said that the Company will receive about $105 million in cash proceeds fromthe transaction and hold a 49% interest in the partnership. Affiliates of Glencoe willhold a 51% controlling interest in and will manage the partnership. He noted that thistransaction enhances StmSource's ability to pursue strategic initiatives centeredaround its core businesses. Andrien further said that the transaction providesSunSource with most of the capital to complete its acquisition of AxxessTechnologies, Inc. ("Axxess"), a manufacturer and marketer of key duplication andidentification systems located in Tempe, Arizona. Andrien said, "The Axxessacquisition announced in October 1999, will now be purchased for $110 million in.cash as a result of the Company's improved financial position." Both the Kar and?omen transactions are expected to close in February.

Andrien further commented that the business venture with .G l e n c o e p r o v i d e s agrowth opportunity for the gar business while enabling SunSource to enhance itsinvestment in The Hillman Group, Inc., through its purchase of Axxess. The gartransaction with:Glencoe, along with the December 1999 debt refinancing andrecently announced plan to sell the Company's Harding Glass subsidiary, continuesmanagement's focus to streamline its operations."David S, Evans', President and Chief Executive Officer of Glencoe, said "Kar with itsCanadian operation represents a powerful company with a strong, experiencedmanagement team that is capable of signiAcant growth through acquisitions andinternal growth initiatives." The Kar management team led by Robert M. Julian,President and CEO, will continue to manage the operations of the expediterbusinesses.

gar had earnings before interest taxes, depreciation and amortization of almost $20million in 1999, adjusted for nonrecurring items, on revenues of about $125 million.SunSource will account for its investment in the Partnership on a de-consolidatedbasis and expects to record a pre-tax gain on the gar transaction of about $55 millionor $8.15 per common share. The transaction will also restore StmSouroe'sstockholders equity to a significant positive position upon its consummation.

The Company also announced it will hold an investor conference call at 2:00 p.m.EST on February 10, 2000, to review the Kar and Axxess transactions. For those

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interested in participating in the call, please call the following teleconference numberapproximately 5 minutes before the scheduled hour: 1-888-889-5011. When asked fora code word for the conference call, please reply "StmSource."

SunSource Inc, is one of the nation's leading providers of value-added services andproducts to retail and industrial markets in North America. The Company's IndustrialServices businesses provide parts supply, engineering and repair services throughoutthe U.S., Canada and Mwdeo. Its Kar Products subsidiary offers distribution ofmaintenance and repair parts and personalized inventory management services. ItsHillman Group subsidiary is a leading provider to hardware outlets of merchandisingsystems, in-store service work and small parts such as fasteners, letters, signs andkeys. Glencoe Capital L,L.C. invests capital on behalf of private investors, pensionfunds and insurance companies. Glencoe is supported by its proprietary ExecutiveNetwork which consists of over forty Fortune 1000 CEOs and CO0s, successfulentrepreneurs and executives with highly specialized skills. The Executive Network isdivided into six specialty groups, each led by a chairman with 25 plus years ofbusiness leadership experience.Axxess Technologies, Inc. is a manufacturer and marketer of key duplication andidentification systems located in Tempe, Arizona. These include the patented AxxessPrecision Key Duplication System(TM), the Quick-Tag(TM) engraving vendingsyqemps for pet luggage and identification tags and the Cole(R) brand letters,numbers and signs (LNS) program. Its current customers include mass marketretailers such as Wal-Mart, Lowe's, and PETsMART.

This press release contains statements by the Company that involve risks anduncertainties and may constitute forward-looking statements within the meaning ofthe Private Securities Litigation Reform Act of 1995, Such statements reflectmanagement's current views and are based upon certain assumptions relating to thesuccess of acquisitions, integration plans, strategic growth plans and overall economicconditions. Actual results could differ materially from those currently anticipated as aresult of a number of factors, including the risks and uncertainties discussed under thecaptions "Risk Factors" -- Risks Associated with Acquisitions set forth in Item I ofthe Company's Annual Report on Form 10-K f o r t h e y e a r e n d e d D e c e m b e r 3 1 , 1 9 9 8 ,

as filed with the Securities and Exchange Commission. Given these uncertainties,current or prospective investors are cautioned not to place undue reliance on any suchforward-looking statements. Furthermore, the Company disclaims any obligation orintent to update any such forward-looking statement to reflect future events ordevelopments.

- For more information on the Company, please visit their website atwww.pmewswire.com/comp/115271.html. SOURCE SunSource Inc.-0- 02/10/2000

/CONTACT: Joseph M. Corvino of SunSource, 215-282-1290/

/Company News On-Call: http://www.pmewswire.com/comp/11527.1.html o r f a x ,.../Go?template=qmStory&sununary—offikart_id-

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PHOENIX

PRGEI

MAILING ADDRESSPO. BOX 400.,,ANNIx. ARIZONA S0001-0400

BROWN B A I N , PA.Attprneys at Law

February 18, 2000

loiggiely,AkAri ladr i dLaer K ey I

MICHAEL F. DAILEY(602)3514350

balley@brownbaintom

Dear Ray:

As I am sure you anticipated, we were not happy to receive your motion to amend in theabove matter by adding a series of supposed $100,000,000 counterclaims against AxxessTechnologies. Once again, Mr. Almblad's maneuver appears to have been a timed attempt(presumably based on the recent press release) to interfere with the closing of the pendingacquisition of Axxess.

The purpose of this letter is to resolve the dispute about the negotiation period regardingMr. Almblad's "new technology." As we have assured Mr_ Almblad in the past, it was possiblethat he had some new technology that Axxess might have been interested in acquiring at a fairprice. To be blunt, however, we have lost confidence in Mr. Almblad's good faith andtrustworthiness. Accordingly, Axxess has no further interest in negotiating with him forwhatever technology he now claims to have Aness has repeatedly tried to evaluate his claims,including with an offer to employ an independent expert to protect the confidentiality of thetechnology, but Mr. Almblad has thwarted every attempt. He would like Axxess to investheavily and blindly in supposedly "revolutionary" technology. Axxess will not do that.Although we firmly believe that Mr. Almblad has never acted fairly with respect to hisobligations, you, Mr. McKenna, Mr. Almblad and Laser Key may consider the negotiationperiod under the Settlement Agreement to have ended.

On the merits of the proposed counterclaims, it is baseless for Laser Key to sue Axxessfor accepting a "moratorium" that Laser Key proposed as an alternative to the judicial resolutionof the parties' disagreements that Axxess originally sought. I t is Laser Key that has delayed thenegotiation process by refusing to proceed with a confidentiality agreement, by failing to keep itsagreement to disclose the system in Illinois and by stonewalling Axxess' repeated attempts tostop talking about "the shape of the table" and start talking about the technology. Moreover, theimmediate termination of the negotiation period eliminates any possibility of redressable injuryto Laser Key.

Axxess does not waive its right of first refusal or any other right under the SettlementAgreement, except the end of the negotiation period in light of Mr. Almblad's recent conduct.But Axxess is finished negotiating, or "getting ready to negotiate," or "fixing to get ready tonegotiate," or whatever it is that Mr. Almblad has been doing since he made his initial approach.So, Mr. Almblad and his company may do whatever it is they think is worth $100,000,000 to

STREET ADDRESS T ( 4 0 2 1 30112001 NORTH CENTRAL AVENUE 0 1 0 0 2 ) 351-4PHOENIX, ARIZONA 55012 w w w , b t o w n

Ray K. Harris, Esq. - 2 - F e b r u a r y 18, 2000

them that they say they might be prevented from doing because we disagree about theirnegotiating obligation. We expect the motion to add counterclaims to be dropped immediately.

Please remember that there is still a preliminary injunction that restrains Mr. Almbladfrom the conduct described in that order. Additional attempts by Mr. Almblad to interfere withAxxess' transaction with SunSource, to assert more claims that Mr. Almblad must know arecompletely baseless or to divert money to himself from the proposed transaction will not betolerated.

Please let me know your client's intention with respect to the counterclaims, as we shallbe approaching the court soon on that subject. Moreover, although the negotiating period is at anend (and Mr. Almblad and Laser Key are free to act accordingly), we believe this latest outrageis a material breach of their obligations. A little leverage may be a useful thing, but Mr. Almbladhad better be sure he has an appropriate fulcrum before he attempts to interfere again withAxxess' business opportunities.

Ray K. Harris, Esq.Fetuiemore Craig

3003 N. Central AvenuePhoenix, AZ 85012-2913

FACSrMILE and US MAIL

Sincerely,

1\1Michael F. Bailey

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FACSIMME MESliXOE page o f 2 4 January 2000

Mr, Stephen W. Millerielotess Entry Technologies Inc.9185 South Fanner AvenueTempe, AZ 85284

Dear Stephen,

Thank you for your letter of .19 J a n u a r y 2 0 0 0 . •

I have asked my lawyer to make sure that we have honored your requeet for" appropriate disclosures"and also to create a confidentiality agreerpat that will make sure all our interests are protected. And,since you referred to a specific provision in my contract. I asked him to answer your interpretation bywriting to your lawyer, who can in turn advise you on this.

However, I am sure you understand that the confidentiality aweement we sigeed back in May 1999was before J knew we were in direct competition. At least I was not informed that Avsess "has its Owndevelopment teffons under way" until a few days ago. So, a new confidentiality agreement will benecessary, complex and could take some time to complete.

To avoid this delay, I suggest we begin our negotiations based oi the video tape disclosure, (whichother viewers found, both informative and, detailed), and these assumptions; I ) that our compactmachine works "at lean Ls well'? as Laser Key's tested vending machine, and 2) that it costs about$1,500 for parts and direct labor (not overhead) to produce in quantity.

Given these assumptions, and generally spealdng, is Axxess prepared to accept 'our 825 millionproposal? I want to establish your bona Edes because Axxess may just want to get as much technicalinformation as possible and then extend the 60 days to interrupt our business,

My $25 million offer is valid now, but this price will necessarily increase as we continue ourdevelopment efforts. To freeze my offer and to establish your bona fides. I suggest we make a "finalbinding executed agreement" within the 30 day period that is subject to our machine's performance,This will obligate both sides and eliminate the delay caused by the complexity of the confidentialityageetnent. A demonstration of the "minimum performance" can be completed right after signing whilethe claim of a 81,500 cost of goods will take longer to demonstrate but can be assured with anegotiated money escrow out of the 825 million sale price.

Kindest ptTsona)regArds.

65,R10/eee/e-

Robert E. Almblad

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Lagar Key1840 Industrial Drive UT * 110Libenyville. 111111012 8004884T-816-7785 r FAX1' 847-818-0589