-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I+Sz6pnW2KITnLa/V8t2V0wL15qSTwvVQrN7+HdElcjrapKNF16o+TBJLfDHxywA nLyN+IegJps2XWEfq2VFgg== 0000910680-99-000235.txt : 19990715 0000910680-99-000235.hdr.sgml : 19990715 ACCESSION NUMBER: 0000910680-99-000235 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ION NETWORKS INC CENTRAL INDEX KEY: 0000754813 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 222413505 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-13117 FILM NUMBER: 99664323 BUSINESS ADDRESS: STREET 1: 21 MERIDIAN RD CITY: EDISON STATE: NJ ZIP: 08820 BUSINESS PHONE: 2014944440 MAIL ADDRESS: STREET 1: 21 MERIDIAN RD CITY: EDISON STATE: NJ ZIP: 08820 FORMER COMPANY: FORMER CONFORMED NAME: MICROFRAME INC DATE OF NAME CHANGE: 19920703 10KSB 1 ION NETWORKS, INC. FORM 10-KSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1999 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File No.: 0-13117 ION NETWORKS, INC. -------------------------------------------- (Name of Small Business Issuer in Its Charter) Delaware 22-2413505 ----------------------------- ---------------------------------- (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 21 Meridian Road, Edison, New Jersey 08820 -------------------------------------- --------- (Address of Principal Executive Offices) (Zip Code) Issuer's telephone number, including area code: (732) 494-4440 -------------------- Securities registered under Section 12(b) of the Exchange Act: None ------- Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par value ----------------------------- [X] Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. The issuer's revenues for its most recent fiscal year totaled $12,673,917. The aggregate market value of the voting stock held by non-affiliates computed by reference to the average of the bid and asked prices as reported by the Nasdaq Stock Market as of July 8, 1999 was approximately $40,127,256. There were 10,572,091 shares of Common Stock outstanding as of July 8, 1999. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the issuer's Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders of the Company are incorporated by reference into Part III hereof. PART I ITEM 1. DESCRIPTION OF BUSINESS. ----------------------- GENERAL ION Networks, Inc. ("ION" or the "Company"), a Delaware corporation founded in 1999 through the combination of two network management developers - MicroFrame, Inc., a New Jersey corporation (the predecessor entity to the Company, originally founded in 1982) and SolCom Systems Limited ("SolCom"), a Scottish corporation located in Livingston, Scotland (originally founded in 1994), is a developer and manufacturer of software and hardware solutions for monitoring and managing mission critical voice, data, video and environmental applications and networking systems. The Company is seeking to participate in the rapidly growing market of Secure Business Oriented Network Management ("SBONM") solutions. The Company believes that it provides an integrated end-to-end solution offering secure, Web-based application performance and network management/monitoring. The networking industry has experienced rapid growth over the past decade. Voice networks in the telecom environment have expanded rapidly to accommodate increased demand caused by telecommuting and booming business economics. Data networks have grown at an even higher rate, as personal computing platforms have become increasingly cost effective and Internet traffic has significantly increased. Substantial infrastructure has been built to support the dramatic increase of traffic in data and voice networks, as well as in the emerging video and environmental network arenas. The Company believes the demand for secure integrated network monitoring and management solutions will increase as networking technology becomes more complex and companies become more reliant on their applications and networks for revenue generation and employee productivity. Secure business oriented network monitoring and management has quickly become mission critical for efficient business operations. International Data Corporation estimates that network downtime can cost as much as $1,000 per minute (for each group of 2 servers and 100 computers). In addition, unauthorized network access causes system disruption, information piracy and toll fraud costing millions of dollars annually. Monitoring and managing a widely-dispersed heterogeneous networking system can be labor intensive, tedious and expensive. Basic network management solutions use remote monitoring ("RMON") probes and/or network management platforms to remotely collect large volumes of data from within a network and to troubleshoot network elements (such as hubs, routers, and switches). SBONM solutions overlay basic networking tools and use them to proactively monitor and manage application and network performance. The Company's products target the SBONM marketplace. They provide proactive, real time, metric and exception-based alarm and fault monitoring. In addition, hardware and software options provide several types of authentication methods to insure that only authorized personnel gain access 2 to various network elements and systems (such as computers, local area networks (LANs), wide area networks (WANs), routers, hubs, servers and Private Branch Exchange telephone switches ("PBXs"). Network management solutions have evolved in a fragmented fashion. Networking equipment has evolved into a complex myriad of devices serving a wide variety of functions. Although there are many competitors in the market that offer solutions, there is no single player dominating or covering the entire spectrum of the market. The general trend within the industry has been to consolidate the functionality of these devices into integrated packages. In an emerging market such as SBONM, the Company believes that the first entity to define the industry and market a comprehensive end-to-end turnkey solution will dominate the industry. The Company believes that it currently offers its customers a solution to address many of these issues. PRINCIPAL PRODUCTS AND MARKETS The Company has established a strong customer base (both domestically and internationally) through a family of modularly designed, industry standards-based hardware and software products. These products are designed to interface with a customer's existing dial-up and/or in-band WAN and LAN communications and network management systems. The Company believes that each of these offerings meets and supports a wide variety of customer intranet/internet security requirements. In fiscal 1998 and fiscal 1999, the Company has continued its evolutionary development of products that address its strategic direction and goal of establishing a competitive position in the SBONM marketplace. This has been effectuated through in-house development and the strategic acquisitions of SolCom and certain assets of LeeMAH DataCom Security Corporation, located in Fremont, California ("LeeMAH"). The Company offers a range of products designed to proactively monitor and manage critical and complex networks and applications on a real time basis utilizing its "Active Management Technology." The Company's products can measure and manage an individual element within a network, or with additional software, measure and manage the entire network. The Company's products can be deployed independently, or bundled together as an integrated suite, allowing application diversity and scalability. At the base of the Company's product pyramid lies the Company's traditional data collection agents, such as the RMON Probe network monitoring agent, the Sentinel remote access network site management agent, and, planned in the future, NetworX, an integrated suite of data collection agents that combines the capabilities of the RMON Probe, the Sentinel and additional functionality. The Company's PRIISMS (Proactive, Remote, Integrated, Intelligent, Secure, Management, Solutions) gather and consolidate data from all agents on all network segments and present it to the network manager in an easily understandable format. The Company's products automate the management and control of complex networks. "PRIISMS Utilities" allows real time analysis and trouble shooting; "PRIISMS Stats" provides historical analysis and trending capabilities; and "PRIISMS Manager" enables secure network management via any web browser. 3 The Company's goal is to be the market leader in Web-based PRIISMS. The PRIISMS management suite combined with the NetworX integrated suite of data collection devices, provides a powerful integrated tool and solution in the SBONM market. The Company has also continued to enhance its existing Secure Network Systems/2000 ("SNS/2000"). This family of industry standards-based products is designed to address the growing demand for remote network monitoring and management of WAN and LAN traffic, as well as mission critical integrated voice and data network elements. The SNS/2000 product family consists of Sentinel 2000, Sentinel 2000S and Manager 2000 product offerings. Such products comprise a suite of network management capabilities that increase the operational integrity, availability and access of mission-critical networks and network elements. SECURE REMOTE TELEMANAGEMENT/TELEMAINTENANCE One major aspect of the SNS/2000 family of products is its design which is to specifically reduce network "downtime" by significantly enhancing and bringing new capabilities for proactive detection, reporting, handling and resolution of alarm/fault conditions. It also directly addresses the requirement to manage both "legacy" as well as standards-based communications resources across widely dispersed heterogeneous network environments. The SNS/2000 product set is web-enabled and Simple Network Management Protocol ("SNMP") compliant. It offers stand-alone network management and remote access solutions which can be fully integrated into existing SNMP-based central management systems and/or Trouble Ticket Management Systems. Its SNMP proxy agent and networking capabilities enables non-SNMP legacy devices (such as PBXx and voicemail systems) to have network access and connectivity as well as to communicate with SNMP network managers (e.g., HP/Openview, Cabletron Spectrum and IBM's Netview) for more cohesive centralized control and management of all communications resources. SNS/2000 provides redundant, secured access and alarm monitoring to all network resource maintenance ports via both in-band and out-of-band connectivity to increase system reliability, access and availability. All network access and/or access to network elements may be channeled through a secure central gateway where users are authenticated and transparently routed only to authorized destinations. Network elements are monitored by local intelligent agents to proactively detect (and in many cases resolve) alarms and fault conditions as well as threshold violations. This monitoring includes ensuring that environmental conditions (e.g. temperature, moisture, battery voltage, etc.) at various points in the network are also within preset thresholds. Critical fault conditions are promptly identified and either resolved via the intelligent agent technology of these products and/or immediately transmitted to the appropriate management center for analysis, trouble ticket generation, corrective action and escalation where appropriate. This enables organizations to improve network availability through proactive response to potential network problems before they manifest themselves in potential network outages. 4 SECURE REMOTE ACCESS A second aspect of the SNS/2000 family of products is designed to address a rapidly growing group of telecommuters who are redefining the boundaries of the traditional workplace. They are placing an increasing demand for convenient remote access to network resources. By opening the networks to meet these demands, the networks are left vulnerable to unauthorized entry. Such unauthorized access carries security liabilities and exposure to critical company resources, data and information. In addition, unauthorized users are consuming valuable network bandwidth, thus reducing availability for legitimate users. SNS/2000 offers remote access security solutions for host computers, LANs and WANs, as well as other network elements by providing front-end barriers/ firewalls to prevent unauthorized network entry. Access control is managed, monitored and administered via web-based architecture. Centralized administration is provided to facilitate ease of administration, monitoring and maintenance. Alerts are issued when user defined events occur and/or thresholds are exceeded. Reporting capabilities are provided which are useful for identifying trends and analyzing network utilization. A wide range of authentication technology is supported and, based on operational needs, can be incorporated into the Company's remote access security solutions. Based on the Motorola 68360 Multi-controller processor chip, the Sentinel 2000 is administered and maintained with the Company's new GUI web-based Manager 2000 software product. The Sentinel 2000 integrates a wide range of applications that provide for Secure Remote Network Management for a wide variety of network elements. These include access security, alarm management, environmental monitoring and control, PBX toll fraud detection and remote device reboot and power management capabilities. The Company has continued seeing strong acceptance of the Sentinel 2000 from such companies as PTT Holland (KPN), MCI Worldcom, AT&T, Lucent, RHYTHMS NetConnections, Vyvx, Ameritech, U.S. West, TeleFinland (Sonera), Kaiser Permanente and Telstra Australia. In fiscal 1999, the Company shipped approximately 3,200 units of the Sentinel 2000, generating net revenues of approximately $6,700,000, representing approximately 53% of the Company's net revenues for the year. MANAGER 2000 A second member of the Company's SNS/2000 family of products, Manager 2000, is a set of software applications that collectively provide a solution for remote site-management and the servicing of exception based real time alarms generated by remote monitoring equipment. Manager 2000 integrates the Sentinel 2000 and IPC/Secure Sentinel programmable remote-site managers with central-site management tools to provide network managers and technicians with a seamless network overview. Manager 2000 automates many time-consuming remote management tasks for a faster response time, improved fault isolation, identification and resolution, and differentiation of critical and non-critical events. In conjunction with Sentinel systems, Manager 2000 can limit access to network elements, maintenance ports and devices to authorized individuals only. The authorized access is controlled at the central management site and in combination (where deployed) with a local 5 system. This permits frequent changes and the assignment of temporary privileges to outsiders. Manager 2000 features include Alarm Processing, Trouble Ticket Management, Secured Remote Site Access, Security, and Remote Site Administration. All of this is done based on web-based industry standard architecture (e.g., Windows 3.1, Windows/95, Windows N/T and ODBC), and is designed for scalability. NEW PRODUCTS AND MARKETS On March 31, 1999, the Company acquired all of the outstanding share capital of SolCom, based in Livingston, Scotland. SolCom, founded in 1992, is a developer of remote monitoring technology. Originally approved by the Internet Engineering Task Force (IETF) in 1992, Remote MONitoring, or RMON, is a standard protocol for users to proactively monitor network traffic on LANs and WANs across an enterprise network. RMON 1 identifies errors, alerts administrators to network problems and baselines networks in addition to its remote network analyzer capabilities. RMON's recent enhancement, RMON 2, enables network managers to access higher-level network- wide application and protocol information. RMON 2 also provides enterprise-wide and/or point-to- point traffic statistics that enables real time network traffic performance/utilization monitoring as well as trouble-shooting and network capacity planning for a wide range of WAN and LAN networks including Frame relay and ATM. These products include: RMON ENGINE The RMON Engine - With full RMON1/RMON2 support and powerful hardware, this product simplifies network management in mixed LAN/WAN environments. The chassis can be customized via three slots which may be populated with combinations of a wide range of network interface cards. Interface cards are now available for many popular LAN and WAN topologies including ATM and Frame Relay. As network environments evolve, managers will seek to keep pace by altering the combination of interface cards in the RMON Engine. All of the data gathered by the RMON Engine may be retrieved by a management station via the SLIP port or the 10/100 Mbps Ethernet port, both of which are built into the engine. ETHERNET + RMON PROBE This single port RMON probe is designed for full wire speed monitoring of 10MB Ethernet networks. The ION Networks Ethernet + probe has full RMON and RMON2 support plus ION Networks MIB extensions. It is utilized for monitoring heavily loaded distributed Ethernet segments. 4-PORT ETHERNET + RMON PROBE (MULTI-SEGMENT ETHERNET ENVIRONMENT) This 4 Port Ethernet 10/100MB RMON probe provides monitoring for either 10BaseT or 100BaseT networks and automatically detects which type is being monitored. It is utilized for multi- segment and multi-speed environment monitoring. One of the ports can be reserved as a telemetry interface restricting management traffic to a LAN used for management purposes. 6 4-PORT 10/100 (FAST) ETHERNET + (MULTI-SEGMENT FAST ETHERNET ENVIRONMENT) With up to 128 MB of memory and full RMON support, the four-port 10/100 Ethernet probe provides 10 MB or 100MB Ethernet monitoring on each port. This product pinpoints potential faults and provides the reactive power of an analyzer. 7 TOKEN RING RMON PROBE The Token Ring 4/16MB RMON Probe fully implements all 20 groups of the RMON standard providing monitoring for management of Token Ring and automatic detection of which speed of Token Ring is being monitored. FDDI RMON PROBE The Company's FDDI RMON probe is available for single and dual attach connections. It implements groups 3 through 9 of the RMON MIB and all of the RMON2 MIB and uses proprietary MIB extensions to monitor ANSI X3T9.5 FDDI rings, giving FDDI specific and historical information including SMT packet statistics. The Company is in the process of developing products with two new technologies, "NetworX" products and "ASIC" products. NetworX is being developed by the Company as the industry's first comprehensive remote network management platform. NetworX will be the industry's first integrated platform for proactive, remote, secure management and monitoring of voice, data and video networks. It uses "Dial Up", "Telnet" or "SNMP" connections so that managers can monitor, evaluate and control all aspects of their network from a single, remote point. An ASIC is an Application Specific Integrated Circuit that incorporates all the hardware and software required to carry out specific tasks on a single chip. This will lead to a substantial increase in processing speed and reduction in build cost. Designing the ASIC requires the Company to experience a steep learning curve while its engineers become familiar with this technology. Initially there will be one ASIC but once the initial ASIC has been developed there will be an ongoing development to introduce more capabilities and features into ASICs. OTHER PRODUCTS AND MARKETS Recognizing that organizations were restructuring data processing away from centralized mainframes and into various network configurations, the Company re-engineered its original fixed- function, "black box" product into a flexible, programmable hardware/software system capable of securing access at a wide variety of "nodes" in the network. The foundation of this re-design was the development of a proprietary software "engine," which maximizes the programmability of the hardware, defining and controlling the functions to be performed by various hardware components. Beginning in 1991, the Company determined that an additional related market opportunity was developing with the proliferation of PBXs, voice-mail systems and other privately owned voice communications systems and security devices. The Company believes that theft of long distance telephone services ("toll fraud") through unauthorized access to these devices has resulted in substantial losses. Thus the support of PBXs through the development and marketing of data communications security products has witnessed substantial customer demand for greater system reliability, protection against toll fraud and security against network intrusion. 8 A vulnerability of these systems results from the fact that PBXs and other devices used in the voice communications system have remote maintenance and administrative "ports." These ports permit a system administrator or maintenance personnel to "dial in" or gain access to a device electronically, by telephone, and to monitor and, if necessary, change or manipulate the software and hardware embedded in the equipment. This can be accomplished without having a physical presence at the site where the equipment is located. Without proper security, an unauthorized user can gain access to a system through one of these ports, a potential exposure of PBX customers to toll fraud. With a remote maintenance facility, PBX and other telecommunications product vendors can respond to and provide their customers with cost-effective solutions that address customer demand for highly responsive service for their products. After initiating discussions with major PBX suppliers, the Company developed a group of products, referred to as "Intelligent Port Controllers" ("IPC"), designed to provide security for the dial-in access remote ports. Among these products are a Remote Port Security Device (RPSD(TM)), which was designed and manufactured exclusively for AT&T (now Lucent Technologies) beginning in 1991 and the Secure Sentinel(TM) family of devices, which was introduced by the Company in 1992. The RPSD is provided on an original equipment manufacturer ("OEM") basis under Lucent Technologies' own label as a security device for Lucent Technologies' Definity PBX. Over 22,800 RPSD units have been shipped to Lucent Technologies since 1991. The Secure Sentinel(TM) is a family of programmable hardware platforms that combine security management of remote maintenance ports, protection against toll fraud, fault and alarm reporting functions and real-time call detail record analysis. Since its introduction, the Company has expanded both the number of Secure Sentinels(TM) offered and the functionality of each, shipping more than 13,200 units which has accounted for more than $15,500,000 in revenue. During fiscal 1999, sales from the Secure Sentinel(TM) product line were responsible for approximately 8% of the Company's overall revenue. OVERALL TARGET MARKETS The requirement for increased service levels and overall network availability, especially for mission-critical applications and networks, has created a rapidly growing market demand for products to address this business demand. SBONM offerings include application performance monitoring products, alarm monitoring systems which monitor network elements and their internal diagnostic routines and fault tables, determine alarm status, and automatically execute appropriate reporting and/or corrective action procedures. The Company believes its products are well positioned to take advantage of what it believes are current significant trends in data communications and voice communications networks. In the view of the Company's management, organizations are seeking to increase productivity by providing sophisticated communications networks that connect all of their separate units, whether locally, nationally or internationally. As the price of equipment decreases and power increases, such networks 9 become cost effective, justifiable and possible for more and more groups, and it becomes feasible to introduce sophisticated networks into technologically less advanced regions regardless of size. At the same time, more of such organizations' data and other resources are being made available to more users by means of these systems. These market dynamics are causing networks to become an ever increasing and vital source of revenue generation as well as employee productivity. Therefore, proactive management of these networks to insure network availability, which, in turn supports employee productivity as well as revenue generation, is increasingly becoming a necessary imperative for all companies. Because of these market factors, the Company believes that the security and network and application performance management issues resulting from this growth will generate demand for the Company's products. SUPPORT SERVICES In addition to the normal training, installation and repair services, the Company also provides professional services, including consulting, specialized programming and turnkey installations. MARKETING AND DISTRIBUTION The Company believes that the market for SBONM products is rapidly emerging and growing. Therefore, the Company is approaching this market with a highly focused integrated marketing strategy. The Company's PRIISMS family of products as well as SNS/2000 family of products have been sold and, the Company believes, will continue to be sold to major telecommunications companies, networking companies, network security customers, systems integrators, facility managers and others via the Company's direct sales organization, OEM relationships, in-house telemarketing efforts and selected distributors. In fiscal 1999, the Company continued expansion of its direct sales force and its network of distributors into major geographic markets in the United States as well as internationally. As this sales and distribution network is established and continues to grow, the telemarketing effort will be redirected to generate sales leads by the Company and to provide support for the field organization. In addition, the Company will look to continue to expand its OEM relationships as well as channels of distribution via major systems integrators, facilities management companies and network outsourcers. COMPETITION The market for network management and remote maintenance and security products for mission critical voice and data communications networks is highly competitive. There can be no assurance that the proprietary technology which forms the basis for most of the Company's family of modular standards oriented hardware and software components will continue to enjoy market acceptance or that the Company will be able to compete successfully on an on-going basis. The Company believes that the principal factors affecting competition in the network management 10 business are: (1) the products' ability to meet a multiplicity of network management and security requirements; (2) the products' ability to conform to the network topologies and/or computer systems; (3) the products' ability to avoid technological obsolescence; (4) the willingness and the ability of a vendor to support customization, training and installation; and (5) the price. Although the Company believes that its present products and services are competitive, the Company competes with a number of large computer, electronics and telecommunications manufacturers which have financial, research and development, marketing and technical resources substantially greater than those of the Company, including without limitation, Net Scout Inc., Hewlett-Packard, Inc., 3Com Corp., Technically Elite, Inc., Bay Networks Inc., Shomiti Systems Inc., Visual Networks, Inc., Concord Communications, Inc. and Sync Research, Inc. Such companies may succeed in producing and distributing competitive products more effectively than the Company can produce and distribute its products, and may also develop new products which compete effectively with those of the Company. SOURCES AND AVAILABILITY OF MATERIALS The Company designs its products utilizing readily available parts manufactured by multiple suppliers and the Company currently relies on and intends to continue to rely on these suppliers. The Company has been and expects to continue to be able to obtain the parts generally required to manufacture its products without any significant interruption or sudden price increase, although there can be no assurance that the Company will be able to continue to do so. The Company sometimes utilizes a component available from only one supplier. If a supplier was to cease to supply this component, the Company would most likely have to redesign a feature of the affected device. In these situations, the Company maintains a greater supply of the component on hand in order to allow the time necessary to effectuate a redesign or alternative course of action should the need arise. DEPENDENCE ON PARTICULAR CUSTOMERS The Company has continued to expand its customer base and broaden its sales constituency. These efforts have resulted in the Company becoming less reliant on any one particular customer. However, the Company sells a substantial portion of its products to several major customers, i.e., PTT Holland (KPN), Lucent Technologies, AT&T, RHYTHMS NetConnections and MCI Worldcom. Sales to these customers represented approximately 61% of the Company's revenue in fiscal 1999. As a result of the SolCom and LeeMAH acquisitions, relationships with Siemens Corporation, Hewlett-Packard, Inc. and Bell South were established. The loss of any of these customers would be likely to have a material adverse effect on the Company's business, financial condition and results of operations. The Company also has major OEM relationships with two of these customers, Lucent Technologies and the Hewlett-Packard Company, which represent in the aggregate approximately 21% of the Company's fiscal 1999 revenues. 11 The Company's installed customer base is estimated to number over 200 companies constituting more than 2,300 customer sites and over 20,000 systems worldwide. In the United States, virtually all of the Company's customers are Fortune 1,000 industrial companies and large U.S. financial institutions. Customers in the U.S. represented approximately 79% and 75% of the Company's revenue in fiscal 1999 and fiscal 1998, respectively. Under an agreement with Lucent Technologies, the Company has been manufacturing the RPSD for Lucent's resale to its PBX customers. As of the end of fiscal 1999, Lucent had purchased and installed more than 22,800 RPSD units. INTELLECTUAL PROPERTY, LICENSES AND LABOR CONTRACTS The Company holds no patents on any of its technology. Although the Company licenses some of its technology from third parties, it does not consider any of these licenses to be critical to the Company's operations. The Company has made a consistent effort to minimize the ability of competitors to duplicate the Company's software technology utilized in its products. However, the possibility of duplication of the Company's products remains and competing products have already been introduced. The Company's name and the Secure Sentinel name are registered trademarks of the Company filed with the United States Patent and Trademark Office ("PTO"). The Company also has trademark applications pending with the PTO for PRIISMS Manager, NetworX,Sentinel 2000, Sentinel 2000S, Manager 2000 and Secure Network Systems 2000. The Company anticipates that these trademarks shall be registered but there can be no assurance that such will occur. GOVERNMENTAL APPROVALS REQUIRED AND EFFECT OF GOVERNMENT REGULATION Due to the sophistication of the technology employed in the Company's products, export thereof is subject to governmental regulation. As required by law or demanded by customer contract, the Company obtains approval of its products by Underwriters' Laboratories. Additionally, because many of the Company's products interface with telecommunications networks, its products are subject to several key Federal Communications Commission ("FCC") rules that often requires FCC approval. Part 68 of the FCC rules contains the majority of the technical requirements with which telephone systems must comply to qualify for FCC registration for interconnection to the public telephone network. Part 68 registration requires telecommunication equipment interfacing with the public telephone network comply with certain interference parameters and other technical specifications. FCC Part 68 registration for the Company's products has been granted and the Company intends to apply for FCC Part 68 registration for all of its new and future products. 12 Part 15 of the FCC rules requires equipment classified as containing a Class A computing device to meet certain radio and television interference requirements, especially as they relate to operation of such equipment in a residential area. Certain of the Company's products are subject to and comply with Part 15. The European Community has developed a similar set of requirements for its members and the Company has begun the compliance process of its products for Europe. Additionally, the Company has certified certain of its products (Sentinel 2000 and NetworX) to the NEBS (Network Equipment Business Specification) level of certification. This is a certification that was developed by Bellcore and is vital to meet the requirements of the Company's telecommunications customers. Although the Company has not experienced any difficulties obtaining such approvals, failure to obtain approval for new and future products could have a material adverse effect on the Company's business. The Company has obtained licenses to export certain of its products in limited quantities to Sweden, Norway, Switzerland, South Africa, the United Kingdom, France, Italy, Germany, Australia and Singapore. RESEARCH AND DEVELOPMENT ACTIVITIES During fiscal 1999, the Company expanded its research and development activities substantially, both internally and through the strategic acquisitions of SolCom and the purchase of certain assets of LeeMAH. The Company continued development of its "next generation" of products built on a new architecture that is ultimately intended to replace its IPC products - the Secure Sentinel(TM) and RPSD - referred to collectively as SNS/2000. This family of products is designed to address the growing demand for application and network performance monitoring, remote element network management and security of mission-critical integrated voice and data networks. In addition, the Company supported development on the RMON Probe network monitoring agent, NetworX and PRIISMS in both the Livingston and Edison locations. Research and development expenses in connection therewith were $2,952,897 in fiscal 1999 and $1,117,151 in fiscal 1998. The purchase price allocation for SolCom included a charge for in-process research and development ("IPR&D") of $3,490,177. IPR&D included certain of the research and development projects which were currently underway at SolCom at the time of the acquisition. These projects fall into two broad categories: "NetworX" products and "ASIC" products. Modular and Sentinel III products, although categorized and valued separately due to the nature of the lifecycle and expense assumptions, come within the NetworX technology as defined. NetworX products will allow network managers to evaluate and control all aspects of their networks. ASIC products are designed to create an integrated computer chip that carries all the application hardware and software necessary to carry out specific tasks, with increased processing speed and lower cost. 13 COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS The Company's business is not subject to regulations involving discharge of materials into the environment. EMPLOYEES As of July 9, 1999, the Company had 126 employees, all of whom are full-time employees, and of which 63 are technical personnel, 25 are in sales, marketing and support, 14 are in production and 24 are in executive, financial and administrative capacities. None of the Company's employees are represented by labor unions. The Company considers its relations with its employees to be satisfactory. 14 ITEM 2. DESCRIPTION OF PROPERTY. ----------------------- The Company currently leases 8,900 square feet of space at 21 Meridian Road, Edison, New Jersey for its administrative, sales and marketing and research and development functions. This lease, as amended, provides for a monthly rental of $5,579.92 and expires on August 31, 1999. An additional 2,000 square feet of office space and 2,600 square feet of warehouse space is currently leased to another tenant with an expiration date of June 30, 1999. The Company is the sole guarantor for the full performance of this tenant's obligations through the expiration date. In addition, the Company currently leases 5,112 square feet of space at 300E Corporate Court, South Plainfield, New Jersey for its finance, manufacturing, and warehousing functions. This lease, as amended, provides for a monthly rental of $3,408.00 and expires on August 31, 1999. The Company also leases 245 square meters of office space in Antwerp, Belgium for its European operating headquarters. This lease provides for a monthly rental of 81,083 Belgian Francs per month (US$2,316.00 at an exchange rate of 35BEF to 1US$) and expires on July 31, 2005, with an option of the Company to terminate the lease on either July 31, 1999 or July 31, 2002, as applicable. In addition, the Company leases 0.298 hectare of space at SolCom House, Meikle Road, Kirkton Campus, Livingston EH547DE, Scotland as well as 436 square feet of space at 1801 Robert Fulton Drive, Suite 400, Reston, Virginia 20191 in connection with the operations of SolCom and SolCom Systems Inc., a wholly-owned subsidiary of SolCom, respectively. These leases provide for monthly rentals of (pound)3,583 and $3,675, respectively, and expire on August 31, 2011 and February 28, 2000, respectively. The Company also leases approximately 5,600 square feet of space at 48834 Kato Road, Fremont, California in the Bedford Fremont Business Center in connection with the Company's LeeMAH division located in Fremont, California. This lease commenced on June 1, 1999 and is for a term of 60 months with monthly rent payable by the Company to the landlord as follows: $7,360 per month for the first 12 months of the term; $7,590 per month for months 13-24; $7,820 per month for months 25-36; $8,050 per month for months 37-48; and $8,280 per month for months 49-60. Commencing in August 1999, the Company will relocate its principal executive offices to 1551 South Washington Avenue, Piscataway, New Jersey, pursuant to a lease dated February 18, 1999, in which the Company will lease 26,247 square feet of space from Washington Plaza Associates, L.P. This lease is for a term of ten (10) years with monthly rent payable by the Company to the landlord as follows: $511,816.56 for the first two years of the term; $551,187 for the next year of the term; $557,748.72 for the next year of the term; $610,242.72 for the next three years of the term; and $662,242.72 for the remaining three years of the term. In accordance with the lease, the Company is also obligated to make additional payments to the landlord relating to certain taxes and operating expenses. 15 The Company believes that it has adequate space to meet its current operating needs and growth requirements for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS. ----------------- There are no material pending legal proceedings to which the Company is a party or to which any of its properties are subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. --------------------------------------------------- None. 16 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. -------------------------------------------------------- MARKET INFORMATION The Company's common stock, par value $.001 per share (the "Common Stock"), is listed on the NASDAQ SmallCap Market under the symbol "IONN". The following table sets forth the high ask and low bid prices of the Common Stock for the periods indicated as reported on the NASDAQ SmallCap Market. Fiscal Year 1999 HIGH LOW ---------------- ---- --- June 30 43/4 23/4 September 30 3 7/16 1 1/8 December 31 3 5/8 11/2 March 31 3 13/4 Fiscal Year 1998 ---------------- June 30 2 1/8 15/8 September 30 13/4 1 1/4 December 31 1 15/16 1 5/16 March 31 2 13/16 1 1/8 RECENT SALES OF UNREGISTERED SECURITIES On March 31, 1999, the Company issued an aggregate of 2,200,233 shares of Common Stock (the "SolCom Shares") and options to purchase 451,188 shares of Common Stock to the holders of SolCom in consideration of the acquisition by the Company of all of the outstanding share capital of SolCom. The Company also granted to employees of SolCom options to purchase up to an additional 48,369 shares of Common Stock. In addition, the Company granted 300,000 performance-based options to certain employees of SolCom, 150,000 of which will vest in fiscal year 2000 and the remaining 150,000 of which will vest in fiscal year 2001, provided that, the Company attains revenues of $30 million and $60 million in fiscal years 2000 and 2001, respectively. Such options terminate in the event the revenue targets are not achieved. The SolCom Shares were issued pursuant to Section 4(2) of, and Regulation S promulgated under, the Securities Act of 1933, as amended (the "Act"), to shareholders of SolCom residing outside the United States and to one accredited investor residing in the United States. The options granted are exercisable immediately and have exercise prices ranging from $0.4826 per share to $1.8016 per share and expiration dates ranging from four to ten years. 17 On February 25, 1999, the Company acquired certain selected assets of LeeMAH in consideration of the delivery by the Company to LeeMAH of a promissory note in the principal amount of $1,000,000 with interest thereon at the rate of six (6%) percent per annum, payable in one balloon payment within 90 days thereafter. Effective March 31, 1999, the Note was terminated by agreement of the parties in exchange for the issuance to LeeMAH of 444,000 shares of Common Stock, pursuant to Section 4(2) under the Act. On June 7, 1999, the Company issued an aggregate of 1,000,000 shares of Common Stock and warrants to purchase an aggregate of 500,000 shares of Common Stock to Special Situations Private Equity Fund, L.P. ("Special Situations") and certain affiliated entities of Special Situations in consideration of an amount equal to $3,000,000, pursuant to Section 4(2) under the Act. The terms of the warrants are three years and the exercise prices thereof are $4.50 per share for 250,000 warrants and $6.00 per share for the remaining 250,000 warrants. SECURITY HOLDERS As of July 8, 1999, there were 232 holders of record of the Common Stock (not including beneficial owners of Common Stock held by brokers in street name). DIVIDENDS The Company has not paid any cash dividends on its Common Stock during the two fiscal years ended March 31, 1999 and March 31, 1998. The Company presently intends to retain all earnings to finance its operations and therefore does not presently anticipate paying any cash dividends in the foreseeable future. Under the terms of the Company's credit agreement with United National Bank ("United"), the Company may not, without the prior written consent of United, declare or pay any dividends in cash or otherwise on any shares of capital stock of the Company. 18 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. --------------------------------------------------------- A NUMBER OF STATEMENTS CONTAINED IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THE APPLICABLE STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THE RECENT INTRODUCTION AND THE COSTS ASSOCIATED WITH, A NEW FAMILY OF PRODUCTS; DEPENDENCE ON THE ACCEPTANCE OF THIS NEW FAMILY OF PRODUCTS; UNCERTAINTY AS TO THE ACCEPTANCE OF THE COMPANY'S PRODUCTS GENERALLY; RISKS RELATED TO TECHNOLOGICAL FACTORS; POTENTIAL MANUFACTURING DIFFICULTIES; UNCERTAINTY OF PRODUCT DEVELOPMENT; UNCERTAINTY OF ADEQUATE FINANCING; DEPENDENCE ON THIRD PARTIES; DEPENDENCE ON KEY PERSONNEL; COMPETITION; A LIMITED CUSTOMER BASE; RISK OF SYSTEM FAILURE, SECURITY RISKS AND LIABILITY RISKS; RISK OF REQUIREMENTS TO COMPLY WITH GOVERNMENT REGULATIONS; VULNERABILITY TO RAPID INDUSTRY CHANGE AND TECHNOLOGICAL OBSOLESCENCE; AND GENERAL ECONOMIC CONDITIONS. UNLESS OTHERWISE REQUIRED BY APPLICABLE SECURITIES LAWS, THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS, OR TO UPDATE THE REASONS WHY ACTUAL RESULTS COULD DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. OVERVIEW/PLAN OF OPERATION Fiscal 1999 was an important transition year in the Company's history. The Company sought to capitalize on the emerging SBONM marketplace, principally through a significant increase in research and development and sales staff, as well as the strategic acquisitions of SolCom and LeeMAH. In March 1999, the Company acquired all of the outstanding shares of SolCom in exchange for 2,200,233 shares of Common Stock and an aggregate of up to 499,557 options to purchase Common Stock, which had an aggregate value of $6,211,880 at the time of issuance. The acquisition resulted in an allocation of $1,869,034 to goodwill and $3,855,000 to existing technology. The amortization periods for both are three years. SolCom is a developer of remote monitoring technology, a standard protocol for users to proactively manage multiple LANs and WANs from a central site. Following the acquisition by MicroFrame, Inc., a New Jersey corporation and predecessor entity to the Company ("MicroFrame") of SolCom, the Company changed its name to Ion Networks, Inc. principally to be more reflective of the Company's market position and overall strategic direction. In February 1999, the Company acquired certain of the operating assets of LeeMAH in exchange for a $1,000,000 promissory note, which was exchanged in March 1999 for 444,000 shares of Common Stock. LeeMAH is a provider of hardware and software security solutions designed to control both dial-in and web-based access to critical corporate resources. During the next 12 months, the Company plans to attempt to capitalize on these two significant acquisitions in terms of both product offerings and new customer relationships. The Company's goal is to develop a new family of products through the incorporation of remote 19 monitoring technology acquired in connection with the SolCom acquisition into existing features of the Company's Sentinel product line via the Company's "Active Management Technology." With the addition of a number of new customers, the Company will seek to strengthen its worldwide customer base, which includes U.S. and international telecommunication providers, CLECs, "Private Branch Exchange" vendors, financial institutions, Fortune 500 companies and governmental agencies. During fiscal 1999, the Company maintained relationships with Lucent Technologies, MCI WorldCom, KPN-Telecom (formerly PTT), AT&T, SBC Communications, and US WEST Communications Services. Several new relationships were formed during the fiscal year, the most significant being RHYTHMS NetConnections. As a result of the SolCom and LeeMAH acquisitions, relationships with Siemens Corporation, Hewlett-Packard, Inc. and BellSouth were gained. The Company's employee base increased from 46 full-time employees in fiscal 1998 to 126 in fiscal 1999. Of this growth of 80 employees, 46 were added as a result of the SolCom acquisition, 12 were added as a result of the LeeMAH acquisition, and the remaining 22 were a result of internal growth. As a result of such growth, the Company has signed a lease commitment to move its principal executive offices to Piscataway, New Jersey in August 1999. RESULTS OF OPERATIONS FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998 Revenues for the year ended March 31, 1999 were $12,673,917 as compared with revenues of $10,217,911 for the year ended March 31, 1998, an increase of approximately 24%. This increase was primarily due to a significant increase (approximately 151%) in shipments of the Company's Sentinel 2000 product. The Company shipped approximately 3,200 units of the Sentinel 2000, generating net revenues of approximately $6,700,000, representing approximately 53% of overall revenue. During fiscal 1998, approximately 1,100 such units were sold, generating net revenues of approximately $2,670,000, or 26% of overall revenue for such year. From a geographic standpoint, the Company's net revenue increase was achieved solely on the domestic side. Shipments to customers in the United States were approximately $10,050,000 (79% of total revenues) in fiscal 1999 as compared to approximately $7,430,000 (73%) in fiscal 1998, representing an increase of 35%. Shipments by the Company to the European market, principally including shipments under its contract with PTT Holland, were approximately $2,580,000 (20%) for the year ended March 31, 1999 compared to approximately $2,670,000 (26%) for the year ended March 31, 1998, a decrease of 3%. With the acquisition of SolCom, it is the Company's intention to increase its presence in the European market. The Company's cost of goods sold increased to $5,464,708 for the year ended March 31, 1999 compared to $4,285,134 for the year ended March 31, 1998 as a result of increased shipment levels. Cost of goods sold as a percentage of sales increased from 42% for the previous comparable fiscal period to 43% for this fiscal period, primarily due to product mix. 20 Research and development expenses, net of capitalized software development, increased from $1,117,151 in the year ended March 31, 1998 to $2,952,597 in the current fiscal year, an increase of 164%. As a percentage of revenues, research and development expenses increased from approximately 11% to 23%. This substantial increase is primarily due to two major reasons. First, approximately $750,000 (of a total funding of $1,250,000, a portion of which was capitalized as software development assets) was funded to SolCom for its ongoing research and development operations in the second half of fiscal 1999. Second, the internal research and development staff of the Company was more than doubled during fiscal 1999 in order to continue to provide increased support to the Sentinel 2000 family of products as well as to commence the development of the next generation of products through a combination of MicroFrame and SolCom technology. Selling, general and administrative expenses increased 46% from $4,419,521 for fiscal 1998 to $6,473,638 for the year ended March 31, 1999. As a percentage of revenues, selling, general and administrative expenses increased from approximately 43% to 51%. This increase was primarily due to the addition of sales and administrative infrastructure to support the two aforementioned acquisitions, as well as the Company's organic growth. The Company had a loss before taxes of $5,764,764 for the year ended March 31, 1999 compared to income before taxes of $406,649 for the year ended March 31, 1998, primarily due to acquisition-related costs. The current year loss includes a one-time charge for IPR&D of $3,490,177 in connection with the SolCom acquisition. In addition, the loss has been incurred due to the large increase in research and development expenses as well as the expansion of the Company's infrastructure. The net loss for the year ended March 31, 1999 was $5,997,003 compared to net income of $711,310 for the prior fiscal year. At March 31, 1999, the Company had federal, state, and foreign net operating loss carryforwards of approximately $3,893,996, $2,972,647, and $811,737, respectively, to offset future taxable income. The expiration dates for its net operating losses range from the years 2011 through 2014. IN-PROCESS RESEARCH AND DEVELOPMENT In connection with the acquisition of SolCom in the fourth quarter of fiscal 1999, the Company allocated $3,490,177 of the purchase price thereof to purchased IPR&D. The value allocated to purchased IPR&D was determined utilizing an income approach that included an excess earnings analysis reflecting the appropriate cost of capital for the investment. Estimates of future cash flows related to the IPR&D were made for each project based on the Company's estimates of revenue, operating expenses and income taxes from the project. The valuation included a state of completion adjustment, which utilizes the same cash flows as the excess earnings analysis, but removes all research and development costs to complete the identified project. The discount rates utilized to discount the projected cash flows were based on consideration of the risk profile and the nature of each project and the market. Other factors considered in the determination of the discount rates include the useful life of each project, the 21 anticipated profitability of each project, the uncertainty of technology advances that were known at the time and the stage of completion of each project. DESCRIPTION OF PRODUCTS SolCom's Modular product line, although valued separately, falls under the NetworX technology as defined below. SolCom is developing NetworX as the industry's first comprehensive management tool. NetworX will be the industry's first integrated platform for proactive, remote, secure management and monitoring of voice, data and video networks. It uses Dial up, Telnet or SNMP connections so that managers can monitor, evaluate and control all aspects of their network from a single, remote point. Sentinel products offer a range of comprehensive site management tools for centralized remote maintenance of large distributed voice and data networks. All Sentinel products will feature Alarm & Fault Management, PBX Toll Fraud Detection, Environmental Monitoring and Control as well as Security Access Management. Sentinel III is an intelligent port controller that will secure remote access to voice and data network node maintenance ports. The technology will combine remote monitoring and Sentinel network device management, allowing control of a network as well as a comprehensive picture of its activities. It is expected to be a low cost integrated platform for proactive, remote, secure management and monitoring of voice, data and video networks. Sentinel III has all the security features of Sentinel and Sentinel Slimline, combined with the remote monitoring capabilities of NetworX. An ASIC is an Application Specific Integrated Circuit that incorporates all the hardware and software required to carry out specific tasks on a single chip. This will lead to a substantial increase in processing speed and reduction in build cost. Designing the ASIC requires the Company to experience a learning curve while the engineers become familiar with this technology. Initially there will be one ASIC but once the initial ASIC has been developed, there will be an ongoing development to introduce more capabilities and features into ASICs. In general, the major risks for the IPR&D products consists of: Time to market; meeting anticipated sales and COGS levels; and providing competitive products. On a more specific level, each IPR&D product still needs developments to be completed prior to commercial release. The remaining risks for the Modular products are ensuring that the cards operate as expected when fitted to the "RMON" Engine. Furthermore, SolCom must make sure that the Modular products reach the expected performance levels during testing. NetworX requires that the hardware development is complete with all of the associated drivers. The new operating system has to be running correctly and the developed code needs to be completed, ported to NetworX and launched. Daughter cards for the NetworX system have to be completed along with all associated drivers. The software needs to be completed for the daughter cards and then the daughter cards need to be tested in the NetworX platform. 22 Sentinel III requires that the hardware development is completed and the associated software drivers are completed and operational. The new ASIC-based products need much more extensive development efforts. First, since the technology is so new, the engineers need to complete their familiarization with the technology. SolCom needs to find a chip manufacturer with which to work. The cards have to have their design verified and have to be tested both with the NetworX motherboard and the new NetworX operating system, with many expected refinements. Finally, the chip will need to be manufactured. ASIC then needs to be tested to verify that it will meet the required performance levels prior to releasing the technology. Modular products have been in development since early fiscal year 1999 and $230,928 was spent on Modular products as of March 31, 1999. An additional $57,732 is expected to be spent in order to release the Modular products. The Sentinel III product is expected to be released in the market in June 1999. To date, SolCom has spent $67,354 on research and development and expects to spend an additional $15,395 prior to release. Management has projected revenues for Sentinel III beginning in 2000. As of March 31, 1999, $250,172 was spent on research and development for the NetworX products. Another $45,395 of research and development expenses has been budgeted to complete these products. NetworX products are expected to be commercially released in June of 1999 but management has projected NetworX products to start generating revenues in fiscal year 2000. ASIC-based products are less complete than NetworX. As of consummation of the SolCom acquisition, only $105,842 in research and development expenses were spent and it is expected that ASIC products will need another $350,000 in order to become technologically and commercially feasible. ASIC is expected to be launched in the first half of fiscal year 2001 and management has projected revenues beginning in fiscal year 2001. ANALYSIS OF PRODUCTS/IPR&D SolCom was analyzed on a stand-alone basis. The analysis was adjusted so that any projections for products that were known to include the Company's technology and/or know-how were reduced to reflect only SolCom's efforts and contributions as appropriate. The Company is contributing technology to both Sentinel III and the NetworX Motherboard product of 30% and 20%, respectively. The percentage attributable to the Company's technology was eliminated from the product's value in the analysis. For example, the present value of cash flow for Sentinel III is approximately $2.1 million. After adjusting the cash flows to exclude the Company's portion of those cash flows, the SolCom value decreases to $1.5 million. After adjusting for the stage of completion, Sentinel III value accounted for as IPR&D is $1.2 million. The Company's professional appraisal firm has updated the valuation models to comply with the stage of completion and multiple discount rate guidance that has been issued by the Securities and Exchange Commission. 23 The analysis that has been performed by the Company's professional appraisal firm concluded an IPR&D value of $3,490,177. The IPR&D is comprised of $77,062 for Modular Products, $2,043,539 for NetworX products, $1,224,702 for Sentinel III and $144,874 for ASIC- based products. The following discussion provides information regarding the expected revenue to be generated by these projects, associated costs of the projects, the period over which the revenues will be generated and the stage of completion of each project at the time of acquisition. The value allocated to acquired IPR&D for the SolCom acquisition as of the closing on March 31, 1999 was determined utilizing the income approach via an excess earnings analysis. This methodology requires the projection of revenues and expense that will arise as a result of the successful completion of the IPR&D project. The operating income attributable to each IPR&D project was calculated as projected revenues less the projected operating expenses. Net operating income is calculated after applying the projected effective tax rate for the Company. A charge was taken to reflect the economic rent related to the net assets required to run the business and support future growth. This return on the requisite assets was based on industry comparable companies and company specific information. Where it was determined that core technology of the existing technology would be utilized by the IPR&D, a charge was applied against IPR&D revenues. Core technology was identified for all of the IPR&D projects. A core technology charge of 30% of operating profit was applied for each of the IPR&D projects. The charge for use of the core technology and the return on requisite assets was subtracted from net income. The value allocated to acquired IPR&D was determined utilizing the Stage of Completion methodology. This methodology utilizes the same cash flows as the excess earnings analysis, but removes all research and development costs to complete the identified project. In addition, the discounted value of these cash flows is reduced to represent the percentage of which the project has been completed as of March 31, 1999. The determination of the percentage completed is based primarily on the amount of effort (cost or time) expended to date and remaining until completion. Consideration is also given to the amount of risk and effort incorporated in the development steps in relation to the development steps remaining to complete the project. New Modular products that will replace the current Modular products are expected to be released in the first quarter of fiscal 2000. Based on the risk and effort to date, it has been determined that the Modular products were 80% complete as of March 31, 1999. Based on historical research and development expenditures as a percentage of total research and development costs to bring the products to market, the percentage complete is calculated to be 85%. Sentinel III is expected to be released in the first quarter of fiscal 2000. Based on the risk and effort to date, it has been determined that Sentinel III was 80% complete as of March 31,1999. Based on research and developments spent to date as a percentage of total budgeted costs until release, the percent complete is 80%. The NetworX products are expected to be released in the first quarter of fiscal 2000. Two of these NetworX products are considered to be 70% completed and two are considered to be 80% complete. The new ASIC based products were determined to be approximately 20% complete and are expected to be released in the first half of fiscal year 2001. Based on research and development 24 expenditures as a percentage of total research and development costs needed to complete the project, the percentage complete is calculated to be 23%. The resulting cash flows were then discounted at an appropriate rate based on the risk profile and the nature of each project and the market. Due to the stage of each product, the expected release date and the reliability of the projections, a range of 30% to 40% for the discount rates was selected as appropriate. Specifically, Modular products, NetworX and Sentinel III were discounted at 30% and ASIC was discounted at 40%. According to the HANDBOOK OF MODERN FINANCE by Dennis E. Logue, 1997 Edition, the required rate of return by venture capitalists generally ranged between 20% and 60%. We considered these projects to be similar to a late stage venture capital or a mezzanine financing company at a 20% to 40% range. Modular products are expected to have a one-year life cycle. The Company started to develop the Modular products in fiscal year 1999. They will fully replace the existing Modular products that were developed in fiscal year 1998. Total revenues, including product, warranty and Hewlett Packard revenue, are expected to be approximately $590,000 in fiscal year 2000 and zero in fiscal year 2001. The associated expected costs of goods sold ("COGS") are 5% of expected sales. Other operating expenses (sales, marketing, administrative, internal support, maintenance research and development, etc.) are attributed to each IPR&D product based on the overall Company expense margins. Those operating expenses are expected to be approximately 48%. Research and development costs to complete were determined to be $57,732. NetworX products are expected to have a seven-year life cycle, with its peak after three years. Total revenue growth, including product, warranty and Hewlett Packard revenue is expected to increase by approximately 200% in fiscal year 2001 and then to 80% by fiscal year 2002. Revenue growth will then decrease over the life of the products. The associated expected COGS are 15% of expected sales. Other operating expenses (sales, marketing, administrative, internal support, maintenance research and development, etc.) are attributed to each IPR&D product based on the overall Company expense margins. Those operating expenses are expected to be approximately 48%. Research and development costs to complete were determined to be $49,244. Sentinel III is expected to have an eight-year life cycle, with its peak after four years. Total revenue growth, including product, warranty and Hewlett Packard revenue is expected to increase by approximately 200% in 2001 and then to 80% by fiscal year 2003. Revenue growth will then decrease over the life of the products. The associated expected COGS are 14% of expected sales. Other operating expenses (sales, marketing, administrative, internal support, maintenance research and development, etc.) are attributed to each IPR&D product based on the overall Company expense margins. Those operating expenses are expected to be approximately 48%. Research and development costs to complete were determined to be $15,395. ASIC based products are expected to have a seven-year life cycle, with its peak after three years. Total revenue growth, including product, warranty and Hewlett Packard revenue is expected to increase to 80% by fiscal year 2003. Revenue growth will then decrease over the life of 25 the products. The associated expected COGS are 9% of expected sales. Other operating expenses (sales, marketing, administrative, internal support, maintenance research and development, etc.) are attributed to each IPR&D product based on the overall Company expense margins. Those operating expenses are expected to be approximately 48%. Research and development costs to complete were determined to be $350,000. LIQUIDITY AND CAPITAL RESOURCES During fiscal 1999, the Company's working capital position deteriorated substantially as a result of the acquisition of SolCom. While total assets increased from $6,179,038 to $15,973,475, working capital (net of deferred tax assets) decreased from $2,577,880 to ($1,124,360), an overall reduction of $3,702,240. The working capital usage related to the SolCom acquisition can be differentiated into three specific areas. First, approximately $1,250,000 was funded to SolCom for its ongoing operations in the second half of fiscal 1999, which was primarily used to fund ongoing research and development efforts. Second, approximately $1,200,000 was spent by the Company on acquisition-related expenses, primarily legal, accounting and other professional fees. Third, the Company assumed approximately $1,260,000 in current liabilities incurred by SolCom for legal, accounting and professional fees related to the acquisition. The Company's negative working capital will be improved during the first quarter of fiscal 2000 through the additional cash raised as discussed below. Net cash used by operating activities during fiscal 1999 was $553,688 as compared to cash provided during fiscal 1998 of $332,671. The use of cash was primarily attributed to the net loss as well as significant increases in inventory and accounts receivable. The use of cash was partially offset by the IPR&D charge included in the net loss, depreciation and amortization, and a large increase in accounts payable due to acquisition related expenses as well as the timing of payments at year-end. Net cash used by investing activities during fiscal 1999 was $2,999,904 as compared to $635,199 for the prior fiscal year. The increase is due to acquisition related expenses, primarily legal, accounting and other professional fees in addition to capitalized software. Net cash provided by financing activities increased to $3,211,860 from $271,040 in fiscal 1998. The increase is a direct result of the Company's borrowings under the current line of credit and term loan. Additionally, cash provided from the issuances of Common Stock increased due to the exercise of options and warrants during fiscal 1999. In October 1998, the Company entered into a line of credit agreement with United with an available balance of $2,000,000 through July 30, 1999, which was extended in July 1999 through September 30, 1999. In April 1999, the line of credit was increased to $2,250,000. At March 31, 1999, the Company had borrowed $1,996,289 against this line of credit. The line is collateralized by all business assets of the Company. The Company had an available line of credit through July 30, 26 1998, in the amount of $1,000,000 with United. Upon negotiation of the current line of credit and term loan, this outstanding balance was rolled forward effectively closing such line of credit. In July 1999, the Company and United entered into a new agreement whereby the existing line of credit ($2,250,000) was converted into a three-year term loan. The term loan is payable in equal monthly installments commencing on October 1, 1999. In December 1998, the Company entered into a term loan agreement with United in the principal amount of $500,000 through December 2003. At March 31, 1999, $475,000 was outstanding under such term loan. From April 1999 through June 1999, the Company raised $1,618,544 through the exercise of warrants issued in connection with a private financing of Common Stock and warrants to purchase Common Stock consummated in April 1996. In addition, in June 1999, the Company raised $3,000,000 in connection with a private financing of Common Stock. The Company expects to fund the expansion of its business and operations and meet its short and long-term liquidity needs from available cash and cash flow, working capital and from funds derived from future operating revenues as well as through additional financing from outside sources. The Company currently believes that it will have sufficient cash flows to meet its operational needs over the next twelve months. ACCOUNTING PRONOUNCEMENTS In June 1998, The Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" which becomes effective for all fiscal quarters of fiscal years beginning after June 15, 1999. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The adoption of this standard is not expected to have a material impact on the Company's financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This standard requires certain direct development costs associated with internal- use software to be capitalized, including external direct costs of material and services and payroll costs for employees devoting time to the software projects. The SOP is effective for financial statements for fiscal years beginning after December 15, 1998. Management believes that SOP 98-1 will have an immaterial impact on the Company's financial statements. 27 YEAR 2000 GENERAL Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. Beginning in the year 2000, these date code fields will need to accept four digit entries to distinguish the twenty-first century dates from the twentieth century dates. The Company uses software and related technologies that will be effected by the "Year 2000 problem." The Company began the process of identifying the changes required to their computer programs and hardware during 1996. The Company believes that all of its major programs and hardware are Year 2000 compliant. The Company believes that it will not incur any significant costs between now and January 1, 2000 to resolve Year 2000 issues. However, there can be no assurance that other companies' computer systems and applications on which the Company's operations rely, will be timely converted, or that any such failure to convert by another company would not have a material adverse effect on the Company's systems and operations. Furthermore, there can be no assurance that the software that the Company uses which has been designed to be Year 2000 compliant contains all necessary date code changes. THIRD PARTIES The Company has also initiated formal communications with significant suppliers and other key third parties to determine the extent to which the Company is vulnerable to those third parties' failure to resolve their own Year 2000 compliance issues. There can be no assurance that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company's results of operations. RISK ASSESSMENT/CONTINGENCY PLANNING At this time, the Company believes its most reasonable likely worst case scenario would include (i) a key material vendor or service provider experiencing problems with delivery of materials, components or services; or (ii) the failure of infrastructure services provided by government agencies and other third parties (e.g., electricity, telephone, transportation, Internet services, etc.). As noted above, the Company is evaluating the Year 2000 compliance status of its key third-party vendors to identify potential risks for contingency planning purposes. The Company anticipates that appropriate contingency plans will be prepared throughout 1999 as determined to be necessary. 28 ITEM 7. FINANCIAL STATEMENTS. -------------------- The financial statements required hereby are located on pages F-1 through F-22. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ---------------------------------------------------------------- FINANCIAL DISCLOSURES. --------------------- None. 29 PART III The information called for by Part III (Items 9, 10, 11 and 12 of Form 10-KSB) is hereby incorporated by reference to the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, in connection with the Company's 1999 Annual Meeting of Stockholders. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. -------------------------------- (a) EXHIBITS Exhibit No. Description - ------- ----------- 3.1* Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware on August 5, 1998. 3.2* Certificate of Amendment of the Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on December 11, 1998. 3.3* By-Laws of the Company. 3.4 Form of Specimen Common Stock Certificate of the Company. 4.1* 1998 Stock Option Plan of the Company. 4.2* 1998 U.K. Sub-Plan of the Company. 10.1 Lease Agreement for the Company's Edison, New Jersey facility (Incorporated by Reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991). 10.2 Amendments to Lease for the Company's Edison, New Jersey facility (Incorporated by Reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994). 10.3 Lease Agreement dated February 18, 1999 by and between the Company and Washington Plaza Associates, L.P., as landlord. 10.4 Business Park Gross Lease dated May 17, 1999 by and between the Company and Bedford Property Investors, Inc. 30 10.5 Supply Agreement dated October 20, 1998 by and between the Company and Lucent Technologies. 10.6 Technology License Agreement dated October 26, 1995, as amended, by and between SolCom Systems Limited and the Hewlett-Packard Company. 10.7 OEM Purchase Agreement dated April 13, 1999 by and between the Company and the Hewlett-Packard Company. 10.8 Agreement dated as of December 19, 1994 by and between LeeMAH DataCom Security Corporation and Siemens Rolm Communications Inc. 10.9 Equipment Lease Agreements dated June 10, 1999 and May 5, 1999 by and between the Company and Siemens Credit Corporation. 10.10 Equipment Lease Agreement dated June 17, 1999 by and between the Company and Lucent Technologies. 10.11 Employment Agreement dated as of April 1, 1998 between the Company and Stephen B. Gray 10.12 Line of Credit Agreement with United National Bank dated November 17, 1997 (Incorporated by Reference to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998). 10.13** Share Purchase Agreement, as amended, dated as of December 28, 1998 by and among the Company, SolCom Systems Limited ("SolCom"), the shareholders of SolCom and certain representatives of such shareholders. 10.14** Escrow Agreement, as amended, dated as of March 31, 1999 by and among the Company, SolCom and certain shareholders and shareholders' representatives thereof. 10.15** Employment Agreement Amendment dated as of March 31, 1999 by and among the Company, SolCom and Peter Wilson. 10.16*** Agreement and Plan of Merger by and between the Company and MicroFrame, Inc., a New Jersey corporation. 10.17o Asset Purchase Agreement dated as of February 25, 1999 by and among the Registrant, LeeMAH and the Parent. 10.18o Promissory Note of the Registrant dated February 25, 1999. 31 10.19o Confidentiality and Noncompetition Agreement dated as of February 25, 1999 by and among the Registrant, LeeMAH and the Parent. 10.20o Assignment of Patents of LeeMAH dated February 25, 1999. 10.21o Assignment of Trademarks of LeeMAH dated February 25, 1999. 23.1 Consent of PricewaterhouseCoopers LLP 27.1 Financial Data Schedule - ------------------------------ * Incorporated by Reference to the Company's Registration Statement on Form S-8 filed on April 22, 1999. ** Incorporated by Reference to Appendix A of the Company's Definitive Information Statement on Schedule 14C filed on March 11, 1999. *** Incorporated by Reference to Appendix I of the Company's Definitive Information Statement on Schedule 14C filed on March 11, 1999. o Incorporated by Reference to the Company's Current Report on Form 8-K filed on March 12, 1999. (b) REPORTS ON FORM 8-K The Company filed a Current Report on Form 8-K on March 12, 1999 in connection with the acquisition of certain selected assets of LeeMAH DataCom Security Corporation, a California corporation. 32 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATED: July 9, 1999 ION NETWORKS, INC. By: /s/ Stephen B. Gray ------------------------------- Stephen B. Gray, President POWER OF ATTORNEY In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on July 9, 1999: Signature Title /s/ Stephen B. Gray President, Chief Executive Officer, Chief - --------------------------------- Operating Officer and Director Stephen B. Gray /s/ Stephen M. Deixler Chairman of the Board of Directors - ---------------------------------- Stephen M. Deixler /s/ Mark Simmons Principal Financial Officer and Principal - ---------------------------------- Accounting Officer Mark Simmons /s/ Michael Radomsky Executive Vice President, Secretary and - ---------------------------------- Director Michael Radomsky /s/ Alexander C. Stark - ---------------------------------- Director Alexander C. Stark - ---------------------------------- Director William Martin Ritchie /s/ Alan Hardie - ----------------------------------- Director Alan Hardie ION NETWORKS, INC. AND SUBSIDIARIES (FORMERLY MICROFRAME, INC. AND SUBSIDIARY) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 ION NETWORKS, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Report of Independent Accountants F-1 Consolidated Balance Sheets as of March 31, 1999 and March 31, 1998 F-2 Consolidated Statements of Operations for the years ended March 31, 1999 and 1998 F-3 Consolidated Statements of Cash Flows for the years ended March 31, 1999 and 1998 F-4 Consolidated Statements of Stockholders' Equity for the years ended March 31, 1999 and March 31, 1998 F-5 Notes to Consolidated Financial Statements F-6-22 REPORT OF INDEPENDENT ACCOUNTANTS July 12, 1999 To the Board of Directors and Stockholders of ION Networks, Inc. and Subsidiaries In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and stockholders' equity and of cash flows present fairly, in all material respects, the financial position of ION Networks, Inc. and Subsidiaries (the "Company") at March 31, 1999 and 1998, and the results of their operations and their cash flows for each of the two years in the period ended March 31, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying notes are an integral part of these financial statements. F-1
ION NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1999 AND 1998 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 ASSETS Current Assets Cash and cash equivalents $ 165,994 $ 507,726 Accounts receivable, less allowance for doubtful accounts of $150,000 and $126,000, respectively 3,092,867 2,667,319 Inventory, net 2,554,643 1,425,351 Deferred tax assets 422,310 366,137 Prepaid expenses and other current assets 433,031 153,568 --------------- -------------- Total current assets 6,668,845 5,120,101 Property and equipment at cost, net 1,010,369 421,701 Capitalized software, less accumulated amortization of $1,951,715 and $1,054,827, respectively 5,350,388 396,351 Noncurrent deferred tax assets, net 129,689 Goodwill and other acquisition - related intangibles, less accumulated amortization of $63,810 and $26,130, respectively 2,905,240 75,480 Security deposits 38,633 35,716 --------------- -------------- Total assets 15,973,475 6,179,038 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Bank borrowings $ -- $ 300,000 Current portion of long-term debt 488,948 30,009 Accounts payable and accrued expenses 3,890,152 910,842 Accrued payroll and related liabilities 813,266 348,397 Deferred income 269,457 181,573 Other current liabilities 1,909,072 405,263 --------------- -------------- Total current liabilities 7,370,895 2,176,084 --------------- -------------- Deferred tax liabilities, net 188,276 -- Long-term debt 2,013,266 -- Commitments and contingencies (Notes 9 and 10) Stockholders' equity Preferred stock - par value $10 peer share; authorized 200,000 shares, none issued -- Common stock - par value $.001 per share; authorized 50,000,000 shares issued 8,286,670 shares and outstanding 8,224,639 shares at March 31, 1999, issued 4,849,531 shares, outstanding 4,849,131 shares and subscribed 50,000 shares at March 31, 1998 8,287 4,899 Additional paid-in capital 14,858,560 6,345,613 Stock subscription receivable -- (104,000) Accumulated deficit (8,228,641) (2,231,638) Cumulative translation adjustment (29,969) (7,920) --------------- -------------- 6,608,237 4,006,954 Less-Treasury stock, 62,031 shares and 400 shares, at cost at March 31, 1999 and 1998, respectively (207,199) (4,000) --------------- --------------- Total stockholders' equity 6,401,038 4,002,954 --------------- --------------- Total liabilities and stockholders' equity $ 15,973,475 $ 6,179,038 =============== ===============
The accompanying notes are an integral part of these financial statements. F-2
ION NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - ----------------------------------------------------------------------------------------------- 1999 1998 Net sales $12,673,917 $10,217,911 Cost of sales 5,464,708 4,285,134 ----------- ----------- Gross Margin 7,209,209 5,932,777 Research and development expenses 2,952,597 1,117,151 Selling, general and administrative expenses 6,473,638 4,419,521 In-process research and development charge 3,490,177 -- ----------- ----------- (Loss) income from operations (5,707,203) 396,105 Interest income 43,012 14,888 Interest expense (100,573) (4,344) ------------ ----------- (Loss) income before income tax expense (benefit) (5,764,764) 406,649 Income tax expense (benefit) 232,239 (304,661) ----------- ----------- Net (loss) income $(5,997,003) $711,310 =========== =========== Per share data Basic ($1.09) $0.15 Diluted ($1.09) $0.14 Weighted average number of common shares outstanding: Basic 5,499,556 4,840,357 ----------- ----------- Diluted 5,499,556 5,195,357 ----------- -----------
The accompanying notes are an integral part of these financial statements. F-3
ION NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - --------------------------------------------------------------------------------------------------------- 1999 1998 Cash flows from operating activities $ (5,997,003) $ 711,310 Net (loss) income Adjustments to reconcile net income to net cash provided by operating activities In-process research and development charge 3,490,177 -- Depreciation and amortization 731,160 485,738 Provision for doubtful accounts 23,793 26,000 Provision for inventory obsolescence - (15,000) Noncash stock-based compensation charge 188,120 15,150 Deferred tax provision 232,239 (354,661) Changes in operating assets and liabilities, net of effects of acquisitions Accounts receivable (546,951) (794,509) Inventory (786,783) (380,008) Prepaid expenses and other current assets (198,618) (32,578) Security deposits (2,917) (1,013) Accounts payable and accrued expenses 2,190,508 549,305 Accrued payroll and related liabilities 52,967 67,885 Deferred income (35,394) (86,945) Other current liabilities 105,014 141,997 -------------- -------------- Net cash (used in) provided by operating activities (553,688) 332,671 -------------- -------------- Cash flows from investing activities Capital expenditures (565,007) (311,846) Capitalized software (1,285,245) (323,353) Capitalized acquisition related expenditures, net of cash acquired (1,149,652) - -------------- -------------- Net cash used in investing activities (2,999,904) (635,199) -------------- -------------- Cash flows from financing activities Borrowings under line of credit 2,196,280 300,000 Repayments of debt (55,009) (42,655) Issuance of common stock 1,070,589 13,695 -------------- -------------- Net cash provided by financing activities 3,211,860 271,040 -------------- -------------- Net (decrease) in cash and cash equivalents (341,732) (31,488) Cash and cash equivalents - beginning of period 507,726 539,214 -------------- -------------- Cash and cash equivalents - end of period $ 165,994 $ 507,726 -------------- -------------- Supplemental information: Cash paid during period for interest $ 100,573 $ 4,344 -------------- --------------
The accompanying notes are an integral part of these financial statements. F-4
ION NETWORKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Additional Stock Cumulative Total Paid-In Subscription Accumulated Translation Treasury Stockholder's Shares Par Value Capital Receivable Deficit Adjustment Stock Equity Balance, March 31, 1997 4,838,803 $ 4,839 $ 6,212,828 $ - $ (2,942,948) $ - $ (4,000) $ 3,270,719 Net income 711,310 711,310 Issuances of common stock 10,328 10 13,685 13,695 Noncash stock-based 15,150 15,150 compensation Stock subscription 50,000 50 103,950 (104,000) Translation adjustments _________ _________ __________ ________ ___________ (7,920) ________ (7,920) ---------- ---------- Balance, March 31, 1998 4,899,131 4,899 6,345,613 $(104,000) $ (2,231,638) $ (7,920) $ (4,000) $ 4,002,954 ---------- --------- ---------- -------- ------------- ---------- -------- --------- Net loss $ (5,997,003) $(5,997,003) Issuances of common stock 3,327,539 $ 3,328 $ 8,279,887 $ 104,000 8,387,215 Noncash stock-based 60,000 60 233,060 233,120 compensation Acquisition of treasury $(203,199) (203,199) shares Translation adjustments _________ _________ __________ _________ ____________ $ (22,049) _________ (22,049) -------- --------- Balance, March 31, 1999 8,286,670 $8,287 $14,858,560 $ - $ (8,228,641) $ (29,969) $(207,199) $ 6,401,038 ----------- --------- ----------- --------- ---------- -- -------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-5 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- 1. Organization THE COMPANY ION Networks, Inc., (the "Company"), a Delaware corporation founded in 1999 through the combination of two network management developers - MicroFrame, a New Jersey Corporation (the predecessor entity to the Company, originally founded in 1982), and SolCom Systems Limited, a Scottish corporation located in Livingston, Scotland (originally founded in 1994), designs, develops and markets a broad range of security, network management and remote maintenance products for voice and data communications networks. By incorporating a variety of hardware and software options for user authentication, these products can deter unauthorized dial-in access to both devices and systems (such as computers, local area networks and Private Branch Exchange telephone switches), while allowing authorized personnel access to perform needed administration and maintenance of host devices and networks from remote locations. The products also provide alarm monitoring and reporting capabilities, a basis for remote network management and maintenance. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of ION Networks, Inc. and its subsidiaries (collectively, the "Company"). All material intercompany accounts and balances have been eliminated. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. INVENTORY Inventory is stated at the lower of cost (first-in, first-out) or market, and consists of hardware and software components designed to interface with network communications environments. The markets for the Company's products are characterized by rapidly changing technology and the consequential obsolescence of relatively new products. The Company has recorded estimated reserves against inventories related to such technological obsolescence. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which are generally three to five years. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred. Gains or losses on disposal of property and equipment are reflected in the statements of operations in the period of disposal. F-6 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- CAPITALIZED SOFTWARE The Company capitalizes computer software development costs in accordance with the provisions of Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). SFAS 86 requires that the Company capitalize computer software development costs upon the establishment of the technological feasibility of a product, to the extent that such costs are expected to be recovered through future sales of the product. The Company capitalized $1,285,229 and $323,353 of software development costs for fiscal 1999 and 1998, respectively. Additionally, the Company acquired $3,855,000 of existing technology in connection with an acquisition (see Note 3). These costs are amortized by the greater of the amount computed using (i) the ratio that current gross revenues from the sales of software bear to the total of current and anticipated future gross revenues from sales of that software, or (ii) the straight-line method over the estimated useful life of the product (generally three years). It is reasonably possible that those estimates of anticipated future gross revenues, the remaining estimated economic life of the product, or both, will be reduced significantly in the near term (due to competitive pressures). As a result, the carrying amount of the capitalized software costs may be reduced materially in the near term. Amortization expense totaled $371,740 and $242,570 for fiscal 1999 and fiscal 1998, respectively. GOODWILL AND OTHER ACQUISITION RELATED INTANGIBLES Goodwill is the excess of purchase price over the fair value of net assets acquired in business combinations accounted for as purchases. The Company amortizes goodwill on a straight-line basis over the periods benefited, ranging from three to ten years. Other acquisition-related intangibles includes customer lists ($300,000). The Company amortizes other acquisition-related intangibles over periods not to exceed three years. RESEARCH AND DEVELOPMENT COSTS The Company charges all costs incurred to establish the technological feasibility of a product or enhancement to research and development expense. REVENUE RECOGNITION POLICY The Company records revenue from product sales upon shipment to the customer if no significant vendor obligations exist and collectibility is probable. Maintenance contracts are sold separately and maintenance revenue is recognized on a straight-line basis over the period the service is provided, generally one year. WARRANTY COSTS Estimated warranty costs associated with the sale of hardware and software are accrued at the time of sale. The warranty reserve as of March 31, 1999 and 1998 included in other current liabilities amounts to $126,000 and $45,000, respectively. F-7 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. The significant estimates include the allowance for doubtful accounts, allowance for inventory obsolescence, capitalized software and the related amortization lives, deferred tax asset valuation allowance and depreciation and amortization lives. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued payroll and related liabilities, deferred income, and other current liabilities approximates fair value because of the relatively short maturity of these instruments. The Company's line of credit and term loan have variable interest rates which adjust with changes in market interest rates and the book value of such indebtedness is deemed to approximate fair value. VALUATION OF LONG-LIVED ASSETS Long-lived assets such as property and equipment, goodwill, customer lists and software are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. PER SHARE DATA Earnings per share has been calculated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The weighted average number of common shares outstanding during 1999 and 1998 were used to compute basic earnings per share. Diluted earnings per share is computed using the weighted average number of common shares outstanding plus the dilutive potential common shares outstanding. Dilutive potential common shares are additional common shares assumed to be exercised, which approximated 355,000 in 1998. Potential common shares of 1,040,000 were excluded from the computation of diluted earnings per share for 1999 because their inclusion would have had an antidilutive effect on earnings per share. FOREIGN CURRENCY TRANSLATION The financial statements of the foreign subsidiaries were prepared in local currency and translated into U.S. dollars based on the current exchange rate at the end of the period for the balance sheet and a weighted-average rate for the period on the statement of operations. Translation adjustments are reflected as foreign currency translation adjustments in stockholders' equity and, accordingly, have no effect on net income (loss). Transaction adjustments for the foreign subsidiaries are included in income and are not material. INCOME TAXES The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax return. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax F-8 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- basis of assets and liabilities ("temporary differences") using enacted tax rates in effect for the year in which the differences are expected to reverse. Recognition of a deferred tax asset is allowed if it is more likely than not that the asset will be realized in the future. RECLASSIFICATION The Company has reclassified certain prior year amounts to conform with the 1999 presentation. 3. ACQUISITIONS On March 31, 1999, the Company acquired all the outstanding shares of SolCom Systems Limited ("SolCom") in exchange for 2,200,233 of common shares and 499,567 of options, which had an aggregate value of $6,211,880. The Company also issued 300,000 performance-based options (see Note 8) which have not been reflected in the purchase price. The value of the options, if issued, will be contingent consideration and will be reflected as goodwill in the Company's financial statements. This acquisition has been accounted for under the purchase method of accounting. Accordingly, the accompanying consolidated statements of operations do not include any revenues or expenses related to this acquisition prior to the closing date. The acquisition resulted in an allocation of $1,869,034 to goodwill and $3,855,000 to existing technology. The amortization periods for both the goodwill and the existing technology are three years. Included in the purchase price for the above acquisition was purchased in-process research and development, which was a non cash charge to earnings as this technology had not reached technological feasibility and had no future alternative use. In accordance with Statement of Financial Accounting Standards No. 2 "Accounting for Research and Development Costs," amounts assigned to purchased in-process research and development meeting the above criteria were charged to expense for $3,490,177. This technology will require varying additional development, coding and testing efforts, and other rework over the next year to determine technological feasibility. The value allocated to purchased in-process research and development was determined utilizing an income approach that included an excess earnings analysis reflecting the appropriate cost of capital for the investment. Estimates of future cash flows related to the in-process research and development were made for each project based on the Company's estimates of revenue, operating expenses and income taxes from the project. The valuation included a state of completion adjustment, which utilizes the same cash flows as the excess earnings analysis, but removes all research and development costs to complete the identified project. The discount rates utilized to discount the projected cash flows were based on consideration of the risk profile and the nature of each project and the market. Other factors considered in the determination of the discount rates include the useful life of each project, the anticipated profitability of each project, the uncertainty of technology advances that were known at the time and the stage of completion of each project. F-9 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- Following is a summary of the pro forma results of ION Networks, Inc. as if the merger had closed effective April 1, 1997: FOR THE YEAR ENDED MARCH 31, MARCH 31, 1999 1998 (UNAUDITED) Revenues $13,988,252 $12,386,224 Net loss (6,027,379) (3,623,036) Weighted-average common shares 7,699,789 7,040,357 Weighted-average common shares and potential common shares 7,699,789 7,040,357 Basic earnings $(0.78) $(0.51) per share Diluted earnings per share $(0.78) $(0.51) On February 25, 1999, the Company acquired certain of the operating assets of LeeMAH Datacom Security Corporation ("LeeMAH") in exchange for 444,000 shares of the Company's common stock. The purchase price of approximately $1 million has been reflected primarily as goodwill and other acquisition-related intangibles, mainly customer lists. The acquired entity had sales of $209,000 and income from operations of $149,000 for the period from the date of acquisition through March 31, 1999; accordingly, the acquisition was not material to the Company's statement of operations, its cash flows or its financial position. 4. INVENTORY Inventory, net of reserve for obsolescence of $185,000 at March 31, 1999 and 1998 consists of the following: 1999 1998 Raw materials $ 1,570,150 $ 818,132 Work-in-process 223,229 525,918 Finished goods 761,264 81,301 ------------ ------------ $ 2,554,643 $ 1,425,351 ------------ ----------- F-10 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- 5. PROPERTY AND EQUIPMENT AT COST, NET At March 31, 1999 and 1998 property and equipment consists of the following: 1999 1998 Demonstration and service equipment $ 1,725,901 $ 1,125,987 FURNITURE AND FIXTURES 230,679 195,767 LEASEHOLD IMPROVEMENTS 45,136 71,850 ------------ -------------- 2,001,716 1,393,604 LESS: ACCUMULATED DEPRECIATION (991,347) (971,903) ------------ -------------- TOTAL $ 1,010,369 $ 421,701 ------------ -------------- Depreciation expense for property and equipment for the years ended March 31, 1999 and 1998 amounted to $321,740 and $233,268, respectively. During the year ended March 31, 1999, the Company retired fully depreciated assets amounting to $649,518. 6. BANK BORROWINGS In October 1998, the Company entered into a line of credit agreement with an available balance of $2,000,000 through July 30, 1999. In July 1999, this line was extended through September 30, 1999. In April 1999, the line of credit was increased to $2,250,000. At March 31 1999, $1,996,289 had been drawn down under this line of credit. The line is collateralized by all business assets of the Company. Advances under the bank line are payable at maturity, and bear interest at the Wall Street prime rate (7.75% at March 31, 1999) plus 0.5%. On July 9, 1999, the Company and its lender, entered into a new agreement whereby the existing line of credit ($2,250,000), was converted to a three year term loan. The term loan bears interest at the Wall Street prime rate plus 0.5% and is payable in equal monthly installments commencing on October 1, 1999. Future principal repayment under this loan is $375,000 for the year ended March 31, 2000. In December 1998, the Company entered into a term loan agreement in the amount of $500,000 through December 2003. At March 31, 1999, $475,000 is outstanding under the term loan. The loan with a term of five years is payable monthly at an interest rate of the Wall Street prime (7.75% at March 31, 1999) plus 1.0%. Future principal repayment under this loan is $100,000 for the year ending March 31, 2000. The bank line of credit and term loan contain covenants which restrict the payment of a dividend without the prior approval of the bank. Additionally, the Company covenants that borrowings will not exceed 75% of the aggregate amount of accounts receivable (the "collateral limit") which are outstanding under 90 days. At certain times during the year, the Company's borrowings exceeded F-11 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- the collateral limit noted above. The Company received a waiver of this covenant violation through April 1, 2000. The Company had an available line of credit through July 30, 1998, in the amount of $1,000,000. Upon negotiation of the current line of credit and term loan, this outstanding balance was transferred to and reflected as outstanding under the current term loan, effectively closing the line of credit. At March 31, 1998, $300,000 had been drawn down under this line of credit. The line was collateralized by all business assets of the Company. The following table shows the maturities at March 31, 1999, of the total bank borrowings including term loans: 2000 $ 488,948 2001 863,140 2002 853,847 2003 475,000 2004 75,000 Thereafter - 7. INCOME TAXES As of March 31, 1999, the Company has available federal, state and foreign net operating loss carryforwards of approximately $3,893,996, $2,972,647 and $811,737, respectively, to offset future taxable income. The federal net operating loss carryforwards expire during the years 2011 through 2014. In addition, the Company has investment credit and research and development credit carryforwards aggregating approximately $186,524, which may provide future tax benefits, expiring from 2008 through 2014. The components of the income tax provision (benefit) for the years ended March 31, 1999 and 1998 are as follows: 1999 1998 Current Federal $ - $ 16,000 State - 34,000 -------------- --------------- - 50,000 -------------- --------------- Deferred Federal 197,403 (301,442) State 34,836 (53,219) -------------- --------------- 232,239 (354,661) -------------- --------------- $ 232,239 $ (304,661) -------------- --------------- F-12
ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - ------------------------------------------------------------------------------------------------------------------------------------ The reasons for the difference between the Company's effective tax rate and the United States federal statutory rate are as follows: MARCH 31 1999 1998 Effective tax rate reconciliation Statutory federal tax rate (34)% 34% State taxes, net of federal benefit (6) 6 Effect of in-process research and development write-off 24 - Effect of reversal of valuation allowance - (76) Foreign (income)/loss with no benefit (1) 29 Utilization of net operating loss carryforwards - (70) Effect of recording valuation allowance on net operating loss carryforwards 20 - Other 1 2 ------ ------- 4% (75)% ------ ------- The tax effect of temporary differences which make up the significant components of the net deferred tax asset and liability at March 31, 1999 and 1998 are as follows: 1999 1998 Current deferred tax assets Inventory $ 224,000 $ 214,000 Accrued expenses 118,393 83,737 Allowance for doubtful accounts 79,917 68,400 -------------- -------------- Total current deferred tax assets $ 422,310 $ 366,137 -------------- -------------- Noncurrent deferred tax assets Net operating loss carryforwards $ 1,867,600 $ 715,669 Research and development credit 186,524 136,098 Alternative minimum tax credit 6,867 21,572 -------------- -------------- Total noncurrent deferred tax assets 2,060,991 873,339 Valuation allowance (1,696,459) (547,256) -------------- -------------- Net noncurrent deferred tax assets $ 364,532 $ 326,083 -------------- -------------- Deferred tax liabilities Depreciation $ (28,865) $ (37,854) Capitalized software (523,943) (158,540) --------------- -------------- Total deferred tax liabilities $ (552,808) $ (196,394) --------------- -------------- Net noncurrent deferred tax (liabilities) assets $ (188,276) $ 129,689 --------------- --------------
F-13 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- The Company has recorded a valuation allowance against a portion of the federal and state net operating loss carryforwards and a full valuation allowance against the foreign net operating loss carryforwards and the research and development credit as management believes that it is more likely than not that substantially all of the net operating loss carryforwards and credits will expire unutilized. The increase in the valuation allowance is due primarily to current year net operating loss carryforwards for federal and state purposes, $1,144,653 - tax effected, and research and development credits, $50,426, offset by the utilization of a small portion of foreign net operating loss carryforwards, ($45,876) - tax effected, during the year ended March 31, 1999. The Company's net deferred tax assets recorded are expected to be utilized as the Company's taxable temporary differences reverse in the future. 8. STOCKHOLDERS' EQUITY During the year ended March 31, 1998, the Company entered into a stock subscription agreement with one of its directors, under which the director agreed to acquire 50,000 shares of the Company's common stock at $2.08 The shares were issued in fiscal year 1999 after the receipt of $104,000 from the director. During the years ended March 31, 1999 and 1998, respectively, options to purchase 358,429 and 500 shares of common stock under the Company's stock option plans were exercised, for an aggregate consideration of $362,589 and $625. During the year ended March 31, 1999, 60,000 shares and 30,000 options were issued in connection with the termination of a consulting contract (see Note 9). The aggregate fair value of this consideration was $171,120 of which $45,000 was provided for in prior years. During the year ended March 31, 1998, 9,828 shares of common stock were issued as part of the stock earn out as stipulated in the Share Purchase Agreement. The aggregate fair value of this consideration was $13,070. In April 1996, the Company sold 860,000 shares of common stock to unrelated investors, at $1.25 per share and received net proceeds of approximately $1,023,559. In conjunction with this sale, warrants to purchase 860,000 shares of common stock with an exercise price of $1.50 and warrants to purchase additional 860,000 shares of common stock with an exercise price of $2.00 were issued. These warrants expire in April, 2000. In April 1996, the Company sold 241,467 shares of common stock to four current shareholders of record who held the contractual right to maintain their share of ownership. The Company received net proceeds of $301,834. In conjunction with this sale, warrants to purchase 241,467 shares of common stock with an exercise price of $1.50 and warrants to purchase an additional 241,467 shares of common stock with an exercise price of $2.00 were issued. These warrants expire in April, 2000. During the year ended March 31, 1999, warrants to purchase 376,000 shares were exercised for an aggregate consideration of $604,000. WARRANTS During October 1995, in connection with services being performed by a consultant, the Company F-14 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- issued 250,000 warrants to the consultant to purchase shares of the Company's common stock. Warrants to purchase 50,000 shares of common stock at $3.25 per share vested immediately. Warrants to purchase each additional block of 50,000 shares of common stock are exercisable at $3.75, $4.25, $4.75 and $5.25 per share, respectively, and shall vest on each three month anniversary of the agreement. The warrants expire five years from the date of grant. STOCK OPTION PLANS The aggregate number of shares of common stock for which options may be granted under the 1998 Stock Option Plan (the "1998 Plan") is 3,000,000. The maximum number of options which may be granted to an employee during any calendar year under the Plan shall be 400,000. The aggregate fair market value of shares which are exercisable during any calendar year by any one individual may not exceed $100,000. The term of these non-transferable stock options may not exceed ten years. The exercise price of these stock options may not be less than 100% (110% if the person granted such options owns more than ten percent of the outstanding common stock) of the fair value of one share of common stock on the date of grant. On March 31, 1999 in conjunction with the Company's acquisition of SolCom Systems Ltd. ("SolCom"), the Company granted options to purchase 499,567 shares of its common stock under the 1998 Plan to holders of SolCom vested options in accordance with the Share Purchase Agreement for the transaction. At March 31, 1999 all of these options were outstanding and all are exercisable. In addition, the Company granted 300,000 performance -based options to the holders of SolCom options. The options will vest in blocks of 150,000 options in each of fiscal years 2000 and 2001, respectively, if the Company attains sales of $30 million and $60 million in 2000 and 2001, respectively. If the targets are not met, the options will expire. In August 1994, the Company adopted its 1994 Stock Option Plan (the "1994 Plan"). The 1994 Plan, as amended, increased the number of shares of common stock for which options may be granted to a maximum of 1,250,000 shares. The aggregate fair market value (determined at the time the option is granted) of shares which are exercisable during any calendar year by any one individual may not exceed $100,000. The term of these non-transferable stock options may not exceed ten years. The exercise price of these stock options may not be less than 100% (110% if the person granted such options owns more than ten percent of the outstanding common stock) of the fair market value of one common stock on the date of grant. During the year ended March 31, 1999, the Company granted options to purchase 187,224 shares of its common stock under the 1994 Plan. At March 31, 1999, 770,664 options were outstanding under the 1994 Plan, of which 672,798 options were exercisable. Of the options granted in fiscal 1998, 455,645 were granted under the Company's Time Accelerated Restricted Stock Award Plan ("TARSAP"). The options vest after seven years, however, under the TARSAP, the vesting is accelerated to the last day of the current fiscal year if the Company meets certain predetermined sales and net income targets. The Company met the targets for 1998 and, as such, all options granted under the TARSAP in 1998 vested as of March 31, 1998. OTHER OPTIONS During the year ended March 31, 1999, the Company issued 70,000 options to various consultants. The term of these options is five years from the date of grant. Of the 70,000 options issued, 30,000 are vested immediately with 20,000 to vest in fiscal 2000 and 2001, respectively, contingent on F-15 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- consulting services being provided in each year. Compensation expense of $62,000 was recorded relative to the grant of the original 30,000 options during 1999. During the year ended March 31, 1998, the Company issued 30,000 options to a consultant, of which 15,000 were vested immediately and 15,000 were to vest contingent on an extension of the consulting agreement. This agreement and the unvested options were subsequently terminated. Compensation expense of $15,150 was recorded relative to the grant of the original 15,000 options during 1998. During September 1996, the Company issued options to certain officers and directors to purchase 620,000 shares of the Company's common stock, of which 420,000 vested immediately and 100,000 vest each April 1 of 1998 and 1999. Options expire ten years from the date of grant. The exercise price of the options is equal to the market value of the Company's stock on the date of grant. During the year ended March 31, 1999, 130,000 options to purchase shares were exercised under this grant. At March 31, 1999, 490,000 options were outstanding of which 390,000 options were exercisable. The Company also has issued outstanding options to purchase 130,000 shares of the Company's stock. Options expire in terms ranging from 5 to 10 years from the date of grant. The exercise price of the options is equal to the market value of the Company's stock on the date of grant. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company continues to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its options. Accordingly, no compensation cost has been recognized for its fixed stock option plans in its results of operations. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). If the Company had elected to recognize compensation costs based on the fair value at the date of grant for awards in fiscal 1999 and 1998, consistent with the provisions of SFAS No. 123, the Company's net loss and loss per share would have increased by $751,295 and $.14 for the year ended March 31, 1999 and net income and earnings per share would have decreased by $426,614 and $.09 for the year ended March 31, 1998. The pro forma effect on net (loss) income for fiscal 1999 and 1998 may not be representative of the pro forma effect on net (loss) income of future years because the SFAS No. 123 method of accounting for pro forma compensation expense has not been applied to options granted prior to April 1, 1995. The weighted-average fair values at date of grant for options granted during fiscal 1999 and 1998 were $1.64 and $1.00, respectively. The fair value of each option grant for the Company's common stock is estimated on the date of the grant using the Black Scholes option pricing model, with the following weighted average assumptions used for grants in fiscal 1999 and 1998: 1999 1998 Expected volatility 80% 77% Risk-free interest rate 5.12% 6.34% Expected option lives 5.87 years 5.54 years F-16 ION NETWORKS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------------------------------------- Details of options granted are as follows: WEIGHTED AVERAGE EXERCISE OPTION PRICE SHARES PRICE PER SHARE ($) Options outstanding at March 31, 1997 1,067,493 $1.49 $1.16 to $2.87 Granted 807,740 1.78 1.34 to 3.13 Canceled (79,937) 1.85 1.25 to 2.87 Exercised (500) 1.25 1.25 ----------- ----- ------------ Options outstanding at March 31, 1998 1,794,796 1.60 1.16 to 3.13 Granted 1.282,067 2.34 1.96 to 3.54 Canceled (25,596) 1.94 1.54 to 2.31 Exercised (358,429) 1.47 1.16 to 2.87 ----------- ----- ------------ Options outstanding at March 31, 1999 2,692,838 1.52 1.16 to 3.54 ----------- ----- ------------ Options exercisable at March 31, 1999 2,065,704 1.88 $1.16 to $3.13 ----------- ----- --------------
WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED RANGE OF YEARS OF AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE $1.16 - $1.78 1,060,008 5.25 $1.41 922,909 $1.45 $1.83 - $2.14 604,599 5.58 $1.96 351,349 $1.94 $2.16 - $3.54 1,028,231 5.89 $2.43 791,446 $2.43 9. COMMITMENTS OPERATING LEASES In June 1993, the Company amended its lease for office and manufacturing facilities. Such amendment extends the term of the lease until June 30, 1999. During March 1999, the Company entered into an operating lease to consolidate their office and manufacturing facilities, which has a commencement date of July 31, 1999. This lease expires in June 2009. The Company also leases office space for its European operation in Antwerp, Belgium. The lease expires on July 31, 2005. F-17 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- In addition, the Company's wholly-owned subsidiary currently leases office and manufacturing facilities, expiring in 2001. The fixed minimum payments under operating leases for future periods is as follows: Year ending March 31, 2000 $ 471,555 2001 632,701 2002 661,769 2003 679,769 2004 723,064 Thereafter 3,580,333 ---------- Total minimum lease payments $ 6,749,191 ---------- Rent expense for the years ended March 31, 1999 and 1998 approximated $171,496 and $153,954, respectively. CONSULTING CONTRACT In connection with the acquisition of European Business Associates BVBA of Brussels, Belgium from Mark Kegelaers, the Company entered into a consulting agreement with Mr. Kegelaers for a term of five years. The consulting agreement provides for an annual consulting fee of $75,000 with 5% annual increments, as well as reimbursement of certain expenses. During February 1999, the Company and Mark Kegelaers mutually agreed to terminate the above consulting contract. In connection with the termination Mr. Kegelaers received 60,000 common shares and 30,000 options. Compensation expense of approximately $126,120 was recorded during fiscal 1999 in connection with this issue of shares and options. 10. CONTINGENT LIABILITIES In the normal course of business the Company and its subsidiaries may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion of management, the outcome of such current legal proceedings, claims and assessments would not have a material effect on the Company's reported financial position, results of operations or cash flows as of and for the years ended March 31, 1999 and 1998. 11. EMPLOYEE BENEFIT PLANS Effective April 1, 1993, the Company adopted a defined contribution savings plan. The terms of the plan provide for eligible employees ("participants") who have met certain age and service requirements to participate by electing to contribute up to 15% of their gross salary to the plan, as defined, with the Company matching 30% of a participant's contribution in cash up to a maximum of 6% of gross salary, as defined. Company contributions vest at the rate of 25% of the balance at each employee's second, third, fourth, and fifth anniversary of employment. The employees' contributions F-18 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- are immediately vested. The Company's contribution to the savings plan for the years ended March 31, 1999 and 1998 was $37,058 and $28,222, respectively. 12. SALES The Company, which operates in a single industry segment, designs, develops and markets a broad range of security, network management and remote maintenance products for voice and data communications networks. The Company's headquarters, physical production and shipping facilities are located in the United States. The Company's local and foreign export sales for the years ended March 31, 1999 and 1998 are as follows: 1999 1998 United States $ 10,054,769 $ 7,435,586 Europe 2,583,040 2,677,193 Pacific Rim -- 23,611 Other 36,108 81,521 ------------- ------------- $ 12,673,917 $ 10,217,911 ------------- ------------- The Company sold a substantial portion of its products to four customers. Sales to these customers amounted to $6,914,525 (55% of net sales) and $6,232,390 (61% of net sales) in 1999 and 1998, respectively. At March 31, 1999 and 1998, amounts due from these customers included in accounts receivable, were $1,362,061 and $1,279,486, respectively. The loss of any of these four customers would have a material adverse effect on the Company's financial position and results of operations. 13. CONCENTRATION OF CREDIT RISK The Company maintains deposits in a financial institution which is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At March 31, 1999 and periodically throughout 1999, the Company had deposits in this financial institution in excess of the amount insured by the FDIC. The Company sells the majority of its products to customers within the telecommunications industry. The Company's four largest customers accounted for approximately 44% of net accounts receivable at March 31, 1999. The Company provides for allowances for doubtful accounts which management believes are adequate to cover potential credit risk losses. The Company designs its products utilizing readily available parts manufactured by multiple suppliers and the Company currently relies on and intends to continue to rely on these suppliers. The Company has been and expects to continue to be able to obtain the parts generally required to manufacture its products without any significant interruption or sudden price increase, although there can be no assurance that the Company will be able to continue to do so. F-19 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- The Company sometimes utilizes a component available from only one supplier. If a supplier was to cease to supply this component, the Company would most likely have to redesign a feature of the affected device. In these situations, the Company maintains a greater supply of the component on hand in order to allow the time necessary to effectuate a redesign or alternative course of action should the need arise. 14. OTHER CURRENT LIABILITIES Other current liabilities consists mainly of additional liabilities assumed by the Company in connection with the acquisition of SolCom Systems Limited ("SolCom"). These liabilities relate to professional fees incurred by SolCom and its directors for services provided in conjunction with the acquisition. These liabilities will be paid in equal monthly installments through February 2000. 15. COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". The following table reflects the reconciliation between net income per the financial statements and comprehensive income: YEAR YEAR ENDED ENDED 3/31/99 3/31/98 Net (loss) income $(5,997,003) $ 711,310 Effect of foreign currency translation (22,049) (7,920) ----------- ---------- Comprehensive income $(6,019,052) $ 703,390 ----------- ---------- F-20
ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - ------------------------------------------------------------------------------------------------------------------------- 16. SUPPLEMENTAL CASH FLOW INFORMATION 1999 1998 Non-cash acquisition of SolCom Systems Limited: Operating activities: Accounts receivable $422,423 Inventory 342,509 Prepaid expenses and other current assets 81,652 Accounts payable 788,801 Accrued payroll and related liabilities 411,902 Deferred income 123,278 Other current liabilities 1,398,796 Investing and financing activities: Property and equipment, net 388,712 Capitalized software, net 185,532 Borrowings 30,935 Common stock and options issued in connection with the purchase acquisition 6,211,880 Other Non-Cash Investing and Financing Activities: Common stock issued in connection with the purchase acquisition of LeeMAH DatacomSecurity Corporation 1,000,000 -- Acquisition of treasury shares 203,199 -- Common stock and options issued in connection with termination of consulting contract 126,120 -- Options issued to consultants as non-cash compensation 62,000 15,150 Common stock issued in connection with European Business Associates Share earn out agreement -- 12,538
17. RELATED PARTY TRANSACTIONS The Company issued advances to two officers of the Company in the amount of $50,000 each on August 31, 1998. These advances accrue interest at the Wall Street prime rate plus 1%. These advances are due and payable in full upon the officers cessation of employment with the Company or August 31, 2000, whichever is earlier. Subsequent to March 31, 1999, one of the officers, who has subsequently terminated employment with the Company, repaid his outstanding balance in full. F-21 ION NETWORKS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- 18. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Among other provisions, it requires that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Gains and losses resulting from changes in the fair values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. This standard is effective for fiscal years beginning after June 15, 1999, though earlier adoption is encouraged and retroactive application is prohibited. For the Company this means the standard must be adopted no later than April 1, 2000. Management, based on its current operations, does not expect the adoption of this standard to have a material impact on the Company's results of operations, financial position or cash flows. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". This standard requires certain direct development costs associated with internal-use software to be capitalized including external direct costs of material and services and payroll costs for employees devoting time to the software projects. The SOP is effective for financial statements for fiscal years beginning after December 15, 1998. Management believes that SOP 98-1 will have an immaterial impact on the Company's financial statements. 19. SUBSEQUENT EVENTS In April 1999, the Company offered a discount on the warrants issued in conjunction with the sale of stock in April 1996. These warrants, initially issued at $1.50 and $2.00 and carrying an expiration date of April 2000, were reduced in price to $1.25 and $1.50, respectively. The discount carried an expiration date of June 30, 1999. During the discount period, investors exercised 1,143,251 warrants and the Company received net proceeds of $1,618,544. In June 1999, the Company sold 1,000,000 shares of common stock to a Private Equity Fund at $3.00 per share and received net proceeds of $3,000,000. In conjunction with this sale, warrants to purchase 250,000 shares of common stock with an exercise price of $4.50 and warrants to purchase 250,000 shares of common stock with an exercise price of $6.00 were issued. These warrants expire in June 2002. F-22 EX-3.4 2 FORM OF SPECIMEN STOCK CERTIFICATE Exhibit 3.4 ----------- NUMBER SHARES IN COMMON STOCK COMMON STOCK CUSIP 46205P 10 0 SEE REVERSE FOR CERTAIN DEFINITIONS ION NETWORKS, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.0001 PAR VALUE, OF ION NETWORKS, INC. (hereinafter called the "Corporation"), transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation to all of which the holder by acceptance hereof assents. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. THIS IS TO CERTIFY that Dated: ION NETWORKS, INC. COUNTER SIGNED AND REGISTERED -- Corporate Seal -- AMERICAN STOCK TRANSFER & TRUST COMPANY 1998 (New York, New York)TRANSFER AGENT DELAWARE BY: AND REGISTRAR AUTHORIZED SIGNATURE ----------------------------- ------------------------------- , Secretary , Chief Executive Officer EX-10.3 3 LEASE AGREEMENT DATED FEBRUARY 18, 1999 Exhibit 10.3 ------------ LEASE between WASHINGTON PLAZA ASSOCIATES, L.P., "Landlord" and MICROFRAME, INC., "Tenant" February 18, 1999 LEASE, dated February 18, 1999, between WASHINGTON PLAZA ASSOCIATES, L.P., a New Jersey limited partnership, having an office c/o Lincoln Equities Group, 301 Route 17 North, 9th Floor, Rutherford, New Jersey 07070 (herein called "LANDLORD") and MICROFRAME, INC., a New Jersey corporation, having an office at 21 Meridian Road, Edison, New Jersey 08820 (herein called "TENANT"). W I T N E S S E T H: Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the Premises (as hereinafter defined), for the Term (as hereinafter defined), at the Rent (as hereinafter defined) and otherwise upon, subject to and in accordance with the following terms and conditions of this Lease. In respect thereof, Landlord and Tenant hereby agree as follows: ARTICLE 1 BUILDING, PREMISES AND TERM 1.1 Building. The building in which the Premises are located (herein called the "BUILDING") is located on the land (herein called the "LAND") described in Exhibit A attached hereto and made a part hereof, and the Building, together with the Land, is known as Washington Plaza, having a street address of 1551 South Washington Avenue, Piscataway, New Jersey. 1.2 Premises The premises demised by this Lease (herein called the "PREMISES") are located on and comprise a portion of the first (1st) floor of the Building, substantially as shown hatched on the floor plan attached hereto as Exhibit B and made a part hereof. For purposes of this Lease, the Premises shall be conclusively deemed to consist of 26,247 rentable square feet. 1.3 Term. 1.3.1 The term of this Lease (herein called the "Term") shall commence on the Commencement Date (as hereinafter defined in Section 1.3.2 hereof), and shall end at 11:59 p.m. on the last day of the month in which occurs the tenth (10th) anniversary of the day immediately preceding the Commencement Date (herein called "Expiration Date"), or on such earlier date upon which the term of this Lease shall expire or be cancelled or terminated pursuant to any of the conditions or covenants of this Lease or pursuant to law. 1.3.2 The "COMMENCEMENT DATE", subject to the following provisions of this Section 1.3.2, shall be the earliest of (a) the date that Tenant shall have commenced occupancy of the Premises for the conduct of its usual business or (b) five (5) days after the date that Landlord shall have (1) substantially completed the Initial Tenant Work (as hereinafter defined in Section 1.5 hereof), and (2) If required for the lawful occupancy of the Premises, obtained a certificate of occupancy or other license or permit, if any, required by law to permit the Premises to be used for office purposes. Notwithstanding the foregoing, if Landlord is delayed causing the Commencement Date to occur by reason of delays caused or occasioned by Tenant (herein called "Tenant Delays"), then, in addition to any other rights or remedies that Landlord may have on account thereof, the "Commencement Date" shall be deemed to be the date Landlord would have caused the Commencement Date to occur absent such Tenant Delays. Landlord and Tenant hereby acknowledge that the Commencement Date is indeterminate and shall occur only as provided in this Section 1.3.2. Landlord and Tenant, promptly after the occurrence of the Commencement Date, shall execute, acknowledge and deliver to each other an instrument in form reasonably satisfactory to Landlord and Tenant confirming the Commencement Date; but neither Tenant's nor Landlord's failure to execute, acknowledge and deliver such instrument shall affect the occurrence of the Commencement Date or otherwise affect the validity of this Lease. 1.4 Delivery and Accepttance of Premises. Tenant has heretofore inspected the Premises, is fully familiar with the condition thereof and, subject only to the substantial completion of the Initial Tenant Work pursuant to the provisions of Section 1.5 below and to latent defects, shall accept the Premises on the Commencement Date in their "AS IS" condition. 1.5 Initial Tenant Work. Landlord, subject to, upon and in accordance with the following provisions of this Section shall, at Landlord's sole cost and expense, perform the work needed to prepare the Premises for Tenant's initial occupancy thereof (such work being herein called the "INITIAL TENANT WORK"): 1.5.1 Landlord and Tenant have approved Space Plan SP-IC for the Initial Tenant Work prepared by BFI, dated December 3, 1998, revised December 9, 1998 (the "PRELIMINARY PLAN"), and the Design Spec Package relating to the Preliminary Plan a copy of which is attached to and made a part of this Lease as Exhibit B-1 (the "SPECIFICATIONS"). Promptly after the execution of this Lease by Landlord and Tenant, Landlord, at Landlord's sole cost and expense, shall cause to be prepared a complete and coordinated set of working, finished and detailed construction drawings and specifications for the Initial Tenant Work (such drawings and specifications are herein called the "INITIAL TENANT WORK PLANS"), which Initial Tenant Work Plans shall be prepared in conformity with the Preliminary Plan and the Specifications. 1.5.2 Landlord represents that the Premises, after Landlord substantially completes the Initial Tenant Work, shall be in compliance with the Americans with Disabilities Act of 1990 (the "ADA"), and all other Legal Requirements (as defined in Article 13 hereof) applicable to the use of the Premises as general office space, as of the Commencement Date (except for conditions created by Tenant in installing its furniture, fixtures and equipment). With respect to any alterations or improvements that Tenant makes to the interior of the Premises (or which are made on Tenant's 2 behalf), other than the Initial Tenant Work, regardless of whether Tenant has obtained Landlord's consent to such alterations or improvements, Tenant shall be fully responsible for complying with and paying any costs associated with any and all requirements of the ADA. In addition, if any alterations are required to be made to the Premises due to changes in or regulations under the ADA or judicial interpretations of the requirements of the ADA coming into existence following the Commencement Date, or due to changes in Tenant's use of the Premises or in the nature of Tenant's conduct of its business in the Premises (including but not limited to any changes in use or business conduct arising out of a sublease or assignment, or resulting in the Premises being deemed a "PLACE OF PUBLIC ACCOMMODATION" under the ADA), Tenant shall be fully responsible for complying with and paying any costs associated with any and all requirements of the ADA arising in connection therewith. If the need for Alterations required by the ADA arises for any other reason, Landlord shall be fully responsible for complying with and paying any costs associated with any and all requirements of the ADA arising in connection therewith. 1.5.3 Landlord, promptly after completion of the Initial Tenant Work Plans, shall apply to and secure from the appropriate Governmental Authorities (as defined in Article 13 hereof any building permit(s) or license(s) which shall be required in connection with Landlord's performance of the Initial Tenant Work. 1.5.4 Landlord, promptly after the date on which any required building permit(s) or license(s) are issued, or if no building permit or license is required, the date on which the Initial Tenant Work Plans have been completed, shall commence to perform the Initial Tenant Work, and thereafter diligently prosecute the Initial Tenant Work to completion. Landlord shall perform the Initial Tenant Work in accordance with the approved Initial Tenant Work Plans, in compliance with all Legal Requirements, in accordance with Building standard specifications, and otherwise in a good and workmanlike manner. In performing the Initial Tenant Work, Landlord shall use Building standard materials unless otherwise specifically provided in the Initial Tenant Work Plans or otherwise agreed to in writing by Landlord and Tenant. 1.5.5 Landlord, at Landlord's sole cost and expense, shall arrange for any inspections, and shall apply for and obtain any certificate of occupancy, permit, license or similar document required by any Governmental Authority for the occupancy of the Premises for general office purposes. 1.5.6 The Initial Tenant Work shall be deemed to be "SUBSTANTIALLY COMPLETED" even though minor details or adjustments of or in such work (herein called " PUNCHLIST ITEMS ") are not then completed. Tenant, within thirty (30) days after the Commencement Date, shall prepare, and deliver to Landlord, a list (herein called the "PUNCHLIST") of all punchlist items with respect to the Initial Tenant Work; any punchlist items (other than latent defects) not timely and properly included on the Punchlist shall be deemed waived by Tenant. Landlord shall, at its sole cost and expense, complete or correct all Punchlist items timely and properly included on the Punchlist, within thirty (30) days of the delivery of the Punchlist to Landlord (or if such completion or correction work cannot with due diligence be completed or corrected within thirty (30) days, then within a reasonable period of time thereafter, provided that Landlord is prosecuting such work diligently); provided, 3 however, that in no event shall Landlord be obligated to repair any damage to any of the Initial Tenant Work that was caused by Tenant or any Tenant Parties (as defined in Article 13 hereof). In completing and/or correcting punchlist items, Landlord shall use commercially reasonable efforts to minimize disruption of Tenant's business operations in the Premises. 1.5.7 Subject, to Landlord's completion and/or correction of the punchlist items timely and properly included on the Punchlist (or, if latent defects, after Tenant's discovery and reporting thereof to Landlord), Tenant's occupancy of the Premises for the conduct of its usual business shall be deemed Tenant's acceptance of the Premises and Tenant's agreement that Landlord has substantially completed the Initial Tenant Work and that the Commencement Date has occurred. 1.5.8 Tenant's employees, agents and contractors shall be permitted entry to the Premises on or before the Commencement Date at all reasonable times designated by Landlord provided such persons shall be accompanied by a representative of Landlord. Landlord agrees to have such representative available to accompany such representative(s) of Tenant during all reasonable times designated by Landlord for entry to the Building and the Premises. Tenant's access to the Premises shall be for the purposes of inspecting the progress of the Initial Tenant Work as well as for installation/performance of Tenant's telecommunications, data systems/hardware, Tenant installed internal security systems, furniture and graphics/plans, provided that such inspections and/or installations shall not unreasonably interfere with construction of the improvements by Landlord. Any delays in completion of the Initial Tenant Work caused by Tenant's activities permitted under this Section 1.5.8 shall constitute Tenant Delays. In addition, with the prior written consent of Landlord which will not be unreasonably withheld, conditioned or delayed, Tenant shall be entitled to have any other vendors authorized by Tenant to enter and work in the Premises provided that such vendors and their work shall not unreasonably interfere with the construction by Landlord of the improvements required to be performed by Landlord hereunder. In preparing the Premises, Landlord shall make available to Tenant, its agents, employees, contractors and approved vendors, reasonable quantities of Building services necessary for the installations and work described herein so long as such does not unreasonably interfere with Landlord's construction of the Premises or Building. Tenant's access to and use of the Premises pursuant to the terms of this paragraph shall be expressly subject to all terms of this Lease except Tenant's obligation to pay Rent, specifically including but not limited to the provisions of Article 5 of this Lease. 1.5.9 In the event the Initial Tenant Work has not been substantially completed by July 3 1, 1999 (as extended by any period of delay attributable to Tenant Delays), then Tenant shall receive a credit against Fixed Rent in an amount equal to the product of (i) the number of days from such date (as so extended) through the date of such substantial completion times (ii) (a) for the first (1st) fifteen (15) days after such date, $1,402.24, and (b) for all days beyond such first (1st) fifteen (15) days after such date, $2,804.48. In the event the Initial Tenant Work has not been substantially completed by October 31, 1999 (as extended by any period of delay attributable to Tenant Delays), then Tenant shall be entitled to terminate this Lease by delivery to Landlord, prior to the date of such substantial completion, of written notice of such termination. 4 ARTICLE 2 - RENT 2.1 Rent - Generally. 2.1.1 The rents payable under this Lease (herein collectively referred to as the "RENT") shall be and consist of (i) the Fixed Rent (as hereinafter defined in Section 2.2 below), and (ii) additional rent (herein called "ADDITIONAL CHARGES") consisting of Tax Payments (as hereinafter defined in Section 2.3 below), Operating Payments (as hereinafter defined in Section 2.4 below) and all other charges as shall become due from and payable by Tenant to Landlord pursuant to the terms of this Lease. All Additional Charges shall be deemed "rent" for all purposes, including Landlord's remedies for non-payment thereof. 2.1.2 Tenant covenants and agrees to pay all Rent, as and when the same is due and payable hereunder, without notice or demand therefor and without any abatement, deduction or setoff for any reason whatsoever, except, in either case, as may be expressly provided in this Lease. If, pursuant to any provision of this Lease, Tenant shall be obligated to pay any Additional Charges and no due date or payment period therefor is specified herein, then such Additional Charges shall be paid by Tenant to Landlord within ten (10) days after being billed therefor. All Rent shall be paid in lawful money of the United States to Landlord at its office, or such other place, or to Landlord's agent and at such other place, as Landlord shall designate by notice to Tenant. All Rent shall be paid by good and sufficient check (subject to collection) drawn on a New Jersey or New York City bank. 2.2 Fixed Rent. 2.2.1 Tenant shall pay to Landlord a fixed rent (herein called "Fixed Rent") at the following rates for the following periods: (a) FIVE HUNDRED ELEVEN THOUSAND EIGHT HUNDRED SIXTEEN and 56/100 DOLLARS ($511,816.56) (i.e., $19.50 per rentable square foot of the Premises), per annum, for the period from the Commencement Date to and including the day immediately preceding the second (2nd) anniversary of the Commencement Date; (b) FIVE HUNDRED FIFTY-ONE THOUSAND ONE HUNDRED EIGHTY-SEVEN and 00/100 DOLLARS ($551,187.00) (i.e., $21.00 per rentable square foot of the Premises), per annum, for the period from the second (2nd) anniversary of the Commencement Date to and including the day immediately preceding the third (3rd) anniversary of the Commencement Date; (c) FIVE HUNDRED FIFTY-SEVEN THOUSAND SEVEN HUNDRED FORTY-EIGHT and 72/100 DOLLARS ($557,748.72) (i.e., $21.25 per rentable square foot of the Premises), per annum, for the period from the third (3rd) anniversary of the 5 Commencement Date to and including the day immediately preceding the fourth (4th) anniversary of the Commencement Date; (d) SIX HUNDRED TEN THOUSAND TWO HUNDRED FORTY- TWO and 72/100 DOLLARS ($610,242.72) (i.e., $23.25 per rentable square foot of the Premises), per annum, for the period from the fourth (4th) anniversary of the Commencement Date to and including the day immediately preceding the seventh (7th) anniversary of the Commencement Date; and (e) SIX HUNDRED SIXTY-TWO THOUSAND SEVEN HUNDRED THIRTY-SIX and 72/100 DOLLARS ($662,736.72) (i.e., $25.25 per rentable square foot of the Premises), per annum, for the period from the seventh (7th) anniversary of the Commencement Date to and including the Expiration Date. 2.2.2 The Fixed Rent shall be payable commencing on the Commencement Date and thereafter in equal monthly installments in advance on the first day of each and every calendar month during the Term, except as hereinafter provided in this Section 2.2.2. Tenant will pay, upon the execution and delivery of this Lease, an amount equal to 1/12th the annual rate of Fixed Rent set forth in Section 2.2.1(a) above, which amount shall be applied against the Fixed Rent for the calendar month immediately following the calendar month in which the Commencement Date ocurs (and, to the extent not exhausted by such application, by application against the Fixed Rent for the next succeeding calendar month). Such payment shall be returned to Tenant if Tenant properly and timely terminates this Lease pursuant to Section 1.5.9 hereof. If the Commencement Date or the Expiration Date occurs on a day other than the first or last day, respectively, of a calendar month, then the Fixed Rent for the partial calendar month in which the Commencement Date or the Expiration Date occurs shall be a prorated portion of a full monthly installment of Fixed Rent, and, in the case of the partial amount in which Commencement Date occurs, shall be payable on the Commencement Date. 2.2.3 Provided no Event of Default is then in existence under this Lease, Tenant shall receive a concession against Fixed Rent in an amount equal to the rent (including fixed rent, operating expenses, real estate taxes, utilities and other occupancy related charges) payable by Tenant under Tenant's existing lease(s) described on Exhibit C attached to and made a part of this Lease ("Tenant's Existing Lease") for all months or partial months for which such rent is payable by Tenant from the earlier of the Commencement Date or May 1, 1999, through July 31, 1999. Such concession (i) shall be determined by and conditioned upon receipt by Landlord of evidence reasonably satisfactory to Landlord of Tenant's incurring of the amounts to be included in such concession in rent (including fixed rent, operating expenses, real estate taxes, utilities and other occupancy related charges) under Tenant's Existing Lease(s) and (ii) shall be applied until exhausted, in an amount up to $15,000 per month, against the monthly installments of Fixed Rent becoming first due and payable by Tenant under this Lease. 2.3 Tax Payments 6 2.3.1 For the purposes of this Lease the following definitions shall apply: "TAX YEAR" shall mean such calendar year ( whether or not such period is fixed as the fiscal year for Taxes (as hereinafter defined) or any component thereof by any Governmental Authority) the whole or any portion of which is within the Term. If a fiscal period fixed for any component of Taxes by any Governmental Authority is a period other than a Tax Year, then such component of Taxes shall be averaged over the number of calendar months in such fiscal period and each such monthly portion shall be included in Taxes for the Tax Year in which such calendar month occurs. "BASE TAX YEAR" shall mean Tax Year commencing on January 1, 1999, and ending December 31, 1999. "BASE TAX AMOUNT" shall mean the Taxes for the Base Tax Year, adjusted to reflect a fully completed and fully assessed Building during the Base Tax Year. "TENANT'S SHARE" shall mean a fraction (expressed as a percentage, and carried to four decimal places), the numerator of which is the number of rentable square feet contained in the Premises and the denominator of which is 190,000. As of the date hereof, Tenant's Share is 13.8142%. "TAXES", for any Tax Year, shall mean (A) all real estate taxes, water and sewer rents or charges, school taxes, vault taxes, assessments and special assessments levied, assessed or imposed upon or with respect to the Real Property (as defined in Article 13 hereof) by any Governmental Authority, and (B) any expenses incurred by Landlord in contesting such taxes, charges or assessments and/or the assessed value of the Real Property, which expenses shall be allocated to the Tax Year to which such expenses relate (such expenses not to exceed the benefit derived from such tax contest). Taxes shall also include all taxes assessed or imposed upon Landlord with respect to the rents received from the Real Property (but not any income taxes, gross receipts taxes, corporate franchise taxes, gift taxes, estate taxes or transaction taxes of Landlord, except to the extent provided in the following sentence). If, at any time during the Term, the methods of taxation prevailing on the date hereof shall be altered so that in lieu of, or as an addition to or as a substitute for, the whole or any part of the taxes, charges or assessments now levied, assessed or imposed, there shall be levied, assessed or imposed a new tax, assessment, levy, imposition, license fee or charge wholly or partially as a capital levy or otherwise on the Real Property or the rents received from the Real Property, then such additional or substitute tax, assessment, levy, imposition, fee or charge shall be included within "Taxes" for purposes hereof. Finally, "Taxes" shall also include any payments in lieu of "Taxes" payable in connection with any exemption obtained from any Governmental Authority with respect to the Real Property. 2.3.2 If Taxes for any Tax Year subsequent to the Base Tax Year shall exceed the Base Tax Amount, Tenant, as hereinafter provided, shall pay to Landlord an amount (herein called the "Tax Payment") equal to Tenant's Share of the amount by which the Taxes for such Tax Year are greater 7 than the Base Tax Amount. In respect of any such Tax Year which begins prior to the Commencement Date or ends after the Expiration Date, the Tax Payment shall be prorated to correspond to that portion of such Tax Year occurring within the Term. 2.3.3 The Tax Payment for each Tax Year shall be due and payable as provided in the following provisions of this Section 2.3.3. Landlord, at anytime prior to, during, or after the end of, any Tax Year, may deliver to Tenant a statement for the Tax Payment for such Tax Year together with a copy of the invoice for the Taxes for such Tax Year (each such statement with such invoice being herein called a "Tax Statement"). Tenant, for each Tax Year, shall pay to Landlord the Tax Payment indicated by any such Tax Statement in installments, consistent with the number and timing of the installments of and in which Landlord shall pay Taxes to the applicable Governmental Authorities, with each such installment of the Tax Payment being due on the later to occur of (x) the date that is thirty (30) days prior to the date the corresponding installment of Taxes is due or payable to the applicable Governmental Authority (or, with respect to installments that may become due after the Expiration Date, the date that is sixty (60) days prior to the Expiration Date), and (y) the date that is twenty (20) days after the rendering of the Tax Statement. 2.3.4 If, at any time after the delivery of any Tax Statement for any Tax Year, it is determined for any reason (including any reduction in Taxes comprising the Base Tax Amount) that the Tax Payment for such Tax Year is greater than the amount set forth on such Tax Statement, then Landlord may furnish to Tenant a revised or corrected Tax Statement for such Tax Year, and, in any such case, Tenant shall pay to Landlord the additional amount indicated by the revised or corrected Tax Statement within ten (10) days after Tenant's receipt thereof. Landlord's failure to render, or delay in rendering, a Tax Statement, or a revised or corrected Tax Statement, for any Tax Year shall not prejudice Landlord's right to thereafter render a Tax Statement, or a revised or corrected Tax Statement, for such Tax Year or any other Tax Year, nor shall the rendering of a revised or Corrected Tax Statement for any Tax Year prejudice Landlord's right to thereafter render a further revised or corrected Tax Statement for such Tax Year. 2.3.5 Only Landlord shall be eligible to institute tax reduction or other proceedings to challenge Taxes or to reduce the assessed valuation of the Real Property; Tenant hereby waives any right Tenant may, now or in the future have to institute any such proceedings or otherwise challenge taxes. If, at any time after the delivery of any Tax Statement for any Tax Year, Landlord shall receive a refund of Taxes for such Tax Year, then Landlord shall furnish to Tenant a revised Tax Statement for such Tax Year, and, if such revised Tax Statement shall set forth a Tax Payment that is less than that set forth on the previous Tax Statement, then Landlord, within ten (10) days after Tenant's receipt of such revised Tax Statement, shall pay to Tenant the amount of the overpayment indicated thereby. Nothing contained in this Lease shall obligate Landlord to bring any application or proceeding seeking a reduction in Taxes or assessed valuation. If the Taxes payable for the Base Tax Year or any other Tax Year are later reduced by final determination of legal proceedings, settlement, or otherwise, such reduced amount as finally determined shall become the Base Tax Amount (in the event of a reduction applicable to the Base Tax Year) or the Taxes for the Tax Year in question (in the event of a reduction applicable to a Tax Year other than the Base Tax Year) for purposes of this 8 Lease and such reduced amount shall be used to determine the Tax Payment payable by Tenant applicable to any Tax Year affected by such reduction, and all Tax Payments theretofore paid or payable under this Lease shall be recomputed on the basis of such reduction, and, if applicable, Tenant shall pay to Landlord as an Additional Charge within thirty (30) days after being billed therefor any deficiency between the amount of such payments computed prior to the reduction and the amount thereof due as a result of such recomputation. 2.4 Operating Payments 2.4.1 For the purposes of this Lease, the following definitions shall apply: "OPERATING YEAR" shall mean any calendar year, the whole or any portion of which is included within the Term. "BASE OPERATING YEAR" shall mean the Operating Year commencing on January 1, 1999, and ending December 31, 1999. "BASE OPERATING AMOUNT" shall mean the Operating Expenses for the Base Operating Year (as recalculated pursuant to paragraph (C) of the definition of "OPERATING EXPENSES" hereinafter provided). "OPERATING EXPENSES", for any Operating Year, shall be determined in accordance with the provisions of the following paragraphs (A) through (C), sequentially applied: (A) "Operating Expenses" shall mean all expenses paid or incurred by, or on behalf of, Landlord in respect of the operation, management, maintenance and/or repair of the Real Property, including, without limitation, (i) salaries, wages and fringe benefits of employees and contractors engaged in such operation, management, maintenance and/or repair; (ii) payroll taxes, worker's compensation, uniforms and related expenses (whether direct or indirect) for such employees; (iii) the cost of fuel, gas, steam, electricity, heat, ventilation, air-conditioning and chilled or condenser water, water, sewer and other utilities, together with any taxes and surcharges on, and fees paid in connection with the calculation and billing of, such utilities; (iv) the cost of painting, and/or decorating all areas of the Real Property (excluding, however, any leasable areas of the Building); (v) the cost of casualty, liability, fidelity, rent and all other insurance regarding the Real Property and/or an property thereon (together with amounts paid or incurred on account of any commercially reasonable deductible therein); (vi) the cost of all supplies, tools, materials and equipment, whether by purchase or rental, used in the operation, management, maintenance and/or repair of the Real Property; (vii) the fair rental value of any Building, office or other space in the Building used in connection with the operation, management, maintenance and/or repair of the Real Property, and all office expenses (e.g., telephone, utility, stationery) incurred in connection therewith; (viii) the cost of security services, and cleaning and janitorial services, including, without limitation, glass cleaning, snow and ice removal and garbage and waste collection and/or disposal; (ix) the cost of all interior and exterior landscaping and all temporary exhibitions located at or within the Real. 9 Property; (x) the cost of alterations and/or repairs made in or to the Real Property; (xi) management fees (or, if Landlord self-manages, or has an Affiliate of Landlord manage, the Real Property, an amount in lieu thereof equal to 3-1/2% of the gross receipts for the Real Property); (xii) all reasonable costs and expenses of legal, bookkeeping, accounting and other professional services; (xiii) fees, dues and other contributions paid by or on behalf of Landlord to civic or other real estate or organization customarily joined by landlords of similar buildings and computed as if this Building was the only building owned by Landlord; (xiv) the cost of subsidizing the Building's cafeteria or any similar specialty service provided for tenants and occupants of the Building generally, and (xv) all other fees, costs, charges and expenses properly allocable to the operation, management, maintenance and/or repair of the Real Property, in accordance with then prevailing customs and practices of the commercial office real estate industry in the general vicinity of the Real Property. (B) "Operating Expenses" shall not, however, include the following items: (1) depreciation; (2) interest on, and amortization of, Mortgages and other debts; (3) the cost of tenant improvements made for tenant(s) of the Building (including Tenant) or for preparing any space for occupancy or for leasing, including permit, license and inspection fees; (4) brokerage commissions, legal fees and other costs, fees and expenses incurred in connection with the leasing, sale, financing or refinancing of the Real Property or any portion thereof or space therein, (5) financing or refinancing costs; (6) the cost of any work or services performed for any tenant(s) of the Building (including Tenant), whether at the expense of Landlord or such tenant(s), to the extent that such work or services are in excess of the work or services which Landlord, at its expense, is required to furnish Tenant under this Lease; (7) the cost of any electricity consumed in the Premises or any other leasable area of the Building; (8) Taxes; (9) all salaries, wages, benefits and taxes in connection with employees and personnel above the grade of property manager; (10) expenditures for capital improvements and all other costs which should be capitalized in accordance with generally accepted accounting practices, other than (a) those which under generally applied accounting practice are expenses or regarded as deferred expenses and other than capital expenditures made by reason of legal requirements or insurance requirements arising after the date hereof, in any of which cases the cost thereof shall be included in Operating Expenses for the calendar year in which the costs are incurred and subsequent calendar years, on a straight-line basis, to the extent that such items are amortized over an appropriate period in accordance with Generally applied accounting practice, and (b) the cost of any item of capital equipment purchased by Landlord or any capital expenditure made by Landlord which has the effect of reducing the expenses which would otherwise be included in Operating Expenses, in any of which cases the cost of such capital equipment or capital expenditure shall be included in Operating Expenses for the calendar year in which the costs are incurred and subsequent calendar years, on a straight-line basis, to the extent that such items are amortized over such period of time as such savings or reductions in Operating Expenses are expected to equal Landlord's costs for such capital equipment or capital expenditure, determined in accordance with generally applied accounting practice (provided, however, in no event shall the amount so included in Operating, Expenses exceed the reasonably anticipated amount of savings during any particular period), and (c) if Landlord shall lease any items of capital equipment designed to result in savings or reductions in expenses which would otherwise be included in Operating Expenses, then the rentals and other costs paid pursuant to such leasing will be included in Operating Expenses for the calendar 10 year in which such rentals or other costs were incurred (provided, however, in no event shall the amount of such rentals or other costs so included in Operating Expenses exceed the reasonably anticipated amount of savings during any particular period); (11) amounts received by Landlord through proceeds of insurance to the extent they are compensation for sums previously included in Operating Expenses hereunder; (12) costs of repairs or replacements incurred by reason of fire or other casualty or condemnation (13) advertising, marketing and promotional expenditures; (14) amortization and cost recovery (except as permitted for capital costs as described in (10) above); (15) any costs or expenses that are paid for, or for which Landlord is reimbursed, by any third party including, without limitation, tenants and also including, without limitation, insurance, warranty and condemnation proceeds; (16) court costs, legal fees and expenses incurred by or on behalf of Landlord in connection with disputes with tenants or occupants of the Building or with any Underlying Lessor (as defined in Section 7.2 hereof) or any Mortgagee (as defined in Section 7.2 hereof); (17) costs of compliance (including, without limitation, legal fees) with any Legal Requirements existing on the date of this Lease (including, without limitation, the ADA) or with any violations against the Building; (18) the amount of any fines or penalties incurred in connection with the matters referred to in clause 17 above; (19) costs of removal, encapsulation, cleanup or other treatment of asbestos or other Hazardous Substances (as defined in Section 8.7 hereof); (20) amounts paid by Landlord for supplies, materials and/or services which exceed the commercially reasonable costs for such supplies, materials and/or services in the municipality in which the Building is located; (21) interest, penalties or late charges incurred by Landlord for late payment of any bills or invoices for amounts otherwise includable as Operating Expenses; (22) the costs or expenses (including fines, interest, penalties and legal fees) arising out of Landlord's failure to timely pay Operating Expenses or Taxes; and (23) costs or expenses incurred for the acquisition of sculpture, paintings or works of art for the Building. (C) If during any relevant period (i) any rentable space in the Building shall be vacant or unoccupied, and/or (ii) the tenant or occupant (including without limitation, Landlord or any Affiliates of Landlord) of any space in the Building undertook to perform work or services therein in lieu of having Landlord perform the same and the cost thereof, if the same were performed by Landlord, would have been included in Operating Expenses, then, in any such event(s), the Operating Expenses for such period shall be adjusted to reflect the Operating Expenses that would have been incurred if such space had been occupied or if Landlord had performed such work or services, as the case may be. 2.4.2 For each Operating Year subsequent to the Base Operating Year, Tenant, as Hereinafter provided, shall pay to Landlord an amount (the "OPERATING PAYMENT") equal to Tenant's Share of the amount by which the Operating Expenses for such Operating Year exceed the Base Operating Amount. In respect of any such Operating Year which is partly within and partly without the Term, the Operating Payment shall be prorated to correspond to that portion of such Operating Year occurring within the Term. 2.4.3 Landlord, prior to the commencement of, or during, any Operating Year, may furnish to Tenant a written statement setting forth Landlord's reasonable estimate of the Operating Payment 11 for such Operating Year (such estimate, as the same may be revised as hereinafter provided, the "ESTIMATED OPERATING PAYMENT"). Tenant shall pay to Landlord on the first day of each month during any Operating, Year, an amount equal to one-twelfth (1/12th) of the Estimated Operating Payment for such Operating Year. If, however, Landlord, for any Operating Year, shall not furnish such a written statement or only furnish the same after the commencement of such Operating Year, then (i) until the first day of the month following the month in which such written statement is furnished, Tenant shall pay to Landlord on the first day of each month an amount equal to the monthly sum payable by Tenant to Landlord under this Section 2.4.3 for the last month of the preceding Operating Year, (ii) after such written statement is furnished, Landlord shall give a notice to Tenant indicating whether the installments of the Operating Payment previously made for such Operating Year were greater or less than the installments of the Operating Payment which would have theretofore been made had such written statement been furnished prior to the commencement of such Operating Year, and, within thirty (30) days of such notice, either Tenant shall pay to Landlord the deficiency indicated thereby or Landlord shall refund to Tenant the overpayment. Indicated thereby, and (iii) on the first day of the month following the month in which such written statement is furnished, and on the first day of each month thereafter throughout the remainder of such Operating Year, Tenant shall pay to Landlord an amount equal to one-twelfth (1/12th) of the Estimated Operating Payment set forth on such written statement. Landlord may, during any Operating Year (but not more than once during any Operating Year), furnish to Tenant a written statement revising the Estimated Operating Payment for such Operating Year, and in each such case, the Estimated Operating Payment for such Operating Year shall be adjusted, and amounts paid or refunded, as the case may be, in substantially the same manner set forth in the immediately preceding sentence. 2.4.4 Landlord, after the end of each Operating Year for which an Operating Payment is due, shall furnish to Tenant a written statement (herein called an "OPERATING STATEMENT") setting forth the Operating Payment for such Operating Year. If, for any such Operating Year, the Operating Statement shall show that the sums paid by Tenant under Section 2.4.3 above, exceeded the Operating Payment for such Operating Year (such excess, for any Operating Year, being herein called the "OPERATING OVERPAYMENT"), then Landlord, within twenty (20) days after delivery of such Operating Statement, shall refund to Tenant the amount of such Operating Overpayment. If the Operating Statement for such Operating Year shall show that the sums paid by Tenant under Section 2.4.3 above were less than the Operating Payment for such Operating Year (such deficiency, for any Operating Year, being herein called the "OPERATING DEFICIENCY"), Tenant shall pay the amount of such Operating Deficiency within twenty (20) days after Tenant's receipt of the Operating Statement. 2.4.5 Landlord's failure to render, or delay in rendering, an Operating Statement with respect to any Operating Year shall not prejudice Landlord's right to thereafter render a Operating Statement for such Operating Year or any other Operating, Year, nor shall the rendering of a Operating Statement (or a revised or corrected Operating Statement) for any Operating Year prejudice Landlord's right to thereafter render one or more revised or corrected Operating Statements for such Operating Year. 12 2.4.6 Each Operating Statement shall be conclusive and binding upon Tenant as of the date that is sixty (60) days after the delivery thereof, except to the extent that, prior thereto, Tenant shall have, in good faith, disputed items or matters set forth on such Operating Statement by written notice to Landlord, which notice shall set forth, in reasonable detail, the disputed items or matters and clearly state the reasons that Tenant disputes the same. If Tenant shall dispute in writing, any specific item or items in Landlord's Operating Statement, and such dispute is not resolved within sixty (60) days after Tenant's delivery of written notice to Landlord of such disputed item or items, either party may, during the thirty (30) days next following the expiration of such sixty (60) day period, refer such disputed item or items to an independent certified public accountant mutually acceptable to Landlord and Tenant (and if such accountant is selected by Tenant, such accountant shall not be entitled to charge a contingent fee for its services rendered), for a determination which shall be final, conclusive and binding upon Landlord and Tenant. Prior to performing services hereunder, such accountant shall agree in writing that the results of its investigation and review of the dispute shall remain confidential, and that such accountant shall not solicit other tenants in the Building for the purpose of disputing Operating Statement items. Landlord shall provide such accountant with reasonable access to or with copies of all records and information reasonably requested by such accountant and reasonably necessary for such accountant's determination. Tenant agrees to pay all costs involved in such determination (except as hereinafter provided). If it shall be so determined that any portion of the amount set forth in the Operating Statement in question that was charged to and paid by Tenant was not properly chargeable to Tenant, then Landlord shall credit to Tenant the amount of such improper charge against the next installment or installments of Fixed Rent accruing under the Lease. If it is determined that the total Operating Payment charged by Landlord to Tenant for the Operating Year regarding which such accountant is making its determination was more than one hundred five percent (105%) of the amount that Landlord should properly have included in such Operating Payment, as so determined by such accountant, Landlord will reimburse Tenant for such accountant's reasonable fees charged for making such determination. 2.4.7 Landlord represents that Tenant's Share has been calculated, and in the future will be calculated, using the identical formula for all tenants in the Building and that the sum of such "proportionate shares" does not, and in the future will not, exceed 100%. ARTICLE 3 - TENANT'S USE AND OCCUPANCY 3.1 Use of Premises. 3.1.1 Tenant, subject to and in accordance with the provisions of this Lease, shall use the Premises for central office use (including the use of the gym and shower area by Tenant's on-site employees) and for no other purpose. Tenant and Tenant's personnel and employees shall be permitted to prepare food and beverages in the kitchen area of the Premises for on-site consumption in the Premises. 13 3.1.2 If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business at the Premises or any part thereof, Tenant, at its expense, shall duly procure and thereafter maintain such license or permit and submit the same to Landlord for inspection. Tenant shall at all times comply with the terms and conditions of each such license or permit. 3.2 Building Rules and Regulations. Tenant shall, and shall cause all Tenant Parties, to faithfully observe and comply with the rules and regulations annexed hereto as Exhibit D, and such reasonable changes therein (whether by modification, elimination or addition) as Landlord at any time or times hereafter may make and give notice thereof to Tenant, which, in Landlord's reasonable judgment, shall be necessary for the reputation, safety, care and appearance of the Real Property, or the preservation of good order therein, or otherwise in connection with the operation, management and/or maintenance of the Real Property (such rules and regulations as changed from time to time being herein called "BUILDING RULES AND REGULATIONS"); provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and any of the Building Rules and Regulations, the provisions of this Lease shall control. Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Building Rules and Regulations against any other tenant or any other person, and Landlord shall not be liable to Tenant for violation of the Building Rules and Regulations by any other tenant or any other person; provided, however, that the Building Rules and Regulations shall be applied in a nondiscriminatory manner against tenants of the Building. 3.3 Use of Public Areas. Tenant (and all Tenant Parties and Tenant's clients and invitees), incident to Tenant's use of the Premises, shall have (i) a non-exclusive right to use the Core Lavatories (as defined in Article 13) hereof) located on the floor of the Building on which the Premises are located for lavatory purposes only, and (ii) a non-exclusive right of ingress and egress to and from the Premises through the Public Areas (as defined in Article 13 hereof); subject, in all events, to the Building Rules and Regulations. 3.4 Parking. 3.4.1 For purposes of this Lease, the following definitions shall apply: (i) the "PARKING AREAS" shall mean those areas of the Land designated by Landlord, from time to time, for parking to serve the Building; (ii) the "RESERVED PARKING AREAS" shall mean those portions of the Parking Areas designated by Landlord, from time to time, for reserved parking (i.e., for the exclusive use of one or more persons): and (iii) the "GENERAL PARKING AREAS" shall mean, from time to time, those portions of the Parking Areas which are not then Reserved Parking Areas. 3.4.2 Tenant, incident to its use of the Premises, shall have the right to use, and permit the Tenant Parties (and Tenant's clients and invitees) to use, up to one hundred five (105) parking, spaces 14 located in the General Parking Areas, on a "first come, first served" basis in common with other persons designated by Landlord, subject, in all events, to the Building Rules and Regulations. 3.5 Tenant's Signage. 3.5.1 Tenant, incident to its use of the Premises, shall have the right to install and maintain a sign (consisting solely of lettering and logo identifying Tenant's business name) on the entrance door for the Premises (such sign being herein called "TENANT'S ENTRANCE SIGN"), provided, that (i) the location, dimensions, design, materials and content of such sign shall be subject to Landlord's approval (which shall not be unreasonably withheld, conditioned or delayed), (ii) the installation of such sign shall be deemed "Alterations" and, accordingly, shall be performed subject to and in accordance with the provisions of Section 5.1 hereof, (iii) Landlord, at its expense, shall have the right to temporarily remove any sign when reasonably necessary in connection with the operation, management or maintenance of the Real Property (e.g., to paint or incident to the performance of any alterations or repairs), and shall reinstall or replace such sign, and (iv) the installation and maintenance of such sign shall otherwise be subject to the Building Rules and Regulations. Except as provided in this Section 3.5, Tenant shall not have the right to install or maintain any signs in or at the Real Property which are either located outside of the Premises or otherwise visible from the outside of the Premises. 3.5.2 At any time after the earlier of (i) one (1) year after the date of execution of this Lease by Landlord and Tenant or (ii) the date that Landlord shall have erected on the Land a monument sign for the Building ("LANDLORD'S MONUMENT SIGN"), so long as Tenant has act theretofore elected to be represented on Landlord's Monument Sign as hereinafter provided, Tenant shall be entitled, at Tenant's sole cost and expense, to erect a monument sign ("TENANT'S MONUMENT SIGN") on the Land at a location reasonably designated by Landlord and reasonably acceptable to Tenant. If Landlord erects Landlord's Monument Sign, and Tenant has not theretofore erected Tenant's Monument Sign, so long as there is space available on Landlord's Monument Sign, Tenant shall be entitled to be represented on Landlord's Monument Sign (subject to payment of a reasonable fee established by Landlord for such representation). Tenant's Monument Sign shall be subject to Landlord's prior written approval as to both location and design, which shall not be unreasonably withheld, conditioned or delayed. Tenant acknowledges that Tenant is aware that a sign variance may be required from the Township of Piscataway in order for Tenant to be able to erect Tenant's Monument Sign, and Tenant shall be solely responsible for obtaining any such variance. Tenant's Monument Sign shall constitute Alterations (as defined in Section 5.1 hereof Lease), and the provisions of Article 5 of this Lease shall apply thereto (provided, however, that Tenant shall not be required to pay the supervision fee described in Section 5.1.3(a) in connection with the erection of Tenant's Monument Sign). 15 ARTICLE 4 - UTILITIES AND SERVICES 4.1 Definitions. As used herein, the terms "BUSINESS HOURS" shall mean the hours between 8:00 a.m. and 4.00 p.m. on Business Days, and the hours between 8:00 a.m. and 1:00 p.m. on Saturdays (other than Saturdays which are Holidays), and "BUSINESS DAYS" shall mean all days except Saturdays, Sundays and Holidays. The term "HOLIDAYS" shall mean New Year's Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, the day following Thanksgiving, and Christmas. The term "BUILDING SERVICES" shall mean the services required to be provided to Tenant by Landlord pursuant to this Article 4. 4.2 Electricity. Landlord, subject to and in accordance with the provisions of this Section 4.2, shall furnish electricity to Tenant for use in the Premises: (a) Landlord, at Tenant's reasonable expense, shall furnish, install and maintain one or more electrical submeters to measure Tenant's demand and consumption with respect to the electricity furnished by Landlord for lighting, electrical power and HVAC (as defined in Section 4.4.1) (such submeter(s) being herein called "TENANT'S SUBMETER"). Tenant, throughout the Term, shall pay Landlord for such electricity as measured by Tenant's Submeter at the rates set forth in, and otherwise pursuant to the provisions of, Section 4.2(b) below. (b) Tenant, for any billing period, shall pay Landlord an amount determined by applying (i) Tenant's electrical demand (measured in KWs) and consumption (measured in KWHRs) for such period, as measured by Tenant's Submeter, to (ii) the rate schedule (inclusive of all taxes, surcharges and other charges payable thereunder or in connection therewith) of the utility company serving, the Building (herein called the "UTILITY COMPANY") which would then be applicable to Tenant if it purchased electricity directly from the Utility Company for such period. Tenant shall pay the amount due for any billing period within fifteen (15) days after being billed therefor, which bills Landlord may render from time to time (but no more frequently than monthly). Tenant shall also pay to Landlord an amount equal to the actual costs incurred by Landlord to a meter company or otherwise in respect of having Tenant's Submeter read and having bills prepared and delivered based upon such readings. (c) Landlord shall not be required to furnish, and Tenant shall not install a connected load (including all of Tenant's equipment and systems, but excluding the Building Systems and HVAC) or otherwise draw, in excess of six (6) watts per usable square foot of Premises. (d) If any tax is imposed upon Landlord's receipts from the sale or resale of electric energy to Tenant (directly or indirectly through a general tax on such receipts) by any federal, state or municipal authority, then Tenant shall pay, or reimburse Landlord, such taxes (or its share thereof) in addition to the submetered charges. 16 (e) Tenant will at all times comply with all rules and regulations of the Utility Company, to the extent the same are applicable to its use of electric energy in the Premises. (f) Tenant's use of electric energy shall never exceed the capacity of the then existing, feeders, risers or wiring installations serving the Premises. (g) Landlord shall not in any way be liable or responsible to Tenant for any loss, damage or expense which Tenant may sustain or incur if (i) the supply of electric energy to the Premises is temporarily interrupted, or (ii) the quantity or character of electric service is changed or is no longer available or suitable for Tenant's requirements, except to the extent resulting from Landlord's willful misconduct or gross negligence. (h) Landlord, at its option, shall furnish and install all replacement lighting, tubes, lamps, bulbs and ballasts required in the Premises; and in such event, Tenant shall pay to Landlord or its designated contractor upon demand the then established reasonable charges therefor of Landlord or its designated contractor, as the case may be, which shall be at the then market rates therefor. 4.3 Water. Landlord shall furnish reasonable quantities of hot and cold water to the Core Lavatories located on the floor(s) on which the Premises are located for core lavatory and cleaning purposes only, and to the kitchen, bathrooms, showers and other areas of the Premises requiring water service as part of the Initial Tenant Work as provided in the Initial Tenant Work Plans. If Tenant shall require water for any other purposes, then (i) Landlord need only furnish additional cold water for such other purposes, which additional cold water shall be furnished to a point in the Building's core on the floor(s) on which the Premises are located, and (ii) Landlord may install and maintain, at Tenant's expense, one or more meters to measure Tenant's consumption of such additional water (in which event, Tenant, periodically upon demand, shall pay Landlord for such additional water based upon the readings of such meter or meters). Except for such distribution as may be provided as part of the Initial Tenant Work, Tenant, at its expense, shall be solely responsible for distributing within the Premises, and, to the extent Tenant requires hot water, heating, any additional cold water furnished pursuant to this Section 4.3. 4.4 HVAC Service. 4.4.1 Landlord, during Business Hours, shall furnish heat, ventilation and air conditioning ("HVAC") to the Premises as may be reasonably required (except as otherwise provided in this Lease and except for any special requirements of Tenant arising from its particular use of the Premises) for reasonably comfortable occupancy of the Premises. Landlord represents and warrants that the Building's HVAC systems have the capacity, flexibility and ability to maintain in the Premises the design conditions specified in Exhibit E attached to and made a part of this Lease. 17 4.4.2 If Tenant shall require HVAC services at any time other than during Business Hours (herein called "OVERTIME HVAC SERVICE"), Landlord shall furnish such HVAC Overtime Service, subject to receiving advance notice from Tenant as follows: (a) as to any Business Day upon which Tenant requires such Overtime service prior to 8: 00 a.m., upon being notified by Tenant no later than 2:00 p.m. on the Business Day immediately preceding such date; (b) as to any Business Day upon which Tenant requires such overtime service after 6:00 p.m., upon being notified by Tenant no later than 2:00 p.m. on such date; and (c) as to any day which is not a Business Day upon which Tenant requires such overtime service, upon being notified by Tenant no later than 4:00 p.m. on the Business Day immediately preceding such date, Tenant, in respect of such Overtime HVAC Service, shall pay to Landlord, within twenty (20) days after demand therefor, an amount equal to the Hourly Rate (as hereinafter defined) per hour of Overtime HVAC Service to compensate for additional wear and tear to the HVAC system and additional maintenance due to such Overtime HVAC Service; it being agreed that (x) should Tenant request Overtime HVAC Service after Business Hours on a Business Day, Landlord shall have the right to commence furnishing such service immediately following the expiration of Business Hours, and (y) should Tenant request Overtime HVAC Service prior to Business Hours on a Business Day, Landlord shall have the right to continue furnishing such service until the commencement of Business Hours; and, in either case, Tenant shall be required to pay Landlord as herein provided whether or not Tenant utilizes such service during, all hours that Landlord is furnishing same. Tenant shall comply fully with such reasonable rules and regulations as Landlord may enact in connection with its furnishing of Overtime HVAC Service. The "Hourly Rate" shall equal $10.00 per hour. 4.4.3 Notwithstanding the foregoing, it is understood and agreed that Tenant shall pay for the electricity needed to operate the HVAC system serving the Premises and, incident thereto, the "heat pumps" for such system, which are located in the ceiling plenum of the Premises or adjacent to the Premises, shall be connected to Tenant's Submeter. 4.5 Access. Landlord shall provide Tenant with 24 hour a day, 7 day week, access to the Premises. Such access shall be subject, however, in all events, to the Building, Rules and Regulations. 4.6 Cleaning. Landlord shall cause the Premises, including the exterior and the interior of the Building's exterior windows serving the Premises, to be cleaned in accordance with the provisions of Exhibit F attached to the Lease and made a part hereof. Tenant, however, shall pay to Landlord, on demand, the costs incurred by Landlord for (x) extra cleaning work in the Premises required because of (i) carelessness, indifference, misuse or neglect on the part of Tenant or its subtenants or its or their employees or visitors, (ii) interior glass partitions or unusual quantities of interior glass surfaces, and (iii) non-building standard materials or finishes installed by Tenant or at its request, and (y) removal from the Premises and the Building of any refuse and rubbish of Tenant in excess of that ordinarily 18 accumulated in business office occupancy or at times other than Landlord's standard cleaning times. Notwithstanding the foregoing, Landlord shall not be required to clean the gym and shower areas of the Premises or any portions of the Premises used for preparation, serving, or consumption of food or beverages, training rooms, data processing or reproducing operations, private lavatories or toilets or other special purposes requiring greater or more difficult cleaning work than office areas and Tenant agrees, at Tenant's expense, to retain Landlord's cleaning contractor to perform such cleaning at rates reasonably comparable to market rates for such service (provided, however, that Tenant shall be entitled to use its own cleaning contractor (subject to Landlord's approval, which shall not be unreasonably withheld, and Landlord's reasonable and uniformly applied requirements concerning the use by tenants of outside contractors for the provision of services in the Building) to clean the gym and shower area of the Premises. Landlord and its cleaning contractor shall have access to the Premises, and the right to use, without charge therefor, all light, power and water in the Premises, as is reasonably required to clean the Premises as required under this Section 4.6. 4.7 Building Directory. Landlord shall maintain a main directory for the Building's tenants and other occupants (which directory, from time to time, may be either manual or computerized), and provide Tenant together with its permitted subtenants) with up to five (5) listings on such main directory (or unlimited listings if such directory is computerized). Listings provided at the commencement of the Lease shall be entered at no cost to Tenant. Landlord, from time to time, shall, at Tenant's reasonable expense, make such changes in the listings as Tenant shall request. 4.8 Interruptions. Notwithstanding anything to the contrary contained in this Lease, Landlord reserves the right, without liability to Tenant and without it being deemed a default hereunder or a constructive eviction, to stop or interrupt any Building System(s) or Building Service(s) at such times as may be necessary and for as long as may reasonably be required by reason of the making of alterations and/or repairs in or to the Real Property or any portion thereof, or one or more Events of Force Majeure. Landlord shall have no liability to Tenant as a result of any such stoppage or interruption. Notwithstanding the foregoing, if, during Business Hours for more than three (3) consecutive business days, access to the Premises is prevented or an interruption of a Building System or a Building service necessary for Tenant's business operations in the Premises continues, and the cause or cure of such prevention or interruption is within Landlord's reasonable control (a "LANDLORD CONTROLLED INTERRUPTION"), and such prevention or interruption is not due to any negligence or willful misconduct by Tenant or any Tenant Party, then beginning on the fourth (4th) consecutive business day of such Landlord Controlled Interruption, Fixed Rent and Additional Charges shall be abated until such Landlord Controlled Interruption ceases. 19 ARTICLE 5 - TENANT'S ALTERATIONS, IMPROVEMENTS AND PROPERTY 5.1 Tenant's Alterations. 5.1.1 Tenant shall not make any Alterations (as defined below) of any nature without Landlord's prior written approval. So long as Tenant complies with the provisions of this Section 5,1 and there shall not otherwise exist an Event of Default under this Lease, Landlord's approval of proposed Alterations shall not be unreasonably withheld, conditioned or delayed, unless the proposed Alterations are Material Alterations. Notwithstanding the foregoing, Tenant shall not be required to obtain Landlord's consent to make Alterations that are not Material Alterations if the estimated cost of such Alterations is less than $10,000.00 and shall not be required to pay the supervision fee described in Section 5.1.3(a) below in connection with such Alterations; provided, however, that all other provisions of this Section 5.1 otherwise applicable to such Alterations shall continue to apply thereto. As used herein, the following terms shall have the following meanings: (I) "Alterations" shall mean any alterations made, or proposed to be made, by Tenant in or to the Premises; and (II) "Material Alterations" shall mean any Alterations which (a) affect the exterior (including the appearance) of the Building or any other portion of the Building outside of the premises, (b) are structural or affect the structural elements of the Building, or (c) affect the usage or the proper functioning of the Building Systems or any part thereof. 5.1.2 Tenant shall request Landlord's written approval of any Alterations only by written notice to Landlord, which notice shall be accompanied by two (2) sets of detailed plans and specifications setting forth all such Alterations (such plans and specifications, with respect to any Alterations, being herein called the "Tenant Plans"). All Tenant Plans shall be prepared at Tenant's expense by an architect licensed to practice in the State of New Jersey. 5.1.3 (a) Tenant, in connection with any Alterations, shall (i) reimburse Landlord all reasonable costs incurred by Landlord (including the fees of any outside architect, engineer or other professional employed by Landlord) in connection with (x) any review of any Tenant Plans or any other items submitted by Tenant in connection therewith, or (y) any on-site inspection of Alterations, and (ii) pay to Landlord a general supervision fee equal to seven and one-half (7-1/2%) of the aggregate cost of such Alterations (provided, however, that such fee shall not be payable in connection with any Alterations Tenant makes in conjunction with the Initial Tenant Work at the commencement of the Lease Term and the preparations made by Tenant for its initial occupancy of the Premises). (b) Tenant acknowledges that any review or approval by Landlord of any Tenant Plans with respect to any Alterations, and/or any on-site inspections of any Alterations, and/or any supervision by Landlord of Alterations, are solely for Landlord's benefit, and without any representation or warranty whatsoever to Tenant with respect to the adequacy, correctness or efficiency of any such Tenant Plans or Alterations, or the compliance thereof with Legal Requirements, Insurance Requirements or the provisions of this Lease, and Landlord shall have no liability or responsibility therefor. 20 5.1.4 Alterations shall be performed only by contractors that have been first approved by Landlord in writing, which approval shall not be unreasonably withheld, conditioned or delayed. 5.1.5 Tenant shall cause all Alterations to be diligently performed to completion substantially in accordance with the Tenant Plans approved by Landlord, in compliance with Legal Requirements and Insurance Requirements, and otherwise in a good and workmanlike manner (using materials at least equal in quality and class to the then standards for the Building). Tenant, at its expense, shall obtain (and furnish true and complete copies to Landlord of) all governmental permits and certificates required for the commencement and prosecution of Alterations and for final approval thereof upon completion. Alterations shall be performed in such manner as not to interfere with, or impose any additional expense (except to the extent Tenant reimburses Landlord therefor) upon, Landlord in the operation, management, maintenance and/or repair of the Real Property; without limiting the generality thereof, to the extent any Alterations are performed on an overtime basis, Tenant shall reimburse Landlord all additional reasonable costs incurred by Landlord by reason thereof. Throughout the performance of any Alterations, Tenant, at its expense, shall carry, or cause to be carried, (i) workers' compensation insurance in statutory limits, and (ii) such general liability insurance and other insurance as Landlord shall reasonably require. Tenant, promptly upon the completion of any Alterations, shall deliver to Landlord "as built" drawings therefor. 5.1.6 Tenant, in connection with any Alterations or any other work, shall comply with and observe, and shall cause each of its contractors to comply with and observe, the rules and regulations annexed hereto as Exhibit G, and such reasonable changes therein (whether by modification, elimination or addition) as Landlord at any time or times hereafter may make and communicate to Tenant (such rules and regulations, as changed from time to time, being, herein called the "ALTERATION RULES AND REGULATIONS"); provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and any of the Alteration Rules and Regulations, the provisions of this Lease shall control. Landlord shall enforce the Alteration Rules and Regulations against tenants in the Building in a non-discriminatory manner. 5.1.7 Before proceeding with any Alterations the cost of which is estimated to exceed $25,000.00, at Landlord's option, Tenant shall furnish to Landlord, as security for the full completion of such Alterations, a payment and performance bond issued by a bonding company reasonably satisfactory to Landlord naming Landlord as beneficiary, which bond (i) shall be in an amount equal to one hundred twenty-five (125%) percent of Landlord's reasonable estimate of the cost of such Alterations, (ii) shall not require any payment as a condition to the bonding company performing its obligations under the bond, and (iii) shall otherwise be in a form reasonably satisfactory to Landlord. 5.2 Tenant's Improvements and Tenant's Property. 5.2.1 For purposes of this Lease, the following definitions shall apply: "TENANT'S IMPROVEMENTS" shall mean all improvements, betterments, fixtures (exclusive of trade fixtures that are capable of being removed from the Premises without causing material damage 21 thereto ("TRADE FIXTURES"), equipment and appurtenances attached to or built into the Premises by or on behalf of Tenant (whether or not at Tenant's expense) during the Term, including the Initial Tenant Work and all Alterations (and including Tenmt's line, riser and other connections to the Building Systems and any separate HVAC, electrical or other mechanical system or facility installed by or on behalf of Tenant), but excluding Tenant's Property. "TENANT'S PROPERTY" shall mean all office furniture and equipment, Trade Fixtures, movable partitions, communications equipment and other articles of movable personal property owned or leased by Tenant and located in the Premises, including floor and/or wall coverings and computer and telephone cables. For purposes of this Lease, Tenant's Entrance Sign shall be deemed Tenant's Property. 5.2.2 All Tenant's Improvements, upon the installation thereof, shall be and remain Landlord's property and shall not be removed by Tenant at anytime during the Term (except in connection with permitted Alterations) or upon the expiration or earlier termination of this Lease. Notwithstanding the foregoing, Landlord, upon notice to Tenant given (i) at the time of Landlord's approval of any Alterations for which Tenant has obtained Landlord's approval or (ii) no later than thirty (30) days prior to the Expiration Date for Alterations for which Tenant has act obtained Landlord's approval, may require Tenant, at its expense, to remove all or any portion of any Tenant Improvements prior to the expiration of this Lease (or within thirty (30) days following the earlier termination hereof), provided, however, that Tenant shall not be required to remove the Initial Tenant Work. In any such event, Tenant shall repair any damage to the Real Property (including the Premises) resulting from any such removal and restore any affected areas thereof. 5.2.3 All Tenant's Property shall be and shall remain the property of Tenant throughout the Term and may be removed by Tenant at any time during the Term. Upon the expiration of this Lease (or within fifteen (15) days after the earlier termination hereof), Tenant, at its expense, shall remove all Tenant's Property from the Premises. Tenant shall repair any damage to the Real Property (including the Premises) resulting from any removal of Tenant's Property and shall restore any affected areas of the Real Property. Any items of Tenant's Property which shall remain in the Premises after the expiration of this Lease (or, as the case may be, within fifteen (15) days following an earlier termination of this Lease), may, at the option of Landlord, be deemed to have been abandoned, and in such case such items may be retained by Landlord as its property or disposed of by Landlord, without accountability, in such manner as Landlord shall determine. 5.3 Title, Mechanics Liens, Union Conflicts. Etc.. 5.3.1 All Alterations shall be fully paid for by Tenant. Except as permitted in Section 11.7 hereof, no Tenant's Improvements shall be subject to any conditional bills of sale, chattel mortgage or other title retention agreements. 5.3.2 Tenant, at its expense, and with diligence and dispatch, shall procure the cancellation or discharge of all notices of violation arising from, or otherwise connected with, Alterations (other 22 than the Initial Tenant Work), or any other work, labor, services or materials done for or supplied to Tenant, or any Tenant Party, which shall be issued by any Governmental Authority. Tenant shall defend, indemnify and hold harmless Landlord from and against any and all mechanic's and other liens and encumbrances filed in connection with Alterations (other than the Initial Tenant Work), or any other work, labor, services or materials done for or supplied to Tenant or any Tenant Party and from and against all costs, expenses and liabilities incurred in connection with any such lien or encumbrance or any action or proceeding brought thereon. Tenant, at its expense, shall procure the satisfaction or discharge of record by bonding, payment or otherwise, of all such liens and encumbrances within sixty (60) days after actual knowledge or notice thereof. 5.3.3 Tenant shall not perform any Alterations, or otherwise perform any work or conduct any activities in or about the Real Property, in a manner which violates any of Landlord's union contracts affecting the Real Property, or create any work stoppage, picketing, labor disruption or dispute or any interference with the operation, management and/or maintenance of the Real Property. Tenant shall immediately stop, or cause to be stopped, any work or other activity in violation of this Section 5.3.3 upon notice thereof from Landlord. ARTICLE 6 - RESERVATION OF REAL PROPERTY; LANDLORD'S ACCESS 6.1 Reservation of Real Property. 6.1.1 Except for the Premises (which, for purposes of this Lease, shall consist only of the space within the inside surfaces of all demising and exterior walls, hung ceilings, floors, windows and doors bounding the Premises), all of the Real Property, including the Land and the Base Building, is reserved to Landlord and persons authorized by Landlord, subject only to any rights of Tenant, the Tenant Parties and Tenant's clients and invitees to use areas of the Real Property outside of the Premises that may be expressly provided for hereunder. 6.1.2 Landlord, without limiting the Generality of the foregoing, hereby reserves the following rights (which may be exercised, in each and every case, without any liability to Tenant): (a) the right to change the name and/or address of the Building, together with the exclusive right to use the name of the Building, at any time and from time to time; (b) the right to make, or permit to be made, such alterations and/or repairs in or to the Real Property or any part thereof (other than to the interior of the Premises), as Landlord shall deem necessary or desirable; and (c) the right to close or render inoperable any part of the Real Property (outside of the Premises). Notwithstanding the foregoing, Landlord, at all times, shall provide the parking required hereunder or, on a temporary basis, commercially reasonable alternate parking arrangements, and shall not block entrances to the Building (other than on a temporary basis so long as alternate access to the Premises is provided) or windows of the Premises (other than on a temporary basis), and shall use commercially reasonable efforts to minimize interference with Tenant's business operations in the Premises in exercising Landlord's rights under (b) and (c) of this Section 6.1.2. 6.1.3 Landlord's Access to Premises. 23 Landlord, and persons authorized by Landlord, shall have the right, upon reasonable notice (or, in the case of an emergency, without notice) to enter upon and/or pass through the Premises, at reasonable times (or, in the case of an emergency, at any time or times, for one or more of the following purposes: (a) to examine and/or inspect the Premises or any portions of the Real Property accessible through the Premises, (b) to show them to actual and prospective purchasers, Underlying Lessors or Mortgagees, or, during the last twelve (12) months of the Term, prospective tenants of the Building or any part thereof, (c) to make such alterations and/or repairs in or to the Real Property (other than to the interior of the Premises) or any part thereof as Landlord, or persons authorized by Landlord, are required or desire to make, (d) to make such alterations and/or repairs in or to the Premises or any part thereof as Landlord is required or permitted to make, and/or (e) to read any utility meters located therein. Landlord, and such authorized persons, may, without liability to Tenant (except in connection with the gross negligence or willful misconduct of Landlord or such authorized persons), take all materials into and upon the Premises that may be required in connection therewith. ARTICLE 7 - QUIET ENJOYMENT; UNDERLYING INTERESTS 7.1 Quiet Enjoyment. So long as this Lease is in full force and effect, Tenant shall peaceably and quietly have, hold and enjoy the Premises without hindrance, ejection or molestation by Landlord or any person lawfully claiming through or under Landlord, subject, nevertheless, to the provisions of this Lease and to all Mortgages and Underlying Leases. 7.2 Underlying Interests. 7.2.1 For purposes of this Lease, the following definitions shall apply: "MORTGAGE" shall mean any mortgage or deed of trust which may now or hereafter affect the Land and/or the Building, or any part of either (whether or not such mortgage or deed of trust shall also cover other properties), and shall include each and every advance made or hereafter to be made under such mortgage or deed of trust, and to each and every renewal, modification, replacement or extension of such mortgage or deed of trust and any spreader or consolidation of such mortgage or deed of trust, and "Mortgagee" shall mean any holder of any Mortgage. "UNDERLYING LEASE" shall mean any ground lease, overriding lease or underlying lease of the Land and/or the Building, or of the portion of the Building of which the Premises are a part, now or hereafter existing, and "Underlying Lessor" shall mean any lessor under an Underlying Lease. 7.2.2 This Lease, and all rights of Tenant hereunder are and shall be subject and subordinate to all Underlying Leases and Mortgages for which Landlord has obtained a Nondisturbance Agreement (as hereinafter defined) from the Underlying Lessor or Mortgagee thereof as hereinafter provided. This Section 7.2.2 shall be self-operative and no further instrument of subordination shall 24 be required. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, an Underlying Lessor or a Mortgagee may reasonably request to evidence such subordination. 7.2.3 If any act or omission of Landlord would give Tenant the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to abate or offset against the payment of Rent or to claim a partial or total eviction, Tenant shall not exercise such right (a) until it has given written notice of such act or omission to Landlord and each Mortgagee and each Underlying Lessor whose name and address shall previously have been furnished to Tenant, and (b) until a reasonable period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when such Mortgagee or Underlying Lessor shall have become entitled under such Mortgage or Underlying Lease, as the case may be, to remedy the same (which reasonable period shall in no event be less than the period to which Landlord would be entitled under this Lease or otherwise, after similar notice, to effect such remedy plus thirty (30) days), provided such Mortgagee or Underlying Lessor shall give Tenant notice of its intention to, and with due diligence commence and continue to, remedy such act or omission. 7.2.4 If any Mortgagee or Underlying Lessor, or any designee of any Mortgagee or Underlying Lessor or any other person, shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, then at the request of such party so succeeding to Landlord's rights (herein called "SUCCESSOR LANDLORD"), and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease, except that the Successor Landlord shall not be (i) liable for any previous act or omission of Landlord, (ii) responsible for any monies owing by Landlord to the credit of Tenant, (iii) bound by any covenant to undertake or complete any work in the Premises or to provide an allowance therefor, (iv) subject to any credits, offsets, claims, counterclaims, demands or defenses which Tenant may have against Landlord, (v) bound by any payments of rent which Tenant might have made for more than one (1) month in advance to Landlord, (vi) required to account for any security deposit other than any security deposit actually delivered to the Successor Landlord, or (vii) bound by any modification of this Lease made without Successor Landlord's written consent. 7.2.5 Promptly following the execution of this Lease by Landlord and Tenant, and in any event prior to the Commencement Date, Landlord shall obtain and deliver to Tenant a Nondisturbance Agreement from the holder of any existing Mortgage on the Building and/or the Land. 7.2.6 With respect to any Mortgage or Underlying Lease that hereafter becomes a lien or charge upon or affects the Land or the Building, the provisions of Section 7.2.2 above shall be operative, and the rights of Tenant under this Lease shall be subject and subordinate such Mortgage 25 or Underlying Lease only if the Mortgagee of such Mortgage or Underlying Lessee of such Underlying Lease executes and delivers to Tenant a Nondisturbance Agreement with respect to such Mortgage or Underlying Lease. 7.2.7 As used herein, the term "NONDISTURBANCE AGREEMENT" shall mean an agreement between Tenant and the Mortgagee of a Mortgage or the Underlying Lessor of an Underlying Lease, pursuant to which such Mortgagee or Underlying Lessor agrees that so long as Tenant is not in default under the terms of this Lease (beyond any applicable notice and/or cure period), and provided Tenant attorns to said Mortgagee or Underlying Lessor, Tenant's possession of the Premises under and in accordance with the terms of this Lease shall not be disturbed and Tenant's rights under this Lease shall not be affected by a foreclosure of such Mortgage or termination of such Underlying Lease, and that, upon such foreclosure or termination, this Lease shall continue as a direct lease between the purchaser in foreclosure or the Underlying Lessor, as Landlord, and Tenant, as Tenant. Tenant agrees to accept in satisfaction of the requirement set forth in this Section 7.2 for the production of a Nondisturbance Agreement the applicable Mortgagee or Underlying Lessor's standard form of Nondisturbance Agreement, and to execute such standard form, so long as such standard form provides materially the terms set forth in this Section 7.2.7 and is reasonably acceptable to Tenant, Tenant's attorney and Tenant's lender(s). Any such standard form may also include an agreement by Tenant to attorn to such Mortgagee or Underlying Lessor following such foreclosure sale or termination, and to confirm the subordination of this Lease to such Mortgage or Underlying Lease, and such other commercially reasonable and/or customary terms as are found in typical standard forms of subordination, nondisturbance and attornment agreements of major commercial lenders. ARTICLE 8 - BASIC LEASE OBLIGATIONS 8.1 Insurance. 8.1.1 Tenant, at its expense, shall maintain, at all times during the Term, (i) "all risk" property insurance covering all Tenant's Improvements and Tenant's Property to a limit of not less than the full replacement cost thereof, (ii) comprehensive general liability insurance, including blanket contractual liability coverage, with limits of not less than Two Million ($2,000,000.00) Dollars combined single limit for personal injury and property damage liability in any one occurrence, and (iii) such other insurance, with such limits, as Landlord shall from time to time reasonably require Tenant to maintain. Landlord may, from time to time, reasonably require that the limits of the aforesaid insurance be increased. Landlord (or, at Landlord's option, any mortgagee or Underlying Lessor) shall be named as a "loss payee" under the insurance policies providing "all risk" property coverage on Tenant's Improvements; and Tenant shall cooperate with Landlord in connection with the collection of any insurance proceeds thereunder. Landlord and its managing agent, if any, and each Mortgagee and Underlying Lessor whose name and address shall previously have been furnished to Tenant shall be named as additional insureds under Tenant's insurance policies providing general liability coverage. Each of the insurance policies required to be maintained pursuant to this Section 8.1.1 shall be issued by companies licensed to do business in the State of New Jersey and reasonably 26 acceptable to Landlord and shall contain a provision whereby the same cannot be canceled or modified unless Landlord and any additional insureds are given at least thirty (30) days' prior written notice thereof. Tenant, at least ten (10) days prior to the Commencement Date, and thereafter (for renewals of existing policies) at least ten (10) days prior to the date of expiration of any existing policy, shall deliver to Landlord a duplicate original insurance policy, an insurance binder (counter signed by the insurer), or Evidence of Insurance (in form ACORD 27) for each insurance policy required to be carried by Tenant hereunder. 8.1.2 Tenant shall not violate, or permit any Tenant Party to violate, any Insurance Requirements or any terms or conditions imposed by any insurance policy then issued in respect of the Real Property. If, as a result of any act or omission by Tenant (including a default under the immediately preceding sentence), the premiums on any insurance policy issued in respect of the Real Property shall be higher than the same would otherwise be, then, without limiting any other rights or remedies that Landlord may have on account thereof, Tenant, upon demand, shall pay Landlord an amount equal to the part of such insurance premiums attributable to such act or omission; for which purposes, a schedule "make-up" rates issued by, or any other finding of, any insurance rating organization having jurisdiction over, or otherwise making rates or findings in respect of, the Real Property shall be conclusive evidence of the rates and facts therein stated. 8.1.3 Each party agrees to have included in each of its "all risk" insurance policies (insuring the Base Building in case of Landlord, and insuring Tenant's Improvements and Tenant's Property in the case of Tenant) a waiver of the insurer's right of subrogation against the other party during the Term, unless such a waiver of subrogation shall be Generally unobtainable (in which event, the insured party shall so notify the other party promptly after learning thereof). Each party hereby releases the other party, with respect to any claim (including a claim for negligence) which it might otherwise have against the other party, for loss, damage or destruction with respect to its property occurring during, the Term, if, and to the extent, such loss, damage or destruction is, or under this Section 8.1.3 is required to be, insured under a policy or policies containing a waiver of subrogation. 8.2 Indemnification. 8.2.1 Tenant shall indemnify and hold harmless Landlord and any Landlord Party (as hereinafter defined) from and against any and all claims arising, from or in connection with: (a) the conduct or management of the Premises or of any business therein, or any work or thing whatsoever done, or any condition created (other than by Landlord or any Landlord Party) in or about the Premises during the Term; (b) any negligence or willful act or omission of Tenant or any Tenant Party (hereinafter defined); (c) any accident, injury or damage whatever (except to the extent caused by the negligence or willful misconduct of Landlord or any Landlord Party) occurring in, at or upon the Premises; and (d) any breach or default by Tenant under this Lease; together with all costs, expenses and liabilities incurred in or in connection with each such claim, or any action or proceeding brought thereon, including all reasonable attorneys' fees and expenses. 27 8.2.2 Landlord shall indemnify, defend and hold harmless Tenant from and against any and all claims arising from the gross negligence or willful misconduct of Landlord or any Landlord Party. Such exclusion from Tenant's indemnity obligation and such agreement by Landlord to indemnify Tenant are not intended to and shall not relieve any insurance carrier of its obligations under policies carried or required to be carried by Tenant pursuant to this Lease to the extent such policies cover the alleged gross negligence or willful misconduct of Landlord or any Landlord Party; provided, however, that this sentence shall in no way be construed to imply the availability of any double or duplicate coverage following the primary liability of such carrier. Tenant waives no claim for damages or other relief against Landlord arising as a result of Landlord's willful misconduct or gross negligence, except as specifically set forth in this Lease. 8.3 Compliance with Laws. Tenant, at its expense, shall (i) comply with all Legal Requirements requiring compliance in respect of the Premises or the use and occupancy thereof, and (ii) be responsible for the cost of any other compliance with Legal Requirements in respect of the Real Property which arises from Tenant's use and occupancy of the Premises; provided, however, that Tenant shall not be required to perform, or be responsible for the cost of, any alterations to the Base Building which are required to be performed to comply with any Legal Requirements, unless the need for such compliance arises by reason of (w) the particular manner of conduct of Tenant's business in the Premises (other than general office use), (x) the performance of any Alterations or the operation, use or presence of any Tenant's Improvements or Tenant's Property, (y) any cause or condition created by or at the instance of Tenant (other than general office use), or (z) the breach of any of Tenant's obligations hereunder. Landlord represents that, as of the Commencement Date, the Premises shall be in compliance with all Legal Requirements (other than those relating specifically to Tenant's particular use of the Premises for purposes other than general office use). 8.4 Repairs and Maintenance. 8.4.1 Except as otherwise specifically provided elsewhere in this Lease, Tenant, throughout the Term, shall, at its expense, keep and maintain, and take good care of, the Premises and make all needed interior and non-structural repairs in and to, the Premises, including all needed repairs to Tenant's Improvements and Tenant's Property. Tenant shall also be responsible for the cost of repairs made by Landlord to the Base Building to the extent that the need for the same arises out of (i) Tenant's performance of Alterations, (ii) the operation, use or presence of any Tenant's improvements, and the installation, operation, use or presence of Tenant's Property, (iii) the moving, of any Tenant's Improvements or Tenant's Property, or (iv) any breach of Tenant's obligations under this Lease, or any negligent or wrongful act or omission by Tenant or any Tenant Party. 8.4.2 Landlord, throughout the Term, shall keep and maintain, and make all needed repairs in and to, the Base Building (including all Parking Areas), in such a manner so as to maintain the Building as a Class "A" office building. Such repairs and maintenance shall be made at Landlord's expense, except as provided in Section 8.4.1 above. 28 8.5 Damage and Destruction. 8.5.1 If the Building or the Premises shall be partially or totally damaged or destroyed by fire or other casualty, then, unless this Lease shall be terminated as hereinafter provided in this Article, (i) Landlord shall repair and restore (A) the Base Building (including the Parking Areas), and (B) Tenant's Improvements (all such repair and restoration work being herein called the "Landlord Restoration Work"), with reasonable dispatch after notice to it of the damage or destruction and the collection of the insurance proceeds attributable to such damage or destruction, and (ii) Tenant shall repair and restore Tenant's Property with reasonable dispatch after such damage or destruction and the completion of Landlord's Restoration Work and the collection of the insurance proceeds attributable to such damage or destruction. The proceeds of Tenant's insurance policies providing coverage for Tenant's Improvements shall be paid to Landlord. Concurrently with the collection of any such insurance proceeds, Tenant shall pay to Landlord (x) the amount of any deductible under the policy insuring Tenant's Improvements, and (y) the amount, if any, by which the cost of repairing and restoring Tenant's Improvements as estimated by a reputable contractor designated by Landlord exceeds the available insurance proceeds therefor. Tenant shall also pay to Landlord, upon demand, the amount(s) by which the actual cost of repairing and restoring Tenant's Improvements exceeds the aforesaid insurance proceeds plus the amounts described in clauses (x) and (y) above. 8.5.2 If the Premises and/or the Building shall be damaged or destroyed by fire or other casualty so as to render the Premises completely or partially untenantable (untenantability to include unavailability for Tenant's use thereof, even if the Premises or area thereof in question is not damaged), then the Fixed Rent, Operating Payments and Tax Payments shall be abated in the proportion that the untenantable area of the Premises bears to the total area of the Premises for the period from the date of the damage or destruction to five (5) days after the date that the Landlord Restoration Work shall be substantially completed; provided, however, that (i) if in Landlord's reasonable judgment the Landlord's Restoration Work would have been substantially completed at an earlier date but for Tenant's having failed to reasonably cooperate with Landlord in effecting, the same, then the Landlord Restoration Work shall be deemed to have been substantially completed on such earlier date and, accordingly, any abatement shall cease upon such earlier date, and (ii) if Tenant or any of its subtenants shall reoccupy a portion of the Premises prior to the substantial completion of the Landlord Restoration Work for any reason other than Tenant's repair and/or restoration of Tenant's Property, then the Fixed Rent, Operating Payment and Tax Payment allocable to such reoccupied portion (on a pro-rata rentable square foot basis), shall be payable by Tenant from the date of such occupancy. 8.5.3 If either (i) the Building shall be damaged or destroyed by fire or other casualty (whether or not the Premises are damaged or destroyed) such that its repair and restoration requires more than one hundred eighty (180) days or the expenditure of more than twenty (20%) percent of the full insurable value of the Building immediately prior to the date of the damage or destruction or (ii) if the Premises shall be totally or substantially (i.e., for this purpose, more than thirty (30%) percent) damaged or destroyed by fire or other casualty (as estimated, in either case, by a reputable 29 contractor, registered architect or licensed professional engineer which shall be promptly designated for such purpose by Landlord), then, in either such case, Landlord may terminate this Lease by giving Tenant notice to such effect within ninety (90) days after the date of the casualty. For the purpose of this Section only, "full insurable value" shall mean replacement cost less the cost of footings, foundations and other structures below the street and first floors of the Building. 8.5.4 If the Premises are damaged to the extent that they are not reasonably tenantable, or damage or destruction to the Building prevents safe access or elevator access to the Premises, and it is estimated by the party designated by Landlord set forth in Section 8.5.3 above that such damage cannot be repaired to substantially the condition existing prior to such damage within two hundred ten (210) days from the date of such damage, or if such estimate is not furnished to Tenant within sixty (60) days after the date of such damage, then Tenant may terminate this Lease by written notice thereof delivered to Landlord within ten (10) days after Tenant's receipt of such estimate. Tenant shall also be entitled to so terminate this Lease, by written notice delivered to Landlord after the expiration of such 210-day period but prior to substantial completion of such repair, if in fact such damage is not substantially repaired within two hundred ten (210) days after the date of said damage. Except as provided in this Section 8.5.4, Tenant shall not be entitled to terminate this Lease by reason of damage or destruction to the Real Property. In addition, either Landlord or Tenant shall be entitled to terminate this Lease by written notice to the other if damage to the Building or the Premises to the extent described in the first (1st) sentence Section 8.5.3 above occurs during the last twelve (12) months of the Term. 8.5.5 Except as provided under Section 4.8 hereof, Landlord shall have no liability to Tenant, by reason of any inconvenience, loss of business or annoyance arising from any repair or restoration work in respect of the Real Property. 8.6 Condemnation. 8.6.1 If the whole or a material portion of either the Building or the Premises or access to the Building or the Premises shall be taken by condemnation or in any other manner for any public or quasi-public use or purpose (whether permanently or temporarily for more than six (6) months), this Lease shall terminate as of the date of vesting of title on such taking, and the Rent shall be prorated and adjusted as of such date. 8.6.2 Landlord shall be entitled to receive the entire award or payment in connection with any taking without reduction therefrom for any estate vested in Tenant by this Lease or any value attributable to the unexpired portion of the Term and Tenant shall receive no part of such award. Tenant hereby expressly assigns to Landlord all of its right, title and interest in and to every such award or payment and waives any right to the value of the unexpired portion of the Term. Notwithstanding the foregoing, Tenant shall be entitled to seek a separate award for the loss of Tenant's Property and moving costs. 8.7 Compliance with ISRA. 30 8.7.1 (a) Tenant agrees that it shall, at its sole cost and expense, fulfill, observe and comply with all of the requirements of the Industrial Site Recovery Act, N.J. S.A. 13:1K-6 et seq., and any amending and/or successor legislation and/or regulations thereto (the "ACT"), and all rules, regulations, opinions, orders and directives issued or promulgated in connection with the Act by the New Jersey Department of Environmental Protection, or any other governmental or quasi-governmental agency, authority, bureau, agency or body which shall then have Jurisdiction over administration of the Act (collectively, the "DEP"), as the same may be amended or substituted from time to time, to the extent such fulfillment, observance or compliance is required due to the nature of Tenant's business or due to Tenant's specific use and/or occupancy of, or any act or omission of Tenant or any Tenant Party in or about, the Premises. (The Act and all of said rules, regulations, ordinances, opinions, orders and directives, as the same may be amended from time to time, and any amending and/or successor legislation and/or regulations thereto, are hereinafter collectively referred to as "ISRA"). (b) Without limiting the generality of the foregoing, upon the written request of Landlord or the occurrence of a Triggering Event (as hereafter defined), Tenant agrees to cooperate with Landlord in obtaining evidence of compliance with ISRA. Specifically in that regard, Tenant agrees that it shall (i) execute and deliver any affidavits, applications or other filings required by the DEP, (ii) allow inspections and testing of the Premises, and (iii) perform any requirement reasonably requested by Landlord as is necessary in connection with such triggering event. Any representation or certification made by Tenant in connection with any affidavit, application or other filing request shall constitute a representation and warranty by Tenant in favor of Landlord, and any misrepresentation or breach of warranty contained in Tenant's response with any such request shall constitute an Event of Default under this Lease. 8.7.2 Within ten (10) days after a written request by Landlord or any Mortgagee or Underlying Lessee of Landlord, Tenant shall deliver to Landlord and any Mortgagee or Underlying Lessee an affidavit of Tenant's chief executive officer or the person having primary responsibility for the conduct of Tenant's business operations at the Premises, duly executed by such officer or person in such capacity with no personal liability, certifying: (i) the proper four digit SIC Number (as hereafter defined) relating to Tenant's then current use of the Premises; and (ii) that Tenant's then current use of the Premises does not involve the generation, manufacture, refining, transportation, treatment, storage, handling or disposal of "Hazardous Substances" or "Hazardous Wastes" as such terms are defined under ISRA (together, "HAZARDOUS SUBSTANCES"), on site, above around or below ground, or the "Discharge" (as defined in ISRA) of Hazardous Substances (all of the foregoing are hereinafter collectively referred to as the "PRESENCE OF HAZARDOUS SUBSTANCES") in violation of any Environmental Law (as hereinafter defined); and 31 (iii) if Tenant's then current use does involve the Presence of Hazardous Substances, then said affidavit shall describe in complete detail the portion of Tenant's operations which involves the Presence of Hazardous Substances. Such description shall, inter alia, identify each of the Hazardous Substances and describe the manner in which Tenant generated, handled, manufactured, refined, transported, treated, stored and/or disposed of same. Tenant shall supply Landlord and any Mortgagee or Underlying Lessee with such additional information relating to the Presence of Hazardous Substances as Landlord or such Mortgagee or Underlying Lessee reasonably requests. 8.7.3 Tenant warrants that Tenant's Standard Industrial Classification Number as designated in the most recent edition of the Standard Industrial Classification Manual prepared by the Office of Management and Budget in the Executive Office of the President of the United States is ("Tenant's SIC Number"). Tenant's use of the Premises shall be restricted to uses classified under Tenant's SIC Number. Tenant covenants and agrees that it will not do or suffer anything which will cause Tenant's SIC Number to change. Tenant recognizes that, for purposes of ISRA, it will acquire the Standard Industrial Classification Number of any entity for which it provides all or substantially all of its services or products, and further covenants and agrees to notify Landlord at least thirty (30) days prior to any change of facts which would result in the charge of Tenant's SIC Number. Upon receipt of such notice, if the new Standard Industrial Classification Number would subject either Tenant or the Premises to compliance with ISRA, Landlord shall have the right, at Landlord's option, to terminate this Lease by notifying Tenant in writing, and delivering such notice not later than thirty (30) days of Landlord's receipt of Tenant's notice of such new Standard Industrial Classification Number change (provided that Tenant shall, following written notice to Landlord delivered within five (5) days after Tenant's receipt of Landlord's notice of termination, be entitled to take such actions as are necessary to prevent such change, in which case this Lease shall not terminate). Tenant's failure to provide such notice shall not affect Landlord's right to terminate this Lease if Tenant's SIC Number changes for any reason without Landlord's prior written consent. 8.7.4 (a) Tenant represents and warrants that the Premises will not be an "Industrial Establishment" as that term is defined in ISRA. Tenant shall not do or suffer anything that will cause the Premises to become an Industrial Establishment during the Term of this Lease. Landlord, from time to time, may require Tenant, at Tenant's sole expense, to provide proof reasonably satisfactory to Landlord that the Premises are not an Industrial Establishment. (b) Notwithstanding anything, herein to the contrary, if Tenant's operations at the Premises now or hereafter constitute an Industrial Establishment, then prior to (i) the expiration or sooner termination of this Lease, (ii) any assignment of this Lease or any subletting of any portion of the Premises, (iii) any sale or transfer of the Premises, (iv) "Closing Operations" (as defined in ISRA) at the Premises, or (v) "Transferring Ownership or Operations" (as defined in ISRA) with respect to the Premises (said conditions (i) through (v) each being a "TRIGGERING EVENT"), regardless of whether such Triggering Event is caused by Landlord or Tenant, or any other tenant of the Building, Tenant, at its sole expense, shall comply with all requirements of ISRA pertaining to Closing Operations or Transferring Ownership or Operations of an Industrial Establishment. Without 32 limitation of the foregoing, Tenant's obligations shall include (i) the proper and timely filing of an initial notice to the DEP and all other parties entitled to notice under ISRA, when and as required under ISRA, (ii) the performance of any "Preliminary Assessment," "Site Investigation," "Remedial Investigation," or "Remedial Action" (all as defined in ISRA) as required by the DEP, and (iii) either obtaining the approval of a "Negative Declaration" (as defined in ISRA) by the DEP or performing proper and approved "Remedial Action Workplan" (as defined in ISRA) to the satisfaction of the DEP and Landlord. In the event that an approved Remedial Action Workplan is authorized by the DEP, Tenant further agrees that it shall, at its sole cost and expense: (a) secure remediation financing, including, without limitation, posting any financial guarantee or other bond required by the DEP or Landlord, in amounts sufficient to fully implement and complete such Remedial Action Workplan; and (b) promptly and diligently implement and prosecute same to completion, in accordance with the schedules and criteria contained therein or as may otherwise be ordered or directed by the DEP. Tenant expressly understands, acknowledges and agrees that Tenant's compliance with the provisions of this Section 8.7 may require Tenant to expend funds or do acts after the expiration or termination of the Tenant and Tenant shall not be excused therefrom due to such expiration or termination. The entry of a "Remediation Agreement" (as defined in ISRA) by Tenant with the DEP shall not satisfy Tenant's obligations hereunder without obtaining the prior written approval of Landlord for the use of same and of the terms thereof. (c) In the event a Remedial Action Workplan or Remediation Agreement is required, Tenant shall not undertake any Preliminary Assessment, Site Investigation, Remedial Investigation, Remedial Action or any other remediation without first obtaining the prior approval for the use and of same and of the terms thereof from Landlord, and, notwithstanding any provisions of ISRA to the contrary, Landlord shall have the right to require DEP approval of same before Tenant shall be deemed to have satisfied its obligations hereunder and under ISRA. Under no circumstances shall Tenant's obligations be satisfied by remediation in accordance with "Residential Standards" (as defined in ISRA) without first obtaining the prior written approval for the use of same from Landlord, and, notwithstanding any provisions of ISRA to the contrary, Landlord shall have the right to require DEP approval of same before Tenant shall be deemed to have satisfied its obligations hereunder and under ISRA. (d) Tenant shall promptly provide copies to Landlord of all submissions to DEP concerning any remediation. 8.7.5 In the event that Tenant is not obligated to comply with Section 8.7.4(b) above for any reason, including without limitation inapplicability of ISRA to Tenant, then, (i) at least three (3) months prior to the expiration or earlier termination of this Lease or any other Triggering Event caused by Tenant, or (ii) within sixty (60) days after Tenant's receipt of notice of a Triggering Event not caused by Tenant, Tenant shall, at Tenant's sole expense, obtain from the DEP a "nonapplicability letter" or other written statement in form reasonably satisfactory to Landlord's counsel, confirming that the proposed Triggering Event does not subject either Tenant or the Premises to the requirements of ISRA. (Any representation or certification made by Tenant in connection with any such request shall constitute a representation and warranty by Tenant in favor of Landlord, and any 33 misrepresentation or breach of warranty contained in Tenant's request shall constitute an Event of Default under this Lease). 8.7.6 All reasonable costs associated with Tenant's compliance with this Section 8.7, including without limitation Landlord's reasonable costs in reviewing any sampling plan and/or test results or any other materials required to be submitted by Tenant to the DEP in connection with ISRA compliance, in developing a plan for remediation and site detoxification or for any other requirements of the DEP in connection with ISRA compliance, and monitoring of same, and all reasonable consulting, engineering, and legal fees, shall be paid by Tenant as Additional Charges upon demand from Landlord. In the event Tenant fails to comply in full with its obligations hereunder, Landlord, at its option, may perform any and all of Tenant's obligations as aforesaid (but shall not be obligated to do so), and all reasonable costs and expenses incurred by Landlord in the exercise of this right shall be deemed to be Additional Charges payable by Tenant on demand, with interest at the Interest Rate, from the date of demand until paid in full, it being the intention of the parties hereto that Landlord shall be free of all expenses and obligations arising from, or necessary to achieve, compliance to the extent such compliance is required of Tenant under this Section 8.7. 8.7.7 Tenant does hereby agree to indemnify, defend and hold harmless Landlord and each Mortgagee or Underlying Lessee of the Premises from all losses, costs, damages and expenses (including fines, penalties, reasonable engineering and other professional or expert fees, and reasonable legal fees) resulting, directly or indirectly, whether foreseen or unforeseen, from any claim, demand, liability, obligation, right or cause of action, including but not limited to governmental or private rights of action (collectively, "CLAIMS" or "CLAIM"), that may be asserted against Landlord or any such Mortgagee or Underlying Lessee as a result of Tenant's breach of any representation, warranty or covenant of this Section 8.7, it being the intention of the parties hereto that Landlord shall be free of all expenses and obligations arising from, or necessary to achieve, compliance with ISRA to the extent such compliance is required of Tenant under this Section 8.7; provided, however, that Tenant shall not be obligated to indemnify Landlord under this Section 8.7.7 if Tenant demonstrates that the Claim was based on events occurring or conditions in existence prior to the date of this Lease. Tenant further agrees, at its sole cost and expense, to promptly discharge and remove any lien or encumbrance against the Premises, the Building, or the Land or against any other property owned or controlled, in whole or in part, by Landlord, imposed due to Tenant's failure to comply with ISRA. 8.8 Spill Act. 8.8.1 Tenant agrees that it shall, at its sole cost and expense, observe, comply and fulfill all of the terms land provisions of the Spill Compensation and Control Act, N.J.S.A. 58:10-23. 11 et seq., as the same may be amended from time to time, and all rules, regulations, ordinances, opinions, orders and directives issued or promulgated pursuant to or in connection with said Act by DEP, any subdivision or bureau thereof or governmental or quasi-governmental agency or body having Jurisdiction thereof, to the extent such fulfillment, observance or compliance is required due to the specific nature of Tenant's business or due to Tenant's specific use and/or occupancy of, or any act 34 or omission of Tenant or any Tenant Party in or about, the Premises. (Said Act and all said rules, regulations, ordinances, opinions, orders and directives are hereinafter in this Section 8.8, collectively referred to as "SPILL ACT"). 8.8.2 Without limiting the foregoing, the Tenant agrees: (i) that it shall not do, omit to do or suffer the commission or omission of any act which is prohibited by or may result in any liability under the Spill Act, including without limitation the discharge of petroleum products or other hazardous substances (as said terms are defined in the Spill Act); and (ii) whenever the Spill Act requires the "owner or operator" to do any act, Tenant shall do such act and fulfill all such obligations with respect to the Premises at its sole cost and expense, it being the intention of the parties hereto that Landlord shall be free of all expense and obligations arising from or in connection with compliance with the Spill Act. 8.8.3 Without limiting the foregoing, Tenant agrees: (i) at its sole cost and expense, to promptly discharge and remove any lien or any encumbrance against the Premises, the Building, the Land or any other property owned or controlled, in whole or in part, by Landlord, imposed by Tenant's failure to comply with the Spill Act; and (ii) to defend, indemnify and hold Landlord harmless from and against any and all liability, penalty, loss, expense, damages, costs, claims, causes of action, judgments and/or the like, of whatever nature, including but not limited to reasonable attorneys' fees and other reasonable expenses of litigation or preparation therefor, to the extent such costs arise from or in connection with Tenant's failure or inability, for any reason whatsoever, to observe or comply with the Spill Act and/or the provisions of this Section 8.8. 8.8.4 Tenant agrees that each and every provision of this Section 8.8 shall survive the termination of this Lease by three (3) years. The parties hereto expressly agree and acknowledge that the Landlord would not enter into this Lease but for the provisions of this Section 8.8 and the aforesaid survival thereof. 8.9 Other Environmental Laws. Tenant agrees that it shall, at its sole cost and expense, promptly comply and keep continually in full compliance with all federal, state and local laws, ordinances, rules, regulations and requirements relating to air, ground and water pollution and protection and/or preservation of the environment ("ENVIRONMENTAL LAWS"). 8.10 Environmental Indemnification. 35 Notwithstanding anything to the contrary contained in Sections 8.7, 8.8 and/or 8.9 hereof, as between Landlord and Tenant, Landlord will be solely responsible for and will defend, indemnify and hold Tenant harmless from and against all claims, judgments, actions, costs and liabilities, including attorneys' fees and costs, arising out of or in connection with the generation, manufacture, refining, transportation, treatment, storage, handling and/or disposal by Landlord, any Landlord Party, Underlying Lessors and Mortgagees, Landlord's invitees or other tenants of the Real Property of Hazardous Substances in, on or about the Premises or the Real Property, or arising out of or in connection with the existence of any Hazardous Substances located in, on or about the Building prior to the Commencement Date of this Lease, including but not limited to all claims, costs, and liabilities, including attorneys' fees and costs, arising out of or in connection with the removal, clean-up and restoration work and materials required as a result thereof. Landlord's obligations under this Section 8.10 will survive the termination of this Lease by three (3) years. ARTICLE 9 - ASSIGNMENT, SUBLETTING AND MORTGAGING 9.1 General Prohibition. Tenant shall not, except as otherwise provided herein, whether voluntarily, involuntarily, or by operation of law or otherwise (a) assign or otherwise transfer in whole or in part this Lease, (b) sublet the Premises or any part thereof, or allow the same to be used or occupied by any person other than Tenant for any purpose (including desk space, mailing privileges or otherwise), or (c) mortgage, pledge, encumber or otherwise hypothecate this Lease or the Premises or any part thereof in any manner whatsoever, without in each instance obtaining the prior written consent of Landlord which shall not be unreasonably withheld, conditioned or delayed so long as the requirements of Section 9.1 hereof have been satisfied. The consent by Landlord to a particular assignment, subletting or mortgaging shall not in any way be considered a consent by Landlord to any other or further assignment, subletting, or mortgaging. 9.2 Recapture. 9.2.1 If Tenant shall, at any time or from time to time, during the Term propose to assign this Lease or sublet all or part of the Premises, Tenant shall give notice thereof to Landlord ("TENANT'S NOTICE"), which notice shall be accompanied by (i) a form of the proposed assignment or sublease, the effective date or commencement date of which shall be not less than thirty (30) days, nor more than one hundred and eighty (180) days, after the giving of such notice, and the effectiveness of which shall be expressly conditioned upon the obtaining of Landlord's written consent thereto, (ii) a statement setting forth in reasonable detail the identity of the proposed assignee or subtenant, the nature of its business and its proposed use of the Premises, (iii) current financial information with respect to the proposed assignee or subtenant, including its most recent financial report, and (iv) in the case of a proposed sublease of less than the entire Premises, a floor plan clearly indicating the specific portion of the Premises to be subleased and all means of ingress and egress to and from such proposed sublease space. Tenant, upon request, shall also provide Landlord with any 36 additional information Landlord that shall reasonably request in respect of such proposed assignment or sublease. 9.2.2 Upon Landlord's receipt of any Tenant's Notice, Landlord shall have the following options, as applicable (collectively, the "RECAPTURE OPTIONS"), any of which may be exercised by Landlord by written notice to Tenant (the "RECAPTURE NOTICE") given at anytime within a period (the "RECAPTURE PERIOD") of thirty (30) days after its receipt of the Tenant's Notice but not later than three (3) days prior to the proposed effective date of the proposed assignment or sublease: (a) If a Tenant's Notice shall set forth either (i) a proposed assignment or a proposed sublease of seventy-five percent (75%) or more of the then rentable area of the Premises, then Landlord shall have the option to terminate this Lease in its entirety. If Landlord exercises such option, then this Lease shall terminate on the date that such proposed assignment or sublease was to become effective or commence, as the case may be, and the Rent shall be paid and apportioned to such date. (b) If a Tenant's Notice shall set forth a proposed sublease that either (i) demises more than twenty-five percent (25%) of the then rentable area of the Premises or (ii) has a sublease term that expires later than two (2) years prior to the then scheduled expiration of the Lease Term, then Landlord shall have the option to terminate this Lease as to the proposed sublease space. If Landlord exercises such option, then (i) Landlord, at Tenant's expense, shall (x) erect all partitions required to separate such space from the remainder of the Premises and (y) install all corridors, doors, equipment and facilities required to (aa) allow for independent access from such space to the applicable Public Areas, (bb) comply with any Legal Requirements or Insurance Requirements relating to such separation and (cc) enable such space to used, maintained and serviced as an independent unit, and (ii) this Lease shall terminate with respect to such space on the date that such proposed sublease was to commence and, effective as of such termination, this Lease shall be deemed modified to (x) eliminate such space from the Premises, and (y) reduce the Fixed Rent, on a pro rata, rentable square foot basis. Notwithstanding the foregoing, if Landlord gives Tenant a Recapture Notice with respect to a proposed assignment or sublease, Tenant may, by written notice delivered to Landlord within ten (10) days after Tenant's receipt of such Recapture Notice, withdraw Tenant's request for Landlord's consent to such assignment or sublease, in which case Landlord's Recapture Notice shall be null and void, Tenant shall not enter into such assignment or sublease, and this Lease shall continue as if Tenant had never requested Landlord's consent to such assignment or sublease. 9.3 Consent. If (i) Landlord receives a Tenant's Notice and (ii) Landlord does not exercise any of its Recapture Options within the Recapture Period, then, provided that there is no Event of Default by Tenant continuing as of the date of Tenant's Notice or at anytime thereafter prior to Landlord 37 granting its written consent, Landlord's consent to the proposed assignment or sublease set forth in the Tenant's Notice shall not be unreasonably withheld, conditioned or delayed; provided, that: (a) Tenant shall have complied with all the provisions of this Article; (b) the proposed assignment or sublease shall comply with the provisions of this Article, and the form thereof shall otherwise be reasonably satisfactory to Landlord; (c) the proposed assignee or subtenant (i) shall be a reputable person or entity of good character, (ii) shall be engaged in a business or activity which is in keeping with the then standards the Building, and (iii) shall have sufficient net worth considering the responsibility involved (and Landlord shall have been furnished with reasonable proof thereof); (d) the prospective occupancy of the proposed assignee or subtenant (i) shall be limited to the use of the Premises specifically permitted by this Lease, (ii) shall not violate any use restrictions set forth in this Lease, (iii) shall otherwise be in keeping with the then standards of the Building, and (iv) shall not, in the reasonable judgment of Landlord, increase the office cleaning requirements or otherwise impose an extra burden upon services to be supplied by Landlord to Tenant; (e) the proposed assignment or sublease shall not result in there being more than three occupants (inclusive of Tenant and all subtenants) occupying space within the Premises; (f) in the case of a sublease, the sublease shall not provide for an option on behalf of the subtenant thereunder to extend or renew the term of such sublease; and (g) unless at the time of the proposed assignment or sublease there is not available for lease, or scheduled to become available for lease within three (3) months thereafter, rental space in the Building leasable in a single block containing not less than eighty percent (80%) nor more than one hundred twenty percent (120%) of the rentable square footage of the area to be covered by the proposed assignment or sublease, neither the proposed assignee or subtenant nor any company controlled by, under common control with or controlling the proposed assignee or subtenant (i) shall then be a tenant or occupant of any space in the Building, or (ii) shall have, within the nine (9) month period prior to the date of Tenant's Notice, negotiated with Landlord with respect to the leasing of any space in the Building. Landlord's consent to any assignment or sublease shall be set forth in an instrument prepared by Landlord in form satisfactory to Landlord; in the case of any assignment, such instrument shall include an assumption by the proposed assignee of the obligations of Tenant hereunder. Landlord's consent shall not be effective until such instrument is executed and delivered by Landlord, Tenant and the proposed assignee or subtenant. Tenant shall reimburse Landlord on demand for any reasonable costs that may be incurred by Landlord in connection with any proposed assignment or sublease, including (i) the costs of making investigations as to the acceptability of the proposed assignee or subtenant, and (ii) legal costs incurred in connection with the granting of any requested consent. 38 9.4 Profits. 9.4.1 For purposes of this Lease, the following definitions shall apply: "ASSIGNMENT CONSIDERATION", with respect to any assignment, shall mean an amount equal to all sums and other considerations payable to Tenant by the assignee for or by reason of such assignment (including sums paid for the sale or rental of any Tenant's Property, less, in the case of a sale thereof, the then net unamortized or undepreciated cost thereof determined on the basis of Tenant's federal income tax returns). "SUBLEASE CONSIDERATION", with respect to any sublease with respect to any calendar year, shall mean the excess of (1) any and all rents, additional charges or other consideration payable under the sublease to Tenant by the subtenant (including sums paid for the sale or rental of Tenant's Property located in the sublease premises, after deducting, in the case of the sale thereof, the then net unamortized or undepreciated cost thereof, determined on the basis of Tenant's federal income tax returns), over (ii) the Rent accruing during such year in respect of the subleased space (at the rate per square foot payable by Tenant hereunder) pursuant to the terms hereof. "TRANSACTION EXPENSES", with respect to any assignment or sublease, shall mean the sum of (i) the out-of-pocket and reasonable advertising expenses and brokerage commissions paid by Tenant in connection with the assignment or sublease, plus (ii) the out-of-pocket construction and work allowance costs paid by Tenant in order to prepare the Premises (or portion thereof) for the initial occupancy of the assignee or subtenant. 9.4.2 If Landlord shall consent to any assignment of this Lease, then, in consideration therefor, Tenant within thirty (30) days after the effective date of the assignment, shall (i) deliver to Landlord a written statement, certified by an officer of Tenant, setting forth the Assignment Consideration and the Transaction Expenses with respect to such assignment, and (ii) pay to Landlord, as Additional Charges, an amount equal to fifty percent (50%) of the excess of the Assignment Consideration over the Transaction Expenses. 9.4.3 If Landlord shall consent to any sublease of all or any portion of the Premises, then, in consideration therefore Tenant, within thirty (30) days after the close of each calendar year during the Term in which such sublease is in effect, shall (i) deliver to Landlord a written statement, certified by an officer of Tenant, setting forth the Sublease Consideration for such calendar year during the Transaction Expenses with respect to such sublease, and (ii) either retain or pay to Landlord the Sublease Consideration for such year, in accordance with the following: first, Tenant may retain the entire Sublease Consideration for such year to the extent of the Transaction Expenses incurred with respect to such sublease (except to the extent Tenant retained amounts under this clause first in prior years); and second, Tenant shall pay to Landlord an amount equal to fifty percent (50%) of the balance of the Sublease Consideration for such year. 39 9.5 Miscellaneous. 9.5.1 Notwithstanding any assignment or transfer of this Lease, and notwithstanding the acceptance of Rent by Landlord from an assignee, transferee, or any other party, Tenant shall remain fully liable for the payment of Rent and for the performance and observance of all other obligations of this Lease on the part of Tenant to be performed or observed. Tenant's liability shall be joint and several with any immediate and remote successors in interest of Tenant, and such joint and several liability in respect of Tenant's obligations under this Lease shall not be discharged, released or impaired in any respect by any agreement or stipulation made by Landlord extending the time of, or modifying any of the obligations of, this Lease, or by any waiver or failure of Landlord to enforce any of the obligations of this Lease. 9.5.2 All subleases shall be subject and subordinate to this Lease, and each sublease shall expressly so provide and shall further provide that in the event this Lease is terminated by Landlord by reason of an Event of Default, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublessor, under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that Landlord shall not be (1) liable for any previous act or omission of Tenant under such sublease, (2) subject to any credit, offset, claim, counterclaim, demand or defense which such subtenant may have against Tenant, or responsible for any monies owing by Tenant to the subtenant, (3) bound by any previous prepayment of more than one (1) month's rent, (4) bound by any previous modification of such sublease (made without Landlord's consent), (5) bound by any covenant to undertake or complete any construction in the Premises or any part thereof, (6) required to account for any security deposit of the subtenant other than any security deposit actually delivered to Landlord by Tenant, or (7) required to remove any person occupying the Premises or any part thereof. No sublease shall be for a term ending later than one day prior to the Expiration Date. Each sublease shall provide that the subtenant may not assign its rights thereunder or further sublet the space demised under the sublease, in whole or in part, without Landlord's consent and shall include provisions substantially the same as the provisions of Section 9.5.3 hereof. If an Event of Default shall occur, then Landlord, thereafter at its option and without waiving any such default, may collect Rent from any then existing subtenant of the Premises. Notwithstanding any subletting by Tenant, and notwithstanding the acceptance of Rent by Landlord from any subtenant, Tenant shall and will remain fully liable for the payment of the Rent, for the performance and observance of all other obligations of this Lease on the part of Tenant to be performed or observed, and for all acts or omissions of any subtenant (or anyone claiming under or through any subtenant which shall be in violation of any of the terms and conditions of this Lease, each such violation being deemed to be a violation by Tenant. 9.5.3 For purposes of this Lease, (i) a change in control of Tenant (or of any subtenant of Tenant) shall be deemed an assignment of this Lease (or of such sublease), (ii) a "take-over agreement" pursuant to which one or more persons shall agree to assume the obligations of Tenant hereunder in consideration of Tenant leasing space in another building shall be deemed an assignment of this Lease, and (iii) a modification, unendment or extension of a sublease shall be deemed a sublease. 40 9.5.4 In no event shall Tenant ever (i) advertise or publicize in any way the availability of the Premises without prior notice to and approval by Landlord (which approval shall not be unreasonably withheld, conditioned or delayed), nor shall any advertisement state the name (as distinguished from the address) of the Building or the proposed rental, (ii) list the Premises for subletting, whether through a broker, agent, representative, or otherwise at a rental rate less than the greater of (1) the Rent payable hereunder for such space, or (2) the rental rate at which Landlord is then offering to lease other space in the Building. 9.5.5 If Landlord exercises any of its Recapture Options then Landlord, thereafter, shall be free to, and shall have no liability to Tenant if it shall, enter into a lease, sublease, assignment or other transaction with Tenant's proposed assignee or subtenant or any other person concerning the whole or any portion of the Premises or otherwise. If Landlord shall exercise any of its Recapture Options, or if, after failing to exercise any of its Recapture Options, Landlord shall decline to give its consent to any proposed assignment or sublease, then, in any such case, Tenant shall indemnify, defend and hold harmless Landlord against and from any and all loss, liability, damages, costs and expenses (including reasonable counsel fees) resulting from any claims that may be made against Landlord by the proposed assignee or subtenant or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease. 9.5.6 Notwithstanding anything contained hereinto the contrary, without Landlord's consent but upon notice to Landlord, Tenant may assign this Lease or sublet all or a portion of the Premises to (and Landlord shall not be entitled to exercise its Recapture Options and the provisions of Section 9.4 hereof shall not apply with respect thereto): (a) Tenant's parent entity or any wholly owned subsidiary or affiliate of Tenant or Tenant's parent entity; (b) a corporation or other entity acquiring all of the assets of Tenant; (c) any successor of Tenant by a sale of the stock of Tenant or by consolidation, merger or other corporate action; (d) the initial public offering of stock or other interest in Tenant; or (e) any trading of Tenant's securities on any nationally recognized securities exchange, NASDAQ or other securities system on which it is listed. 41 ARTICLE 10 - SURRENDER; HOLDOVER 10.1 Surrender. Upon the expiration or any earlier termination of this Lease, Tenant shall fully vacate and surrender the Premises to Landlord in accordance with the provisions of this Lease (including Article 5 hereof), "broom-clean" and in good order, condition and repair, reasonable wear and tear excepted. 10.2 Holdover. If Tenant shall fail to vacate and surrender the Premises upon due expiration or earlier termination of this Lease, then, throughout the period commencing on such expiration or earlier termination and continuing until Tenant shall fully vacate and surrender the Premises (such period being herein called the "HOLDOVER PERIOD"), Tenant shall be deemed a holdover tenant and shall be liable to Landlord for rent, or a charge in respect of use and occupancy, at a per diem rate, for each day of the Holdover Period, equal to one and one half (1.5) times the average per diem rate of Fixed Rent payable by Tenant during the last year of the Term( i.e., the year immediately prior to the Holdover Period), plus all Additional Charges allocable to the Holdover Period. In addition to the foregoing, Landlord shall be entitled to recover from Tenant any losses or damages arising from such holdover. Nothing herein shall be deemed to grant Tenant any right to holdover, and in no event shall the acceptance of any rent preclude Landlord from commencing and prosecuting any holdover or eviction proceeding. ARTICLE 11 - DEFAULT BY TENANT; LANDLORD'S REMEDIES 11.1 Events of Default. Each of the following events shall constitute an "EVENT OF DEFAULT": (a) If Tenant shall default in the payment of any Rent, and such default shall continue for five (5) days. (b) If Tenant shall, whether by action or inaction, be in default of any of its obligations under this Lease (other than a default in the payment of Rent) and such default shall continue and not be remedied as soon as practicable and in any event within thirty (30) days after Landlord shall have given to Tenant a notice specifying the same, or, in the case of a default which cannot with due diligence be cured within a period of thirty (30) days, if Tenant shall not (x) within such thirty (30) day period advise Landlord of Tenant's intention to take all steps necessary to remedy such default, (y) duly commence within such 30-day period, and thereafter diligently prosecute to completion, all steps necessary to remedy the default, and (z) complete such remedy within a reasonable time after the date of such notice of Landlord. 42 (c) If this Lease or the estate hereby granted or the unexpired balance of the Term, by operation of law or otherwise, devolve upon or pass to any person or entity other than Tenant, except as expressly permitted by Article 9 hereof. (d) If Tenant shall vacate or abandon the Premises (and the fact that any of Tenant's Property remains in the Premises shall not be evidence that Tenant has not vacated or abandoned the Premises). (e) If (i) Tenant shall commence a case in bankruptcy, or under the insolvency laws of any state, naming Tenant as a debtor, or (ii) any other person shall commence a case in bankruptcy, or under the insolvency laws of any state, naming Tenant as a debtor, and such case shall not have been discharged within sixty (60) days of the commencement thereof, or (iii) Tenant shall make an assignment for the benefit of creditors or any other arrangement involving all or substantially all of its assets under any state statute, or (iv) a receiver or trustee shall be appointed for Tenant or for all or any portion of the property of Tenant in any proceeding, which receivership shall not have been set aside or otherwise stayed within sixty (60) days of such appointment. 11.2 Termination, Re-Entry, Damages, Etc.. 11.2.1 This Lease and the estate hereby granted are subject to the limitation that if an Event of Default shall occur, then, in any such case, Landlord may give to Tenant a notice of intention to terminate this Lease and the Term as of the fifth (5th) day after the giving, of such notice, and, in which event, as of such fifth (5th) day, this Lease and the Term shall terminate with the same effect as if such day was the Expiration Date, but Tenant shall remain liable for damages as hereinafter provided. 11.2.2 If this Lease shall be terminated as provided in Section 11.2.1 above, Landlord, or its agents or employees, may reenter the Premises at any time and remove therefrom Tenant and all Tenant Parties, together with any of its or their property, either by summary dispossess proceedings or by any suitable action or proceeding at law. In the event of such termination, Landlord may repossess and enjoy the Premises. Landlord shall be entitled to the benefits of all provisions of law respecting the speedy recovery of lands and tenements. Tenant waives any rights to the service of any notice of Landlord's intention to re-enter provided for by any present or future law. Landlord shall not be liable in any way in connection with any action it takes pursuant to the foregoing. Notwithstanding any such re-entry, recession, dispossession or removal, if this Lease is terminated prior to the Expiration Date by reason of an Event of Default, Tenant's liability under the provisions of this Lease shall continue until the date the Term would have expired had such termination not occurred. 11.2.3 In any case of termination of this Lease, or re-entry or repossession of the Premises, whether the same is the result of the institution of summary or other proceedings, Tenant shall remain liable (in addition to theretofore accrued liabilities) to the extent legally permissible for: (1) the Rent, together with (A) all other charges provided for herein until the date this Lease would have expired 43 had such termination, re-entry or repossession not occurred, (B) all expenses which Landlord may incur in (1) re-entering or repossessing the Premises, (2) making good any default of Tenant, (3) painting, altering or dividing the Premises, combining the same with other space, or placing the same in proper repair, (4) protecting and preserving the Premises by placing therein watchmen and caretakers, (C) all expenses which Landlord may incur in reletting the Premises (including reasonable attorneys' fees and disbursements, marshall's fees and brokerage fees), and (D) any expenses which Landlord may incur during the occupancy of any new tenant, less (II) the proceeds of any reletting. Tenant agrees to pay to Landlord the difference between items (I) and (II) hereinabove with respect to each month, at the end of such month. Any suit brought by Landlord to enforce collection of such difference for any one month shall not prejudice Landlord's right to enforce the collection of any difference for any subsequent month. In addition to the foregoing, Tenant shall reimburse Landlord all reasonable attorneys' fees and disbursements incurred by Landlord with respect to any such action or proceeding to collect such difference and/or any action or proceeding to otherwise collect any rent and/or to enforce any of Tenant's other obligations under this Lease and/or any summary or other dispossess proceedings. 11.2.4 Landlord may, in its sole discretion, relet the whole or any part of Premises for the whole or any part of the unexpired Term, or longer, or from time to time for shorter periods, for any rental it wishes and giving such concessions of rent and making such special repairs, alterations, decorations and paintings for any new tenant as it may in its sole and absolute discretion deem advisable, and Landlord may collect and receive the rents thereunder. In no event shall Landlord ever be obligated to relet or to attempt to relet the Premises or any part thereof. 11.2.5 If, after a termination of this Lease as aforesaid, Landlord, in its sole discretion, so elects, Tenant shall pay Landlord, on demand, as liquidated and agreed final damages, the present value (calculated at a discount rate of 6 %) of (i) the Rent and all other charges which would have been payable by Tenant from the date of such demand to the date that this Lease would have expired if it had not been terminated as aforesaid, less (ii) the sum of (a) the amount Landlord reasonably determines Landlord will receive in reletting the Premises for the unexpired Term minus (b) Landlord's reasonable estimate of the costs of so reletting the Premises (including but not limited to costs of tenant improvements and other leasing incentives or concessions, leasing commissions, and lease preparation). Upon payment of such liquidated and agreed final damages, Tenant shall have no further liability with respect to the period after the date of such demand. 11.3 Late Payments of Rent. If Tenant shall fail to pay any Rent within ten (10) days after the due date therefor, then Tenant, in addition to such Rent, shall pay Landlord a late charge of five (5) cents for each dollar of the amount of Rent not so paid. In addition, if any such failure to pay Rent shall continue for a period of fifteen (15) days after notice thereof to Tenant, then the past due Rent shall bear interest at the Interest Rate, from the expiration of such fifteen (15) day period until paid. The amount of any such late charge and/or interest shall each be an Additional Charge hereunder and shall be payable upon demand. The assessment and receipt of late charges and interest as aforesaid shall be in addition to, 44 and shall in no way be deemed to limit, any other rights and remedies Landlord may have under this Lease or otherwise for non-payment of Rent. 11.4 Landlord's Cure and Enforcement Rights. 11.4.1 If Tenant shall default in the performance of any of Tenant's obligations under this Lease, Landlord, without thereby waiving such default, may (but shall not be obligated to) perform the same for the account and at the expense of Tenant, without notice in any case of emergency, and, in any other case, if such default continues after notice to Tenant thereof and after the expiration of the applicable grace period set forth herein, if any. 11.4.2 Tenant, upon demand, shall reimburse Landlord for any reasonable expenses incurred by Landlord (including reasonable attorneys' fees) pursuant to, or in connection with, (i) any performance by Landlord for the account of Tenant pursuant to Section 11.4.1 above, or (ii) collecting or endeavoring to collect Rent or any component thereof, or enforcing or endeavoring to enforce any of Landlord's rights against Tenant hereunder or any of Tenant's obligations hereunder, together, in either case, with interest thereon, at the Default Rate (as hereinafter defmed), from the date that such expenses were incurred by Landlord to the date that the same are reimbursed to Landlord by Tenant. 11.5 Additional Remedies. The specific remedies granted to Landlord under this Lease are cumulative and are not intended to be exclusive of each other or of any other remedies which may be available to Landlord at law or in equity. Landlord may exercise any and/or all such rights and remedies (whether Specifically granted herein or otherwise available to Landlord at law or in equity) at such times, in such order, to such extent, and as often, as Landlord deems advisable without regard to whether the exercise of any such right or remedy precedes, is concurrent with or succeeds the exercise of another such right or remedy. 11.6 Security. Tenant, simultaneously herewith (but subject to the provisions of Section 1.5.6 hereof, shall deposit with Landlord either the cash sum or a letter of credit in the amount of $511,816.56, as security for the full and punctual performance by Tenant of all of the terms and conditions of this Lease (such amount, together with any interest earned thereon, if any, such letter of credit, and/or any funds drawn by Landlord thereunder being herein called the "SECURITY DEPOSIT"). In respect thereof, the following provisions shall apply: (a) If Tenant defaults hereunder beyond the expiration of any applicable grace, notice or cure period, Landlord may use, apply or retain the whole or any part of the Security Deposit to the extent required for the payment of any Rent or any other sum(s) as to which Tenant is in default or for any sum(s) which Landlord may expend or may be required to expend by reason of Tenant's 45 default pursuant hereto, including any damages or deficiency with respect to the reletting of the Premises, whether accruing before or after summary proceedings or other re-entry by Landlord. In the case of every such use, application or retention, Tenant shall, on demand, pay to Landlord the sum so used, applied or retained such that the Security Deposit shall be replenished to its former amount. (b) If Tenant shall fully and punctually comply with all of the terms and conditions of this Lease, then the Security Deposit (or portion thereof to which Tenant is entitled) shall be returned or paid over to Tenant (i) one half (1/2) within fifteen (15) days after the expiration or termination of this Lease and the surrender of the Premises to Landlord in accordance herewith (provided, if the Security Deposit is a letter of credit, that Tenant has theretofore given to Landlord a replacement letter of credit in the amount of the remaining one half (1/2) of the Security Deposit) and (ii) one half (1/2) within ninety (90) days after the expiration or termination of this Lease and the surrender of the Premises to Landlord in accordance herewith. (c) in the event of a sale or lease of the Building (or the portion thereof containing the Premises), Landlord shall have the right to transfer the security to the vendee or lessee, and Landlord shall, upon such transfer and the assumption in writing by such vendee or lessee of the Security Deposit and Landlord's obligations hereunder, be released by Tenant from all liability for the return of such security and Tenant agrees to look solely to the new landlord for the return thereof. Except in connection with a permitted assignment of this Lease, Tenant shall not assign or encumber or attempt to assign or encumber the monies deposited as security and Landlord shall not be bound by any such assignment, encumbrance or attempted assignment or encumbrance. (d) Provided Tenant is not then in default hereunder beyond any applicable notice or cure period, the Security Deposit shall be reduced to $255,908.28 upon (i) Tenant's occupancy of the Premises and commencement of conduct of normal business operations therein and (ii) Tenant's payment of Fixed Rent for the first (1st) full calendar month for which Fixed Rent is payable by Tenant following exhaustion of the rent concession described in Section 2.2.3 hereof (provided, if the Security Deposit is a letter of credit, that Tenant provides to Landlord a replacement letter of credit in the applicable reduced amount prior to such reduction). (e) Tenant shall, promptly after the end of each fiscal year of Tenant (such fiscal year expiring on March 31), deliver to Landlord Tenant's financial statement current through the end of such fiscal year, prepared and certified by Tenant's certified public accountants, and such other proof as Landlord may reasonably require to confirm Tenant's gross sales for such fiscal year. If Tenant's gross sales for such fiscal year just ending, as indicated by such financial statement and other proof. exceeded $75,000,000.00, and Tenant is not then in default under this Lease beyond the expiration of any applicable grace notice or cure period, the Security Deposit shall be reduced to (or if previously so reduced, shall remain at) $127,954.14 (provided, if the Security Deposit is a letter of credit, that Tenant provides to Landlord a replacement letter of credit in the applicable reduced amount prior to such reduction). If Tenant's gross sales for such fiscal year just ending, as indicated bv such financial statement and other proof, did not exceed $75,000,000.00, or if Tenant fails to 46 provide such financial statement and other information within ninety (90) days after the end of such fiscal year, the Security Deposit shall be increased to (or shall, if then at such amount, remain at) $255,908.28 (and Tenant shall immediately pay to Landlord sufficient funds to so increase the Security Deposit or a replacement letter of credit in such increased amount). (e) If the Security Deposit is a letter of credit, the provisions of this subparagraph (e) shall apply. The letter of credit shall be issued by a reputable banking institution having an office in New Jersey and shall be presentable for payment at an office of such institution located in New Jersey. Tenant shall deliver to Landlord at least thirty (30) days prior to the expiration of the letter of credit a replacement letter of credit issued by the same financial institution as issued the expiring letter of credit (or such other reputable banking institution as is reasonably acceptable to Landlord), in the same form as the expiring letter of credit (or in such other form as is acceptable to Landlord). If Tenant fails to timely deliver any such replacement letter of credit, such failure shall, without the need for any additional notice from Landlord, constitute an Event of Default under this Lease. The letter of credit shall be irrevocable, shall name Landlord and any successor-in-interest of Landlord as beneficiary, shall be unconditional except as to require a sight draft drawn on the issuing bank to be tendered by the beneficiary at said bank's office, and shall otherwise be in such form as may be required by Landlord. The term "letter of credit" shall mean the original letter of credit delivered to Landlord and each replacement thereof delivered to Landlord during the Term of this Lease. 11.7 Lien on Personal Property. Landlord hereby waives its statutory, common law or any other, lien or right of distraint that Landlord as now or which may in the future become available to it with regard to Tenant's Property. Landlord agrees, upon the request of Tenant, to enter into an agreement with Tenant's lender, in a form reasonably acceptable to Landlord, confirming the waiver stated in the preceding sentence with respect to Teaant's Property and stating that Landlord will, in the event of a default by Tenant under its agreement with its lender, allow such lender to have reasonable access, in accordance with such agreement and on terms reasonably acceptable to Landlord, to the Premises in order for such lender to take possession of Tenant's Property. ARTICLE 12 - LIMITATIONS ON LAINDLORD'S LIABILITY 12.1 Limitation to Landlord's Estate. Tenant shall look only to Landlord's estate and property in the Real Property for the satisfaction of Tenant's remedies, or for the collection of judgment (or other judicial process), against Landlord hereunder, and no other property or assets of Landlord or any Landlord Party shall be subject to levy, execution or other enforcement procedure or the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use or occupancy of the Premises. 47 12.2 No Liability For Certain Damages, Etc. Landlord shall have no liability to Tenant for (a) any damage or loss caused by other tenants or other persons in, upon or about the Real Property, or caused by operations in construction of any public or quasi-public work, or (b) except to the extent caused by Landllord's negligence or willful misconduct, any other loss or damage to persons or property (including any property of Tenant or any Tenant Party). Further, Landlord, even if negligent, shall not be liable to Tenant for consequential damages, whether arising out of any loss of use of the Premises or any Tenant Improvements or other Tenant's Property therein or otherwise. 12.3 Events of Force Majeure Landlord shall have no liability to Tenant if Landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under this Lease by reason of one or more Events of Force Majeure. 12.4 Withholding of Consents/Approvals. If Tenant shall request Landlord's consent or approval and Landlord shall fail or refuse to give such consent or approval, Tenant shall not be entitled to any damages for any withholding by Landlord of its consent or approval, it being intended that Tenant's sole remedy shall be an action for specific performance or injunction, and that such remedy shall be available only in those cases where Landlord has expressly agreed in writing not to unreasonably withhold its consent or where as a matter of law Landlord may not unreasonably withhold its consent or approval. ARTICLE 13 - GENERAL DEFINITIONS 13.1 General Definitions. For purposes of this Lease, the following terms shall have the meanings indicated: "AFFILIATE", of any person, shall mean a corporation, partnership or other entity which controls, is controlled by or is under common control with such person. "BASE BUILDING" shall mean (i) the structural elements of the Building, (ii) the walkways, plazas, outdoor stairways and all other improvements and/or landscaping on the Land, (iii) the pedestrian, freight and service entrances to the Building, (iv) the Public Areas and all improvements, fixtures and equipment therein, (v) the Building's utility and other mechanical rooms and closets (including electrical, telephone and janitorial rooms and closets and fan rooms) and the Building's equipment, storage and service rooms and areas, and all improvements, fixtures and equipment therein, (vi) the Building's columns, shafts, stacks, pipes, ducts and other conduits, (vii) the Building Systems and all other facilities and equipment which are used for the provision of Building Services (whether or not located in the Premises); excluding, however, in all events, the Premises, Tenant's 48 Improvements and Tenant's Property as well as other leasable areas of the Building and the improvements and betterments, and the moveable personal property, of other tenants of the Building. "BUILDING SYSTEMS" shall mean all the electrical, HVAC, mechanical, chilled/condenser water, sanitary, sprinkler, utility, power, plumbing, cleaning, fire control, alarm and prevention systems, elevator, escalator, window washing, waste compacting and removal, lighting, life safety, security and other systems of the Building (together with all related equipment), brought to (and including), but not beyond, the point of distribution or connection to the Premises or to Tenant's Improvements, provided, that all components of the Building's sprinkler system up to and including the main sprinkler loop on each floor (but excluding the sprinkler heads) and all components of the Building's plumbing system in or serving the Core Lavatories shall be deemed to be included in within the term "Building Systems"; excluding, however, in all events, Tenant's Improvements and Tenant's Property as well as the improvements and betterments, and the moveable personal Droperty, of other tenants of the Building. "CONTROL" shall mean (i) in the case of a corporation, either (A) ownership or voting control, directly or indirectly, of at least fifty (50 %) percent of all the voting stock, or (B) the power to direct the management and policies of such corporation, (ii) in case of a partnership or joint venture, either (x) ownership, directly or indirectly, of at least fifty (50%) percent of all the general or other partnership (or similar) interests therein, or (y) the power to direct the management and policies of such partnership or joint venture, and (iii) in the case of any other entity, either (x) ownership, directly or indirectly, of at least fifty (50%) percent of all the equity or other beneficial interest(s) therein, or (y) the power to direct the management and policies of such entity. "CORE LAVATORIES" shall mean the Building's core lavatories (including all toilets, urinals, partitions, flooring, tiling, sinks, piping, counters and other equipment therein from time to time). "DEFAULT RATE" shall mean an interest rate equal to the Interest Rate, Plus four percent (4%) per annum. "EVENT OF FORCE MAJEURE" shall mean (1) any strike, lock-out or other labor trouble, governmental preemption of priorities, or other controls in connection with a national or other public emergency, or any shortage of materials, supplies or labor, or (ii) any failure or defect in the supply, quantity or character of electricity, water, oil, gas, steam or other utility furnished to the Premises, by reason of any Legal Requirement or any requirement, act or omission of the public utility or other person(s) serving the Building with electricity, water, oil, gas, steam or other utility, or (iii) any accident, fire or other casualty, or other act of God, or (iv) any other event, whether similar or dissimilar, beyond Landlord's reasonable control. "GOVERNMENTAL AUTHORITY" shall mean the United States, the State of New Jersey, the Township of Piscataway, and/or any political subdivision thereof any thereof, and/or any agency, department, commission, board or instrumentality of any thereof. 49 "INSURANCE REQUIREMENTS" shall mean all orders, rules, regulations, requirements, policies or recommendations of any board of fire underwriters, fire rating organization, insurance rating organization any other body exercising the same or similar functions to the foregoing (collectively, insurance rating organizations) which have jurisdiction over, or otherwise make rates or findings in respect of, all or any part of the Real Property. "INTEREST RATE" shall mean an interest rate equal to two percent (2%) above the so-called annual "BASE RATE" of interest established and approved by The Bank of New York, from time to time, as its interest rate charged for unsecured loans to its corporate customers, but in no event greater than the highest lawful rate from time to time in effect. "LANDLORD" shall mean only the fee owner, at the time in question, of the Building or that portion of the Building of which the Premises are a part, or of an Underlying Lease of the Building or that portion of the Building of which the Premises are a part, so that in the event of any transfer or transfers of title to the Building or of Landlord's interest in an Underlying Lease of the Building or such portion of the Building, the transferor shall, except as otherwise provided for herein, be and hereby is relieved and freed of all obligations of Landlord under this Lease accruing after such transfer, and it shall, except as otherwise provided for herein, be deemed, without further agreement, that such transferee has assumed and agreed to perform and observe all obligations of Landlord herein during the period it is the holder of Landlord's interest under this Lease. "LANDLORD PARTY" shall mean (1) any principal, partner, member, officer, stockholder, director, employee or agent of Landlord or of any partner or member of any partnership constituting Landlord, disclosed or undisclosed, (2) any Underlying Lessor or any principal, partner, member, officer, stockholder, director, employee or agent thereof, and (3) any Mortgagee or any principal, partner, member, officer, stockholder, director, employee or agent thereof; and "LANDLORD PARTIES" shall have the corresponding plural meaning. "LEGAL REQUIREMENTS" shall mean all applicable laws, statutes and ordinances (including codes, approvals, permits and zoning regulations and ordinances) and the orders, rules, regulations, interpretations, directives and requirements of all federal, state, county, city and borough departments, bureaus, boards, agencies, offices, commissions and other sub-divisions thereof, or of any official thereof, or of any other governmental, public or quasi-public authority, whether now or hereafter in force. "PERSON" shall mean any natural person or persons, a partnership, a corporation, and any other form of business or legal association or entity. "PUBLIC AREAS" shall mean, collectively, the areas of the Real Property which, from time to time, are open to the public as means of ingress and egress to and from the Building and the various parts thereof, including the public walkways on the Land, the Building's public street entrances, the Building's ground floor and other public lobbies (and, with respect to any multi-tenanted floor, any common elevator lobbies thereon), the Building's public hallways, corridors and passages (and, with 50 respect to any multi-tenanted floor, any common corridors thereon), the Building's public stairways, and, with respect to any multi-tenanted floor, the Core Lavatories thereon serving more than one Tenant. "REAL PROPERTY" shall mean, collectively, the Building, inclusive of the Base Building, and all improvements, fixtures, facilities, machinery and equipment comprising a part of, or located in or used in the operation of, the Building (including without rotation all improvements and betterments of tenants), as well as all personal property located in the Building which is used in the operation thereof, the Land, the curbs, sidewalks and plazas immediately adjoining the Land, and all easements, air rights, development rights and other appurtenances to the Building and/or the Land. "STRUCTURAL ELEMENTS", of the Building, shall mean the Building's roof, roof terraces, slabs, beams, columns, girders and other structural members and connections, as well as the Building's exterior walls, window frames and windows and all other parts of the Building's structure and supports. "TENANT" shall mean the Tenant herein named or any assignee or other successor in interest (immediate or remote) of the Tenant herein named, which at the time in question is the owner of the Tenant's estate and interest granted by this lease; but the foregoing provisions of this subsection shall not be construed to permit any assignment of this lease or to relieve the Tenant herein named or any assignee or other successor in interest (whether immediate or remote) of the Tenant herein named from the full and prompt payment, performance and observance of the covenants, obligations and conditions to be paid, performed and observed by Tenant under this lease. "TENANT PARTY" shall mean (1) any principal, partner, member, officer, stockholder, director, employee or agent of tenant or of any partner or member of any partnership constituting Tenant, disclosed or undisclosed, or (2) any subtenant of Tenant or any other party claiming by, through or under Tenant, or any principal, partner, member, officer, stockholder, director, employee or agent of such subtenant or such other party; and "Tenant Parties" shall have the corresponding plural meaning. "UNTENANTABLE", when used with respect to the Premises, or any portion thereof, shall mean that the Premises, or such portion thereof, is not capable of being occupied by Tenant (or any Tenant Party) for the purposes demised hereunder (and, accordingly, that the Premises, or such portion thereof, is not being occupied by Tenant (or any Tenant Party) for the purposes demised hereunder); and "TENANTABLE", when used with respect to the Premises, or any portion thereof, shall mean that the Premises, or such portion thereof, are not untenantable. 13.2 Terms, Phrases and References. In addition, as used in this Lease, the following terms, phrases and references, shall have the meanings indicated: 51 (a) The term "ALTERATIONS" shall include additions, deletions, improvements and/or any other chances. (b) The phrase "AND/OR" when applied to one or more matters or things shall be construed to apply to any one or more or all thereof as the circumstances warrant at the time in question. (c) The terms "HEREIN," "HEREOF" and "HEREUNDER," and words of similar import, shall be construed to refer to this Lease as a whole, and not to any particular Article or Section, unless expressly so stated. (d) The term "INCLUDING", whenever used herein, shall mean "including, without limitation", except in those instances where it is expressly provided otherwise. (e) The term "REPAIRS" shall include, as appropriate, replacements. (f) The provisions of this Lease which (i) provide that "LANDLORD SHALL HAVE NO LIABILITY TO TENANT" for any act, omission or other event, (ii) provide that any act, omission or other event shall be "WITHOUT LIABILITY ON THE PART OF LANDLORD", (iii) provide that Landlord may perform an act or exercise a right, or permit another person to do so, "WITHOUT INCURRING ANY LIABILITY TO TENANT THEREFOR", or (iv) provide, with words of similar import, that Landlord is similarly not liable to Tenant for a given act, omission or other event, shall, in the case of each such provision, mean that (x) Tenant shall not be entitled to terminate this Lease, or to claim actual or constructive eviction, partial, or total, or to receive any abatement or diminution of Rent, or to be relieved in any manner of any of its other obligations hereunder, and (y) neither Tenant nor any Tenant Party shall have any claim (of any kind or nature whatsoever, at law or in equity) against Landlord or any Landlord Party (or otherwise be entitled to any compensation from Landlord or any Landlord Party) for any loss or injury suffered by reason of such act, omission or other event. ARTICLE 14 - MISCELLANEOUS 14.1 Notices. Any notice, statement, demand, consent, approval or other communication required or permitted to be given, rendered or made by either Landlord or Tenant pursuant to this Lease (collectively, "notices") shall be in writing and shall be deemed to have been properly given, rendered or made only if sent by (i) registered or certified mail, return receipt requested, posted in a United States post office station or letter box in the States of New York or New Jersey (in which event such notice shall be deemed to have been given, rendered or made on the third (3rd) Business Day after the day, so mailed), or (ii) overnight courier service (in which event such notice shall be deemed to have been given, rendered or made when delivered), and to the other party at the address(es) hereinabove set forth at the beginning of this Lease (except that, after the Commencemenr Date, the address for Tenant shall be the Premises), and in the case of a notice to Landlord, with copies to: 52 Linque Management Company, Inc. 30l Route 17 North, 9th Floor Rutherford, New Jersey 07070 Attn: Joel J. Bergstein, Vice President and to: Earp Cohn P.C. 222 Haddon Avenue Westmont, New Jersey 08108 Attn: Richard B. Cohn, Esquire and in the case of a notice to Tenant, with a copy to: Parker Chapin Flattau & Klimpl, LLP 1211 Avenue of the Americas New York, New York 10036 Attn: James Alterbaum, Esquire Either party may, by notice as aforesaid, designate a different address or addresses for notices intended for it. 14.2 Brokerage. 14.2.1 Tenant covenants, warrants and represents to Landlord that no broker, other than Insignia/ESG, Inc., and Linque Management Company, Inc. (together, "BROKER"), was instrumental in bringing about or consummating this Lease and that Tenant has had no conversations or negotiations with any broker except Broker concerning the leasing of the Premises. Tenant agrees to indemnify and hold harmless Landlord against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses, arising out of any conversations or negotiations had by Tenant with any broker other than Broker. Landlord agrees to pay Broker pilrsuant to a separate agreement or agreements. 14.2.2 Landlord covenants, warrants and represents to Tenant that no broker, other than Broker, was instrumental in bringing about or consummating this Lease and that Landlord has had no conversations or negotiations with any broker except Broker concerning the leasing of the Premises. Landlord agrees to indemnify and hold harmless Tenant against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses, arising out of any conversations or negotiations had by Landlord with any broker, including Broker. 53 14.3 Estoppel Certificates. Tenant, at any ime and from time to time, on or prior to the tenth (10th) day following a written request by Landlord, shall execute and deliver to Landlord (and/or to a party designated by Landlord) a statement (i) certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), (ii) certifying to the Commencement Date, Expiration Date, and the dates to which Rent has been paid, (iii) stating whether or not, to the best knowledge of Tenant, Landlord is in default in performance of any of its obligations under this Lease (and, if so, specifying each such default of Tenant shall have knowledge), and (iv) stating whether or not, to the best knowledge of Tenant, any Event of Default has occurred which is then continuing (or any event has occurred which with the giving of notice or passage of time, or both, would constitute an Event of Default), and, if so, specifying each such event. Tenant also shall include or confirm in any such statement such other information concerning this Lease as Landlord may reasonably request. Upon Tenant's request, Landlord shall provide Tenant and/or Tenant's lender, assignee or subtenant with a similar certificate executed by Landlord or a party designated by Landlord. 14.4 Affirmative Waivers. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, including any claim of injury or damage, and any emergency and other statutory remedy with respect thereto. Tenant shall not interpose any counterclaim of any kind in any action or proceeding ommenced by Landlord to recover possession of the Premises. Tenant hereby waives any right of redemption or similar right that it may have with respect to this Lease after the termiantion hereof. 14.5 No Waivers. 14.5.1 No delay or omission by Landlord in exercising a right or remedy shall exhaust or impair such right or remedy or constitute a waiver of, or acquiescence in, any default by Tenant. A single or partial exercise of a right or remedy shall not preclude a further exercise thereof, or the exercise of another right or remedy, from time to time. 14.5.2 The receipt by Landlord of Rent with knowledge of any default by Tenant shall not be deemed a waiver of such default, and no provision of this Lease, or anv default by Tenant hereunder, shall be deemed to have been waived by Landlord unless such waiver be in writing signed by Landlord. 14.5.3 No payment by Tenant or receipt by Landlord of a lesser amount than the Rent herein stipulated shall be deemed to be other than on account of the stipulated Rent. No endorsement or statement of any check or any letter accompanying any check or payment as rent shall be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to 54 Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided. 14.6 No Representations. Tenant expressly acknowledges and agrees that Landlord has not made and is not making and Tenant, in executing and delivering this Lease, is not relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease. 14.7 Memorandum of Lease. Tenant shall not record this Lease or any memorandum hereof. 14.8 Partnership Tenant. If, at anytime during the Term, Tenant shall be a partnership (or be comprised of two (2) or more persons) (any such partnership and/or such persons being herein called "Partnership Tenant"), then the liability of each of the parties comprising Partnership Tenant (whenever such parties shall be admitted or become partners) shall be joint and several. 14.9 Authority of Parties. Tenant represents and warrants that this Lease has been duly authorized, executed and delivered by Tenant and constitutes the legal, valid and binding obligation of Tenant. Landlord represents and warrants that this Lease has been duly authorized, executed and delivered by Landlord and constitutes the legal, valid and binding obligation of Landlord. 14.10 Governing Law; Arbitration. 14.10.1 This Lease shall be governed by, and construed in accordance with, the laws of the State of New Jersey. 14.10.2 Any controversy or claim arising out of or relating to this Lease, or any breach or alleged breach thereof (except with respect to a failure by Tenant to pay Rent in accordance with the terms of this Lease, which specifically shall not be subject to this Section 14.10.2), shall be settled by arbitration under the Expedited Procedures provisions of the Commercial Arbitration Rules of the American Arbitration Association, or any successor organization (the "AAA") (presently Rules 53 through 57 and, to the extent applicable Rule 19), provided, however, that with respect to any such arbitration, (a) the list of arbitrators referred to in Rule 54 shall be returned within five (5) days from the date of mailing, but shall include only real estate brokers, attorneys and/or appraisers licensed in New Jersey having at least ten (10) years experience in commercial leasing, (b) the parties shall notify the AAA by telephone, within four (4) days, of any objections to the arbitrator appointed and will have no right to object if the arbitrator so appointed was on the list 55 submitted by the AAA and was not objected to in accordance with the second paragraph of Rule 54, (c) the notice of hearing, referred to in Rule 55 shall be four (4) days in advance of the hearing, (d) the hearing shall be held within seven (7) days after the appointment of the arbitrator, (e) the arbitrator shall have no right to award damages, (f) the decision and award of the arbitrator shall be final and conclusive on the parties and (g) judgment may be had on the decision and award of the arbitrator in any court of competent jurisdiction. 14.11 Entire Agreement; Modifications. This Lease represents the entire agreement of the parties, and, accordingly, all understandings and agreements heretofore had between the parties are merged in this Lease, which alone fully and completely express the agreement of the parties. No amendment, surrender or other modification of this Lease shall be effective unless in writing and signed by the party to be charged therewith. 14.12 Severability. If any provisions of this Lease or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Lease and the application of that provision to other persons or circumstances shall not be affected but rather shall be enforced to the extent permitted by law. 14.13 Interpretation. The table of contents, captions, headings and titles in this Lease are solely for convenience of references and shall not affect its interpretation. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. Each covenant, agreement, obligation or other provision of this Lease on Tenant's part to be performed, shall be deemed and construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. Whenever in this Lease the singular number is used, the same shall include the plural, and the masculine gender shall include the feminine and neuter lenders, and, in each case, vice versa, as the context may require. 14.14 Third Party Beneficiaries. The rights in favor of Landlord and Tenant set forth in this Lease shall be for the exclusive benefit of Landlord and Tenant, respectively, it being the express intention of the parties that in no event shall such rights be conferred upon or for the benefit of any third party. 14.15 Submission of Draft Lease. The submission of the lease in draft form shall be deemed submitted solely for each party's consideration and not for acceptance and execution. Such submission shall have no binding force 56 or effect and shall confer no rights nor impose any obligations, including brokerage obligations, on either party unless and until both Landlord and Tenant shall have executed the lease and duplicate originals thereof shall have been delivered to the respective parties. 14.16 Counterparts. This Lease may be executed in several counterparts, all of which constitute one and the same instrument. 14.17 Relocation. INTENTIONALLY DELETED. ARTICLE 15 - ADDITIONAL PROVISIONS 15.1 Renewal Options. 15.1.1 (a) Tenant, provided this Lease shall then be in full force and effect, shall have the option (herein called the "FIRST RENEWAL OPTION") to extend the Term for an additional five (5) year period (the "FIRST RENEWAL TERM"), which First Renewal Term shall commence on the date immediately succeeding the Expiration Date, and end on the fifth (5th) anniversary of the Expiration Date (such anniversary being herein called the "FIRST RENEWAL EXPIRATION DATE"). The First Renewal Option shall be exercisable only by Tenant giving Landlord written notice of such exercise (herein called the "FIRST RENEWAL NOTICE"), which notice shall be received by Landlord not later than the date that is twelve (12) months prior to the Expiration Date (time being of the essence). Landlord, at its option, may render the First Renewal Notice null and void upon notice thereof to Tenant if, at the time that Landlord receives the same, Tenant shall be in material default under this Lease beyond any applicable notice and/or cure period. (b) Tenant, provided this Lease shall then be in full force and effect, shall have the option (herein called the "SECOND RENEWAL OPTION"; the First Renewal Option and the Second Renewal Option are sometimes referred to herein individually as a "RENEWAL OPTION") to extend the Term for an additional five (5) year period (the "SECOND RENEWAL TERM"; the First Renewal Term and the Second Renewal Term are sometimes referred to herein individually as a "RENEWAL TERM"), which Second Renewal Term shall commence on the date immediately succeeding the First Renewal Expiration Date, and end on the fifth (5th) anniversary of the First Renewal Expiration Date (such anniversary being herein called the "SECOND RENEWAL EXPIRATION DATE"; the First Renewal Expiration Date, and the Second Renewal Expiration Date are sometimes referred to herein individually as a "RENEWAL EXPIRATION DATE"). The Second Renewal Option shall be exercisable only by Tenant giving Landlord written notice of such exercise (herein called the "SECOND RENEWAL NOTICE", the First Renewal Notice and the Second Renewal Notice are sometimes referred to herein individually as a "Renewal Notice"), which notice shall be received bv Landlord not later than the date that is twelve (12) months prior to the First Renewal 57 Expiration Date (time being of the essence). Landlord, at its option, may render the Second Renewal Notice null and void upon notice thereof to Tenant if, at the time that Landlord receives the same, Tenant shall be in material default under this Lease beyond any applicable notice and/or cure period. 15.1.2 If Tenant exercises the Renewal Option in question in accordance with the terms set forth above, then this Lease shall thereupon be extended for the Renewal Term in question upon all the same terms, covenants and conditions as are contained in this Lease and applicable prior to such Renewal Term, except that for, and during, the Renewal Term in question: (1) the Fixed Rent shall be the Renewal Term Fixed Rent (as hereinafter defined) for the Renewal Term in question, as determined as hereinafter set forth; (2) the Expiration Date shall be the Renewal Expiration Date for the Renewal Term in question; (3j) any provisions of this Lease setting forth (i) workletter or other work obligations of Landlord, (ii) work allowances or contributions to be made by Landlord or (iii) Rent concessions or "free rent" periods, shall not apply; and (4) the provisions of Section 15.1.1 above relating to Tenant's right to renew the Term for the Renewal Term in question or any prior Renewal Term shall not be applicable. 15.1.3 (a) As used herein, the term "RENEWAL TERM FIXED RENT" for the Renewal Term in question shall mean a fixed rent payable at a per annum rate equal to the product of (i) the Renewal Fair Market Fixed Rent for such Renewal Term, multiplied by (ii) the number of rentable square feet in the Premises. (b) As used herein, the term "RENEWAL FAIR MARKET FIXED RENT" for the Renewal Term in question shall mean the fixed rent, per rentable square foot per annum, that a willing tenant would pay and a willing landlord would accept for a hypothetical lease of the Premises having a 5-year term (commencing with the commencement of the Renewal Term in question), and providing for fixed annual rent on a level payment basis throughout such term (i.e., no step-ups in fixed rent), assuming: (i) that the Premises were being demised by such hypothetical lease in their "as is" condition as of the date that Tenant exercised the Renewal Option in question; (ii) that the terms of such hypothetical lease would (x) include a work allowance or contribution to be paid by such willing landlord to such willing tenant in an amount equal to the amount, if any, that Landlord in its Initial Renewal Rent Notice (as hereinafter defined) has indicated it is willing to provide to Tenant (but Landlord shall not be obligated to offer to provide any such work allowance or contribution), (y) include a free rent period during which such willing tenant would not pay any fixed rent having a duration equal to the free rent period, if any, that Landlord in its Initial Renewal Rent Notice has indicated it is willing, to provide to Tenant (but Landlord shall not be obligated to offer to provide any such free rent period), and (z) otherwise be the same terms and conditions as are provided for in this Lease for the Renewal Term in question; and (iii) that such willing landlord would be paying a brokerage commission in respect of such hypothetical lease equal to the brokerage commission, if any, payable by Landlord to Broker or any other broker to whom a commission may be owing in connection with the Renewal Term in question. 58 (c) During the thirty (30) day period (the "RENEWAL INITIAL PERIOD") following Tenant's exercise of the Renewal Option in question (i.e., after Landlord's receipt of the Renewal Notice exercising such Renewal Option), Landlord and Tenant shall attempt to agree upon the Renewal Term Fixed Rent for the Renewal Term in question (including any concessions to be provided in connection therewith), and prior to the expiration of the Renewal Initial Period Landlord shall give Tenant written notice (the "INITIAL RENEWAL RENT NOTICE") containing (i) Landlord's determination of the Renewal Term Fixed Rent for the Renewal Term in question ("LANDLORD'S RENEWAL RENT DETERMINATION"), (ii) the amount of any work allowance or contribution that Landlord is willing to provide to Tenant (but Landlord shall not be obligated to offer to provide any such work allowance or contribution), and (iii) the duration of any free rent period that Landlord is willing to provide to Tenant (but Landlord shall not be obligated to offer to provide any such free rent period). If Landlord and Tenant fail to agree upon the Renewal Fair Market Fixed Rent for the Renewal Term in question within the Renewal Initial Period, then Tenant may, by written notice (a "RENEWAL APPRAISAL NOTICE") received by Landlord before the expiration of twenty (20) days after the expiration of the Renewal Initial Period, elect to have the Renewal Fair Market Fixed Rent for the Renewal Term in question determined by appraisal in accordance with the provisions set forth on Exhibit H annexed hereto. If Landlord fails to provide Tenant with an Initial Renewal Rent Notice within the Renewal Initial Period, and Tenant gives Landlord a Renewal Appraisal Notice, then, notwithstanding anything to the contrary contained herein, Landlord shall pay the reasonable cost obtaining Tenant's Renewal Rent Determination (as defined in Exhibit H). If Landlord does not receive a Renewal Appraisal Notice from Tenant before the expiration of such twenty (20) day period, Tenant and Landlord shall be conclusively deemed to have agreed to Landlord's Renewal Rent Determination, and the Fixed Rent for the Renewal Term in question shall equal Landlord's Renewal Rent Determination. (d) Upon the final determination of the Renewal Fair Market Fixed Rent (by appraisal in accordance with the provisions set forth on Exhibit H annexed hereto or by agreement of Landlord and Tenant), the Renewal Term Fixed Rent for the Renewal Term in question shall be finally determined. If, as of the first day of the Renewal Term in question, the Renewal Fair Market Fixed Rent shall not have been finally determined, then (i) for the period from the commencement of the Renewal Term in question until the date that the Renewal Fair Market Fixed Rent is finally determined (herein called the "RENEWAL PRE-DETERMINATION PERIOD"), Tenant shall make payments, on account of the Renewal Term Fixed Rent for the Renewal Term in question (as and when Fixed Rent is payable under this Lease), in an amount equal to the Fixed Rent in effect immediately prior to the commencement of the Renewal Term in question, and (ii) upon the final determination of the Renewal Fair Market Fixed Rent, the Renewal Term Fixed Rent for the Renewal Term in question shall be finally determined, and if the payments made by Tenant on account of the Renewal Term Fixed Rent for the Renewal Term in question during the Renewal Pre-Determination Period were less than the Renewal Term Fixed Rent for the Renewal Term in question, then Tenant shall pay to Landlord the amount of such deficiency, within twenty (20) days after demand therefor. Tenant shall be provided the work allowance, if any, and free rent period, if any, set forth in the Initial Renewal Rent Notice. Any such free rent period shall commence on the first (1st) day of the Renewal Term in question. Any such work allowance shall 59 be paid to Tenant on account of Alterations performed by Tenant in the Premises in accordance with this Lease during the Renewal Term in question, upon Tenant's delivery to Landlord of invoices for such Alterations and proof of payment thereof and that no construction, mechanic's or materialman's liens have been filed in connection therewith. 15.1.4 Either party shall, upon the request of the other, execute, acknowledge and deliver to the other an instrument or instruments in form reasonably satisfactory to the requesting party confirming, any terms and conditions of this Lease applicable to either Renewal Option or Renewal Term, including without limitation whether or not a Renewal Option has been exercised and the Fixed Rent for a particular Renewal Term, but any failure of either party to execute, acknowledge and deliver such instrument(s) shall not affect the validity of any Renewal Term or any of the provisions of this Section 15.1. 15.2 Tenant's Expansion Rights. With respect to any portion of the Building not included in the Premises that is now or hereafter leased to a third party, in the event any such area under lease thereafter becomes available for lease to a party other than the existing, tenant thereof, and no other tenant of the Building having, an option or preferential right with respect to such area which was granted prior to the execution of this Lease by Landlord and Tenant exercises such option or preferential right with respect to such area, Landlord will notify Tenant of the availability of such area and the terms upon which Landlord is willing to lease such area. Landlord shall not be obligated by this provision to enter into a lease with Tenant with respect to any such area or to negotiate with Tenant with respect to the possible lease of any such area to the exclusion of other potential tenants. The purpose of this provision is merely to assure Tenant that Tenant will be made aware of the existence of newly available portions of the Building that are now or hereafter leased to third parties when such space becomes available. 60 IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written. LANDLORD: WASHINGTON PLAZA ASSOCIATES, L.P., a New jersey limited partnership By: LINQUE REALTY ADVISORS II, L.L.C., its General Partner By: /s/ Chaim A. Wachsman Chaim A Wachsman, Managing Member TENANT: MICROFRAME, INC., a New Jersey Corporation By:/s/ John F. McTigue Name: John F. McTigue Title: Executive Vice President 61 STATE OF NEW JERSEY ) ) ss.: COUNTY OF BERGEN ) BE IT REMEMBERED, that on this 22 day of February 1999 before me, the subscriber, a Notary Public, of the State of New Jersey, personally appeared Chaim A. Wachsman, the Managing Member of LINQUE REALTY ADVISORS II, L.L.C., the limited liability company described in the within instrument, which limited liability company is the general partner of WASHINGTON PLAZA ASSOCIATES, L.P., the partnership described in the within instrument (herein called the "Partnership"); who I am satisfied is the person who has signed the within instrument; and he thereupon acknowledged that he signed and delivered the said instrument on behalf of the Partnership, by authorization of the aforesaid limited liability company, and that the within instrument is the voluntary act and deed of the Partnership. /s/ (Notary) STATE OF NEW JERSEY ) ) ss.: COUNTY OF MIDDLESEX) BE IT REMEMBERED, that on this 9th day of February, 1999, before me, the subscriber, a Notary Public, of the State of personally appeared before me, the subscriber, a Notary Public, of the State of New Jersey personally appeared John F. McTigue, being [a] [the] Executive Vice President of MicroFrame, Inc., the [corporation] described in the within instrument; who I am satisfied is the person who has signed the within instrument; and he thereupon acknowledged that he signed and delivered the said instrument on behalf of said [corporation], by authorization of the board of directors of the aforesaid [corporation], and that the within instrument is the voluntary act and deed of said corporation. /s/ (Notary) 62 EXHIBIT A LEGAL DESCRIPTION OF LAND Lot 14-C, Block 490 as shown on the Township of Piscataway, Middlesex County, New Jersey, Tax Map, Sheet No. 41-A and being more particularly described as follows: Beginning at the point of intersection of the easterly line of lands conveyed to the State of New Jersey, by deed dated January 15, 1986 and as recorded in the Middlesex County Clerk's Office in Deed Book 3497, Page 744 with the northerly line of State Highway Route No. 287 as shown on a map entitled "New Jersey Department of Transportation, GENERAL PROPERTY PARCEL MAP, ROUTE 287 ( 1953) section 2, from Somerset-Middlesex County Line to Route 95, Showing Existing Right-of-Way and Parcels to be Acquired in the Township of Piscataway and Borough of South Plainfield, County of Middlesex, Scale: As Indicated, March 1984"; from said beginning point running: 1. Along said easterly line, North 17 degrees 02 minutes 44 seconds West, 14.34 feet to a point of curvature therein; thence 2. Northerly along the same on a curve bearing to the right having a radius of 312.58 feet, an arc length of 161.57 feet to a point of tangency therein; thence 3. Along the same, North 12 degrees 34 minutes 10 seconds East, 249.27 feet to a pint of curvature therein; thence 4. Northerly along the same on a curve bearing to the left having a radius of 210.00 feet, an arc length of 113.62 feet to a point of tangency therein; thence 5. Along the same, North 18 degrees 25 minutes 50 seconds West, 5.35 feet to a point of curvature therein; thence 6. Northerly along the same on a curve bearing to the right having a radius of 24.64 feet, an arc length of 37.04 feet to a point; thence 7. Along the same, North 18 degrees 25 minutes 50 seconds West, 47.30 feet to a point in the southerly line of Lot 14-A, Block 490, now or formerly Leewong Development Co.; thence 8. Along said southerly line, North 71 degrees 34 minutes 10 seconds East, 411.49 feet to a point and corner; thence A-1 9. Along the easterly line of lands now or formerly Leewong Development Co., North 08 degrees 56 minutes 10 seconds West, 100.00 feet to a point; thence 10. Along the southerly line of Lot 4-A, North 75 degrees 24 minutes 00 seconds East 163.00 feet to a point; thence 11. Along the westerly line of said Lot 4-A, South 07 degrees 48 minutes 27 seconds East, 478.94 feet to a point; thence 12. Along the westerly line of said Lot 4-A and Lot 23, South 35 degrees 56 minutes 00 seconds East, 85.80 feet to a point; thence 13. Along the northwesterly line of Line 13, South 38 degrees 06 minutes 55 seconds West, 424.32 feet to a point in the northerly line of said State Highway Route No. 287; thence 14. Westerly along said northerly line on a curve bearing to the right having a radius of 6,850.00 feet, an arc length of 421.99 feet to the point and place of beginning. Contains 9,516 acres, more or less A-2 EXHIBIT B [SEE MASTER FOR INPUT] B-1 EXHIBIT B-1 Specifications DESIGN SPEC PACKAGE PREPARED FOR: MicraFrame 15 Corporate Place, First Floor DEMOLITION AND CONSTRUCTION NOTES 1. REMOVE ALL EXISTING PARTITION WALLS, CEILING TILES, LIGHTS, FINISHES, AND MILLWORK AND PATCH AND REPAIR AS NECESSARY. ALL EXISTING DOORS TO BE REMOVED OR RELOCATED. 2. CLEAN ALL EXISTING WINDOW BLINDS, REPLACE ANY DAMAGED BLINDS. 3. WORKOUT ROOM TO HAVE MEN'S AND WOMEN'S SHOWER (H/C), TOILET, SINK, AND ALL NECESSARY PLUMBING. 4. EXECUTIVE TO HAVE TOILET, SINK, AND ALL NECESSARY PLUMBING. 5. REMOVE EXISTING COMPUTER FLOOR THROUGHOUT, FILL IN LOWERED PORTION TO EXISTING FLOOR LEVEL AT THE FRONT ENTRANCE. 6. ALL DEMISING PARTITIONS BETWEEN THE USABLE TENANT SPACES AND EXISTING CORRIDORS, LOBBY, AND DOCK AREA ARE TO REMAIN AS EXISTING. WALLBOARD IS TO BE PATCHED AS NECESSARY AND SPACKLED SMOOTH TO ACCEPT WALL FINISHES. 7. INTERIOR PARTITIONS: PARTITIONS TO BE CONSTRUCTED OF 3-1/2 METAL STUDS WITH ONE LAYER OF1/2" GYPSUM WALLBOARD ON EACH SIDE TO EXTEND TO UNDERSIDE OF CEILING GRID IN TENANT'S INTERIOR SPACE, PARTITIONS TO BE TAPED AND SPACKLED SMOOTH TO ACCEPT WALL FINISHES, PARTITIONS WITH SOUND INSULATION (DESIGNATED ON PLAN) TO BE FULL 3-1/2" ROCK WOOL BATTS, FLOOR TO FULL PARTITION HEIGHT. 8. NEW DEMISING PARTITIONS WILL BE CONSTRUCTED OF 3-1/2" METAL STUDS WITH ONE LAYER OF 5/8" GYPSUM FIRE RATED WALLBOARD ON B-1-1 EACH SIDE TO EXTEND TO THE UNDERSIDE OF DECK ABOVE SUBJECT TO THE REQUIREMENTS OF THE BUILDINGS EXISTING HVAC SYSTEM, PARTITIONS TO BE TAPED AND SPACKLED SMOOTH TO ACCEPT WALL FINISHES, PARTITIONS WITH SOUND INSULATION (DESIGNATED ON PLAN) TO BE FULL 3-1/2" ROCK WOOL BATTS, FLOOR TO DECK. 9. 6'-0"X3'-6" CLEAR SAFETY GLASS TO BE INSTALLED IN QA LAB AND NETWORK ROOM AT 3'-6" A.F.F. AS DESIGNATED ON PLAN. 10. 3'-0"X7'-0" FULL HEIGHT SIDELITE TEMPERED GLASS TO BE INSTALLED ADJACENT TO DOORS AT FINISHED FLOOR LEVEL AS DESIGNATED ON PLAN. DOOR SCHEDULE E EXISTING DOOR, FRAME, AND HARDWARE TO REMAIN. Rl RELOCATED DOOR AND FRAME, PROVIDE NEW ADA COMPLAINT LEVER TYPE HARDWARE, SATIN CHROME FINISH. N1 NEW SOLID CORE OAK 3'-0"x7'-" DOOR TO MATCH EXISTING WITH HARDWARE TO BE ADA COMPLAINT LEVER TYPE. SATIN CHROME FINISH. N2 NEW PAIR OF SLIDINGOAK DOORS, 2'-0" WIDE EACH WITH HARDWARE, SATIN CHROME FINISH. N3 NEW PAIR OF HERECULITE ENTRY DOORS, 3'-0"x7'-0" (ea.) WITH ADA COMPLAINT HARDWARE AND CLOSER, SATIN CHROME FINISH. N4 NEW HOLLOW METAL 3'-0"x7'-0" DOOR WITH ADA COMPLAINT LEVER TYPE HARDWARE AND CLOSER, SATIN CHROME FINISH. N5 NEW PAIR OF HOLLOW METAL DOORS, 3'-0" X 7'-0" (ea.) WITH ADA COMPLIANT LEVER TYPE HARDWARE AND CLOSER, SATIN CHROME FINISH N7 NEW SOLID CORE OAK 3'-6"x7'-0" DOOR TO MATCH EXISTING WITH HARDWARE TO BE ADA COMPLIANCE LEVER TYPE. SATIN CHROME FINISH. N8 NEW 3'-0"X7'-0" UPGRADED TEMPERED GLASS DOOR TO MATCH ENTRY DOOR AT FOURTH FLOOR. HARDWARE TO MATCH EXISTING IN FIRST FLOOR LOBBY. B-1-2 FINISH SCHEDULE C1 ALLOW $35 BUDGET FOR CARPET MATERIAL AND INSTALLATION. DIRECT GLUE DOWN INSTALLATION. PROVIDE 4" VINYL STRAIGHT BASE, JOHNSONITE OR EQUIVALENT, FINAL SECTION TO FOLLOW. C2 ALLOW $25 BUDGET FOR CARPET MATERIAL AND INSTALLATION. DIRECT GLUE DOWN INSTALLATION. PROVIDE 4" VINYL STRAIGHT BASE, JOHNSONITE OR EQUIVALENT FINAL SELECTION TO FOLLOW C3 ALLOW $25 MILDEW RESISTANT CARPET MATERIAL AND INSTALLATION. PROVIDE 4" VINYL STRAIGHT BASE. FINAL SELECTION TO FOLLOW. VT-1 NEW VINYL COMPOSITE TILE AND 4" BASE, ARMSTRONG PREMIUM EXCELLON OR EQUIVALENT VT-2 NEW ANTI STATIC VINYL TILE AND 4" BASE, ARMSTRONG STATIC DISIPATED TILE OR EQUIVALENT CT-1 NEW 18"X18" GRANITE TILE WITH 6" GRANITE BASE, MFG. TBD. CT-2 NEW 2"X"2" CERAMIC TILE WITH 4" BASE, DAL-KEYSTONE PORCELAIN CERAMIC TILE OR EQUIVALENT P-1 BENJAMIN MOORE EGGSHELL FINISH PAINT OR EQUIVALENT. COLOR SELECTION TO FOLLOW. V-1 TYPE II VINYL WALLCOVERING, JM LYNN WALLCOVERING OR EQUIVALENT, FINAL SELECTIONS TO FOLLOW FINISH NOTES 1. ALL WALLS IN C-T AND CT-2 AREAS, DINING, AND LUNCHROOM TO HAVE V-1 VINYL WALLCOVERING. 2. ALL WALLS TO BE P-1 UNLESS OTHERWISE NOTED. ELECTRICAL NOTES B-1-3 1. IN 225 SF OFFICES, PROVIDE 5 DUPLEX ELECTRICAL OUTLETS AND 3 DATA OUTLETS. 2. IN 180 SF OFFICES, PROVIDE 4 DUPLEX ELECTRICAL OUTLETS AND 3 DATA OUTLETS. 3. IN 150 SF OFFICES, PROVIDE 4 DUPLEX ELECTRICAL OUTLETS AND 3 DATA OUTLETS. 4. IN ALL OTHER OFFICES, PROVIDE 4 DUPLEX OUTLETS AND 2 DATA OUTLETS. 5. IN ALL OTHER AREAS, PROVIDE 1 WALL ELECTRICAL OUTLET EACH WALL (MAXIMUM 10 FEET APART) AND 1 DATA OUTLET, UNLESS OTHERWISE NOTED. 6. CORRIDORS AND OPEN OFFICE AREAS TO HAVE 1 DUPLEX OUTLET PER 12'-0" LINEAR FEET. 7. PROVIDE 20 J BOXES FOR ELECTRIFIED FURNITURE PARTITIONS (10 OF THE 20 TO BE CORE DRILLED) 8. PROVIDE ALLOWANCE FOR (1) SINGLE POLE WALL SWITCH FOR EVERY ALLOTTED FROM OR (1) SINGLE POLE WALL SWITCH FOR EVERY (16) FIXTURES UNLESS OTHERWISE NOTED. 9. ALL WALL SWITCHES (INCLUDING DIMMER SWITCHES) AND OUTLETS (INCLUDING DATA) ARE TO BE SPECIFIED AS NEW AND TO HAVE VINYL FACE PLATES TO COORDINATE WITH WALL COLOR. 10. ALL FLOOR OUTLETS ARE TO BE SPECIFIED AS NEW AND TO HAVE CODE COMPLIANT FACE PLATES. MILLWORK NOTES 1. IN THE LUNCHROOM AND COFFEE AREA, PROVIDE PLASTIC LAMINATE COUNTER WITH FULL HEIGHT PLASTIC LAMINATE BACKSPASH, FORMICA "MARTRIX" TYPE SPECKLED LAMINATE OR EQUIVALENT. PROVIDE PLASTIC LAMINATE BASE AND UPPER CABINETS, PROVIDE STAINLESS STEEL SINK AND ALL THE NECESSARY PLUMBING AND FIXTURES B-1-4 2. IN THE LUNCHROOM, PROVIDE DISHWASHER AND ALL NECESSARY PLUMBING. 3. AT THE COFFEE STATION AREA, PROVIDE PLASTIC LAMINATE COUNTER ACROSS FROM SINK AREA, FORMICA LAMINATE OR EQUIVALENT. 4. IN THE BOARDROOM, PROVIDE LIGHT STAINED CHERRY VENEER BUILT-IN COUNTER WITH BASE CABINETS, TV MONITOR, AND A/V SCREEN ABOVE. 5. IN THE MAILROOM, PROVIDE PLASTIC LAMINATE COUNTER WITH BASE CABINETS BELOW, FORMICA LAMINATE OR EQUIVALENT. 6. PROVIDE ROD AND SHELF IN ALL COAT CLOSETS. CEILING/HVAC/LIGHTING NOTES 1. PROVIDE NEW 2'-0"X4'-0" RECESSED FLORESCENT LIGHT FIXTURE WITH DEEP CELL PARABOLIC LENS TO ACCOMMODATE (3) 34-WATT RAPID START TUBES THROUGHOUT SPACE UNLESS OTHERWISE NOTED. QUANTITY OF FIXTURES SHALL BE (1) EVERY NINETY SQUARE FEET OF NET USABLE TENANT AREA. 2. PROVIDE NEW 2'-0"X2'-0" RECESSED FLORESCENT LIGHT FIXTURE WITH DEEP CELL PARABOLIC LENS TO ACCOMMODATE (3) 34-WATT RAPID START TUBES IN AREAS DESIGNATED ON PLAN WITH LIGHTING NOTES. 3. ALL MODIFICATIONS OF HVAC AND SPRINKLERS ARE REQUIRED. MUST COMPLY WITH ALL APPLICABLE CODES. CLEAN AND RELOCATE EXISTING GRILLS, SUPPLY AND RETURN DUCTS, AND SPRINKLER HEADS, PROVIDE ALLOWANCE FOR ADDITIONAL GRILLS. SUPPLY AND RETURN DUCTS, AND SPRINKLER HEADS AS REQUIRED. 4. PROVIDE NEW 2'-0"X4'-0X5/8" LAY-IN ACOUSTIC CEILING TILES IN EXISTING GRID AS REQUIRED. 5. PROVIDE NEW 2'-0"X2'-0X5/8" LAY-IN ACOUSTIC CEILING TILES (UPGRADE) IN EXISTING MODIFIED CEILING GRID IN AREAS DESIGNATED ON PLAN AS CE-1. B-1-5 6. PROVIDE NEW RECESSED INCANDESCENT 75 WATT DOWNLIGHTS ON DIMMER SWITCHES IN AREAS DESIGNATED ON PLAN WITH LIGHTING NOTES. 7. TRAINING ROOM, BOARDROOM, CONFERENCE ROOM, PRODUCTION AREA, AND CONFERENCE AREAS TO HAVE A SEPARATE THERMOSTAT CONTROL SWITCH. 8. QA LAB AND NETWORK ROOM TO HAVE 24 HOUR AIR AND SEPARATE THERMOSTAT CONTROL SWITCH. 9. PROVIDE ALLOWANCE FOR EMERGENCY LIGHTING, EXIT SIGNS, AND FIRE PROTECTION SYSTEMS TO CONFORM TO CURRENT CODE REQUIREMENTS. B-1-6 EXHIBIT C TENANT'S EXISTING LEASES 1. Lease dated May 24, 1989 between Stabo Associates, as Landlord and Microframe, Inc., as Tenant, as amended by agreements dated June 15, 1993 and November 1996 for 8,900 square feet of space at a certain building located and known as 19-21 Meridian Road, Edison, New Jersey. 2. Lease dated July 20, 1995 between 46.25 Associates, L.P., as Landlord and MICROFRAME, Inc., as Tenant for certain space at the premises in the Middlesex Business Center, South Plainfield, New Jersey. C-1 EXHIBIT D Building Rules and Regulations 1. Tenant shall not obstruct or permit its employees, agents, servants, invitees or licensees to obstruct, in any way, the sidewalks, entry passages, corridors, halls, stairways or elevators of the Building, or use the same in any other way than as a means of passage to and from the offices of Tenant; bring in, store, test or use any materials in the Building which could cause a fire or an explosion or produce any fumes or vapor; make or permit any improper noises in the Building; smoke in the elevators; throw substances of any kind out of the windows or doors, or down the passages of the Building, or in the halls or passageways; sit on or place anything upon the window sills; or clean the windows. 2. Water closets and urinals shall not be used for any purpose other than those for which they are constructed; and no sweepings, rubbish, ashes, newspaper, paper towels or any other substances of any kind shall be thrown into them. Waste and excessive or unusual use of electricity or water is prohibited. 3. The windows, doors, partitions and lights that reflect or admit light into the halls or other places of the Building shall not be obstructed. NO SIGNS, ADVERTISEMENTS OR NOTICES SHALL BE INSCRIBED, PAINTED, AFFIXED OR DISPLAYED IN, ON, UPON OR BEHIND ANY WINDOWS, except as may be required by law or agreed upon by the parties; and no sign, advertisement or notice shall be inscribed, painted or affixed on any doors, partitions or other part of the inside of the Building, without the prior written consent of Landlord. If such consent be given by Landlord, any such sign, advertisement, or notice shall be inscribed, painted or affixed by Landlord, or a company approved by Landlord but the cost of the same shall be charged to and be paid by Tenant, and Tenant agrees to pay the same promptly, on demand. Landlord agrees that the Tenant shall be suitably identified. 4. No contract of any kind with any supplier of towels, water, toilet articles, waxing, rug shampooing, venetian blind washing, furniture polishing, lamp servicing, cleaning of electrical fixtures, removal of waste paper, rubbish or garbage, or other like service shall be entered by Tenant, nor shall any vending machine of any kind be installed in the Building except for Tenant's leased premises without the prior written consent of Landlord. 5. When electric wiring of any kind is introduced, it must be connected as directed by Landlord, and no stringing or cutting of wires will be allowed, except with the prior written consent of Landlord, and shall be done only by contractors approved by Landlord. The number and location of telephones, telegraph instruments, electric appliances, call boxes, etc., shall be approved by Landlord. 6. Landlord shall have the right to reasonably prescribe the weight, size and position of all safes and other bulky or heavy equipment and all freight brought into the Building by the Tenant; D-1 and also the times of moving the same in and out of the Building. All such moving must be done under the supervision of the Landlord. Landlord will not be responsible for loss of or damage to any such equipment or freight from any cause; but all damage done to the Building by moving or maintaining any such equipment or freight shall be repaired at the expense of Tenant. All safes shall stand on a base of such size as shall be designated by the Landlord. The Landlord reserves the rig ht to inspect all freight to be brought into the Building and to exclude from the Building all freight which violates army of these Rules and Regulations or the Lease of which these Rules and Regulations are a part. 7. No machinery of any kind of articles of unusual weight or size will be allowed in the Building, without the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned or delayed. Business machines and mechanical equipment shall be placed, and maintained by Tenant, at Tenant's expense, in settings sufficient in Landlord's reasonable judgment to absorb and prevent vibration, noise and annoyance to other tenants. 8. No additional look or lock shall be placed by Tenant on any door in the Building, without prior written consent of Landlord. Twelve keys will be furnished to Tenant by Landlord; any additional keys requested by Tenant shall be paid by Tenant. Tenant, its agents and employees, shall not change any locks. All keys to doors and washrooms shall be returned to Landlord on or before the Termination Date, and, in the event of loss of any keys furnished, Tenant shall pay Landlord the cost thereof. Tenant may install its own cardkey security system, which shall be integrated with the Building card access system. 9. Tenant shall not employ any person or persons for the purpose of cleaning the leased premises, without the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned or delayed. Landlord shall not be responsible to Tenant for any loss of property from the leased premises, however occurring; or for any damage done to the effects of Tenant by such janitors or any of its employees, or by any other person or any other cause. 10. No bicycles, vehicles or animals of any kind shall be brought into or kept in or about the leased premises. 11. The requirements of Tenant will be attended to only upon the application at the office of the Landlord. Employees of Landlord shall not perform any work for Tenant or do anything outside of their regular duties, unless under special instructions from Landlord. 12. The leased premises shall not be used for lodging or sleeping purposes, and cooking therein is prohibited except for microwaves. 13. Tenant shall not conduct, or permit any other person to conduct any auction on the leased premises; manufacture or store good, wares or merchandise upon the leased premises, without the prior written approval of Landlord, except for the storage of unusual supplies and D-2 inventory to be used by Tenant in the conduct of its business; permit the leased premises to be used for gambling, make any unusual noises in the Building; permit to be played any musical instrument in, disturb or annoy other tenants; or permit any unusual odors to be produced upon the leased premises. 14. Between 6:00 p.m. and 8:00 a.m. on weekdays, before 8:00 a.m., and after 1:00 p.m. on Saturdays, and all day Sunday and Building Holidays, the Building is closed. Landlord reserves the right to exclude from the Building during such periods all persons who do not present a pass to the Building signed by Tenant. Each Tenant shall be responsible for all persons to whom such passes are issued and shall he liable to Landlord for all acts of such persons. 15. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades or screens shall be attached or hung in, or used in connection with any window or door of the leased premises without the prior written consent of Landlord. Such curtains, blinds and shades must be of a quality, type, design and color and attached in a manner approved by Landlord. 16. Canvassing, soliciting and peddling in the Building are prohibited, and Tenant shall cooperate to prevent the same. 17. There shall not be used in the leased premises or in the Building, either by Tenant or by others, in the delivery or receipt of merchandise, any hand trucks except those equipped with rubber tires and side guards. 18. Each Tenant, before closing and leaving the leased premises, shall ensure that all lights are off and all entrance doors locked. 19. Landlord shall have the right to prohibit any advertising by Tenant which in Landlord's opinion tends to impair the reputation of the Building or its desirability as a building for offices, and upon written notice from Landlord, Tenant shall refrain from or discontinue such advertising. 20. Landlord hereby reserves to itself any and all rights not granted to Tenant hereunder, including, but not limited to, the following rights which are reserved to Landlord for its purposes in operating the Building. (a) the exclusive right to the use of the name of the Building for all purposes, except that Tenant may use the name as its business address and for no other purpose; (b) the right to change the name or address of the Building, without incurring any liability to Tenant for so doing; D-3 (c) the right to install and maintain a sign or signs on the exterior of the Building in keeping with the image of the Building as a corporate office building; (d) the exclusive right to use or dispose of the use of the roof of the Building; (e) the right to limit the space on the directory of the Building to be allotted to Tenant; (f) the right to grant to anyone the right to conduct any particular business or undertaking in the Building. 21. With respect to the Parking Areas, Landlord may issue parking, permits, install a gate system, and impose any other system as Landlord deems reasonably necessary for the use thereof. Tenant agrees that it and its employees and invitees shall not park their automobiles in parking, spaces allocated to others by Landlord and shall comply with such rules and regulations for use of the parking area as Landlord may from time to time prescribe. Landlord shall not be responsible for any damage to or theft of any vehicle in the parking, area and shall not be required to keep parking spaces clear of unauthorized vehicles or to otherwise, supervise the use of the parking area. Landlord reserves the right to change any existing, or future parking, area, roads or driveways, and may make any repairs or alterations it deems necessary to the parking area, roads and driveways and to temporarily revoke or modify the parking, rights granted to Tenant hereunder. 22. Tenant shall not use the leased premises or permit the leased premises to be used for the sale of food or beverages other than its vending machines. Except as may be specifically provided for in the Lease, no cooking shall be done or permitted to be done by Tenant in the Building or the Premises, including the preparation of coffee, tea, or other hot beverages. Should Landlord subsequently specifically permit any Tenant, within such Tenant's Premises, to prepare hot coffee, tea or other beverages, then such activity shall be performed only in an area of such Tenant's demised premises, specifically designed for such use, including amongst others a hard floor surface, such as composition or ceramic tile, and the maintenance and cleaning of such area shall be the responsibility of such Tenant. Any damage to the Building or the Premises on account of such use shall be the responsibility of Tenant. 23. Tenant shall not use any method of heating or air-conditioning other than that supplied by Landlord without the written approval of Landlord which shall not be unreasonably withheld. 24. Tenant shall cooperate fully with Landlord to assure the most effective operation of the Building's heating and air-conditioning and to comply with any governmental energy-saving rules, laws, or regulations, and shall refrain from attempting to adjust controls other than room thermostats installed for Tenant's use. Tenant shall keep corridor doors closed, and shall close window coverings at the end of each business day. D-4 25. Tenant shall comply with all safety fire protection and excavation procedures and regulations established by Landlord or any governmental agency. 26. No tenant use or occupy its premises or the Building, or suffer or permit anyone to use or occupy its premises, in a manner which impairs the proper and economic maintenance, operation and repair of the Building and/or its equipment, facilities or systems, (b) constitutes a nuisance, public or private, (c) makes unobtainable from reputable insurance companies authorized to do business in the State of New Jersey all risk property insurance, or liability, elevator, boiler or other insurance at standard rates, (d) increases the premiums or rates under any insurance policy maintained by Landlord for the Building, or (e) discharges objectionable fames, vapors or odors into the Building's fumes or vents or otherwise, except to the extent such fumes, vapors or odors are discharged into flues or vents designed for such purposes and which Tenant, pursuant to the terms of this lease, is permitted to use. 27. No tenant shall use, or suffer or permit anyone to use, its premises or any part thereof, by or for (1) an agency, department or bureau of the United States Government, (ii) any state or municipality within the United States or any foreign government, or any political subdivision of any of them, (iii) an employment or travel agency (other than an executive search firm and other than an employment or travel agency primarily serving Tenant's employees), (iv) any charitable or religious organization or union, (v) a school or classroom, medical or psychiatric offices, (vii) conduct of an auction (other than in the ordinary course of the tenant's business), (viii) gambling activities, (ix) the conduct of obscene, pornographic or similarly disreputable activities, (x) a restaurant and/or bar and/or the sale of confectionery and/or soda and/or beverages and/or sandwiches and/or ice cream and/or baked goods, (xi) the business of photographic reproductions and/or offset printing (except that Tenant may use portions of the Premises for photographic reproductions and/or offset printing in connection with, either directly or indirectly, its own business and/or activities), or (xii) retail use. 28. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building. In the event of conflict between the provisions contained in this Lease and these Rules and Regulations the provisions of this Lease shall prevail. 29. Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order therein Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional Rules and Regulations which are adopted. 30. Tenant shall be responsible for the observance of all the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. D-5 31. No smoking is permitted in any portion of the interior of the Building, including all inside Public Areas and all tenant occupied space in the Building. D-6 EXHIBIT E HVAC Specifications Teletrol Systems Sequence of Operations This text is a documentation of the Teletrol / HVAC sequence of operations at: Washington Office Plaza, Piscataway, N.J. INTRODUCTION: The HVAC building sequence of operations is controlled by a Teletrol 486 Integrator. This IBM based computer is running a customized "C" based language control program, which is written, on an IBM PC compatible text editor. This text file is then compiled into object code and then further processed by the linker locator to form an executable control program. This executable control program consists of the point definitions, sequence of operations for control of these points, user defined variables, and Library functions provided by Teletrol & I.C.C. It is not the intent of this document to familiarize the reader with the "C" programming language but rather with an understanding of the Sequence of Operations. See the Teletrol MCP manual for further information. The control program consists of a number of functions, which run consecutively and are processed every scan of the processor. The following pages contain a Description of each function & the tasks it executes. WASHINGTON OFFICE PLAZA: The DDC Controls incorporate two Teletrol 486 Integrators, which are networked together. Controller #1 is supplied with a Modem for remote communications. CONTROLLER #1: This controller handles the operations of Rooftop Units #1 thru #7, Air Handlers #1 thru #3, and Light Control. Note: The sequence of operations for this controller applies to the rooftops & air handlers except the air handlers do not use the HEAT CONTROL FUNCTION, ECONOMIZER MODE FUNCTION, or DISCHARGE AIR RESET FUNCTION. The air handlers Heating Coil & DX Cooling Coils are staged to maintain temperature setpoint. CONTROLLER #2: This controller handles the operations of Rooftop Units #8 thru #16. E-1 OCCUPIED FUNCTION The purpose of the Occupied Function is to control the state in which the unit is currently operating in. The different states are as follows: Unoccupied, Occupied, MorningWarmUp, MorningCoolDown, NightSetBack, NightSetUp, Holiday, & Override. Unoccupied & Occupied: A point is setup in Teletrol, which displays one of these point values. This point (labeled as Occupied Indicator) is connected to a standard set of 10 Schedules, 1 for each day of the week & 3 special schedules. These schedules can be viewed & set from the MCR. This function compares the current time to the schedules & if one is active it will set the Occupied Indicator to Occupied (which in turn will engage the unit). If not it will set the Occupied Indicator to Unoccupied unless: MorningWarmUp: If the Average Space Temperature falls below the Optimum Start Heating Setpoint the indicator is set to (if the unit is to run today) Opt Heat. Accordingly the unit is switched on in heating mode with no outside air available. The unit now runs till occupied mode. MorningCoolDown: If the Average Space Temperature rises above the Optimum Start Cooling Setpoint the indicator is set to (if the unit is to run today) Opt Cool. Accordingly the unit is switched on in cooling mode with outside air available. The unit now runs till occupied mode. NightSetBack: If the Average Space Temperature falls below the Unoccupied Heating Setpoint the indicator is set to NSB. Accordingly the unit is switched on in heating Mode / with no outside air available. When the temperature rises 5 degrees above setpoint the unit is shut down. NightSetUp: If the Average Space Temperature rises above the Unoccupied Cooling Setpoint the indicator is set to NSU. Accordingly the unit is switched on in heating Mode / with outside air available. When the temperature falls 5 degrees below setpoint the unit is shut down. Holiday: When a schedule is set to be active the system checks the Holiday list to see if this day is one. If it is the indicator is set to Unoccupied & the unit is left off. E-2 Override: If after hours operation is required the system monitors the override button. If engaged it activates the unit for a greater amount of time. The unit is then set to run in heating or cooling mode whichever is called for by the system. OPTIMUM START FUNCTION The purpose of the Optimum Start Function is set the states in which the unit is operating in MorningWarmUp or MorningCoolDown. A point is setup in Teletrol, which displays one of these point values. This function when active sets the Occupied indicator & Optimum Start Indicator accordingly. The different states are as follows: Schedule, MorningWarmUp, & MorningCoolDown. This function constantly monitors the average space temperature and schedule list. It looks ahead to see if a schedule is to be active today, what time, the Rate of Rise of the unit, and minimum start time. Example: The unit is scheduled to be occupied at 8:00 am. The ROR is 1 degree per hour. The minimum start time is 3:00 am. The average space temperature is 68 degrees. The opt_heat setpoint is 72 degrees. Solution: The average space temperature is 4 degrees below the occupied temperature setpoint (also the occupied setpoint). It can recover at 1 degree per hour. It will need four hours to make up the 4 degrees. It then starts the unit at 4:00 am. Example: The unit is scheduled to be occupied at 8:00 am. The ROR is 1 degree per hour. The minimum start time is 3:00 am. The average space temperature is 65 degrees. The opt_heat setpoint is 72 degrees. Solution: The average space temperature is 6 degrees below the occupied temperature setpoint (also the occupied setpoint). It can recover at 1 degree per hour. It will need six hours to make up the 6 degrees. It then starts the unit at 3:00 am. It cannot set the unit on at 2:00 am (which is needed) because the minimum start time is 3:00 am. Raise your minimum start time to 2:00 am. Schedule: If the average space temperature is at setpoint this function sets the optimum start indicator and the occupied indicator to schedule. E-3 MorningWarmUp: If the Average Space Temperature falls below the Optimum Start Heating Setpoint the indicator is set to (if the unit is to run today) Opt_Heat. Accordingly the unit is switched on in heating mode with no outside air available. The unit now runs till occupied mode. If equipped with preheat coil it will be enabled in this mode. MorningCoolDown: If the Average Space Temperature rises above the Optimum Start Cooling Setpoint the indicator is set to (if the unit is to run today) Opt_Cool. Accordingly the unit is switched on in cooling mode with outside air available. The unit now runs till occupied mode. FANS/FLOW/STATIC PRESSURE FUNCTION The purpose of the Fans / Flow / Static Pressure Function is to control the Start/Stop of the fans: supply, return, & exhaust. To monitor the status and regulate VFD ramping and/or Inlet Guide Vanes. Fans Start/Stop: This function is directly tied into the occupied function since it commands the state of the unit. The fans are started in every mode but unoccupied or holiday. The safety relays are monitored. Fire, Smoke, High Static. If any of these are tripped the supply fans are immediately shut down. Fans Flow: The status of the fans is monitored. Fans in Commanded State ON: The Current/Transducers and/or Flow Switches are checked. If an OFF reading is sensed an alarm is generated and if critical will shut down the unit as appropriate. Fans in Commanded State OFF: The Current/Transducers and/or Flow Switches are checked. If an OFF reading is sensed switches are operating normally. If an ON reading is sensed the switches may be stuck closed and an alarm is generated. E-4 Static Pressure Control: The Pressure is controlled by the Trane factory controls by monitoring the actual pressure against the desired pressure setpoint. ECONOMIZER MODE FUNCTION The purpose of the Economizer Mode Function is to set the mode of operations for the Outdoor Air Dampers, Mechanical Cooling and to calculate the discharge air temperature. There are two modes of operation: ECONOMIZER-Outdoor Air and Mechanical Cooling (if above the lockout temperature). MINIMUM(no outdoor air) - Mechanical cooling Only. DISCHARGE AIR SETPOINT: The Discharge Air Setpoint is calculated by comparing the average space temperature against the desired space temperature setpoint. A standard sliding scale is then used to determine the setpoint. As the average space temperature rises the discharge air setpoint is lowered: As the average space temperature falls the discharge air setpoint is raised: AVERAGE SPACE TEMPERATURE 70.0 71.0 72.0 73.0 74.0 65.0 62.5 60.0 57.5 55.0 DISCHARGE AIR SETPOINT MODES OF OPERATION: The mode is selected on outside air enthalpy: OUTSIDE AIR ENTHALPY 18.0 BTU 19.0 BTU 20.0 BTU 21.0 BTU 22.0 BTU ECONO DEADBAND DEADBAND DEADBAND MECHANICAL MODE ECONO MODE: In Econo Mode the system uses outside air and has mechanical cooling available if the outside ambient temperature is above lockout setpoint. The discharge air setpoint is compared to the actual discharge air temperature. A discharge air reset signal is then sent to the controller to modulate the outdoor dampers and/or to stage the mechanical cooling. E-5 MECHANICAL MODE: In Econo Mode the systems uses minimum outside air and mechanical cooling. The discharge air setpoint is compared to the actual discharge air temperature. A discharge air reset signal is then sent to the controller to modulate the outdoor dampers and to stage the mechanical cooling accordingly. DISCHARGE AIR RESET CONTROL FUNCTION The purpose of Discharge Air Reset Control Function is to control the discharge air temperature by resetting the existing Trano Factory Reset Controller. This in turn stages the compressors, and controls the damper operation to maintain discharge air setpoint. DISCHARGE AIR SETPOINT: The Discharge Air Setpoint is calculated by comparing the average space temperature against the desired average space temperature setpoint. A standard sliding scale is then used to determine the setpoint. As the average space temperature rises the discharge air setpoint is lowered. As the average space temperature falls the discharge air setpoint is raised: AVERAGE SPACE TEMPERATURE 70.0 71.0 72.0 73.0 74.0 65.0 62.5 60.0 57.5 55.0 DISCHARGE AIR SETPOINT RESET CONTROLLER Referencing the discharge air setpoint the Reset Controller is modulated to maintain Discharge Air Temperature. As the Discharge Air Temperature rises the signal is increased. As the Discharge Air Temperature falls the signal is decreased. This is achieved by referencing the actual Discharge Air Temperature & comparing it to the Discharge Air Temperature setpoint. An enhanced Proportional, Integral, Derivative Loop sequence is incorporated in order to set the output signal of the reset controller (See the Teletrol MCP Programming Manual for a more detailed explanation of PID control). This effectively eliminates reset controller "hunting". Teletrol analog output cards provide a 4-20mA and/or 0-10vdo signal to the reset controller on the unit. The value of the output to the reset controller is the final calculation of the PID LOOP. NOTE: The range (VDC/mA) & action (actual minus setpoint/setpoint minus actual) of the output signal to the RESET CONTROLLER varies according to the reset controller type. E-6 DISCHARGE AIR TEMPERATURE SETPOINT 55.0 57.0 59.0 61.0 63.0 65.0 DISCHARGE AIR TEMPERATURE 75.0 74.0 73.0 72.0 71.0 70.0 RESET CONTROLLER SIGNAL (0-10 vdm) 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 HEAT CONTROL FUNCTION The purpose of the Heat Control function is to enable the electric baseboard (when the unit is in occupied mode) heat on outside amount air temperature & control of the preheat coil. As it falls below setpoint the electric baseboard heat is enabled. When it rises three degrees above setpoint it is disabled. This three-degree deadband prevents short cycling. When the electric baseboard heat is enabled the baseboard thermostats achieve space temperature control. HEAT CONTROL The current setpoint for enabling/disabling the electric baseboard heat are 60.0 degrees and 63.0 degrees. OUTSIDE AIR TEMPERATURE 59.0 60.0 61.0 62.0 63.0 64.0 ELECTRIC BASEBOARD HEAT ENABLE/DISABLE ON HOLD HOLD HOLD HOLD OFF PREHEAT COIL The preheat coil is utilized for morningwarmup, nightsetback, & in occupied mode when the unit cannot make discharge air temperature setpoint. When the return air temperature is below setpoint in these modes the preheat coil is staged accordingly. E-7 EXHIBIT F Cleaning Specifications I. TENANT AREA A. Daily Cleaning: 1. Empty and clean waste baskets and remove contents to disposal area. 2. Empty and clean all ash trays. 3. Vacuum clean all rugs and carpeted areas. 4. Dust furniture, files, fixtures, and all low reach areas. 5. Polish all glass furniture tops. 6. Clean all water fountains. 7. Sweep all private stairways nightly, vacuumed if carpeted. 8. Damp mop to remove spillage or spot on hard surface floors. 9. Dust all telephones as necessary. 10. Clean doors, door knobs, light switches and other door areas of frequent use. 11. Dust all office partitions. 12. Dust window ledges. B. Wash Rooms (Daily): 1. Sweep and wash all lavatory flooring, machine scrub where necessary. 2. Wash and polish all mirrors, powder shelves, all metal and porcelain work. 3. Wash and disinfect both sides of all toilet seats. 4. Wash and disinfect all basins, bowls and urinals. 5. Empty and clean all paper towel and sanitary disposal receptacles. 6. Fill toilet tissue, soap dispensers, and paper towel dispensers. 7. Clean flushometers and other metal work as required. 8. Wash all wall partitions, tile walls, and enamel surfaces from trial to floor, as required. 9. Vacuum all louvers, ventilating grills and dust light fixtures as required. C. Glass: 1. Clean glass entrance doors and adjacent glass panels nightly. 2. Clean partition glass and interior glass doors monthly. 3. Clean acrylic in accordance with Tenant instructions. D. High Dusting (Four (4) Months): 1. Dust all air conditioning diffusers. F-1 2. Dust the exterior surfaces of lighting fixtures. 3. Dust venetian blinds. II. ENTRANCE LOBBY AND PUBLIC AREAS 1. Sweep and wash lobby and entrance vestibule floors nightly. 2. Machine scrub floors as necessary, not less than four (4) times per year. 3. Wax, buff, and apply sealer monthly. 4. Clean sweep public elevator, lobby and corridor flooring nightly. 5. Wash stone, ceramic tile, marble or terrazzo flooring once per week. 6. Carpeting shall be vacuumed sightly. 7. Wipe down all metal surfaces in the lobby, exterior of building, entrance, and polish as required (once a week minimum). 8 Dust all lobby and public corridor walls nightly and wash as required. 9. High dust and wash all electrical and air conditioning fixtures at least once per month in elevator lobbies, corridors, and entrance lobby. 10. Dust mail depository nightly. 11. Telephone booths shall be swept daily and the glass cleaned nightly. 12. Clean cigarette urns and screen sand an a daily basis. 13. Clean entrances and lobby doors to remove dirt and finger marks. 14. Wash all rubber mats and clean wool or nylon runners daily. 15. Clean and polish marble walls once per week. III. ELEVATORS 1. Clean saddles, doors, and frames of elevator nightly. 2. Clean saddles and frames on floors above lobby once per week and vacuum dirt from door tacks nightly. 3. Clean inside surfaces of elevator cabs nightly. 4. Clean elevator pits weekly or more frequently as necessary. 5. Vacuum carpets in elevators nightly, and provide regular carpet care which will include spot cleaning nightly and shampooing as needed. IV. STAIRWELLS 1. Sweep all stairways nightly. 2. Spot mop stairways nightly. 3. All stairways will be mopped weekly. 4. Remove and gum or other foreign debris nightly. 5. Dust all handrails nightly. 6. Remove all fingerprints from walls on a nightly basis. F-2 V. CARPETS 1. Spot clean carpets, nightly or as needed. 2. Carpets may be shampooed upon request additional cost. VI. WINDOWS Window cleaning will be done two or three times per year as directed, inside and outside surfaces of glass. VII. PARKING AREAS Power sweep parking field and remove debris from site. F-3 EXHIBIT G Alteration Rules and Regulations A. General: 1. Tenant will make no alterations, decorations, installations, repairs, additions, improvements or replacements (which are hereinafter called "Alterations" and which are the Alterations referred to in the Lease) in, to or about the Premises without the Landlord's prior written consent, which shall not be unreasonably withheld, conditioned or delayed, and then only by contractors or mechanics approved by Landlord. 2. Tenant shall, prior to the commencement of any work, submit for Landlord's written approval, which shall not be unreasonably withheld, conditioned or delayed, a complete plan of the Premises, or of the floor on which the Alterations are to occur. Drawings are to be complete with full details and specifications for all of the Alterations. 3. The proposed Alterations must comply with the Building, Code of the Township of Piscataway, County of Middlesex, State of New Jersey and any other agencies having jurisdiction. 4. No work shall be permitted to commence without the Landlord being furnished with a valid permit from the Department of Buildings and/or other agencies having Jurisdiction. 5. All demolition, removals, or other categories of work that may inconvenience other tenants or disturb Building operations, must be scheduled and performed before or after normal working hours and Tenant shall provide the Landlord and the Building Manager with at least 24 hours' notice prior to proceeding with such work. 6. All inquiries, submissions, approvals and all other matters shall be processed through the Landlord and the Building Manager. 7. Additional and differing provisions in the Lease, if any, will be applicable and will take precedence. B. Procedures for Approval: 1. Tenant shall submit to the Landlord and the Building Manager a request to perform the work. The request shall include the following enclosures: (i) A list of Tenant's proposed contractors and/or subcontractors for Landlord's approval, which shall not be unreasonably withheld, conditioned or delayed. G-1 (ii) Four complete sets of plans and specifications properly stamped by a registered architect and/or professional engineer. (iii) A properly executed application form or Alteration form as may be required by the Township of Piscataway and/or other agencies having jurisdiction. (iv) Four executed copies of the Insurance Requirements agreement in the form attached to these Rules and Regulations from Tenant's contractor and from the contractor's subcontractors. (v) Contractor's and subcontractor's insurance certificates including a "hold harmless" in accordance with the Insurance Requirements agreement. 2. If alterations are generally acceptable and otherwise permitted by the Lease, within ten (10) business days, Landlord will return the following to Tenant: (i) Plans approved or returned with comments (such approval or comments shall not constitute a waiver of Department of Buildings approval or approval of other jurisdictional agencies). (ii) Signed application forms referred to in B.(iii) above, providing proper submissions have been made. (iii) Two fully executed copies of the Insurance Requirements agreement. (iv) Covering transmittal letter. 3. Tenant shall obtain Department of Buildings approval of plans and a permit from the Department of Buildings and/or other agencies having jurisdiction. Tenant shall be responsible for keeping current all permits. C. Requirements and Procedures Prior to Commencement of Work: 1. At least 7 days prior to the commencement of any Alteration work, Tenant shall submit copies of all approved plans and permits to Landlord and shall post the original permit on the Premises. 2. All work shall be subject to inspection of Landlord's representatives at reasonable times. Tenant covenants to pay as Additional Charges Landlord's reasonable charges for such inspection. Such inspection shall be solely for the benefit of Landlord, and without any obligation or liability whatsoever to Tenant or Tenant's contractors or subcontractors. G-2 3. Landlord or Landlord's representative shall be reasonably empowered, without any liability to Tenant, its contractors and/or subcontractors, to issue orders of stop work, and/or bar access of the Premises to any contractor and/or subcontractor, whose work is deemed in the reasonable opinion of Landlord and/or Landlord's representative, to be not in accordance with the approved plans and specifications, or to be otherwise detrimental to the Building. 4. When necessary, in Landlord's reasonable judgment, Landlord will require engineering and shop drawings, which drawings must be reasonably approved by Landlord before work commences on such affected item. All such drawings are to be prepared by Tenant and reviewed by Landlord at Tenant's cost and expense. All approvals shall be obtained by Tenant. 5. All structural and floor loading requirements shall be subject to the prior approval of Lanlord's structural engineer at Tenant's cost and expense. 6. All mechanical (HVAC, plumbing and sprinkler) and electrical requirements shall be subject to the approval of Landlord's mechanical and electrical engineers at Tenant's cost and expense. 7. All demolition shall be supervised by Landlord's representative at Tenant's expense. 8. Elevator service for construction work shall be charged to Tenant at standard Building rates. Prior arrangements for elevator use shall be made with Building Manager by Tenant. No material or equipment shall be carried under or on top of elevators. If an operating engineer is required by any union regulations, such engineer shall be paid for by Tenant. 9. If shutdown of risers and mains for electrical, HVAC, sprinkler and plumbing work is required, such work shalt be supervised by Landlord's representative at Tenant's expense. No work will be performed in Building mechanical equipment rooms without Landlord's approval and under Landlord's supervision at Tenant's expense. 10. Tenant's contractor shall: (i) have a Superintendent or Foreman on the Premises at all times; (ii) police the job at all times, continually keeping the Premises orderly; (iii) maintain cleanliness and protection of all areas, including elevators and lobbies; (iv) protect all mechanical equipment and thoroughly clean them at the completion of work; (v) block off supply and return grills, diffusers and ducts to keep dust from entering into the Building air conditioning system; and G-3 (vi) avoid the disturbance of other tenants. 11. If Tenant's contractor is negligent in any of its responsibilities, Tenant shall be charged for the corrective work done by Building porters and other personnel. 12. All equipment and installations must be equal to the Standards of the Building. Any deviation from Building Standards will be permitted only if indicated or specified oil the plans and specifications and approved by Landlord. 13. A properly executed air balancing report signed by a professional engineer shall be submitted to Landlord upon the completion of all HVAC work. 14. Upon completion of the Alterations, Tenant shall submit to Landlord properly executed documents indicating total compliance and final approval by the Department of Buildings of the work, and/or other agencies having jurisdiction. 15. Tenant shall submit to Landlord a final "as-built" set of drawings showing all items of the Alterations in full detail. D. Special Requirements Regarding, Fire Safety System 1. Tenant acknowledges being advised that the Building has an active Fire Safety System. Tenant shall notify its contractors and subcontractors, an well as all persons and entities who shall perform or supervise any alteration or demolition within the Premises, of such facts. 2. Demolition by Tenant of all or any portion of the Premises shall be carried out in such manner as to protect equipment and wiring of Landlord's Fire Safety System. 3. Landlord, after receipt of Tenant's notice of demolition, and at Tenant's expense, shall secure and protect Building, equipment connected to the Fire Safety System in the Premises to be demolished. 4. Landlord, at Tenant's expense shall make such additions and alterations to the existing Fire Safety System as may be necessary by reason. of alterations made within the Premises either by or on behalf of Tenant or by Landlord, as part of the initial installation, and work, if any, that Landlord is required to perform pursuant to the provisions of this Lease or any work letter or leasehold improvements agreement entered into by Landlord and Tenant. 5. Landlord's contract fire alarm service personnel shall be the personnel permitted to adjust, test, alter, relocate, add to, or remove equipment connected to the Fire Safety System. Tenant reserves the right to propose, subject to Landlord's approval, use of other qualified contractors if cost is excessive in Tenant's opinion. G-4 6. Landlord, at Tenant's expense, shall repair or cause to have repaired any and all defects, deficiencies or malfunctions of the Fire Safety System caused by Tenant's alterations or demolition of the Premises. Such expense may include expenses of engineering, supervision and standby fire watch personnel that Landlord deems necessary to protect the Building during the time such defects, deficiencies and malfunctions are being corrected. Landlord will notify Tenant prior to any action required by above. 7. During such times that Tenant's alterations or demolition of the Premises require that fire protection afforded by the Fire Safety system be disabled, Tenant, at Tenant's expense, shall maintain fire watch, service deemed reasonably suitable to Landlord. ADDITIONAL STANDARDS AND REQUIREMENTS Dry Wall: 1. All drywall partitions are to be constricted in accordance with Building Standard. 2. Drywall may not be fastened to any duct work. 3. All walls butting mullions shall have a proper channel to receive the drywall. Electrical: 1. Home runs shall be indicated on plans metallic armored cable shall be used throughout for power and lighting wiring. 2. Light fixtures shall be Building Standard or as previously approved by Landlord. All lighting fixtures shall be independently supported. 3. All wiring shall be properly supported and in accordance with local code. All wiring, shall be concealed. 4. All electrical boxes shall meet code requirements. 5. All unused conduit and wiring shall be removed. 6. All wiring shall meet the requirements of the local governing code and of Underwriter's Laboratory. 7. Special power shall be taken from main distribution board and not from floor distribution panels. 8. Plans with requirements shall be submitted to Landlord to determine riser capacity. G-5 9. Tenant shall pay for all electrical design and layout cost for related work. 10. Building Mechanic or Engineer shall supervise all riser shutdowns. Telephone: 1. All telephone wire shall be concealed in conduit or thin wall tubing or approved (NEC) raceway. 2. Telephone wiring in ceilings shall be Teflon in plenum areas and kept in bundles to specific drops. 3. Telephone wire will be permitted to be run loose in periphery enclosures only. 4. No telephone wire shall be run exposed on baseboards or walls. Doors: All wood doors shall be as per Building Standard shall be properly fire rated and bear a fire rating label. All hollow metal doors shall be properly fire rated if they are located in rated partitions. Hardware: 1. All hardware shall be as per Building Standard. All locks shall be keyed and mastered to Building setup. Two individual keys must be supplied to the Building Manager. Equipment: 1. Equipment where approved may be suspended with fish plates through slab or from steel beams depending on load. 2. All floor loading and steel work shall be subject to the prior approval of the Building structural engineer. All approvals shall be obtained by the Tenant at Tenant's expense. Tenant shall also be responsible for the costs of all inspections by any professional engineers in connection with this work. Public Areas: All public areas shall meet Department of Buildings requirements or requirements of other agencies having jurisdiction. G-6 Air Conditioning 1. Tenant shall be responsible for alterations to existing air conditioning duct work or systems and for insuring that such work is properly integrated into the existing Building systems with no adverse effects on the Buildings systems. Landlord shall not be responsible for the proper HVAC design within the area of any Tenant Alterations. 2. The system shall be balanced at Tenant's expense at the completion of the job. 3. Tenant shall furnish design balancing report to Landlord. 4. All air conditioning components shall match existing or shall receive prior approval from Landlord. 5. Landlord will not permit any outside louvers. 6. All shutoff valves shall be accessible at all times. 7. All unused duct work shall be removed. 8. All unused equipment shall be removed and returned to Landlord. 9. All HVAC, kitchen, toilet and equipment exhaust fans systems and any other systems shall be discharged to the atmosphere, and not in ceilings or existing Building return, air systems. Plumbing: 1. No water risers shall be shutdown during Building, office hours. 2. All plumbing work shall conform to local code. 3. All fixtures shall match existing fixtures. 4. No exposed plumbing is permitted. 5. All unused fixtures and piping shall be removed. All unused piping shall be capped at its respective riser. 6. All unused fixtures shall be returned to Landlord. 7. A Building mechanic shall supervise all riser shutdowns. 8. All run-outs from risers shall be copper pipe. G-7 9. All hot water lines shall be properly insulated, and where necessary, Landlord may require that cold water or waste water lines be insulated. Blinds and Curtains: 1. Where applicable, new blinds shall match existing blinds. 2. Drapery rods may not be supported by any part of the acoustical ceiling system. Rods shall be supported by headers attached to the structure above the ceiling, 3. If draperies are to be installed by Tenant, such draperies shall be flameproof. Ceilings: 1. All ceilings shall meet all requirements of the applicable Building Code. 2. All acoustic tile ceiling shall meet shall match existing tile ceiling, and conform to Building Standards. 3. All ceilings are to be supported independently and not from duct work. BUILDING STANDARDS FOR MATERIALS AND CONSTRUCTION PARTITIONS CORRIDORS 3-5/8" metal studs with one layer 5/8" firecode X drywall on each side extending from the floor through suspended ceiling to the structural slab above, filled with thermofiber insulation. DEMISING WALLS 3-5/8" metal studs with one layer 5/8" drywall on each side extending from the floor through suspended ceiling to the structural slab above, filled with sound attenuating insulation. INTERIOR DIVIDING WALLS WITHIN TENANT SPACE 3-5/8" metal studs with one layer 5/8" drywall on each side extending from the floor to the suspended ceiling PARTITIONS - GENERAL Drywall partitions may not be fastened to ductwork Partitions butting mullions shall be installed with a proper channel to receive the drywall. Fastening to the window mullions is not permitted. G-8 DOORS TENANT ENTRANCE DOOR(S) 3'-0 " x 8'-0" - 1/2" Tempered glass door. Virginia Glass Products Corp. Type P, square profile, clear anodized aluminum rails. Concealed overhead closer, wire pulls, cylinder lockser, 2" x 6" clear anodized aluminum frame and 6" square cut aluminum threshold. TENANT SECONDARY ENTRANCE DOOR(S) 3'-0" x 8'-0" x 1 3/4" Particle core wood door, " C " label, - Weyerhaeuser Marshfield Series plain sliced red oak veneer faces. Four brushed chrome finish hinges, PDQ Industries ST Series/Spirit Grade I extra heavy-duty Cylindrical lock set with lever handles brushed chrome finish and keyed to Bui'Lding Master Key system, and overhead door closer device, Frame shall be 2" x 6" x 16 ga. steel, painted to match. INTERIOR DOORS 3'-0" x 8'-0" x 1 3/4" Particle core wood door, - Weyerhaeuser Marshfield Series plain sliced red oak veneer faces. Four brushed chrome finish hinges, PDQ Industries ST Series/Spirit Grade I extra heavy-duty Cylindrical latch set with ball knobs brushed chrome finish. Frame shall be 2" x 6" x 16 ga. steel, painted to match. CEILING SUSPENSION SYSTEM Chicago Metallic Corporation 200 Snap-Grid system. 2'-0" x 2'-0" and module. Finish: White. CEILING PANELS USG Interiors Acoustone "F" Fissured tile. 2'-0" x 2'-0" x 3/4 Shadowline, white finish. LIGHTING LUMINAIRES 2'-0" x 4'-0" recessed fluorescent parabolic troffers with 3" deep 18 cell aluminum louvers (Columbia Lighting Catalog No. P4 243 043363-1-277) with warm white lamps. EXIT LIGHTING FIXTURE Lightalarms Model UXE-8 G-9 ELECTRICAL INSTALLATION WIRING FOR POWER AND LIGHT Wiring shall be installed concealed in partitions, and above suspended ceilings. Conduit and wiring shall be properly supported, and may not be attached to ceiling construction. Rigid conduit or thin wall tubing shall be used throughout common areas and electrical closets; flexible armored cable may be used in tenant spaces for power and lighting circuits. WIRING FOR VOICE AND SIGNAL Telephone wire, and signal cable, in partitions shall be concealed in conduit or thin wall tubing or approved (NEC) raceway. Telephone wire and signal cable run in suspended ceiling plenums shall be Teflon jacketed and kept in bundles to specific drops. Telephone wire will not be permitted to be run loose except in movable wall raceways, nor run exposed on baseboards or walls. AIR DISTRIBUTION AIR DIFFUSERS 24" x 24" panel type diffusers, white finish. Carnes SKTA. RETURN AIR REGISTERS T-Bar lay-in, 24" x 24" panels, 1/2" x 1/2" x '/,2", white finish, Carnes RAPA DUCTWORK Ductwork to be constricted of galvanized steel sheets meeting SMACCNA standards for fabrication and installation. Final connections to diffusers may be flexible metal duct equal to Wiremold 54, and limited to a maximum length of 8'-0". INSURANCE REOUIREMEINTS Tenant: Premises: The undersigned contractor or subcontractor (hereinafter called "Contractor") has been hired by the tenant or occupant (hereinafter called "Tenant") of the Building named above or by Tenant's contractor to perform certain work (hereinafter called "Work") for Tenant in the Tenant's premises in the Building, Contractor and Tenant have requested the undersigned landlord'hereinafter called "Landlord") to grant Contractor access to the Building and its facilities in connection with the G-10 performance of the Work and Landlord agrees to crant such access to Contractor upon and subject to the following terms and conditions: 1. Contractor acrees to indemnify and save harmless the Landlord, its officers, employees and agents and their affiliates, subsidiaries, and partners, and each of them, from and with respect to any claims, demands, suits, liabilities, losses and expenses, including reasonable attorneys' fees arisina out of or in connection with the Work. (and/or imposed by law upon any or all of them) because of personal injuries, including death at any time resulting therefrom, and loss of or damage to property, including consequential damages, whether such injuries to persons or property are claimed to be due to negligence of the Contractor, Tenant, Landlord or any other party entitled to be indemnified as aforesaid except to the extent specifically prohibited by law (and any such prohibition shall not void this Agreement but shall be applied only to the um extent required by law). 2. Contractor shall provide and maintain at its own expense, until completion of the Work, the following insurance: (a) Workers' Compensation and Employers' Liability Insurance covering, each and every workman employed in, about or upon the Work, as provided for in each and every statute applicable to Workers's Compensation and Employers' Liability Insurance. (b) Comprehensive General Liability Insurance Including Coverage for Protective and Contractual Liability (to specifically include coverage for the indemnification clause of this Agreement) for not less than the following limits: Bodily Injury and Property Damage: $5,000,000 per occurrence (c) Comprehensive Automobile Liability Insurance (covering all owned, non-owned and/or hired motor vehicles to be used in connection with the Work) for not less than the following limits; Bodily Injury and Property Damage: $5,000,000 per occurrence Contractor shall furnish a certificate from its insurance carrier or carriers to the Landlord before commencing the Work, showing that it has complied with the above requirements regarding insurance and providing that the insurer will give Landlord (20) twenty days' prior written notice of the cancellation of any of the foregoing policies. 3. Contractor shall require all of its subcontractors engaged in the Work to provide the following insurance; G-11 (a) Comprehensive General Liability Insurance , including Protective and Contractual Liability Coverages with limits of liability at least equal to the above stated limits. (b) Comprehensive Automobile Liability Insurance (covering all owned, non-owned and/or hired motor vehicles to be used in connection with the Work) for not less than the following limits: Bodily Injury and Property Damage: $5,000,000 per occurrence Upon the request of Landlord, Contractor shall require all of its subcontractors en- aged in the Work to execute an Insurance Requirements agreement in the same form as this Agreement. Agreed to and executed this day of 19 . Contractor Landlord G-12 EXHIBIT H Appraisal Provisions If Tenant shall serve upon Landlord, within the time and in the manner required under the Lease, a Renewal Appraisal Notice, then the Renewal Fair Market Fixed Rent shall be determined by appraisal in accordance with the following: 1. Tenant, by designation in the Renewal Appraisal Notice, shall appoint an appraiser ("TENANT'S APPRAISER"). Landlord or Tenant shall furnish to Tenant's Appraiser a copy of the Initial Renewal Rent Notice. Within thirty (30) days after the date of Landlord's receipt of the Renewal Appraisal Notice, Tenant shall deliver to Landlord the written good-faith determination of Tenant's Appraiser of the Renewal Fair Market Fixed Rent ("TENANT'S RENEWAL RENT DETERMINATION"), based upon the parameters set forth in Section 15.1.3(b) of the Lease. If Tenant falls to deliver to Landlord Tenant's Renewal Rent Determination before the expiration of such thirty (30) day period, then Tenant and Landlord shall be conclusively deemed to have agreed to Landlord's Renewal Rent Determination, and the Fixed Rent for the Renewal Term in question shall equal Landlord's Renewal Rent Determination. 2. Provided Landlord has received Tenant's Renewal Rent Determination within the time set forth in Paragraph 1 above, Landlord and Tenant's Appraiser, within fifteen (15) days after Landlord's receipt of the Tenant's Renewal Rent Determination, shall jointly appoint a mutually agreeable second appraiser who shall be impartial (herein called the "Final Appraiser") and notify Tenant thereof. If Landlord and Tenant's Appraiser fail to agree upon and appoint the Final Appraiser within such 15-day period, then either Landlord or Tenant may request that the American Arbitration Association ("AAA") appoint the Final Appraiser within ten (10) days after such request, and both parties shall be bound by any appointment so made within such 10-day period. If the Final Appraiser- shall not have been appointed within such 10-day period, then either Landlord or Tenant may apply to any court having jurisdiction to make such appointment. The Final Appraiser shall subscribe and swear to an oath to fairly and impartially perform his duties hereunder. 3. Within fifteen (15) days after the appointment of the Final Appraiser, Landlord shall submit a copy of the Initial Renewal Rent Notice to the Final Appraiser, and Tenant shall submit a copy of Tenant's Renewal Rent Determination to the Final Appraiser. If either Landlord or Tenant shall fail to submit such materials in accordance with the provisions of this Paragraph 3 of this Exhibit H, then the Final Appraiser shall notify any party which failed to submit its required materials of its failure (which notice shall refer specifically to this Paragraph 3 of this Exhibit H), and if, in such event, the failing party does not, within a period of ten (10) days after its receipt of such notice, submit its required materials, then (i) if Tenant failed to so submit its required materials, the Fixed Rent for the Renewal Term shall be determined using Landlord's Renewal Rent Determination, or (ii) if Landlord failed to so submit its required materials, the Fixed Rent for the Renewal Term in question shall be determined using Tenant's Renewal Rent Determination, and any such determination shall be conclusive and binding upon both Landlord and Tenant. H-1 4. If both Landlord and Tenant submit their respective required materials in accordance with the provisions of Paragraph 3 of this Exhibit H, then the Final Appraiser, within twenty (20) days after its receipt of both sets of required materials, shall select which of Landlord's Renewal Rent Determination or Tenant's Renewal Rent Determination, in his opinion, more accurately reflects the Renewal Fair Market Fixed Rent, and shall notify Landlord and Tenant of such selection in writing. The Renewal Fair Market Fixed Rent set forth in the selected Fair Market Determination shall be conclusive and binding upon both Landlord and Tenant. 5. The fees and expenses of any such appraisal process shall be borne by the parties equally, except that Landlord shall bear the expense, if any, of the Initial Renewal Rent Notice and Tenant shall bear the expense of Tenant's Appraiser, and each party shall bear the expense of its attorneys and experts. 6. Tenant's Appraiser and the Final Appraiser each shall be a disinterested person of at least five (5) years experience as a real estate appraiser in the State of New Jersey who shall be a member of the "MAI" society of appraisers and shall have had experience as a broker or appraiser of first-class commercial office real estate in the "Piscataway, New Jersey" office market. 7. It is expressly understood, and each appraiser shall acknowledge and agree, that any determination of the Renewal Fair Market Fixed Rent shall be based solely on the definition thereof as set forth in Section 15.1.3(b) of the Lease, including the assumptions and criteria set forth in such definitions. The appraisers shall not have the power to add to, modify or change any such Definitions or any other provisions of the Lease, and the Jurisdiction of the appraisers is accordingly limited. H-2 EX-10.4 4 BUSINESS PARK GROSS LEASE Exhibit 10.4 ------------ BUSINESS PARK GROSS LEASE 48834 MILMONT DRIVE, UNIT 103-A FREMONT, CALIFORNIA BY AND BETWEEN BEDFORD PROPERTY INVESTORS INC., A MARYLAND CORPORATION (LESSOR) AND ION NETWORKS, INC. (LESSEE) BUSINESS PARK GROSS LEASE TABLE OF CONTENTS 1. SALIENT LEASE TERMS.................................................1 2. PREMISES............................................................3 3. TERM ...............................................................4 4. PRE-TERM POSSESSION.................................................4 5. DELAY IN DELIVERY OF POSSESSION.....................................5 6. MINIMUM RENT........................................................5 7. TAXES...............................................................6 8. COMMON AREAS AND COMMON AREA COSTS..................................8 9. ASSIGNMENT AND SUBLETTING..........................................11 10. PROPERTY INSURANCE................................................15 11. LIABILITY INSURANCE...............................................17 12. INSURANCE POLICY REQUIREMENTS.....................................18 13. LESSEE INSURANCE DEFAULT..........................................18 14. INDEMNIFICATION, WAIVER OF CLAIMS AND SUBROGATION.................19 15. DESTRUCTION.......................................................21 16. ACCORD AND SATISFACTION...........................................22 17. SECURITY DEPOSIT..................................................22 18. USE ..............................................................23 19. COMPLIANCE WITH LAWS AND REGULATIONS..............................24 20. UTILITIES.........................................................31 21. ALTERATIONS.......................................................32 22. MAINTENANCE AND REPAIRS...........................................34 23. CONDEMNATION......................................................35 24. EMPLOYEE PARKING..................................................37 25. ABANDONMENT.......................................................37 26. ENTRY BY LESSOR...................................................37 27. SIGNS.............................................................38 28. DEFAULT...........................................................38 29. REMEDIES UPON DEFAULT.............................................39 30. FORFEITURE OF PROPERTY AND LESSOR'S LIEN..........................42 31. SURRENDER OF LEASE................................................43 32. LESSOR'S EXCULPATION..............................................43 33. ATTORNEYS' FEES...................................................43 34. NOTICES...........................................................44 35. SUBORDINATION.....................................................45 36. ESTOPPEL, CERTIFICATES............................................46 37. WAIVER............................................................46 38. HOLDING OVER......................................................46 39. SUCCESSORS AND ASSIGNS............................................47 i 40. TIME...............................................................47 41. EFFECT OF LESSOR'S CONVEYANCE......................................47 42. TRANSFER OF SECURITY...............................................47 43. CORPORATE AUTHORITY................................................47 44. WAIVER OF CALIFORNIA CODE SECTIONS.................................48 45. WASTE..............................................................48 46. BANKRUPTCY.........................................................48 47. LATE CHARGES.......................................................50 48. MORTGAGEE PROTECTION...............................................50 49. MISCELLANEOUS PROVISIONS...........................................51 ii BUSINESS PARK GROSS LEASE 1. SALIENT LEASE TERMS THIS LEASE (the "Lease") is dated for reference purposes only this 17th day of May, 1999. 1.1 RENT PAYMENT: Bedford Property Investors, Inc. Lock Box#: 73048 - "Bedford-Fremont" P.O. Box 60000 San Francisco, California 94160-3048 1.2 PARTIES AND NOTICE ADDRESS: Lessor: BEDFORD PROPERTY INVESTORS, INC. A MARYLAND CORPORATION 270 LAFAYETTE CIRCLE LAFAYETTE, CALIFORNIA 94549 Lessee: ION-NETWORKS, INC. A DELAWARE CORPORATION 48834 KATO ROAD, UNIT 103A FREMONT, CALIFORNIA 94538 (If more than one party, then the obligations hereunder shall be joint and several.) (Section 49.12) 1.3 PREMISES: (A) Name and Location of Complex: BEDFORD FREMONT BUSINESS CENTER CONSISTING OF FIVE (5) BUILDINGS LOCATED AT (I) 48810 KATO ROAD, (II) 48820 KATO ROAD, (III) 48334 KATO ROAD, (IV) 48860 MILMONT DRIVE AND (V) 48890 MILMONT DRIVE, FREMONT, CALIFORNIA 94538. (B) Leased Premises: 48834 KATO ROAD, UNIT 103-A FREMONT, CALIFORNIA 94538 (C) Approximately 4,600 square feet. (Section 2.2) 1.4 TERM: (A) Commencing June 1, 1999. (B) Sixty (60) Months (Section 3. 1) 1 1.5 RENT: (A) Minimum Rent: Months 01-12: $7,360.00 Months 13-24: $7,5900.00 Months 25-36: $7,820.00 Months 37-48: $8,050.00 Months 49-60: $8,280.00 (Section 6.1) (B) Advance Rent: $7,360.00 (Section 6.2) 1.6 BASE COSTS FOR THE COMPLEX: (A) Real Property Taxes: Base amount shall be the actual Real Property Taxes incurred during the calendar year 1999. (Section 7.4) (B) Base Insurance Cost: Base amount shall be the actual Complex Insurance Premium incurred during calendar year 1999. (Section 10.3) (C) Base Common Area Costs: Base amount shall be the Complex Common Area Costs incurred during the calendar year 1999. (Section 8.3) 1.7 SECURITY DEPOSIT: $8,280.00 (Section 17.1) 1.8 USE: Premises used solely for General office, light assembly and distribution. (Section 18.1) 1.9 INITIAL PRO RATA %: 3.14% (4,600 sq. ft. + 146,509 sq. ft.) (Section 8.3) 1.10 DECLARATION OF RESTRICTIONS: Date of Recordation June 30, 1989 Book 126 and 153 Pages 30-33 and Page 43 Document Number 2 (Section 2.4) 1.11 CONTENTS: This Lease consists of Pages 1 through 4) Sections 1 through 43 Addenda: None Exhibits: A- Legal Description of Complex B - Plan of the Complex B1 - Floor Plan of the Leased Premises C - Construction Obligations D - Acknowledgment of Commencement of Term E - Rules and Regulations The above terms are incorporated in this Lease as indicated above and referenced herein. Definitions of the terms in this Lease appear in the following sections: bankruptcy event, 46. 1; alterations, 21.2; Award, 23.1(c); Building, 2.2; Capital Costs, 8.4; Common Area Costs, 8.4; Common Areas, 8. 1; Complex, 2.2; Complex Insurance Premium, 10.3(a); Condemnation, 23. 1 (a); Condemnor, 23. 1 ((d); Date of taking, 23. 1 (b); Decision Period, 23.4; debtor, 46. 1 (a); employee parking, 24. 1; Environmental Laws, 19.3(a); Hazardous Materials, 19.3(a); Hazardous Use, 19.3(b); HVAC, 22.2; Leased Premises, 2.2; Minimum Rent, 6.1; Nonterminating Party, 23.4; notice, 34.2; obligor, 34.3; Order for Relief, 46. 1 (a); person, 49.2; Plans, 21.2(b); pro rata %, 8.3; Real Property Taxes, 7. 1; rent or rental, 29.2(a); Rentable Area, 9.6(a); Report, 19.3(c); restrictions, 2.3; Security Deposit, 6.2; tax bill, 7.4; Taxes, 7. 1; Term, 1.4; Terminating Party, 23.4; Termination Notice, 9.6; Transfer or Transfer of the Leased Premises, 9.2; uninsured property loss property loss, 15. 1; Usable Area, 9.6; Wetlands Laws, 19.4; Wetlands, 19.4; worth at the time of award, 29.2(b). 2. PREMISES 2.1 DEMISING CLAUSE. Lessor hereby leases to Lessee, and Lessee hires from Lessor a portion of the Complex as hereinafter defined. 2.2 DESCRIPTION. The term "Complex" shall refer to that parcel of real property of which the Leased Premises forms a part, together with the parcel or parcels in common ownership therewith and contiguous thereto. The Complex is described with particularity in Exhibit A attached hereto and made a part hereof by reference, and described generally in Section 1.3(A) hereof. The Complex contains, among other things, communications, computer, audio and video, security and electrical (other than electrical wiring terminating at or connected to Building standard electrical outlets), cables, wires, duct work, sensors, switching equipment, control boxes and related improvements at the Complex, Building or 3 the Leased Premises ("Lines"). The premises leased herein are described in Section 1.3(B) and delineated on Exhibit B, which is attached hereto and made a part hereof by reference, consisting of the approximate amount of square footage as specified in Section 1.3(C) hereof. The term "Building" shall refer to the Building in which the Leased Premises are located. The portion leased herein to Lessee is hereinafter referred to as the "Leased Premises." Lessee acknowledges that Lessor may change the shape, size, location, number and extent of the improvements to any portion of the Complex without consent of Lessee and without affecting Lessee's obligations hereunder. Lessor reserves the area beneath and above the Building as well as the exterior thereof together with the right to install, maintain, rise, repair and replace pipes, ducts, conduits, wires, and structural elements leading through the Leased Premises serving other parts of the Complex, so long as such items are concealed by walls, flooring or ceilings. Such reservation in no way affects the maintenance obligations imposed herein, nor shall such reservation alter the parties' responsibilities and obligations set forth in this Lease regarding "Hazardous Materials" (as defined in Section 19.3(a) below). 2.3 COVENANTS, CONDITIONS AND RESTRICTIONS. The parties agree that this Lease is subject to the effect of (a) any covenants, conditions, restrictions, easements, mortgages or deeds of trust, ground leases, rights of way of record, and any other matters or documents of record; (b) any zoning laws of the city, county and state where the Complex is situated; and (c) general and special taxes not delinquent. Lessee agrees that as to its leasehold estate, Lessee and all persons in possession or holding under Lessee will conform to and will not violate the terms of any covenants, conditions or restrictions of record which may now of hereafter encumber the property (hereinafter the "restrictions"). This Lease is subordinate to the restrictions and any amendments or modifications thereto. 2.4 DECLARATION OF RESTRICTIONS. The Leased Premises are subject to a Declaration of Restrictions as referenced in Section 1. 10 hereof. 3. TERM 3.1 COMMENCEMENT DATE. The term of this Lease shall commence on the date specified in Section 1.4(A) hereof and shall be for the Term specified in Section 1.4(B) hereof, plus any partial month at the commencement of the Term. 3.2 ACKNOWLEDGMENT OF COMMENCEMENT. After delivery of the Leased Premises to Lessee, Lessee shall execute a written acknowledgment of the date of commencement in the form attached hereto as Exhibit D and by this reference it shall be incorporated herein. 4 4. PRE-TERM POSSESSION 4.1 CONDITIONS OF ENTRY. In the event the Leased Premises are to be constructed or remodeled by Lessor, Lessor may notify Lessee when the Leased Premises are ready for Lessee's fixturing or Lessee's work, which may be prior to substantial completion of the Leased Premises by Lessor. Lessee may thereupon enter the Leased Premises for such purposes at its own risk, to make such improvements as Lessee shall have the right to make, to install fixtures, supplies, inventory and other property. Lessee agrees that it shall not in any way interfere with the progress of Lessor's work by such entry. Should such entry prove an impediment to the progress of Lessor's work, in Lessor's judgment, Lessor may demand that Lessee forthwith vacate the Leased Premises until such time as lessor's work is complete, and Lessee shall immediately comply with this demand. During the course of any pre-term possession, whether such pre-term period arises because of an obligation of construction on the part of Lessor, or otherwise, all terms and conditions of this Lease, except for rent and commencement, shall apply, particularly with reference to indemnity by Lessee of lessor under Article 14 herein for all occurrences within or about the Leased Premises. 5. DELAY IN DELIVERY OF POSSESSION 5.1 DELAY. If Lessor, for any reason whatsoever, cannot deliver possession of the Leased Premises to Lessee at the commencement of the Term, this Lease shall not be void or voidable, nor shall Lessor be liable for any loss or damage resulting therefrom, but in that event, there shall be an abatement of rent covering the period between the commencement of the Term and the time when Lessor can deliver possession. The Term shall be extended by such delay for an equal period. 6. MINIMUM RENT 6.1 PAYMENT. Lessee shall pay to Lessor at the address specified in Section 1.1, or at such other place as Lessor may otherwise designate, as "Minimum Rent" for the Leased Premises the amount specified in Section 1.5(A) hereof, payable in advance on the first day of each month during the Term. If the Term commences on other than the first day of a calendar month, the rent for the first partial month shall be prorated accordingly. All payments of Minimum Rent (including sum defined as rent in Section 29.2) shall be in lawful money of the United States, and payable without deduction, setoff, offset, counterclaim, recoupment, notice or demand. 5 6.2 ADVANCE RENT. The amount specified in Section 1.5(B) hereof is paid herewith to Lessor upon execution of this Lease as advance rent, receipt of which is hereby acknowledged, provided, however, that such amount shall be held by Lessor as a "Security Deposit" pursuant to Section 17.1 hereof until it is applied by Lessor to the first Minimum Rent due hereunder. 6.3 LATE PAYMENT. If during any twelve (12) month period Lessee fails on more than one occasion to make any payment of Minimum Rent to Lessor on the date when it is due, then Lessor may, by giving written notice to Lessee, require that Lessee pay the Minimum Rent to Lessor quarterly in advance. 7. TAXES 7.1 DEFINITION. In this Article 7 the terms "Real Property Taxes" and "Taxes" are used interchangeably. "Real Property Taxes" as used in this Lease shall include all Real Property Taxes on the Building, the Complex, the land on which the Building is situated, and the various estates in the Building and the Land, including this Lease, as well as all personal property taxes levied on the property used in the operation of the Building or land, whether or not now customary or within the contemplation of the parties to this Lease. "Taxes" also shall include the reasonable cost to Lessor of contesting the amount, validity, or applicability of any Taxes mentioned in this Section. Further included in the definition of Taxes herein shall be general and special assessments, fees of every kind and nature, commercial rental tax, levy, penalty or tax (other than inheritance or estate taxes) imposed by any authority having the direct or indirect power to tax, as against any legal or equitable interest of Lessor in the Leased Premises or in the real property of which the Leased Premises are a part, as against Lessor's right to rent or other income therefrom, or as against Lessor's business of leasing the Leased Premises, any tax, fee, or charge with respect to the possession, leasing, transfer of interest, operation, management, maintenance, alteration, repair, use, or occupancy by Lessee, of the Leased Premises or any portion thereof, the Building, or the Complex, or any tax imposed in substitution, partially or totally, for any tax previously included within the definition of Taxes herein, or any additional tax, the nature of which may or may not have been previously included within the definition of Taxes. The term "Real Property Taxes" or "Taxes" shall not include any tax which may be levied upon or against the net income or profits of Lessor or its successors or assigns. 7.2 ASSESSMENTS. With respect to any general or special assessments which may be levied upon or against the Leased Premises, the Building, the Complex, or the underlying realty, or which may be evidenced by improvement or other bonds, and which may be paid in annual or semiannual installments, only the 6 current amount of such installment, prorated for any partial year, and statutory interest, shall be included within the computation of Taxes for which Lessee is responsible hereunder. 7.3 SEPARATE ASSESSMENT. If the Leased Premises are assessed separately by the county assessor or other taxing agency, Lessee shall pay to Lessor as additional rent at least ten (10) days prior to the date when such Taxes would be delinquent, all increases in Real Property Taxes as hereinabove defined applicable to the Leased Premises or arising under Section 7.1 above. In the event the Leased Premises share parking and Common Areas with other Premises, the provisions of Section 7.4 below shall apply to Taxes thereon. 7.4 PRORATION. If the Leased Premises are not separately assessed as all individual tax unit as described in the previous Section, Lessee shall pay, as additional rent, to Lessor, within ten (10) days after receipt of billing, its pro rata share of all Real Property Taxes stated in the tax bill in which the Leased Premises are included, including the parking and Common Areas, as well as the improvements on all of said land, or otherwise arising under the provisions of this Article, less the base specified in Section 1.6(A) hereof. The term "tax bill" as used herein shall mean the tax bill which includes the Leased Premises, or a group of tax bills aggregated at the option of Lessor, as long as all such bills relate to the Complex. Pro rata share is defined as that fraction the numerator of which is the square footage in the Leased Premises and the denominator of which is the net leasable area included within the tax bill. 7.5 ESTIMATED PAYMENTS. Lessor may, at its option, estimate the amount of Taxes next due and collect from Lessee on a monthly or quarterly basis at Lessor's option, the amount of Lessee's estimated tax obligation. On or before March 1 of each year during the Term, Lessor shall provide Lessee with a reconciliation of Lessee's account with respect to such estimated tax payments. In event it is established upon such reconciliation that Lessee has not paid sufficient amount in estimated tax payments to cover its pro rata share for the year in question, Lessee shall pay to Lessor the full amount of any such shortage within ten (10) days of date of billing. If it is established that Lessee has made an overpayment of its tax shortage within the (10) days of date of billing. If it is established that Lessee has made an overpayment of its tax obligation upon such reconciliation, Lessee shall receive, at Lessor's option, either a credit applicable to the next ensuing estimated tax payments, or a credit to a tax reserve account to be held by Lessor for application to sums due in respect of reassessment or escape assessments applicable to the period in question, but yet to be billed. 7 7.6 PERSONAL PROPERTY AND OTHER TAXES. Lessee shall pay prior to delinquency all Taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Leased Premises or elsewhere. When possible, Lessee shall cause such trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. Lessee shall also pay prior to delinquency all Taxes and other taxes in connection with any testing, investigation, abatement, remediation, removal, transportation and/or disposal of any Hazardous Materials by Lessee (or by Lessor, pursuant to any provision of this Lease granting to Lessor the right to do any of the foregoing and to bill Lessee therefor). For purposes of this Section 7.6, the terms "Taxes" and "taxes" shall include, but not be limited to, any fees, charges, fines, penalties and costs (including, without limitation, permit, approval or licensing fees, charges or costs). If any of Lessee's said personal property shall be assessed with Lessor's real property, or if any other Taxes or taxes which are payable by Lessee pursuant to this Lease or otherwise are assessed against Lessor or Lessor's real property, Lessee shall pay Lessor the Taxes and other taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth in the Taxes and other taxes attributable to Lessee. 8. COMMON AREAS AND COMMON AREA COSTS 8.1 DEFINITION OF COMMON AREAS. The term "Common Areas" as used herein means all areas and facilities outside the Leased Premises, within the exterior boundaries of the Complex, that are provided and designated by Lessor from time to time for the general use and convenience of Lessee and of other tenants of Lessor having the common use of such areas, and their respective authorized representatives and invitees. Common Areas include, without limitations driveways, parking areas, sidewalks, and landscaped areas, all as generally described on Exhibit B attached hereto. Exhibit B is tentative, and Lessor reserves the right to make alterations thereto from time to time. 8.2 RIGHTS AND DUTIES OF LESSOR. Lessor shall, in a manner it deems proper in its opinion, maintain the Common Areas, establish and enforce reasonable rules and regulations concerning such areas, close any of the Common Areas to whatever extent required in the opinion of Lessor's counsel to prevent a dedication of any of the Common Areas or the accrual of any rights of any person or of the public to the Common Areas, close temporarily any of the Common Areas for maintenance purposes, and make changes to the Common Areas including, without limitation, changes in the location of driveways, entrances, exits, vehicular parking spaces, parking area, the designation of areas for the exclusive use of others, the direction of the flow of traffic or construction of additional Buildings thereupon. Lessee hereby acknowledges that Lessor is under no obligation to provide security for the Common Areas but may do so at its option. 8 8.3 PAYMENT BY LESSEE. Lessee shall pay to Lessor, as additional rent its proportionate share of Common Area Costs as hereinafter defined, within ten (10) days of receiving a bill therefor from Lessor, but no more frequently than monthly. Lessee's proportionate share (or "pro rata %") shall be that fraction of Common Area Costs the numerator of which is the number of square feet in the Leased Premises and the denominator of which is the net leasable area of buildings in the Complex having the use of the Common Areas. Lessee's initial pro rata % of Common Area Costs is stated in Section 1.9. Lessor may bill Lessee estimated charges in accordance with Section 8.5. Notwithstanding the preceding provisions of this Section 8.3, Lessee's proportionate share as to certain expenses included in Common Area Costs may be calculated differently to yield a higher percentage share for Lessee as to certain expenses in the event Lessor permits other tenants or occupants in the Complex to incur such expenses directly rather than have Lessor incur the expense in common for the Complex. In such case Lessee's proportionate share of the applicable expense shall be calculated as having as its denominator the net leasable area of all Premises in the Complex less the net leasable area of tenants who have incurred such expense directly. Furthermore, in the event Lessee consumes extraordinary amounts of any provided utility or other service as determined in Lessor's good faith judgment, Lessee's Proportionate Share for such utility or service may, at Lessor's election, be based on usage as opposed to Occupied Floor Area, that is, Lessee's Proportionate Share of such a utility or service would be calculated as having as its denominator the total usage of such utility or service in the Complex (or Building as the case may be), and having as its numerator Lessee's usage of such utility or service, as determined by Lessor in its sole good faith judgment. In any case where Lessee, with Lessor's consent, incurs such expenses directly, Lessee's proportionate share of Common Area Costs will be calculated specially so that expenses of the same character which are incurred by Lessor for the benefit of other tenants in the Complex shall not be prorated to Lessee. If repairs are required for systems exclusively serving the Leased Premises (whether within or outside of said Leased Premises), Lessee shall pay one hundred percent (100%) of such repair costs. Nothing herein shall imply that Lessor will permit Lessee or any other tenant of the Complex to incur Common Area Costs. Any such permission shall be in the sole discretion of Lessor, which Lessor may grant or withhold in its arbitrary judgment. 8.4 DEFINITION OF COMMON AREA COSTS. "Common Area Costs" means all sums (including "Capital Costs" as hereinafter defined and to the extent stated herein) expanded by Lessor, its agents, contractors and employees for operating, maintaining, repairing, replacing and administering of the Complex, including, without limitation, painting the exterior walls of the buildings in the Complex, equipping, policing and protecting, lighting, providing sanitation and sewer and other services, insuring (including self-insurance and the payment of deductible amounts under insurance policies), repairing, replacing and maintaining the (i) Common Areas and (ii) all buildings and roofs within the Complex, and (iii) all other areas, facilities and buildings, vertical transportation facilities, retention ponds (if applicable), and any and all facilities and improvements connecting the Complex to off-site buildings or areas, which are used in connection with the maintenance and/or operation of, and whether located within or outside of, the 9 Complex; such costs and expenses shall include, but shall not be limited to, the full cost of: illumination and maintenance of Complex signs, whether located on or off the Complex; refuse disposal, water, gas, sewage, electricity and other utilities (without limitation), including any and all usage, service, hook up, connection, availability and/or standby fees or charges pertaining to same, and including all costs associated with the provision, maintenance and operation of any central telephone service for the Complex and/or utility system and/or Lines for the Complex; the operation, maintenance, repair and replacement of all or any part of the parking areas; snow removal, maintenance and operation of any temporary or permanent utility and/or utility system, including a sewage disposal system, within or without the Complex, together with hook up or connection fees and service charges; compliance with rules, regulations and orders of governmental authorities pertaining to air pollution control, including the cost of monitoring air quality; maintenance for wooded areas, retention ponds, lakes and shoreline areas (if applicable); cleaning, lighting, striping and landscaping; curbs, gutters, sidewalks, drainage and irrigation ditches, conduits, pipes and canals located on or adjacent to the Complex; premiums for liability, casualty, and property insurance; personal property taxes; licensing fees and taxes, audit fees and expenses; supplies; costs of complying with all governmental regulations, rules, laws, ordinances and codes; cost, lease payment or depreciation of any equipment, improvements or facilities used in the operation or maintenance of the Common Areas or project areas; total compensation and benefits (including premiums for workers' compensation or any other insurance or other retirement or employee benefits, and including all costs incurred in providing such benefits) paid to or on behalf of employees involved in the performance of the work specified in this Section or employees otherwise providing services to tenants or customers of the Complex; public transit or car pooling facilities; management fees paid to independent contractors; reserve accounts established for the purchasing and/or replacement of equipment; community association and/or property owner's association dues and assessments which may be imposed upon Lessor by virtue of any recorded instrument affecting title to the Complex; plus a management fee not to exceed five percent (5%) of gross revenues. Common Area Costs shall also include, without limitation, the repair and replacement, resurfacing and repaving of any paved areas, curbs, gutters or other surfaces or areas within the Complex, the repair and replacement of any equipment or facilities located within or serving the Complex, and the cost of any capital repairs, replacements or improvements made by Lessor to the Complex ("Capital Costs"). However, certain Capital Costs (the "Restricted Capital Costs") shall be includable in Common Area Costs each year only to the extent of that fraction allocable to the year in question calculated by amortizing such Restricted Capital Costs over the reasonably useful life of the improvement resulting therefrom, as determined by Lessor, with interest on the unamortized balance at the higher of (i) tell percent (10%) per annum; or (ii) the interest rate as may have been paid by Lessor for the fluids borrowed for the purpose of performing the work for which the Restricted Capital Costs have been expended, but in no event to exceed the highest rate permissible by law. The Restricted Capital Costs subject to such amortization procedure are the following: (x) those costs for capital improvements to the Complex of a type which do not normally recur more frequently than every five (5) years in the normal course of operation and maintenance of facilities such as the Complex (specifically excluding painting of all or a portion of the Complex); (y) costs incurred for the purpose of reducing other operating expenses or utility costs, from which Lessee can expect a reduction in the amounts it would otherwise expend, or reimburse Lessor, and (z) expenditures by Lessor that are required by governmental law, 10 ordinance, regulation or mandate, including, without limitation, any "Environmental Laws" or "Wetlands Laws" (as such terms are defined in Article 19), which were not-applicable to the Complex at the time of the original constriction 8.5 ESTIMATED PAYMENTS. Lessor shall have the right, at its option, to estimate Lessee's pro rata share of Common Area Costs due in the future from Lessee and to collect from Lessee on a monthly or quarterly basis, as Lessor may elect, the amount of Lessee's estimated pro rata share of such costs. Lessor shall provide Lessee with a reconciliation of Lessee's account at least annually, and if such reconciliation shall indicate that Lessee's account is insufficient to satisfy Lessee's pro rata share of Common Area Costs for the period estimated, Lessee shall immediately pay to Lessor any deficiency. Any excess in such account indicated by the reconciliation shall be credited to Lessee's account to reduce the estimated payments for the next ensuing period. 8.6 REFUSE DISPOSAL. Lessee shall arrange and pay for Refuse Disposal service at the Leased Premises. Lessee shall pay Lessor, within ten (10)days of being billed therefore for the removal from the Common Areas, the Complex, or the Building of any refuse or rubbish which Lessee may have permitted to accumulate therein to an unreasonable extent. 9. ASSIGNMENT AND SUBLETTING 9.1 LEASE IS PERSONAL. The purpose of this Lease is to transfer possession of the Leased Premises to Lessee for Lessee's personal use in return for certain benefits, including rent, to be transferred to the Lessor. Lessee's right to assign or sublet as stated in this Article is subsidiary and incidental to the underlying purpose of this Lease. Lessee acknowledges and agrees that it has entered into this Lease in order to acquire the Leased Premises for its own personal use and not for the purpose of obtaining the right to convey the leasehold to others. 9.2 "TRANSFER OF THE LEASED PREMISES" DEFINED. The terms "Transfer of the Leased Premises" or "Transfer" as used herein shall include any assignment of all or any part of this Lease (including assignment by operation of law), subletting of all or any part of the Leased Premises or transfer of possession, or granting of the right of possession or contingent right of possession of all or any portion of the Leased Premises including, without limitations license, concessions mortgage, devise, hypothecation, agency, franchise or management agreement, or suffering any other person (the agents and servants of Lessee excepted) to occupy or rise the Leased Premises or any portion thereof. If Lessee is a corporation which is not deemed a public corporation, or is an unincorporated association or partnership, or Lessee consists of more 11 than one party, the transfer, assignment or hypothecation of any stock or interest in such corporation, association, partnership or ownership interest, in the aggregate in excess of twenty-five percent (25%) shall be deemed a Transfer of the Leased Premises. 9.3 NO TRANSFER WITHOUT CONSENT. Lessee shall not suffer a Transfer of the Leased Premises or any interest therein, or any part thereof, or any right or privilege appurtenant thereto without the prior written consent of Lessor, and a consent to one Transfer of the Leased Premises shall not be deemed to be a consent to any subsequent Transfer of the Leased Premises. Any Transfer of the Leased Premises without such consent shall (i) be voidable, and (ii) terminate this Lease, in either case, at the option of Lessor. 9.4 WHEN CONSENT GRANTED. (a) The consent of Lessor to a Transfer may not be unreasonably withheld, provided that it is agreed to be reasonable for Lessor to consider any of the following reasons, which list is not exclusive, in electing to consent or to deny consent: (i) Financial strength of the proposed transferee is not at least equal to that of Lessee at the time of execution of this Lease; (ii) proposed transferee whose occupation of the Leased Premises would cause a diminution in the reputation of the Complex or the other businesses located therein; (iii) A proposed transferee whose impact of the common facilities or the other occupants of the Complex would be disadvantageous; (iv) A proposed transferee whose rise presents a risk of violation of Article 19; (v) A proposed transferee whose occupancy will require a variation in the terms of this Lease (for example, a variation in the use clause) or which otherwise adversely affects any interest of Lessor; (vi) Lessee agrees that its personal business skills and philosophy were an important inducement to Lessor for entering into this Lease agreement and that Lessor may reasonably object to the transfer of the Leased Premises to another whose proposed use, while permitted by the use clause of this Lease, would involve a quality manner or type of business skills different from those of Lessee; (vii) That the validity of the Transfer is not conditioned on the conformity of the Lessee and transferee with all provisions of this Lease at the time of Transfer, including, 12 without limitations the requirement that there be no uncured notices of default under the terms of this Lease; or (viii) A proposed transferee who is or is likely to be, or whose business is or is likely to be, subject to compliance with additional laws or other governmental requirements beyond those to which Lessee or Lessee's business is subject. (b) Notwithstanding the foregoing, Lessee shall have the right, without the consent of Lessor, but upon prior written notice to Lessor, to assign this Lease to a company incorporated or to be incorporated by Lessee, provided that Lessee owns or beneficially controls all the issued and outstanding shares of capital stock of the company; further provided, however, that in the event that at any time following such assignment, Lessee wishes to sell, mortgage, devise, hypothecate or in any other manner whatsoever transfer any portion of the ownership or beneficial control of the issued and outstanding shares in the capital stock of such company, such transaction shall be deemed to constitute a Transfer and shall be subject to all of the provisions of this Article 9 with respect to a Transfer of the Premises including, by specific reference, the provisions of Section 9.8. 9.5 PROCEDURE FOR OBTAINING CONSENT. (a) Lessor need not commence its review of any proposed Transfer, or respond to any request by Lessee with respect to such, unless and until it has received from Lessee adequate descriptive information concerning the transferee, the business to be conducted by the transferee, the transferee's financial capacity, and such other information as may reasonably be required in order to form a prudent judgment as to the acceptability of the proposed Transfer, including, without limitation, the following: (i) The past two years' federal income tax returns of the proposed transferee (or, in the alternative, the past two years' audited annual balance sheets and profit and loss statements, certified correct by a Certified Public Accountant); (ii) Banking references of the proposed transferee; (iii) A resume of the business background and experience of the proposed transferee; (iv) At least five (5) business and three (3) personal references for the proposed transferee; (v) An executed copy of the instrument by which Lessee proposes to effectuate the Transfer, (vi) A certified statement, including the calculation, of the amount of unamortized cost of Lessee's leasehold improvements to the Leased Premises. 13 (b) Lessee shall reimburse Lessor as additional rent for Lessor's reasonable costs and attorneys' fees incurred in conjunction with the processing and documentation of any proposed Transfer of the Leased Premises, whether or not consent is granted. 9.6 RECAPTURE. (a) By written notice to Lessee (the "Termination Notice") within twenty (20) business days following submission to Lessor by Lessee of the information specified in Section 9.5, Lessor may terminate this Lease in the event of an assignment of this Lease or sublet of the entire Leased Premises, or terminate this Lease as to the portion of the Leased Premises to be sublet, if the sublet is to be of less than the entire Leased Premises. fit the event Lessor elects to terminate this Lease as to that portion of the Leased Premises to be sublet, an amendment to this Lease shall be executed whereby the description of the Leased Premises is restated and Lessee's obligations for rent and other charges are reduced in proportion to the reduction in Rentable Area of the Leased Premises caused thereby. For purposes hereof, the term "Rentable Area" of a floor shall mean all areas available or held for the exclusive use and occupancy of the occupants or future occupants of the Complex, measured from the inside finished surface of the dominant portion of the permanent outer Building walls, excluding stairs, elevator shafts, flues, pipe shafts, vertical ducts, and the like, and their enclosing walls, which serve more than one floor of the Building, but not stairs, dumbwaiters, lifts, and the like, exclusively serving a tenant occupying offices on more than one floor. No deductions shall be made for columns and projections necessary to the Building. For purposes hereof, the Rentable Area of all office or other space on a floor shall be computed by multiplying (a) the number of square feet computed by measuring to the finished surface of the office side of corridor and other permanent walls, to the center of partitions that separate the office from similar adjoining areas, and to the inside finished surface of the permanent outer Building walls ("Usable Area") by (b) that fraction the numerator of which is Rentable Area and the denominator of which is Usable Area. (b) In the event that Lessor terminates this Lease or terminates this Lease as to that portion of the Premises to be sublet, Lessor may, if it elects, enter into a new lease covering the Premises or the affected portion thereof with the intended assignee or sublessee on such terms as Lessor and such person may agree or enter into a new lease covering the Premises with any other person; in such event, Lessee shall not be entitled to any portion of the profit if any which Lessor may realize on account of such termination and reletting. From and after the date of such termination of this Lease, the parties shall have no further obligations to each other under this Lease except for matters occurring or obligations arising prior to the date of such termination. 9.7 REASONABLE RESTRICTION, The restrictions on Transfer described in this Article 9 are acknowledged by Lessee to be reasonable for all purposes, including, without limitation, the provisions of California Civil Code (the 14 "Code") Section 195 1.4(b)(2). Lessee expressly waives any rights which it might otherwise be deemed to possess pursuant to applicable law, including, without limitation, Section 1997.040 of the Code, to limit any remedy of Lessor pursuant to Section 1951.2 or 1951.4 of the Code by means of proof that enforcement of a restriction on use of the Leased Premises would be unreasonable. 9.8 EFFECT OF TRANSFER. If Lessor consents to a Transfer, the following conditions shall apply: (a) Each and every covenant, condition or obligation imposed upon Lessee by this Lease and each and every right, remedy or benefit afforded Lessor by this Lease shall not be impaired or diminished as a result of such transfer. (b) Lessee shall pay to Lessor on a monthly basis, eighty percent (80%) of the excess of any sum of money, or other economic consideration received by Lessee from the Transferee in such month (whether or not for a period longer than one month), including higher rent, bonuses, key money, or the like over the aggregate, of (i) the amortized portion of the reasonable expenses actually paid by Lessee to unrelated third parties for brokerage commissions, tenant improvements to the Premises, or design fees incurred as a direct consequence of the Transfer, and, (ii) the total sums which Lessee pays Lessor under this Lease in such month, or the prorated portion thereof if the Leased Premises transferred is less than the entire Leased Premises. The amount so derived shall be paid with Lessee's payment of Minimum Rent. The term "amortized portion" is that portion of the applicable expenses derived by dividing such expenses by the number of months in the original term of the Transfer transaction. (c) No Transfer, whether or not consent of Lessor is required hereunder, shall relieve Lessee of its primary obligation to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any person shall not be deemed to be a waiver by Lessor of any provision of this Lease or to be a consent to any Transfer of the Leased Premises. (d) If Lessor consents to a sublease, such sublease shall not extend beyond the expiration of the Term. (e) No Transfer shall be valid and no transferee shall take possession of the Leased Premises or any part thereof unless, within tell (10) days after the execution of the documentary evidence thereof, Lessee shall deliver to Lessor a duly executed duplicate original of the Transfer instrument in form satisfactory to Lessor which provides that (i) the transferee assumes lessee's obligations for the payment of rent and for the full and faithful observance and performance of the covenants, terms and conditions contained herein, (ii) such transferee will, at Lessor's election, attorn directly to Lessor in the event Lessee's Lease is terminated for any reason on the terms set forth in the instrument of transfer and (iii) such instrument of transfer contains such other assurances as Lessor reasonably deems necessary. 15 10. PROPERTY INSURANCE 10.1 USE OF PREMISES. No use shall be made or permitted to be made on the Leased Premises, nor acts done, which will increase the existing rate of insurance upon the Building in which the Leased Premises are located or upon any other Building in the Complex or cause the cancellation of any insurance policy covering the Building, or any part thereof, nor shall Lessee sell, or permit to be kept, used or sold, in or about the Leased Premises, any article which may be prohibited by the standard form of "All Risk" fire insurance policies. Lessee shall, at its sole cost and expense, comply with any and all requirements pertaining to the Leased Premises, of any insurance organization or company, necessary for the maintenance of reasonable property damage and commercial general liability insurance, covering the Leased Premises, the Building, or the Complex. 10.2 INCREASE IN PREMIUMS. Lessee agrees to pay to Lessor, as additional rent, any increase in premiums on policies which may he carried by Lessor on the Leased Premises, the Building or the Complex, or any blanket policies which include the Building or Complex, covering damage thereto and loss of rent caused by fire and other perils above the rates for the least hazardous type of occupancy for industrial warehousing, office and distribution operations. Lessee further agrees to pay Lessor, as additional rent, any increases in such premiums resulting from the nature of Lessee's occupancy or any act or omission of Lessee. All payments of additional rent by Lessee to Lessor pursuant to this Section 10.2 shall be made within ten (10) days after receipt by Lessee of Lessor's billing therefor. 10.3 PRO RATA SHARE OF PREMIUMS. (a) Lessee shall pay to Lessor, during the Term hereof, as additional rent, its pro rata share of all increases in the insurance premiums for any property insurance carried by Lessor covering the Complex (the "Complex Insurance Premium"), over and above the Base Insurance Cost specified in 1.6(B) hereof, irrespective of the nature or cause of such increase. Such pro rata share is defined as that fraction of the insurance premiums the numerator of which is the total square footage in the Leased Premises and the denominator of which is the total square footage in all premises to which the Complex Insurance Premium is applicable. In the event that the property insurance carried by Lessor covering the Complex is a blanket policy in which other properties not related to the Complex are included, the Complex Insurance Premium shall be calculated as that portion of such blanket policy insurance premium which, in Lessor's good faith judgment, is properly allocable to the Complex. The sum due under this subsection shall be in addition to that which may be due under the previous Section of this Lease. (b) Lessee shall pay any such premium portion to Lessor within ten (10) days after receipt by Lessee of Lessor's billing therefore. 16 10.4 ESTIMATED PAYMENTS. Lessor may, at its option, estimate the amount of insurance premiums for property insurance to be due in the future from Lessee and collect from Lessee on a monthly or quarterly basis, at Lessor's option, the amount of Lessee's estimated insurance premium obligation. Prior to March 1 of each year, Lessor shall provide Lessee with a reconciliation of Lessee's account along with a billing for any shortage in the event of a deficiency or statement for credit applicable to the next ensuing insurance premium payments, if an overpayment has been made by Lessee. 10.5 PERSONAL PROPERTY INSURANCE. Lessee shall maintain in full force and effect on all of its fixtures, furniture, equipment and other business personal property in the Leased Premises a policy or policies providing protection against any peril included in the classification "All Risk" to the extent of at least ninety percent (90%) of their replacement cost, or that percentage of the replacement cost required to negate the effect of a coinsurance provision, whichever is greater. No such policy shall have a deductible in a greater amount than One Thousand Dollars ($1,000.00). Lessee shall also insure in the same manner the physical value of all its leasehold improvements and alterations in the Leased Premises. During the Term, the proceeds from any such policy or policies of insurance shall be used for the repair or replacement of the fixtures, equipment, and leasehold improvements so insured. Lessor shall have no interest in said insurance, and will sign all documents necessary or proper in connection with the settlement of any claim or loss by Lessee. Lessee shall also maintain business interruption insurance and insurance for all plate glass upon the Leased Premises. All insurance specified in this Section 10.5 to be maintained by Lessee shall be maintained by Lessee at its sole cost. 11. LIABILITY INSURANCE 11.1 LESSEE'S INSURANCE. Lessee shall, at Lessee's expense, obtain and keep in force during the Term, a commercial general liability insurance policy insuring Lessee against the risks of bodily injury and property damage, personal injury, contractual liability, completed operations, products liability, host liquor liability, and owned and non-owned automobile liability arising out of the ownership, rise, occupancy or maintenance of the Leased Premises and all areas appurtenant thereto. Such insurance shall be a combined single limit policy in an amount not less than ONE MILLION DOLLARS ($1,000,000.00) per occurrence with a TWO MILLION DOLLAR ($2,000,000.00) annual aggregate; and an umbrella policy of THREE MILLION DOLLARS ($3,000,000.00) any one occurrence. Lessor and any lender or other party in interest designated by Lessor shall be named as additional insureds. The policy shall contain cross liability endorsements and shall insure performance by Lessee of the indemnity provisions of this Lease; shall be primary, not contributing with, and not in excess of coverage which Lessor may carry; shall state that Lessor is entitled to recovery for the negligence of Lessee even though Lessor is named as all additional insured; shall provide for severability of interest; shall 17 provide that an act or omission of one of the insured or additional insureds which would void or otherwise reduce coverage shall not void or reduce coverages as to the other insured or additional insured; and shall afford coverage after the Term (by separate policy or extension if necessary) for all claims based on acts, omissions, injury or damage which occurred or arose (or the onset of which occurred or arose) in whole or in part during the Term. The limits of said insurance shall not limit any liability of Lessee hereunder. Not more frequently than every three (3) years, if, in the reasonable opinion of Lessor, the amount of liability insurance required hereunder is not adequate, Lessee shall promptly increase said insurance coverage as required by Lessor. 11.2 WORKERS' COMPENSATION INSURANCE. Lessee shall carry Workers' Compensation insurance as required by law, including all employers' liability endorsement. 11.3 RENT LOSS/BUSINESS INTERRUPTION INSURANCE. Lessee shall carry Rental Loss/Business Interruption insurance covering those risks referred to in Section 11.1 in an amount equal to all Rent payable under this Lease for a period of twelve (12) months at the their current rate of charges. 12. INSURANCE POLICY REQUIREMENTS 12.1 GENERAL REQUIREMENTS. All insurance policies required to be carried by Lessee hereunder shall conform to the following requirements: (a) The insurer in each case shall carry a designation in "Best's Insurance Reports" as issued from time to time throughout the Term as follows: Policyholders' rating of A; financial rating of not less than VII; (b) The insurer shall be qualified to do business in the state in which the Leased Premises are located; (c) The policy shall be in a form and include such endorsements as are acceptable to Lessor; (d) Certificates of insurance shall be delivered to Lessor at commencement of the Term and certificates of renewal at least thirty (30) days prior to the expiration of each policy; (e) Each policy shall require that Lessor be notified in writing by the insurer at least thirty (30) days prior to any cancellation or expiration of such policy, or any reduction in the amounts of insurance carried. 18 13. LESSEE INSURANCE DEFAULT 13.1 RIGHTS OF LESSOR. In the event that Lessee fails to obtain any insurance required of it under the terms of this Lease, Lessor may, at its option, but is not obligated to, obtain such insurance on behalf of Lessee and bill Lessee, as additional rent, for the cost thereof. Payment shall be due within ten (10) days of receipt of the billing therefor by Lessee. 14. INDEMNIFICATION, WAIVER OF CLAIMS AND SUBROGATION 14.1 INTENT AND PURPOSE. This Article 14 is written and agreed to in respect of the intent of the parties to assign the risk of loss, whether resulting from negligence of the parties or otherwise, to the party who is obligated hereunder to cover the risk of shelf loss with insurance. Thus, the indemnity and waiver of claims provisions of this Lease have as their object, so long as such object is not in violation of public policy, the assignment of risk for a particular casualty to the party carrying the insurance for such risk, without respect to the causation thereof. 14.2 WAIVER OF SUBROGATION. Lessor and Lessee release each other, and their respective authorized representatives, from any claims for damage to the Leased Premises and the Building and other improvements in which the Leased Premises are located, and to the furniture, fixtures, and other business personal property, Lessee's improvements and alterations of either Lessor or Lessee, in or on the Leased Premises and the Building and other improvements in which the Leased Premises are located, including loss of income, that are caused by or result from risks insured or required under the terms of this Lease to be insured against under any property insurance policies carried or to be carried by either of the parties. 14.3 FORM OF POLICY. Each party shall cause each such insurance policy obtained by it to provide that the insurance company waives all rights of recovery by way of subrogation against either party in connection with any damage covered by such policy. Neither party shall be liable to the other for any damage caused by any peril included within the classification "All Risk" which is insured against under any property insurance policy carried under the terms of this Lease. 19 14.4 INDEMNITY. Lessee, as a material part of the consideration to be rendered to Lessor, shall indemnify, defend, protect and hold harmless Lessor against all actions, claims, demands, damages, liabilities, losses, penalties, or expenses of any kind which may be brought or imposed upon Lessor or which Lessor may pay or incur by reason of injury to person or property or business, from whatever cause, all or in any way connected with the acts and emissions of Lessee, and the condition or use of the Leased Premises, or the improvements or personal property therein or thereon, including without limitation any liability or injury to the person or property or business of Lessee, its agents, officers, employees or invitees. Lessee agrees to indemnify, defend and protect Lessor and hold it harmless from any and all liability, loss, cost or obligation on account of, or arising out of, any such injury or loss however occurring, including breach of the provisions of this Lease and the negligence of the parties hereto. Nothing contained herein shall obligate Lessee to indemnity Lessor against its own sole or gross negligence or willful acts, for which Lessor shall indemnity Lessee. 14.5 DEFENSE OF CLAIMS. In the event any action, suit or proceeding is brought against Lessor by reason of any such occurrence, Lessee, upon Lessor's request, will at Lessee's expense resist and defend such action, suit or proceeding, or cause the same to be resisted and defended by counsel designated either by Lessee or by the insurer whose policy covers the occurrence and in either case approved by Lessor. The obligations of Lessee under this Section arising by reason of any occurrence taking place during the Term shall survive any termination of this Lease. 14.6 WAIVER OF CLAIMS. Lessee, as a material part of the consideration to be rendered to Lessor, hereby waives all claims against Lessor for damages or injury, as described below, from any cause arising at any time, including breach of the provisions of this Lease and the negligence of the parties hereto: (a) damages to goods, wares, merchandise and loss of business in, upon or about the Leased Premises and injury to Lessee, its agents, employees, invitees or third persons, in, upon, or about the Leased Premises; and (b) (notwithstanding anything to the contrary contained in this Lease, including, without limitation, the definition of "Common Area Costs" in Section 8.4, which includes "policing") damages to goods, wares, merchandise and loss of business in, upon or about the Leased Premises or the Complex, and injury to Lessee, its agents, employees, invites or third persons in, upon or about the Leased Premises or the Complex, where such damage or injury results from Lessor's failure to police or provide security for the Complex or Lessor's negligence in connection therewith. Lessee expressly acknowledges and agrees that the provisions of Section 19.6(b) below apply fully with respect to the matters waived pursuant to this Section 14.6, and, for such purpose, the term 20 "Released Matters," as used in Section 19.6(b), shall be deemed to include the matters waived pursuant to this Section 14.6. 14.7 REFERENCES. Wherever int his Article the term Lessor or Lessee is used and such party is to receive the benefit of a provision contained in this Article, such term shall refer not only to that party but also to its officers, directors, shareholders, employees, partners, contractors, agents and mortgagees or other lienholders. 15. DESTRUCTION 15.1 RIGHTS OF TERMINATION. In the event the Leased Premises suffers (a) an uninsured property loss (as hereinafter defined) or (b) a property loss which cannot be repaired within one hundred twenty (120) days from the date of destruction under the laws and regulations of state, federal, county or municipal authorities, or other authorities with jurisdiction, Lessor may terminate this Lease as at the date of the damage upon written notice to Lessee following the property loss. In the event of a property loss to the Leased Premises which cannot be repaired within one hundred ninety five (195) days of the occurrence thereof, Lessee shall have the right to terminate the Lease by written notice to Lessor within twenty (20) days following notice from Lessor that the time for restoration shall exceed one hundred ninety five (195) days. For purposes of this Lease, the term "uninsured property loss" shall mean any loss arising from a peril not covered by the standard form of "All Risk" property insurance policy. 15.2 REPAIRS In the event of a property loss which may be repaired within one hundred twenty (120) days from the date of the damage, or, in the alternative, in the event the parties do not elect to terminate this Lease under the terms of Section 15.1 above, then this Lease shall continue in full force and effect and Lessor shall forthwith undertake to make such repairs to reconstitute the Leased Premises to as near the condition as existed prior to the property loss as practicable. Such partial destruction shall in no way annul or void this Lease except that Lessee shall be entitled to a proportionate reduction of Minimum Rent following the property loss and until the time the Leased Premises are restored. Such reduction shall be an amount which reflects the degree of interference with lessee's business. So long as Lessee conducts its business in the Leased Premises, there shall be no abatement until the parties agree on the amount thereof. If the parties cannot agree within forty-five (45) days of the property loss, the matter shall be submitted to arbitration under the rules of the American Arbitration Association. Upon the resolution of the dispute, the settlement shall be retroactive and Lessor shall within ten (10) days thereafter refund to Lessee any sums due in respect of the reduced rental from the date of the property loss. Lessor's obligations to restore shall in no way include any construction originally performed by lessee or subsequently undertaken by Lessee, but shall include solely that property constructed by Lessor prior to commencement of the Term. 21 15.3 REPAIR COSTS. The cost of any repairs to be made by Lessor, pursuant to Section 15.2 of this Lease, shall be paid by Lessor utilizing available insurance proceeds. Lessee shall reimburse Lessor upon completion of the repairs for any deductible for which no insurance proceeds will be obtained under Lessor's insurance policy, or if other premises are also repaired, a pro rata share based on total costs of repair equitably apportioned to the Leased Premises. Lessee shall, however, not be responsible to pay any deductible or its share of any deductible to the extent that Lessee's payment would be in excess of $ $10,000 if Lessee's consent has not been received by Lessor, unless such denial of consent by Lessee is unreasonable. 15.4 WAIVER. Lessee hereby waives all statutory or common law rights of termination in respect to any partial destruction or property loss which Lessor is obligated to repair or may elect to repair under the terms of this Article. Further, in event of a property loss occurring during the last two (2) years of the original Term hereof or of any extension, Lessor need not undertake any repairs and may cancel this Lease unless Lessee has the right under the terms of this Lease to extend the Term for an additional period of at least five (5) years and does so within thirty (30) days of the date of the property loss. 15.5 LESSOR'S ELECTION. In the event that the Complex or Building in which the Leased Premises is situated be destroyed to the extent of not less than thirty-three and one-third percent (33-1/3%) of the replacement cost thereof, Lessor may elect to terminate this Lease, whether the Leased Premises be injured or not, in the same manner as in Section 15.1 above. At all events, a total destruction of the Complex of which the Leased Premises form a part, or the Leased Premises itself, shall terminate this Lease. 16. ACCORD AND SATISFACTION 16.1 ACCEPTANCE OF PAYMENT. No payment by Lessee or receipt by Lessor of a lesser amount of Minimum Rent or any other sum due hereunder shall be deemed to be other than on account of the earliest due rent or payment, nor shall any endorsement or statement on any check or any letter accompanying any such check or payment be deemed an accord and satisfaction, and Lessor may accept such check or payment without prejudice to Lessor's right to recover the balance of such rent or payment or pursue any other remedy available in this Lease, at law or in equity. Lessor may accept any partial payment from Lessee without invalidation of any contractual notice required to be given therein (to the extent such contractual notice is required) and without invalidation of any notice required to be given pursuant to California Code of Civil Procedure Section 1161, et seq., or of any successor statute thereto. 22 17. SECURITY DEPOSIT 17.1 PAYMENT ON LEASE EXECUTION. Lessee shall pay Lessor upon execution hereof the sum specified in Section 1.7. This sum is designated as a Security Deposit and shall remain the sole and separate property of Lessor until actually repaid to Lessee (or at Lessor's option the last assignee, if any, of Lessee's interest hereunder), said sum not being earned by Lessee until all conditions precedent for its payment to Lessee have been fulfilled. As this sum both in equity and at law is Lessor's separate property, Lessor shall not be required to (1) keep said deposit separate from its general accounts, or (2) pay interest, or other increment for its use. If Lessee fails to pay rent or other charges when due hereunder, or otherwise defaults with respect to any provision of this Lease, inclining and not limited to Lessee's obligation to restore or clean the Leased Premises following vacation thereof, Lessee, at Lessor's election, shall be deemed not to have earned the right to repayment of the Security Deposit, or those portions thereof used or applied by Lessor for the payment of any rent or other charges in default, or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. Lessor may retain such portion of the Security Deposit as it reasonably deems necessary to restore or clean the Leased Premises following vacation by Lessee. The Security Deposit is not to be characterized as rent until and unless so applied in respect of a default by Lessee. 17.2 RESTORATION OF DEPOSIT. If Lessor elects to use or apply all or any portion of the Security Deposit as provided in Section 17. 1, Lessee shall within ten (10) days after written demand therefor pay to Lessor in cash, an amount equal to that portion of the Security Deposit used or applied by Lessor, and Lessee's failure to so do shall be a material breach of this Lease. The ten (10) day notice specified in the preceding sentence shall insofar as not prohibited by law, constitute full satisfaction of notice of default provisions required by law or ordinance. 18. USE 18.1 PERMITTED USE. The Leased Premises may be used and occupied only for the purposes specified in Section 1.8 hereof, and for no other purpose or purposes. Lessee shall promptly comply with all laws, ordinances, orders and regulations affecting the Leased Premises, their cleanliness, safety, occupation and rise. 18.2 HAZARDOUS ACTIVITIES. Lessee shall not engage in any activities or permit to be kept, used, or sold in or about the Leased Premises, any article which may be prohibited by the standard form of fire insurance policies. 23 Lessee shall, at its sole cost and expense, comply with any and all requirements, pertaining to the Leased Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering the Building and appurtenances. 19. COMPLIANCE WITH LAWS AND REGULATIONS 19.1 LESSEE'S OBLIGATIONS. Lessee, shall, at its sole cost and expense, comply with all of the requirements of all municipal, state and federal authorities now in force, or which may hereafter be in force, pertaining to the Leased Premises, and shall faithfully observe in the rise of the Leased premises all municipal ordinances and state and federal statutes and regulations now in force or which may hereafter be in force, including, without limitation, "Environmental Laws" (as hereinafter defined), and the Americans with Disabilities Act, 42 U.S.C. ss.ss. 12101-12213 (and any rules, regulations, restrictions, guidelines, requirements or publications promulgated or published pursuant thereto, collectively herein referred to as the "ADA"), whether or not any of the foregoing were foreseeable or unforeseeable at the time of the execution of this Lease. Lessee's obligation to comply with and observe such requirements, ordinances, statutes and regulations shall apply to the extent that such requirements, ordinances, statutes and regulations regulate or relate to Lessee's particular use or occupancy of the Leased Premises or to any employee, vendor or invitee of Lessee, and regardless of the cost thereof. The judgment of any court of competent jurisdiction, or the admission of Lessee in any action or proceeding against Lessee, whether Lessor be a party thereto or not, that any such requirement, ordinance, statute or regulation pertaining to the Leased Premises has been violated, shall be conclusive of that fact as between Lessor and Lessee. Within five (5) days after receipt of notice or knowledge of any violation or alleged violation of any Environmental Law(s) and/or the ADA pertaining to the Complex, any governmental or regulatory proceedings, investigations, sanctions and/or actions threatened or commenced with respect to any such violation or alleged violation, and any claim made or commenced with respect to such violation or alleged violation, Lessee share notify Lessor thereof and provide Lessor with copies of any written notices or information in Lessee's possession. 19.2 CONDITION OF LEASED PREMISES. Lessee hereby accepts the Leased Premises in the condition existing as of the date of occupancy, subject to the provisions of Exhibit C hereto and to all applicable zoning, municipal, county and state laws, ordinances, rules, regulations, orders, restrictions of record, and requirements in effect during the Term or any part of the Term hereof regulating the Leased Premises, and without representation, warranty or covenant by Lessor, express or implied, as to the condition, habitability or safety of the Leased Premises, the suitability or fitness thereof for their intended purposes, or any other matter, except as specifically set forth therein. 19.3 HAZARDOUS MATERIALS. (a) Hazardous Materials Defined. As used herein, the Term "Hazardous Materials" shall mean any wastes, materials or substances (whether in the form of liquids, solids or gases, and whether or not air-borne), which are or are deemed to be pollutants or contaminants, or which are or are deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or 24 injurious, or which present a risk, to public health or to the environment, or which are or may become regulated by or under the authority of any applicable local, state or federal laws, judgments, ordinances, orders, rules, regulations, codes or other governmental restrictions, guidelines or requirements, any amendments or successor(s) thereto, replacements thereof or publications promulgated pursuant thereto (collectively "Environmental Laws"), including, without limitation, any waste, material or substance which is: (i) defined as "hazardous waste," "extremely hazardous waste," or "restricted hazardous waste" under Sections 25115, 25117 or 25122.7, or listed pursuant to Section 25 140, of the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law); (ii) defined as a "hazardous substance" under Section 25316 of the California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance Account Act); (iii) defined as a "hazardous material", "hazardous substance," or "hazardous waste" under Section 25501 of the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory); (iv) defined as a "hazardous substance" under Section 25281 of the California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances); (v) defined as a "waste" or "hazardous substance" under Section 13050 of the California Water Code, Division 7, Chapter 2 (Porter-Cologne Water Quality Control Act); (vi) listed as a chemical known to the State of California to cause cancer or reproductive toxicity pursuant to Section 25249.8 of the California Health and Safety Code, Division 20, Chapter 6.6 (Safe Drinking Water and Toxic Enforcement Act of 1986); (vii) defined as a "hazardous substance" or "pollutant or contaminant" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601 et seq.; (viii) listed as an "extremely hazardous substance," "hazardous chemical," or "toxic chemical" pursuant to the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. ss. 11001 et seq.; (ix) listed as a "hazardous substance" in the United States Department of Transportation Table, 49 C.F.R. 172.101 and amendments thereto, or by the Environmental Protection Agency (or any successor agency) in 40 C.F.R. Part 302 and amendments thereto; 25 (x) defined, listed or designated by regulations promulgated pursuant to any Environmental Law; or (xi) any of the following: a pesticide; a flammable explosive; petroleum, including crude on or any fraction thereof; asbestos or all asbestos-containing material; a polychlorinated biphenyl; a radioactive material; or urea formaldehyde. In addition to the foregoing, the term "Environmental Laws" shall be deemed to include, without limitation, local, state and federal laws, judgments, ordinances, orders, rules, regulations, codes and other governmental restrictions, guidelines and requirements, any amendments and successors thereto, replacements thereof and publications promulgated pursuant thereto, which deal with or otherwise in any manner relate to, air or water quality, air emissions, soil or ground conditions or other environmental matters of any kind. (b) Use, etc., of Hazardous Materials. Lessee agrees that during the Term, there shall be no use, presence, disposal, storage, generation, leakage, treatment, manufacture, import, handling, processing, release, or threatened release of Hazardous Materials on, from or under the Leased Premises by Lessee, its employees, agents, representatives, contractors, invitees, subtenants and/or assigns (collectively, "Lessee's Parties"). Lessee shall not be entitled to install any tanks under, on or about the Leased Premises for the storage of Hazardous Materials without the express written consent of Lessor, which may be given or withheld in Lessor's sole arbitrary judgment. The use, presence, disposal, storage, generation, leakage, treatment, manufacture, import, handling, processing, release or threatened release of Hazardous Materials by Lessee's Parties are sometimes hereinafter individually or collectively referred to as "Hazardous Use." (c) Hazardous Materials Report; When Required, In the event that Lessor consents in writing to Lessee's Hazardous Use in the Leased Premises, Lessee shall submit to Lessor a written report with respect to Hazardous Materials ("Report") in the form prescribed in subparagraph (d) below on the following dates: (i) Within ten (10) days prior to the commencement of any Hazardous Use; (ii) Within ten (10) days after each anniversary of any Hazardous Use; (iii) At any time within ten (10) days after written request by Lessor, and (iv) At any time when there has been or is planned any condition which constitutes or would constitute a change in the information submitted in the most recent Report, including any notice of violation as referred to in subparagraph (d)(vii) below. (d) Hazardous Materials Report; Contents. The Report shall contain, without limitation, the following information: 26 (i) Whether on the date of the Report and (if applicable) during the period since the last Report there has been any Hazardous Use on, from or under the Leased Premises. (ii) If there was such Hazardous Use, the exact identify of the Hazardous Materials, the dates upon which such materials were brought upon the Leased Premises, the dates upon which the Hazardous Materials were removed therefrom, and the quantity, location, use and purpose thereof. (iii) If there was such Hazardous Use, any governmental permits maintained by Lessee with respect to such Hazardous Materials, the issuing agency, original date of issue, renewal dates (if any) and expiration date. Copies of any such permits and applications therefor shall be attached, (iv) If there was such Hazardous Use, any governmental reporting or inspection requirements with respect to such Hazardous Materials, the governmental agency to which reports are made and/or which conducts inspections, and the dates of all such reports and/or inspections (if applicable) since the last Report. Copies of any such Reports shall be attached. (v) If there was such Hazardous Use, identification of any operation or business plan prepared for any government agency with respect to Hazardous Use. (vi) Any liability insurance carried by Lessee with respect to Hazardous Materials, the insurer, policy number, date of issue, coverage amounts, and date of expiration. Copies of any such policies or certificates of coverage shall be attached. (vii) Any notices of violation of Environmental Laws, written or oral, received by Lessee from any governmental agency since the last Report, the date, name of agency, and description of violation. Copies of any such written notices shall be attached. (viii) Any knowledge, information or communication which Lessee has acquired or received relating to (x) any enforcement, cleanup, removal or other governmental or regulatory action threatened or commenced against Lessee or with respect to the Leased Premises pursuant to any Environmental Laws; (y) any claim made or threatened by any person or entity against Lessee or the Leased Premises on account of any alleged loss or injury claimed to result from any alleged Hazardous Use on or about the Leased Premises; or (z) any report, notice or complaint made to or filed with any governmental agency concerning any Hazardous Use on or about the Leased Premises. The Report shall be accompanied by copies of any such claim, report, complaint, notice, warning or other communication that is in the possession of or is available to Lessee. (ix) Such other pertinent information or documents as are requested by Lessor in writing. 27 (e) Release of Hazardous Materials; Notification and Cleanup. If at any time during the Term Lessee knows or believes that (i) any Hazardous Materials have been or may be released onto the Leased Premises or the Complex by Lessee's Parties, or (ii) any Hazardous Materials brought onto the Leased Premises or the Complex by or for the benefit of Lessee's Parties have been or may be released onto the Leased Premises or the Complex by ally party whatsoever, then Lessee shall immediately, either prior to the release or following the discovery thereof by Lessee, give verbal and follow-up written notice of that condition to Lessor. Lessee covenants to investigate, clean up and otherwise remediate any such release of Hazardous Materials at Lessee's cost and expense; such investigation, clean up and remediation shall be performed only after Lessee has obtained Lessor's written consent, which shall not be unreasonably withheld; provided, however, that Lessee shall be cited to respond immediately to an emergency without first obtaining Lessor's written consent. All cleanup and remediation shall be done in compliance with Environmental Laws and to the reasonable satisfaction of Lessor. Notwithstanding the foregoing, whether or not such work is prompted by the foregoing notice from Lessee or is undertaken by Lessor for any other reason whatsoever, Lessor shall have the right, but not the obligation, in Lessor's sole and absolute discretion, exercisable by written notice to Lessee at any time, to undertake within or outside the Leased Premises all or any portion of any such investigation, clean-up or remediation with respect to Hazardous Materials (or, once having undertaken any of such work, to cease same, in which case Lessee shall perform the work), all at Lessee's cost and expense, which shall be paid by Lessee as additional rent within ten (10) days after receipt of written request therefor by Lessor (and which Lessor may require to be paid prior to commencement of any work by Lessor). No such work by Lessor shall create any liability on the part of Lessor to Lessee or any other party in connection with such Hazardous Materials or constitute an admission by Lessor of any responsibility with respect to such hazardous Materials. It is the express intention of the parties hereto that Lessee shall be liable under this Section 19.3(e) for any and all conditions covered hereby which were caused or created by (a) any Hazardous Materials brought onto the Leased Premises or the Complex by or for the benefit of Lessee's Parties, whether released by Lessee's Parties or by third parties, or (b) Lessee's Parties. Lessee shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to any (1) any Hazardous Materials brought onto the Leased Premises or the Complex by or for the benefit of Lessee's Parties, or (2) any Hazardous Materials released onto the Leased Premises or the Complex by Lessee's Parties, without first (A) notifying Lessor of Lessee's intention to do so and affording Lessor the opportunity to participate in any such proceedings, and (B) obtaining Lessor's written consent. (f) INSPECTION AND TESTING BY LESSOR. Lessor shall have the right at all times during the Term to (i) inspect the Leased Premises, as well as Lessee's books and records relating to Hazardous Materials, and to (ii) conduct tests and investigations to determine whether Lessee is in compliance with the provisions of this Section. Except in case of emergency, Lessor shall give reasonable notice to Lessee before conducting any inspections, tests, or investigations. The cost of all such inspections, tests and investigations shall be borne by Lessee, if such test or inspections reveal a violation by Lessee's Parties of the provisions of this Article 19. Neither any action nor inaction on the part of Lessor pursuant to this Section 19.3(f) shall be deemed in any way to release Lessee from, 28 or in any way modify or alter, Lessee's responsibilities, obligations, and/or liabilities incurred pursuant to Section 19.3 hereof. 19.4 INDEMNITY. Lessee shall indemnify, hold harmless, and, at Lessor's option (with such attorneys as Lessor may approve in advance and in writing), defend Lessor and Lessor's officers, directors, shareholders, trustees, partners, employees, contractors, agents and mortgagees or other lien holders, from and against any and all claims, demands, expenses, actions, judgments, damages (whether consequential, direct or indirect, known or unknown, foreseen or unforeseen), penalties, fines, liabilities, losses of every kind and nature (including, without limitation, property damage, diminution in value of Lessor's interest in the Leased Premises or the Complex, damages for the loss or restriction on use of any space or amenity within the Leased Premises or the Complex, damages arising from any adverse impact on marketing space in the Complex, sum paid in settlement of claims and any costs and expenses associated with injury, illness or death to or of any person), suits, administrative proceedings, costs and fees, including, but not limited to, attorneys' and consultants' fees and expenses, and the costs of cleanup, remediation, removal and restoration (all of the foregoing being hereinafter sometimes collectively referred to as "Losses"), arising from or related to (i) any violation or alleged violation of any of the requirements, ordinances, statutes, regulations or other laws referred to in this Article by Lessee's Parties, including, without limitations the Environmental Laws and ADA, or (ii) any breach of the provisions of this Article by Lessee's parties, or (iii) any Hazardous Use on, about or from the Leased Premises by Lessee's Parties, or (iv) any release of Hazardous Materials brought onto the Leased Premises or the Complex by or for the benefit of Lessee's Parties, whether released by Lessee or by third parties unrelated to Lessee. Lessee warrants that it is leasing the Leased Premises "as-is, where-is," that it has thoroughly inspected the Leased Premises prior to execution of this Lease, and that it intends to act as an insurer with respect to any Hazardous Use on, under or about the Leased Premises by Lessee's Parties. 19.5 INDOOR AIR QUALITY. To prevent the generation, growth or deposit of any mold, mildew, bacillus, virus, pollen or other microorganism (collectively, "Biologicals") and the deposit, release or circulation of any indoor contaminants, including, but not limited to, emissions from paint, carpet and drapery treatments, cleaning, maintenance and construction materials and supplies, pesticides, pressed wood products, insulation, tobacco and other materials and products (collectively with Biologicals, "Contaminants"), that could adversely affect the health, safety or welfare of any tenant, employee, or other occupant of the Complex or their invitees (each, an "Occupant"), Lessee shall, at Lessee's sole cost and expense, at all times during the Term (i) maintain, operate and repair the HVAC system servicing the Leased Premises (to the extent that Lessee is otherwise obligated to perform such maintenance, operation and repair pursuant to this Lease) in a manner consistent with preventing or minimizing the generation, growth, circulation, release or deposit of any Contaminants, (ii) maintain the humidity level and the air exchange rate within the Leased Premises (to the extent that Lessee has control thereof) at a level recommended to prevent or minimize the growth of any Biologicals and the circulation of any other Contaminants, (iii) maintain, operate and repair the Leased Premises in such a manner to prevent or minimize the accumulation of stagnant water all moisture in planters, kitchen appliances and vessels, carpeting, insulation, water coolers and any other locations where stagnant water and moisture could accumulate, and (iv) otherwise maintain, operate 29 and repair the Leased Premises to prevent the generation, growth, deposit, release or circulation of any Contaminants. If any governments entity or any Occupant alleges that health, safety or welfare has been or could be adversely affected by any such Contaminants, Lessee shall notify Lessor in writing within twenty-four (24) hours of the time the allegation is made. Lessor may then elect to engage the services of an industrial hygiene testing laboratory (or alternatively or concurrently require Lessee to do the same) to determine whether the cause of any alleged adverse health effect is or could be attributable to any Contaminants present within the Leased Premises. Lessee shall be responsible for all such testing costs and for any consequential damages and costs (including, without limitations any third-party claims, loss of rental, remediation, removal and/or abatement costs, and increases in insurance premiums) resulting from Lessee's failure to comply in whole or in part with the terms of this Section 19.5. The indemnity set forth in Section 19.4 above shall apply to Lessee's failure to comply with any of the terms of this Section. 19.6 RELEASE AND ASSUMPTION OF RISK. (a) Lessee, for itself, and its officers, directors, shareholders, partners, agents, contractors, attorneys, brokers, servants, employees, sublessee, lessees, invitees, concessionaires, licensees and representatives (hereinafter referred to as "Releasors"), hereby waives, releases, acquits and forever discharges Lessor and its officers, directors, trustees, shareholders, partners, agents, contractors, attorneys, brokers, servants, employees, lessees, invitees, licensees and representatives (hereinafter referred to as "Releasees") of and from any and all Losses, which are in any way connected with, based upon, related to or arising out of (i) any Hazardous Use or Hazardous Materials on or about the Leased Premises or the Complex, (ii) any violation by or relating to the Leased Premises or the Complex (or the ownership, use, condition, occupancy or operation thereof), or by the Releasors or any other persons or entities, of any Environmental or Wetlands Laws affecting the Leased Premises or the Complex, or (iii) any investigation, inquiry, order, hearing, action or other proceeding by or before any governmental agency or any court in connection with any of the matters referred to in clauses (i) or (ii) above (collectively, the "Released Matters"), except to the extent caused by the gross negligence or wilful misconduct of the Releasees. Releasors hereby expressly assume any and all risk of Losses based on or arising out of or pertaining to the Released Matters. (b) Lessee agrees, represents and warrants that the Released Matters are not limited to matters which are known, disclosed or foreseeable, and Lessee waives any and all rights and benefits which are conferred upon Lessee by virtue of the provisions of Section 1542 of the California Civil Code, which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED THIS SETTLEMENT WITH THE DEBTOR. Lessee agrees, represents and warrants that it is familiar with, has read, understands, and has consulted legal counsel of its choosing with respect to California Civil Code Section 1542 and Lessee 30 realizes and acknowledges that factual matters now unknown to it may have given, or may hereinafter give, rise to Losses which are presently unknown, unanticipated and unsuspected. Lessee further agrees, represents and warrants that the provisions of this Section 19.6 have been negotiated and agreed upon in light of that realization and that Lessee nevertheless hereby intends to release, discharge and acquit the Releasees from any such unknown Losses which are in any way related to this Lease or the Complex. 20. UTILITIES 20.1 PAYMENT BY LESSEE. Lessee, from the time it first enters the Leased Premises for the purpose of setting fixtures, or from the commencement of this Lease, whichever date shall first occur, and throughout the Term, shall pay all charges including connection fees for water, gas, heat, sewer, power, telephone services and any other utility supplied to or consumed in or on the Leased Premises. Lessee shall not allow refuse, garbage or trash to accumulate outside of the Leased Premises except on the day of scheduled scavenger pick-tip services, and then only in areas designated for that purpose by Lessor. Lessor shall not be responsible or liable for any interruption in utility services, nor shall such interruption affect the continuation or validity of this Lease. Lessor does not warrant that any of the utilities supplied to the Leased Premises will be free of interruption or that any of the utility systems serving the Complex will be free from the need for maintenance, repairs and/or replacements. Lessee acknowledges that any one or more services may be suspended or reduced by reason of repairs, alterations or improvements necessary to be made, by strikes or accidents, by any cause beyond the reasonable control of Lessor, or by orders or regulations of any federal, state, county or municipal authority. In addition, Lessor shall have no liability for damages arising from, and Lessor does not warrant that Lessee's use of any Lines will be from, (a) any eavesdropping or wiretapping by unauthorized parties, (b) any failure of the Lines to satisfy Lessee's requirements, or (c) any shortages, failures, variations, interruptions, disconnections, loss or damage caused by installation, maintenance, replacement, use or removal of Lines by or for other occupants of the Complex, by any failure of the environmental conditions or the power supply for the Building to conform to any requirements for the Lines or any associated equipment or any other problems associated with any Lines by any other cause. 20.2 SEPARATE METERS. Lessor reserves the right to install separate meters for any utility servicing the Leased Premises for which a meter is not presently installed, in which event Lessee shall make payments, when due, directly to the utility involved. 20.3 JOINT METERS. If any utility services are not separately metered to Lessee, Lessee shall pay a proportion to be determined by Lessor of all charges jointly metered with other leased premises or occupants in the 31 Complex. All payments to Lessor in respect thereof shall be due within ten (10) days after receipt of the billing by Lessee. 21. ALTERATIONS 21.1 CONSENT OF LESSOR; OWNERSHIP. Lessee shall not make, or suffer to be made, any alterations to the Leased Premises, the Building, or the Complex, and/or systems and facilities therein, or any part thereof, without the written consent of Lessor first had and obtained. Any additions to or alterations of the Leased Premises, the Building, or the Complex, and/or systems and facilities therein, (except trade fixtures) shall, immediately upon being made, constitute a part of the realty and Lessor's property, and shall, at the expiration or earlier termination of this Lease, remain upon the Leased Premises without compensation to Lessee. Except as otherwise provided in this Lease, Lessee shall have the right to remove its trade fixtures placed upon the Leased Premises provided that Lessee restores the Leased Premises as indicated below. Any and all costs incurred by Lessor, whether in complying with laws, governmental requirements or otherwise, as a result of any "alterations" (as hereinafter defined), or as a result of request by Lessee for increased telephone or other utility capacity above that presently existing (or, in the event the Building is to be constructed or substantially altered by Lessor prior to the delivery date, above that which is planned by Lessor for the Building) shall be paid by Lessee within ten (10) days after demand therefor by Lessor. 21.2 REQUIREMENTS. Any alterations, additions or installations performed by Lessee (hereinafter collectively "alterations") shall be subject to strict conformity with the following requirements: (a) All alterations shall be at the sole cost and expense of Lessee; (b) Prior to commencement of any work of alterations Lessee shall submit detailed plans and specifications, including working drawings (hereinafter referred to as "Plans"), of the proposed alterations, which shall be subject to the consent of Lessor in accordance with the terms of Section 2 1. 1 above; (c) Following approval of the Plans by Lessor, Lessee shall give Lessor at least ten (10) days' prior written notice of commencement of work in the Leased Premises so that Lessor may post notices of non-responsibility in or upon the Leased Premises as provided by law; (d) No alterations shall be commenced without Lessee having previously obtained all appropriate permits and approvals required by and of governmental agencies; (e) All alterations shall be performed in a skillful and workmanlike manner, consistent with the best practices and standards of the construction industry, and pursued with 32 diligence in accordance with fire Plans previously approved by Lessor and in full accord with all applicable laws and ordinances. All material, equipment, and articles incorporated in the alterations are to be new and of recent manufacture and of the most suitable grade for the purpose intended; (f) Lessee must obtain the prior written approval from Lessor for Lessee's contractor prior to commencement of the work. Lessor may require that Lessee use subcontractors designated by Lessor as to specified portions of the work. Lessee's contractor shall maintain all of the insurance reasonably required by Lessor, including, without limitation, commercial general liability, workers' compensation, builder's risk and course of constriction insurance. The limits of such insurance shall be the same as those specified in Article 11; (g) As a condition of approval of the alterations, Lessor may require performance and labor and materialmen's payment bonds issued by a surety approved by Lessor, in a sum equal to the cost of the alterations guarantying the completion of the alterations free and clear of all liens and other charges in accordance with the Plans. Such bonds shall name Lessor as beneficiary; (h) The alterations must be performed in a manner such that they will not interfere with the quiet enjoyment of the other lessees in the Complex; (i) Lessor shall have the right to condition any approval of the alterations upon (i) submission by Lessee of a Report with respect to Hazardous Materials, and/or (ii) the performance by Lessee at Lessee's cost and expense of such investigation, clean-up and remediation with respect to Hazardous Materials as Lessor may request, in Lessor's sole and absolute discretion; provided, however, that Lessor shall have the right, but not the obligation, to undertake all or any portion of such investigation, cleanup or remediation at Lessee's cost and expense in accordance with the provisions of Section 19.3(e) above. Lessee acknowledges and agrees that Lessor shall have the right, in its sole and absolute discretion, to disapprove the making of any such alterations based upon the results of any investigation with respect to Hazardous Materials. 21.3 LIENS. Lessee shall keep the Leased Premises and the Complex in which the Leased Premises are situated free from any liens arising out of any work performed, materials furnished or obligations incurred by Lessee. In the event a mechanic's or other lien is filed against the Leased Premises or the Complex of which the Leased Premises forms a part as a result of a claim arising through Lessee, Lessor may demand that Lessee furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to at least one hundred fifty percent (150%) of the amount of the contested lien claim or demand, indemnifying Lessor against liability for the same and holding the Leased Premises free from the effect of such lien or claim. Such bond must be posted within ten (10) days following notice from Lessor. In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in participating in any action to foreclose such lien if Lessor shall decide it is to its best interest to do so. Lessor may pay the claim prior to the enforcement thereof, in which event Lessee shall reimburse 33 Lessor in full, including attorneys' fees, for any such expense, as additional rent, with the next due rental. 21.4 RESTORATION Lessee shall return the Leased Premises to Lessor at the expiration or earlier termination of this Lease in good and sanitary order, condition and repair, free of rubble and debris, broom clean, reasonable wear and fear excepted. However, Lessee shall ascertain from Lessor at least thirty (30) days prior to the termination of this Lease, whether Lessor desires the Leased Premises, or any part thereof, restored to its condition prior to the making of permitted alterations, installations and improvements, and if Lessor shall so desire, then Lessee shall forthwith restore said Leased Premises or the designated portions thereof, as the case may be, to its original condition, entirely at its own expense, excepting normal wear and tear. All damage to the Leased Premises caused by the removal of such trade fixtures and other personal property that Lessee is permitted to remove under the terms of this Lease and/or such restoration shall be repaired by Lessee at its sole cost and expense prior to termination. 22. MAINTENANCE AND REPAIRS 22.1 OBLIGATIONS OF LESSOR AND LESSEE. Lessee shall, at its sole cost and expense, keep and maintain the Leased Premises and appurtenances, and every part thereof in good, clean and sanitary order, condition and repair including all necessary replacements, and shall maintain the appearance of the Leased Premises in a manner consistent with the character, use and appearance of the Complex. Subject to the obligations of Lessee pursuant to this Article and pursuant to Article 19 above, Lessor shall perform all necessary repairs, maintenance and replacement of the foundation, roof and structural parts of the Building. Lessee shall, at its sole cost, keep and maintain all utilities, fixtures and mechanical equipment used by Lessee in good order, condition and repair. In the case of equipment installed by Lessor for Lessee, or installed by Lessee and being or to become the property of Lessor, such as heating, ventilating and air conditioning equipment, or other mechanical equipment, Lessee shall maintain a service contract for its regular maintenance with a service company acceptable to Lessor, at Lessee's expense. Evidence of such a service contract will be provided to Lessor at its request. Prior to commencement of any repairs, Lessee shall give Lessor at least ten (10) days' prior written notice thereof so that Lessor may post notices of non-responsibility in or upon the Leased Premises as provided by law. Lessee must obtain the prior written approval from Lessor for Lessee's contractor before the commencement of the repair. Lessor may require that Lessee use a specific contractor for certain types of repairs. Notwithstanding the foregoing, Lessee shall not make any repairs to the equipment, facilities or systems of the Building or Complex which are outside of the Leased Premises or which serve other portions of the Building and/or Complex. 34 22.2 HVAC SYSTEM. Notwithstanding the provisions of the preceding Section, Lessor may elect at any time upon written notice to Lessee to perform the maintenance of the heating, ventilating and air conditioning system (hereinafter "HVAC") for the account of Lessee. In such event, Lessee shall pay the full cost of the maintenance contract for the HVAC in the Leased Premises within ten (10) days of receipt of billing therefor from Lessor, as well as for costs of repair or replacement of parts thereof as necessary, in the reasonable judgment of Lessor. Lessor may, at its option, elect to have the HVAC in the Leased Premises maintained in common with other equipment in the Complex. In such event Lessee shall pay its pro rata share of such maintenance costs which share shall be established in air equitable manner by Lessor based upon the relative tonnage in the Leased Premises compared to the total tonnage under contract, or some other reasonable means of allocation as selected by Lessor. Lessor's good faith judgment as to the allocation of the charges described in this paragraph shall be conclusive. Included in the charges to be allocated to Lessee shall be, without limitation: the maintenance contract upon the HVAC, extended warranties and any repairs and replacements not covered by the maintenance contract or warranty. Lessor may elect to replace the HVAC system, if necessary, and in such event the cost thereof shall be amortized in the manner provided in this Lease with respect to amortization of other Capital Costs, Lessee shall pay to Lessor, within ten (10) days after receipt of billing, its pro rata share of such amortization, established on all equitable basis according to the relative tonnage in the Leased Premises as compared to the entire area served by the system. 22.3 CONDITION OF PREMISES. Except as to the construction obligations of Lessor, if any, stated in Exhibit C to this Lease, Lessee shall accept the Leased Premises in "as is" condition as of the date of execution of this Lease by Lessee, and Lessee acknowledges that the Leased Premises in such condition are in good and sanitary order, condition and repair. 22.4 WAIVER. Lessee waives all rights it may have under law to make repairs at Lessor's expense. 23. CONDEMNATION 23.1 DEFINITIONS. (a) "Condemnation" means (i) the exercise of any governmental power, whether by legal proceedings or otherwise, by a condemnor and/or (ii) a voluntary sale or transfer by Lessor to any condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending. 35 (b) "Date of taking" means the date the condemnor has the right to possession of the property being condemned. (c) "Award" means all compensation, stairs or anything of value awarded, paid or received on a total or partial condemnation. (d) "Condemnor" means any public or quasi-public authority, or private corporation or individual, having the power of condemnation. 23.2 TOTAL TAKING. If the Leased Premises are totally taken by condemnation, this Lease shall terminate on the date of taking. 23.3 PARTIAL TAKING; COMMON AREAS. (a) If any portion of the Leased Premises is taken by condemnation, this Lease shall remain in effect, except that Lessee can elect to terminate this Lease if 33-1/3% or more of the total number of square feet in the Leased Premises is taken. (b) If any part of the Common Areas of the Complex is taken by condemnation, this Lease shall remain in full force and effect so long as there is no material interference with the access to the Leased Premises, except that if thirty percent (30%) or more of the Common Areas is taken by condemnation, either party shall have the election to terminate this Lease pursuant to this Section. (c) If fifty percent (50%) or more of the Building in which the Leased Premises are located is taken, Lessor shall have the election to terminate this Lease in the manner prescribed herein. 23.4 TERMINATION OR ABATEMENT. If either party elects to terminate this Lease under the provisions of Section 23.3 (such party is hereinafter referred to as the "Terminating Party"), it must terminate by giving notice to the other party (the "Nonterminating Party") within thirty (30) days after the nature and extent of the taking have been finally determined (the "Decision Period"). The Terminating Party shall notify the Nonterminating Party of the date of termination, which date shall not be earlier than sixty (60) days after the Terminating Party has notified the Nonterminating Party of its election to terminate nor later than the date of taking. If Notice of Termination is not given within the Decision Period, the Lease shall continue in full force and effect except that Minimum Rent shall be reduced by subtracting therefrom an amount calculated by multiplying the Minimum Rent in effect prior to the taking by a fraction the numerator of which is the number of square feet taken from the Leased Premises and the denominator of which is the number of square feet in the Leased Premises prior to the taking. 36 23.5 RESTORATION. If there is a partial taking of the Leased Premises and this Lease remains in full force and effect pursuant to this Article, Lessor, at its cost, shall accomplish all necessary restoration so that the Leased Premises is returned as near as practical to its condition immediately prior to the date of the taking, but in no event shall Lessor be obligated to expend more for such restoration than the extent of funds actually paid to Lessor by the condemnor. 23.6 AWARD. Any award arising from the condemnation or the settlement thereof shall belong to and be paid to Lessor except that Lessee shall receive from the award compensation for the following if specified in the award by the condemning authority, so long as it does not reduce Lessor's award in respect of the real property: Lessee's trade fixtures, tangible personal property, loss of business and relocation expenses. At all events, Lessor shall be solely entitled to all award in respect of the real property, including the bonus value of the leasehold. Lessee shall not be entitled to any award until Lessor has received the above sum in full. 24. EMPLOYEE PARKING 24.1 DESIGNATED AREAS. Lessor shall have the right by written notice to Lessee, to designate specific areas of the Complex for employee parking. If Lessor so designates an employee parking area, then automobiles of Lessee, its employees and agents shall not park within the parking area except in areas delineated by Lessor as "employee parking." Lessee shall be entitled to park in common with other tenants of Lessor. Lessee agrees not to overburden the parking facilities and agrees to cooperate with Lessor and other tenants in the use of parking facilities. Lessor reserves the right in its absolute discretion to determine whether parking facilities are becoming crowded and, in such event, to allocate and assign parking spaces among Lessee and other Lessees. Upon request, Lessee shall provide Lessor with the license plate numbers of all employees, 25. ABANDONMENT 25.1 LESSEE TO OCCUPY. Lessee shall not abandon the Leased Premises at any time during the Term, nor permit the Leased Premises to remain unoccupied for a period longer than ten (10) consecutive days during the Term, and if Lessee shall abandon, vacate or surrender the Leased Premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Lessee and remaining on the Leased Premises after such ten (10) day period shall, at the option of Lessor, be deemed abandoned. 37 26. ENTRY BY LESSOR 26.1 RIGHTS OF LESSOR. Lessee shall permit Lessor and Lessor's agents to enter the Leased Premises at all reasonable times for the purpose of inspecting the same or for the purpose of maintaining the Building, the Complex, Lines and the systems and facilities therein, or for the purpose of making repairs, replacements, alterations or additions to any portion of the Building, the Complex, Lines and the systems and facilities herein, including the erection and maintenance of such scaffolding, canopies, fences and props as may be required, or for the purpose of posting notices of responsibility for alterations, additions or repairs, or for the purpose of placing upon the Building any usual or ordinary "for sale" signs, without any rebate of rent and without any liability to Lessee for any loss of occupation or quiet enjoyment of the Leased Premises thereby occasioned, and shall permit Lessor, at any time within ninety (90) days prior to the expiration of this Lease, to place upon the Leased Premises any usual or ordinary "to let" or "to lease" signs. This Section in no way affects the maintenance obligations of the parties hereto. 27. SIGNS 27.1 APPROVAL, INSTALLATION AND MAINTENANCE. Lessee shall not place on the Leased Premises or on the Complex any exterior signs or advertisements nor any interior signs or advertisements that are visible from the exterior of the Leased Premises, without lessor's prior written consent, which Lessor reserves the right to withhold for any aesthetic reason in its sole judgment. The cost of installation and regular maintenance of any such signs approved by Lessor shall be at the sole expense of Lessee. At the termination of this Lease, or any extension thereof, Lessee shall remove all his signs, and all damage caused by such removal shall be repaired at Lessee's expense. 28. DEFAULT 28.1 DEFINITION. The occurrence of any of the following shall constitute a material default and breach of this Lease by Lessee; (a) Any failure by Lessee to pay the rental or to make any other payment required to be made by Lessee hereunder when due; (b) The abandonment of the Leased Premises by Lessee in violation of Section 25.1 hereof; 38 (c) Any failure by Lessee to provide executed documents as and when required under the provisions of Section 35.2 and/or Article 36; (d) A failure by Lessee to observe and perform any other provision of this Lease to be observed or performed by Lessee, where such failure continues for ten (10) days after written notice thereof by Lessor to Lessee; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within the ten (10) day period allowed, Lessee shall not be deemed to be in default if Lessee shall, within such ten (10) day period, commence to cure and thereafter diligently prosecute the same to completion; (e) Either (1) the appointment of a receiver (except a receiver appointed at the instance or request of Lessor) to take possession of all or substantially all of the assets of Lessee, or (2) a general assignment by Lessee for the benefit of creditors, or (3) any action taken or suffered by Lessee under any insolvency or bankruptcy act shall constitute a breach of this Lease by Lessee. In such event, Lessor may, at its option, declare this Lease terminated and forfeited by Lessee, and Lessor shall be entitled to immediate possession of the Leased Premises. Upon such notice of termination, this Lease shall terminate immediately and automatically by its own limitation; (f) Any two (2) failures by Lessee to observe and perform any provision of this Lease during any twelve (12) month period of the Term, as such may be extended, shall constitute at the option of Lessor, a separate and noncurable default. 29. REMEDIES UPON DEFAULT 29.1 TERMINATION AND DAMAGES. In the event of any default by Lessee, then in addition to any other remedies available to Lessor herein or at law or in equity, Lessor shall have the immediate option to terminate this Lease and all rights of Lessee hereunder by giving written notice of such intention to terminate. In the event that Lessor shall elect to so terminate this Lease, then Lessor may recover from Lessee: (a) The worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (b) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss Lessee proves could have been reasonably avoided; plus (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Lessee proves could be reasonably avoided; plus 39 (d) Any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee's failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom; and (e) At Lessor's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by the applicable law in the state in which the Leased Premises are located. 29.2 DEFINITIONS (a) The terms "rent" or "rental," as used in this Lease, shall be deemed to be and to mean the Minimum Rent and all other sums required to be paid by Lessee pursuant to the terms of this Lease. (b) As used in subsections 29.1(a) and (b) above, the "worth at the time of award" is computed by allowing interest at the rate of ten percent (10%) per annum. As used in subsection 29.1(c) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank for the region in which the Complex is located at the time of award plus one percent (1%). 29.3 PERSONAL PROPERTY. (a) In the event of any default by Lessee, Lessor shall also have the right, with or without terminating this Lease, to reenter the Leased Premises and remove all persons and property from the Leased Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Lessee. (b) In the event of default, all of Lessee's fixtures, furniture, equipment, improvements, additions, alterations and other personal property shall remain upon the Leased Premises and, in that event, and continuing during the length of such default, Lessor shall have the sole right to take exclusive possession of such property and to use it, rent or charge free, until all defaults are cured or, at Lessor's option, at any time during the Term, to require Lessee to forthwith remove such property. The rights stated herein are in addition to Lessor's rights described in Section 30.1. 29.4 RECOVERY OF RENT; RELETTING. (a) In the event of the vacation or abandonment of the Leased Premises by Lessee or in the event that Lessor shall elect to reenter as provided in Section 29.3 above, or shall take possession of the Leased Premises pursuant to legal proceeding or pursuant to any notice provided by law, then if Lessor does not elect to terminate this Lease as provided in Section 29.1 above, this Lease shall continue in effect for so long as Lessor does not terminate Lessee's right to possession, and Lessor may enforce all its rights and remedies under this Lease, including, without limitation, 40 Lessor's right from time to time, without terminating this Lease, to either recover all rental as it becomes due or relet the Leased Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Lessor, in its sole discretion may deem advisable with the right to make alterations and repairs to the Leased Premises. Acts of maintenance or preservation or efforts to relet the Leased Premises or the appointment of a receiver upon initiation of Lessor or other legal proceeding granting Lessor or its agent possession to protect Lessor's interest under this Lease shall not constitute a termination of Lessee's right to possession. (b) In the event that Lessor shall elect to so relet, then rentals received by Lessor from such reletting shall be applied: first, to the payment of any indebtedness other than rent due hereunder from Lessee to Lessor; second, to the payment of any cost of such reletting; third, to the payment of the cost of any alterations and repairs to the Leased Premises; fourth, to the payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Lessor and applied in payment of future rent as the same may become due and payable hereunder. Should that portion of such rentals received from such reletting during any month, which is applied by the payment of rent hereunder, be less than the rent payable during that month by Lessee hereunder, then Lessee shall pay such deficiency to Lessor immediately upon demand therefor by Lessor. Such deficiency shall be calculated and paid monthly. Lessee shall also pay to Lessor, as soon as ascertained, any costs and expenses incurred by Lessor in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting. (c) No reentry or taking possession of the Leased Premises or any other action under this Section shall be construed as an election to terminate this Lease unless a written notice of such intention be given to Lessee or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Lessor because of any default by Lessee, Lessor may at any time after such reletting elect to terminate this Lease for any such default. (d) Lessor has the remedy described in California Civil Code Section 1951.4 (Lessor may continue Lease in effect after Lessee's breach and abandonment and recover rent as it becomes due, if Lessee has right to sublet or assign, subject only to reasonable limitations). 29.5 NO WAIVER. Efforts by Lessor to mitigate the damages caused by Lessee's default in this Lease shall not constitute a waiver of Lessor's right to recover damages hereunder, nor shall Lessor have any obligation to mitigate damages hereunder. 29.6 CURING DEFAULTS. Should Lessee fail to repair, maintain, keep clean, and/or service the Leased Premises, or any part or contents thereof at any time or times, or perform any other obligations imposed by this Lease or otherwise, their after having given Lessee reasonable notice of the failure or failures and a 41 reasonable opportunity, which in no case shall exceed ten (10) days, to remedy the failure, Lessor may enter upon the Leased Premises and perform or contract for the performance of the repair, maintenance, or other Lessee obligation, and Lessee shall pay Lessor for all direct and indirect costs incurred in connection therewith within ten (10) days of receiving a bill therefor from Lessor. 29.7 NO RIGHT TO CURE. Notwithstanding anything to the contrary set forth in Section 28.1 above, Lessee shall be deemed to have committed a material default and breach of this Lease, Without any right on Lessee's part to cure such default and breach, upon the failure by Lessee to observe and perform the provisions of any one or more of the following Sections (or indicated portions thereof) of this Lease: 9.3, 19.1, 2 1.1 (first sentence), 26.1, 35.2, 36.1 and 36.2. 29.8 CUMULATIVE REMEDIES. The various rights, options, election powers, and remedies of Lessor contained in this Article and elsewhere in this Lease shall be construed as cumulative and no one of them exclusive of any others or of any legal or equitable remedy which Lessor might otherwise have in the event of breach or default, and the exercise of one right or remedy by Lessor shall not in any way impair its right to any other right or remedy. 30. FORFEITURE OF PROPERTY AND LESSOR'S LIEN 30.1 REMOVAL OF PERSONAL PROPERTY. Lessee agrees that as of the date of termination of this Lease or repossession of the Leased Premises by Lessor, by way of default or otherwise, it shall remove all personal property to which it has the right to ownership pursuant to the terms of this Lease. Any and all such property of Lessee not removed by such date shall, at the option of Lessor, irrevocably become the sole property of Lessor. Lessee waives all rights to notice and all common law and statutory claims and causes of action which it may have against Lessor subsequent to such date as regards the storage, destruction, damage, loss of use and ownership of the personal property affected by the terms of this Article. Lessee acknowledges Lessor's need to relet the Leased Premises upon termination of this Lease or repossession of the Leased Premises and understands that the forfeitures and waivers provided herein are necessary to aid said reletting, and to prevent Lessor incurring a loss for liability to deliver the Leased Premises to a prospective lessee. 30.2 LESSOR'S LIEN. Lessee hereby grants to Lessor a lien upon and security interest in all fixtures, chattels and personal property of every kind now or hereafter to be placed or installed in or on the Leased Premises and agrees that in the event of any default on the part of Lessee, Lessor shall have all the rights and remedies afforded the secured party by the chapter on "Default" of Division 9 of the 42 Uniform Comniercial Code of the state in which the Leased Premises are located and may, in connection therewith, also (a) enter on the Leased Premises to assemble and take possession of the collateral, (b) require Lessee to assemble the collateral and make its possession available to Lessor at the Leased Premises, and (c) enter the Leased Premises, render the collateral, if equipment, unusable and dispose of it in a manner provided by the Uniform Commercial Code of the state in which the Leased Premises are located. Lessee hereby designates Lessor as his attorney-in-fact for purposes of executing such documents as may be necessary to perfect the lien and security interest granted hereunder. 31. SURRENDER OF LEASE 31.1 NO MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not work as a merger, and shall, at the option of Lessor, terminate all or any existing subleases or subtenancies, or may, at the option of Lessor, operate as an assignment to it of any or all such subleases or subtenancies. 32. LESSOR'S EXCULPATION 32.1 LIMITED LIABILITY. In the event of default, breach, or violation by Lessor (which term includes Lessor's partners, co-venturers, co-tenants, officers, directors, trustees, employees, agents, or representatives) of any of Lessor's obligations under this Lease, Lessor's liability to Lessee shall be limited to its ownership interest in the Leased Premises (or its interest in the Complex, if applicable) or the proceeds of a public sale of such interest pursuant to foreclosure of a judgment against Lessor. Lessor may, at its option, and among its other alternatives, relieve itself of all liability under this Lease by conveying the Leased Premises to Lessee. Notwithstanding any such conveyance, Lessee's leasehold and ownership interest shall not merge. 32.2 NO RECOURSE. Lessor (as defined in Section 32.1) shall not be personally liable for any deficiency beyond its interest in the Leased Premises. All personal liability of all trustees, their employees, agents or representatives, is expressly waived by Lessee. 43 33. ATTORNEYS' FEES 33.1 ACTIONS, PROCEEDINGS, ETC. Lessee hereby agrees to pay, as additional rent, all attorneys' fees and disbursements, and all other court costs or expenses of legal proceedings or other legal services which Lessor may incur or pay out by reason of, or in connection with: (a) any action or proceeding brought by Lessor wherein Lessor obtains a final judgment or award against Lessee (including arbitration) on account of any default by Lessee in the observance or performance of any obligation under this Lease including, but not limited to, matters involving payment of rent and additional rent, Alterations or other Lessee's work and subletting or assignment; (b) any action or proceeding brought by Lessee against Lessor (or any officer, partner, or employee of Lessor) in which Lessee fails to secure a trial judgment against Lessor; (c) any other appearance by Lessor (or any officer, partner, or employee of Lessor) as a witness or otherwise in any action or proceeding whatsoever involving or affecting Lessee or this Lease; (d) any assignment, sublease, or leasehold mortgage proposed or granted by Lessee (whether or not permitted under this Lease), and all negotiations with respect thereto; and (e) any alteration of the Leased Premises by Lessee, and all negotiations with respect thereto. In any action or proceeding referred to in subsection (a), Lessee shall be entitled to recover its attorneys' fees and costs if Lessee is the prevailing party against Lessor. 33.2 SURVIVAL. Lessee's obligations under this Section shall survive the expiration or any other termination of this Lease. This Section is intended to supplement (and not to limit) other provisions of this Lease pertaining to indemnities and/or attorneys' fees. 33.3 COUNSEL FEES. Should it be necessary for Lessor to employ legal counsel to enforce any of the provisions of this Lease, Lessee agrees to pay, as additional rent, all attorneys' fees and court costs reasonably incurred thereby, whether or not Lessor commences any legal action or proceeding. 44 34. NOTICES 34.1 WRITING. All notices, demands and requests required or permitted to be given or made under any provision of this Lease, shall be in writing and shall be (i) given or made by personal service, or (ii) by telephone facsimile upon which the date and time are imprinted in the course of transmission to the number indicated in Section 1.2, or (iii) by mailing same by registered or certified mail, return receipt requested, postage prepaid, or (iv) by reputable courier which provides written evidence of delivery, addressed to the respective party at the address set forth in Section 1.2 of this Lease or at such other address as the party may from time to time designate, by a written notice sent to the other in the manner aforesaid. 34.2 EFFECTIVE DATE. Any such notice, demand or request ("notice") shall be deemed given or made on the third day after the date so mailed. Notwithstanding the foregoing, notice given by personal delivery to the party at its address as aforesaid shall be deemed given on the day on which delivery is made. Notice given by a reputable courier service which provides written evidence of delivery shall be deemed given on the business day immediately following deposit with the courier service. 34.3 AUTHORIZATION TO RECEIVE. Each person and/or entity whose signature is affixed to this Lease as Lessee or as guarantor of Lessee's obligations ("obligor") designates such other obligor its agent for the purpose of receiving any notice pertaining to this Lease or service of process in the event of any litigation or dispute arising from any obligation imposed by this Lease. 35. SUBORDINATION 35.1 PRIORITY OF ENCUMBRANCES. Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or hereafter placed upon the real property of which the Leased Premises are a part and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Leased Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all the provisions of this Lease, unless this Lease is otherwise terminate pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior or 45 subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. 35.2 EXECUTION OF DOCUMENTS. Lessee agrees to execute any documents required to effectuate such subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, and failing to do so within ten (10) days after written demand, does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to do so. It is understood by all parties that Lessee's failure to execute the subordination documents referred to above may cause Lessor serious financial damage by causing the failure of a financing or sale transaction. 35.3 ATTORNMENT. Lessee shall attorn to any purchaser at any foreclosure sale, or to any grantee or transferee designated in any Deed given in lieu of foreclosure. 36. ESTOPPEL, CERTIFICATES 36.1 EXECUTION BY LESSEE. Within ten (10) days of request therefor by Lessor, Lessee shall execute a written statement acknowledging the commencement and termination dates of this Lease, that it is in full force and effect, has not been modified (or if it has, stating such modifications), and providing any other pertinent information as Lessor or its agent might reasonably request. Failure to comply with this Article shall be a material breach of this Lease by Lessee giving Lessor all rights and remedies under Article 29 hereof, as well as a right to damages caused by the loss of a loan or sale which may result from such failure by Lessee. 36.2 FINANCING, SALE OR TRANSFER. If Lessor desires to finance, refinance, sell, ground lease or otherwise transfer the Leased Premises, or any part thereof, or the Building, Lessee hereby agrees, within ten (10) days of request therefor by Lessor, to deliver to any lender or to any prospective buyer, ground lessor or other transferee designated by Lessor such financial statements of Lessee, its Guarantor and its parent company, if any, as may be reasonably required by such party. Such statements shall include the past three (3) years' financial statements of Lessee. All such financial statements shall be received by Lessor in confidence and shall be used only for the purposes herein set forth. 46 37. WAIVER 37.1 EFFECT OF WAIVER. The waiver by Lessor of any breach of any Lease provision shall not be deemed to be a waiver of such Lease provision or any subsequent breach of the same or any other term, covenant or condition therein contained. The subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any provision of this Lease, other than the failure of Lessee to pay the particular rental so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 38. HOLDING OVER 38.1 MONTH-TO-MONTH TENANCY ON ACCEPTANCE. If Lessee should remain in possession of the Leased Premises after the expiration of the Term and without executing a new Lease, then, upon acceptance of rent by Lessor, such holding over shall be construed as a tenancy from month to month, subject to all the conditions, provisions and obligations of this Lease as existed during the last month of the Term hereof, so far as applicable to a month to month tenancy, except that the Minimum Rent shall be equal to twice the Minimum Rent payable immediately prior to the expiration or sooner termination of the Lease. 39. SUCCESSORS AND ASSIGNS 39.1 BINDING EFFECT. The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of all of the parties hereto; and all of the parties hereto shall be jointly and severally liable hereunder. 40. TIME 40.1 TIME OF THE ESSENCE. Time is of the essence of this Lease with respect to each and every article, section and subsection hereof. 41. EFFECT OF LESSOR'S CONVEYANCE 41.1 RELEASE OF LESSOR. If, during the Term, Lessor shall sell its interest in the Building or Complex of which the Leased Premises forms a part, or the Leased Premises, then from and after the effective date of the 47 sale or conveyance, Lessor shall be released and discharged from any and all obligations and responsibilities under this Lease, except those already accrued. 42. TRANSFER OF SECURITY 42.1 TRANSFER TO PURCHASER. If any security be given by Lessee to secure the faithful performance of all or any of the covenants of this Lease on the part of Lessee, Lessor may transfer and/or deliver the security, as such, to the purchaser of the reversion, in the event that the reversion be sold, and thereupon Lessor shall be discharged from any and all liability in reference thereto. 43. CORPORATE AUTHORITY 43.1 AUTHORIZATION TO EXECUTE. If Lessee is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the Bylaws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. Further, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor a certified copy of a resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. 44. WAIVER OF CALIFORNIA CODE SECTIONS 44.1 WAIVER BY LESSEE. In this Lease, numerous provisions have been negotiated by the parties, some of which provisions are covered by statute. Whenever a provision of this Lease and a provision of any statute or other law cover the same matter, the provisions of this Lease shall control. Therefore, Lessee waives (for itself and all persons claiming under Lessee) the provisions of Civil Code Sections 1932(2) and 1933(4) with respect to the destruction of the Leased Premises; Civil Code Sections 1941 and 1942 with respect to Lessor's repair duties and Lessee's right to repair; Civil Code Section 1995.310, granting to a tenant all remedies provided by law fol- breach of contract (including, without limitations the right to contract damages and the right to terminate the lease) in the event that the landlord unreasonably withholds consent to a transfer in violation of the tenant's rights under the lease; Code of Civil Procedure Section 1265.130, allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Leased Premises by condemnation as herein defined; and any right of redemption or reinstatement of Lessee under any present or future case law or statutory provision (including Code of Civil Procedure Sections 473 and 1179 and Civil Code Section 3275) in the event Lessee is dispossessed from the Leased Premises for any reason. 48 This waiver applies to future statutes enacted in addition to or in substitution for the statutes specified herein. 45. WASTE 45.1 WASTE OR NUISANCE. Lessee shall not commit, or suffer to be committed, any waste upon the Leased Premises, or any nuisance, or other act or thing which may disturb the quiet enjoyment of any other tenant or occupant of the Complex in which the Leased Premises are located. 46. BANKRUPTCY 46.1 BANKRUPTCY EVENTS. If at any time during the Term there shall be filed by or against Lessee in any court pursuant to any statute either of the United States or of any State a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Lessee's property, or if a receiver or trustee takes possession of any of the assets of Lessee, or if the leasehold interest herein passes to a receiver, or if Lessee makes an assignment for the benefit of creditors or petitions for or enters into an arrangement (any of which are referred to herein as "a bankruptcy event"), then the following provisions shall apply: (a) At all events any receiver or trustee in bankruptcy or Lessee as debtor in possession ("debtor") shall either expressly assume or reject this Lease within sixty (60) days following the entry of an "Order for Relief." (b) In the event of an assumption of the Lease by a debtor, receiver, or trustee, such debtor, receiver, or trustee shall immediately after such assumption (1) cure any default or provide adequate assurances that defaults will be promptly cured; and (2) compensate Lessor for actual pecuniary loss or provide adequate assurances that compensation will be made for actual pecuniary loss; and (3) provide adequate assurance of future performance. For the purposes of this paragraph 46.1 (b), adequate assurance of future performance of all obligations under this Lease shall include, but is not limited to: (i) written assurance that rent and any other consideration due under the Lease shall first be paid before any other of Lessee's costs of operation of its business in the Leased Premises are paid; (ii) written agreement that assumption of this Lease will not cause a breach of any provision hereof including, but not limited to, any provision relating to use or exclusivity in this or any other Lease, or agreement relating to the Leased Premises, or if such a breach is caused, 49 the debtor, receiver or trustee will indemnify Lessor against such loss (including costs of suit and attorneys' fees), occasioned by such breach; (iii) where a default exists under the Lease, the party assuming the Lease may not require Lessor to provide services or supplies incidental to the Lease before its assumption by such trustee or debtor, unless Lessor is compensated under the terms of the Lease for such services and supplies provided before the assumption of such Lease. (c) The debtor, receiver, or trustee may only assign this Lease in accordance with the terms of Article 30 and if adequate assurance of future performance by the assignee is provided, whether or not there has been a default under the Lease. For the purpose hereof, adequate assurance of future performance means written agreement that assignment of this Lease will not cause a breach of any provision hereof including, but not limited to, any provision relating to use or exclusivity in this or any other Lease or agreement relating to the Leased Premises, and that if such a breach is caused, the debtor, receiver or trustee will indemnify Lessor against such loss (including costs of suit and attorney's fees), occasioned by such breach. Any consideration paid by any assignee in excess of the rental reserved in the Lease shall be the sole property of, and paid to, Lessor. Upon assignment by the debtor or trustee, the obligations of the Lease shall be deemed to have been assumed and the assignee shall execute an assumption agreement on request of Lessor. (d) Lessor shall be entitled to the fair market value for the Leased Premises and the services provided by Lessor (but in no event less than the rental reserved in the Lease) subsequent to the commencement of a bankruptcy event. (e) Lessor specifically reserves any and all remedies available to Lessor in Article 29 hereof or at law or in equity in respect of a bankruptcy event by Lessee to the extent such remedies are permitted by law. 47. LATE CHARGES 47.1 LATE PAYMENT BY LESSEE. Lessee acknowledges that late payment by Lessee to Lessor of rent or any other payment due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Lessor by the terms of any encumbrance and note secured by any encumbrance covering the Leased Premises. Therefore, if any installment of rent, or any other payment due hereunder from Lessee is not received by Lessor when due, Lessee shall pay to Lessor an additional sum of ten percent (10%) of such rent or other charge as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the cost that Lessor will incur by reason of late payment by Lessee. Acceptance of any late charge shall not constitute a waiver of Lessee default with respect to the overdue amount, or prevent Lessor from exercising any other rights or remedies available to Lessor. 50 48. MORTGAGEE PROTECTION 48.1 NOTICE AND RIGHT TO CURE DEFAULT. Lessee agrees to give any mortgagee(s) and/or trust deed holders, by registered mail, a copy of any notice of default served upon Lessor, provided that prior to such notice Lessee has been notified, in writing (by way of Notice of Assignment of Rents and Leases, or otherwise), of the address of such mortgages and/or trust deed holders. Lessee further agrees that if Lessor shall have failed to cure such default within the time provided for in this Lease, then the mortgagees and/or trust deed holders shall have an additional thirty (30) days within which to cure such default or, if such default cannot be cured within that time, then such additional time as may be necessary if, within such thirty (30) days, any mortgagee and/or trust deed holder has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being so diligently pursued. 49. MISCELLANEOUS PROVISIONS 49.1 CAPTIONS. The captions of this Lease are for convenience only and are not a part of this Lease and do not in any way limit or amplify the terms and provisions of this Lease. 49.2 NUMBER AND GENDER. Whenever the singular number is used in this Lease and when required by the context, the same shall include the plural, the plural shall include the singular, and the masculine gender shall include the feminine and neuter genders, and the word "person" shall include corporation, firm or association. If there be more than one Lessee the obligations imposed under this Lease upon Lessee shall be joint and several. 49.3 MODIFICATIONS. This instrument contains all of the agreements, conditions and representations made between the parties to this Lease and may not be modified orally or in any other manner than by an agreement in writing signed by all of the parties to this Lease. 49.4 PAYMENTS. Except as otherwise expressly stated, each payment required to be made by Lessee shall be in addition to and not in substitution for other payments to be made by Lessee. 51 49.5 SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 49.6 NO OFFER. The preparation and submission of a draft of this Lease by either party to the other shall not constitute an offer, nor shall either party be bound to any terms of this Lease or the entirety of the Lease itself until both parties have fully executed a final document and an original signature document has been received by both parties. Until such time as described in the previous sentence, either party is free to terminate negotiations with no obligation to the other. 49.7 DISPUTED SUMS. Under the terms of this Lease numerous charges are and may be due from Lessee to Lessor including, without limitation, Common Area charges, real estate taxes, insurance reimbursement and other items of a similar nature including advances made by Lessor in respect of Lessee's default at Lessor's option. In the event that at any time during the Term there is a bona fide dispute between the parties as to the amount due for any of such charges claimed by Lessor to be due, the amount demanded by Lessor shall be paid by Lessee until the resolution of the dispute between the parties or by litigation. Failure by Lessee to pay the disputed sums until resolution shall constitute a default under the terms of the Lease. 49.8 LESSEE'S REMEDIES. Notwithstanding anything to the contrary contained in this Lease, if any provision of this Lease expressly or impliedly obligates Lessor not to unreasonably withhold its consent or approval, an action for declaratory judgment or specific performance will be Lessee's sole right and remedy in any dispute as to whether Lessor has breached such obligation. 49.9 LIGHT, AIR AND VIEW. No diminution of light, air, or view by any structure which may hereafter be erected (whether or not by Lessor) shall entitle Lessee to any reduction of Rent, result in any liability of Lessor to Lessee, or in any other way affect this Lease or Lessee's obligations hereunder. 49.10 PUBLIC TRANSPORTATION INFORMATION. Lessee shall establish and maintain during the Term hereof a program to encourage maximum use of public transportation by personnel of Lessee employed on the Leased Premises, including without limitation the distribution to such employees of written materials explaining the convenience and availability of public transportation facilities adjacent or proximate to the Complex, staggering 52 working hours of employees, and encouraging use of such facilities, all at Lessee's sole reasonable cost and expense. Lessee shall comply with all requirements of any local transportation management ordinance. 49.11 RULES AND REGULATIONS. Lessee agrees to comply with all reasonable rules and regulations adopted and promulgated by Lessor and applicable to all tenants in the Complex for the lawful, orderly, clean, safe, aesthetic, quiet, and beneficial use, operation, maintenance, management, and enjoyment of the Complex. The initial rules and regulations concerning the Complex are attached hereto as Exhibit E. Lessor reserves the right to make additional rules affecting the Complex throughout the Term hereof. Lessor shall have no liability for violation by any other lessee in the Complex of any rules or regulations nor shall such violation or waiver thereof excuse Lessee from compliance. All delivery and dispatch of supplies, fixtures, equipment and furniture shall be by means and during hours established by Lessor. Lessee shall not at any time park its trucks or other delivery vehicles in the Common Areas, except in such parts thereof as from time to time designated by Lessor. 49.12 JOINT AND SEVERAL LIABILITY. Should Lessee consist of more than one person or entity, they shall be jointly and severally liable on this Lease. 49.13 SURVIVAL OF OBLIGATIONS. All obligations of Lessee which may accrue or arise during the Term or as a result of any act or emission of Lessee during said Term shall, to the extent they have not been fully performed, satisfied or discharged, survive the expiration or termination of this Lease. 49.14 REAL ESTATE BROKERS. Lessor and Lessee each represents and warrants to the other party that it has not authorized or employed, or acted by implication to authorize or employ, any real estate broker or salesman to act for it in connection with this Lease. Lessor and Lessee shall each indemnify, defend and hold the offer party harmless from and against any and all claims by any real estate broker or salesman whom the indemnifying party authorized or employed, or acted by implication to authorize or employ, to act for the indemnifying party in connection with this Lease. 49.15 NONLIABILITY OF LESSOR FOR APPROVALS. Except as may otherwise be expressly stated by a provision of this Lease, and only to the extent so stated, the consent or approval, whether express or implied, or the act, failure to act or failure to object, by Lessor in connection with any plan, specification, drawing, proposal, request, act, emission, notice or communication (collectively, "act") by or for, or prepared by or for, Lessee, shall 53 not create any responsibility or liability of the part of Lessor, and shall not Constitute a representation by Lessor, with respect to the completeness, sufficiency, efficacy, propriety, quality or legality of such act. 49.16 INTEREST ON PAST DUE AMOUNTS. If any sum due Lessor from Lessee is not received by Lessor within five (5) calendar days after the date such sum is due and payable, such sum shall bear interest from the due date until paid by Lessee at the rate of two percent (2%) above the Prime Rate (as herein defined), not to exceed the maximum rate of interest allowed by law in the state where the Leased Premises are located, and such interest shall be deemed to be additional rent. "Prime Rate" means the highest rate charged by Bank of America NT&SA, San Francisco Main Office, on short-term unsecured loans to its most creditworthy corporate borrowers. 49.17 CONVERSION TO A LIMITED LIABILITY ENTITY. (a) No Conversion Without Consent. Anything to the contrary in this Lease notwithstanding, if Lessee is currently a partnership (either general or limited), joint venture, cotenancy, joint tenancy or an individual, Lessee may not convert (the "Conversion") the Lessee entity or person into any type of entity which possesses the characteristic of limited liability such as, by way of example only, a corporation, a limited liability company, limited liability partnership or limited liability limited partnership (singularly and collectively, "Limited Entity"), without the consent of Lessor, which consent, subject to fulfillment of the conditions below, shall not be unreasonably withheld. (b) Conditions to Lessor's Consent. The following are conditions precedent to Lessor's obligation to act reasonably with respect to a Conversion to a Limited Entity: (i) The Limited Entity assumes all of lessee's liabilities and is assigned all of Lessee's assets as of the effective date of the Conversion; (ii) As of the effective date of the Conversion, the Limited Entity shall have a net worth ("Net Worth"), which is not less than the greater of (i) Lessee's Net Worth on the date of execution of the Lease or (ii) Lessee's Net Worth as of the date Lessee requests Lessor's consent to the Conversion; (iii) Lessee has timely fulfilled all its obligations under any of the terms, covenants or conditions of this Lease during the term of the Lease; (iv) Lessee delivers to Lessor an agreement, in form and substance satisfactory to Lessor and executed by each equity interest holder of Lessee, wherein each equity interest holder of Lessee agrees to remain personally liable for all of the terms, covenants and conditions of the Lease that are to be observed and performed by the Limited Entity; and 54 (v) Lessee shall reimburse Lessor within ten (10) days following Lessor's written demand therefor for any and all reasonable costs and expenses that may be incurred by Lessor in connection with the Conversion including, without limitations reasonable attorney's fees. (c) Nothing in this section shall modify or reduce the obligations of Lessee under this Lease. IN WITNESS WHEREOF, Lessor and Lessee leave executed this Lease as of the day and year first written LESSOR: LESSEE: Bedford Property Investors, Inc. Ion Networks, Inc. a Maryland Corporation a Delaware Corporation By: By: /s/ Mark A. Simmons -------------------------- -------------------------------- James R. Moore (PRINT): Mark A. Simmons ITS: Executive Vice President/COO ITS: Chief Financial Officer ---------------------------- -------------------------------- DATE: DATE: 5/26/99 ---------------------------- -------------------------------- FOR OFFICE USE ONLY: PREPARED BY: REVIEWED BY: APPROVED BY: 55 EXHIBIT "A" LEGAL DESCRIPTION REAL PROPERTY in the City of Fremont, County of Alameda, State of California, described as follows: All of Lots 7 and 8 and a portion of Lot 5 and 6 as numbered and designated on Tract Map 4642 recorded in Book 126 of Maps at Pages 30 through 33 in Alameda County Records and a portion of Lot 3 of Parcel Map 4205 recorded in Book 152 of Maps at Page 43 of Alameda County Records, further described as follows: Beginning at the Southeasterly comer of Lot 5 in said Tract, thence South 67(degree) 28' 25" West, a distance of 200.05 feet; Thence South 68(degree) 37' 10" West, a distance of 541.85 feet to a tangent curve; Thence along said curve, concave to the Northeast, having a radius of 40.00 feet through a central angle of 90(degree)00' 00", an arc length of 62.83 feet; Thence North 21(degree) 22' 50" West, a distance of 160.47 feet to a tangent curve; Thence along said curve, concave to the East, having a radius of 468.00 feet, through a central angle of 27(degree) 53' 05", an arc length of 227.77 feet; Thence North 6(degree) 30' 15" East, a distance of 68.67 feet; Thence South 83(degree) 29' 45" East, a distance of 53.00 feet; Thence North 6(degree) 30' 15" East, a distance of 155.00 feet; Thence South 87(degree) 26' 19" East, a distance of 54.663 feet; Thence North 68(degree) 37' 1 0" East, a distance of 384.32 feet; Thence South 66(degree) 22' 50" East, a distance of 88.949 feet; Thence North 69(degree) 37' 10" East, a distance of 78.89 feet; Thence South 21(degree) 22' 50" East, a distance of 503.18 feet to the point of beginning, as described in the Declaration of Merger, by New England Mutual Life Insurance Company, recorded June 30, 1989, Series No. 89-177153, Official Records. A.P. Nos. 519-1010-078-03 56 519-1010-080-01 519-1010-081-03 57 EXHIBIT B PLAN OF THE COMPLEX 58 EXHIBIT B-1 FLOOR PLAN OF THE LEASED PREMISES 59 EXHIBIT "C" CONSTRUCTION OBLIGATIONS Lessor shall, at Lessor's sole cost and expense, perform the following tenant improvements in the Leased Premises: 1) Lessor to install new carpet and base throughout office area as shown below. 2) Lessor to install vinyl tile (VCT) in the area as shown below. 3) Lessor to ensure that all mechanical, electrical (except data and phone) and plumbing systems are good working order prior to occupancy. Except as stated above, the Leased Premises shall be delivered to Lessee in its "As-Is, Where-is" condition. Any additional improvements, alterations or modifications must obtain Lessor's written approval, upon which approval shall not be reasonably withheld. Any and all improvements, alterations or modifications shall be at Lessee's sole cost and expense and must be performed in strict compliance with all laws and ordinances relating thereto and shall not constitute a delay in term commencement. Lessor at its discretion reserves the right to have Lessee, upon the expiration or earlier termination of the Lease, restore any or all of Lessee's improvements, alterations or modifications to the Leased Premises to its original condition prior to the making of any such improvements, alterations or modifications all at Lessee's sole cost and expense. 60 EXHIBIT "D" ACKNOWLEDGMENT OF COMMENCEMENT This Acknowledgment is made as of May 26, 1999 with reference to that certain Lease Agreement (hereinafter referred to as the "Lease") dated, May 17, 1999 by and between BEDFORD PROPERTY INVESTORS, INC., A MARYLAND CORPORATION "Lessor" therein, and ION NETWORKS, INC., A CORPORATION "Lessee", for the Leased Premises situated at 48834 KATO ROAD, UNIT 103-A, FREMONT, CALIFORNIA 94538 The undersigned hereby confirms the following: 1. That the Lessee accepted possession of the Leased Premises (as described in said Lease) on June 1, 1999, and acknowledges that the Leased Premises are as represented by the Lessor and in good order, condition and repair, and that the improvements, if any, required to be constructed for Lessee by Lessor under this Lease have been so constructed and are satisfactorily completed in all respects. 2. That all conditions of said Lease to be performed by Lessor prerequisite to the full effectiveness of said Lease have been satisfied and that Lessor has fulfilled all of its duties of an inducement nature. 3. That in accordance with the provisions of said Lease the commencement date of the term is June 1, 1999, and that, unless sooner terminated, the original term thereof expires on May 31, 2004. 4. That said Lease is in full force and effect and that the same represents the entire agreement between Lessor and Lessee concerning said Lease. 5. That there are no existing defenses which Lessee has against the enforcement of said Lease by Lessor, and no offsets or credits against rentals. 6. That the minimum rental obligations of said Lease is presently in effect and that all rentals, charges and other obligations on the part of Lessee under said Lease commenced to accrue on June 1, 1999. 7. That the undersigned has not made any prior assignment, hypothecation or pledge of said Lease or of the rents hereunder. LESSEE: ION NETWORKS, INC., A Delaware Corporation By:/s/ Mark A. Simmons - ----------------------------- (Print) Mark A. Simmons Its: Chief Financial Officer Date: 5/26/99 61 EXHIBIT "E" RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE 1. No sign, placard, picture, advertisement, name of notice shall be inscribed, displayed or printed or affixed on the Building or to any part thereof, or which is visible from the outside of the Building, without the written consent of Lessor, first had and obtained and Lessor shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice and at the expense of Lessee. All approved signs or lettering on doors shall be printed, affixed or inscribed at the expense of Lessee by a person approved by Lessor. Lessee shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises. 2. If a directory is located at the Building, it is provided exclusively for the display of the name and location of Lessee only and Lessor reserves the right to exclude any other names therefrom. 3. The sidewalks, passages, exits, entrances, and stairways in and around the Building shall not be obstructed by Lessee or used by it for any purpose other than for ingress to and egress from the Premises. The passages, exits, entrances, stairways, and roof are not for the use of the general public and Lessor shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgement of Lessor shall be prejudicial to the safety, character, reputation and interests of the Building and its Lessees, provided that nothing herein contained shall be construed to prevent such access to person with whom Lessee normally deals in the ordinary course of Lessee's business unless such persons are engaged in illegal activities. Neither Lessee nor any employees or invitees of Lessee shall go upon the roof of the Building. 4. Lessee shall not be permitted to install any additional lock or locks on any door in the Building unless written consent of Lessor shall have first been obtained. Two keys will be furnished by Lessor for every room. 5. The toilets and urinals shall not be used for any purpose other than those for which they were constricted, and no rubbish, newspapers or other substances of any kind shall be thrown into them. Wastes and excessive or unusual rise of water shall not be allowed. Lessee shall be responsible for any breakage, stoppage or damage resulting from the violation of this rule by Lessee or its employees or invitees. 6. Lessee shall not overload the floor of the Premises or mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof 62 7. Lessee shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Lessor or other occupants of the Building by reason of noise, odors and/or vibrations, or interfere in any way with other Lessees or those having business therein. 8. The Premises shall not be used for the storage of merchandise, for washing clothes, for lodging, or for any improper objectionable or immoral purposes. 9. Lessee shall not use or keep in the Premises or the Building any kerosene, gasoline, or inflammable or combustible fluid or material, or use any method of heating or air conditioning other than that supplied by Lessor. 10. Lessor will direct electricians as to the manner and location in which telephone and telegraph wires are to be introduced. No boring or cutting for wires will be allowed without the consent of Lessor. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Lessor. 11. Lessee shall not lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved by Lessor. The expense of repairing any damage resulting from a violation of this rule or removal of any floor covering shall be borne by Lessee. 12. Exterior blinds are furnished for each window by Lessor. Any additional window covering desired by Lessee shall be approved by Lessor. 13. Lessor reserves the right to exclude or expel from the Building any person who, in the judgement of Lessor, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Building. 14. Lessee shall not disturb, solicit, or canvass any Occupant of the Building . 15. Without the written consent of Lessor, Lessee shall not use the name of the Building in connection with or in promoting or advertising the business of Lessee except as Lessee's address. 16. Lessee shall not permit any contractor or other person making any alterations, additions or installations within the Premises to use the hallways, lobby or corridors as storage or work areas without the prior consent of Lessor. Lessee shall be liable for and shall pay the expense of any additional cleaning or other maintenance required to be performed by Lessor as a result of the transportation or storage of materials or work performed within the Building by or for Lessee. 63 17. Lessee shall be entitled to use parking spaces as mutually agreed upon between Lessee and Lessor subject to such reasonable conditions and regulations, as may be imposed from time to time by Lessor. Lessee agrees that vehicles of Lessee or its employees or agents shall not park in driveways nor occupy parking spaces or other areas reserved for any use such as Visitors, Delivery, Loading, or other tenants. Lessor or its agents shall have the right to cause or be removed any car or Lessee, its employees or agents, that may be parked in unauthorized areas, and Lessee agrees to save and hold harmless Lessor, its agents and employees from any and all claims, losses, damages and demands asserted or arising in respect to or in connection with the removal of any such, vehicle. Lessee, its employees, or agents shall not park campers, trucks or cars on the Building parking areas overnight or over weekends. Lessee will from time to time, upon request of Lessor, supply Lessor with a list of license plate numbers of vehicles owned or operated by its employees and agents. 18. Lessor reserves the right to make modifications hereto and such other and further rules and regulations as in its sole judgement may be required for the safety, care and cleanliness of the Premises and the Building and for the preservation of good order therein. Lessee agrees to abide by all such rules and regulations. 19. Canvassing, soliciting and peddling is prohibited in the Building and each Lessee shall cooperate to prevent the same. 20. Lessor is not responsible for the violation of any rule contained therein by any other Lessee. 21. Lessor may waive any one or more of these rules for the benefit of any particular Lessee, but no such waiver shall be construed as a waiver of lessor's right to enforce these rules against any or all Lessees occupying the Building. 22. Lessee is responsible for purchasing and installing a security system if required by the City of Fremont The cost of purchasing and installation of any such system is the sole costs and expense of the Lessee. 64 EX-10.5 5 SUPPLY AGREEMENT DATED OCTOBER 20, 1998 Exhibit 10.5 ------------ 10/20/98 Lucent Technologies Bell Labs Innovations Lucent Technologies Inc. Global Purchasing Organization 211 Mount Airy Road Basking Ridge. NJ 07920 Agreement No. WR71980036 Sheet 1 of 30 MicroFrame, Inc. 21 Meridian Road. Edison, NJ 08820 This Agreement is made by and between Lucent Technologies Inc. ("Company") having an office at 211 Mt. Airy Road, Basking Ridge, NJ 07920 and MicroFrame, Inc. ("Supplier") having an office at 21 Meridian Road,. Edison, NJ 08820. Company agrees to purchase and Supplier agrees to sell in accordance with the terms and conditions stated in this Agreement and any attachments to this Agreement. WHEREAS. Company wishes to purchase products of Supplier's (design and) manufacture for resale to Company's customers, and WHEREAS, Supplier desires to sell such materials to Company for resale to Company's customers, THEREFORE, the parties agree as follows 1. AGREEMENT EFFECTIVE PERIOD The term of this Agreement shall commence on, November 1, 1998, and shall, except as otherwise provided in this Agreement, continue in effect thereafter until October 31, 2001. 2. MATERIAL "MATERIAL" as used in this Agreement shall mean Supplier's ASG Guard Electronic Communication Equipment as listed in Appendix A, attached and made a part of this Agreement. Such MATERIAL is hereby offered for sale by Supplier and may be purchased by Company in accordance with the terms, conditions and specifications stated in this Agreement. This Agreement is a non-commitment Agreement and MATERIAL shall be furnished by Supplier on an as-ordered basis. "Specification(s)" as used in this Agreement shall mean all of the specifications made part of this Agreement. Agreement No. WR71980036 Sheet 2 of 31 3. OPTION TO EXTEND Company shall have the right to extend the period specified in the section "AGREEMENT EFFECTIVE PERIOD" for up to twelve (12) months by giving Supplier at least thirty (30) business days prior written notice. Within ten (10) business days of the date of Company's notice to extend the period, Supplier shall notify Company in writing whether Supplier proposes to revise the price(s) under this Agreement. If the parties fail to agree on the revised price(s) within twenty (20) business days after the date of Supplier's notice, Company's notice of extension shall be considered withdrawn and prices for outstanding orders or orders placed during the term of this Agreement shall not be revised. 4. PRICE Prices shall be as shown in Appendix A. Prices as listed in Appendix A shall remain in effect during the term of this Agreement. 5. COST REDUCTION Both parties shall endeavor to reduce the costs of products furnished under this Agreement. 6. BEST PRICE If, at any time during the term of this Agreement Supplier sells to any customer other than to affiliates or subsidiaries of Supplier, MATERIAL at least equal or similar quality {and volume} at a price lower than that in effect under this Agreement, Company shall pay the lower price on all deliveries of MATERIAL which are made during the period when such lower price is in effect. Upon ten (10) days written notice, Company, or Company's authorized representatives, may audit Supplier's applicable books and records for the purpose of verifying Suppliers compliance with this provision. 7. TERMS OF PAYMENT Net thirty (30) business days from the date of delivery of the MATERIAL to Company or receipt of the applicable invoice therefor by Company whichever occurs later. 8. FORECAST Company shall provide Supplier with a twelve (12) month non-binding rolling forecast submitted to Supplier by the fifth (5th) business day of each calendar month. Such forecast shall be used by Supplier for planning purposes only and shall not be deemed a commitment by Company to purchase the MATERIAL shown in the forecast. 9. FOB Agreement No. WR71980036 Sheet 3 of 31 The MATERIAL shall be shipped FOB Supplier's location, 21 Meridian Road, Edison, N.J. 08820, or such other Supplier's location as may be designated by Supplier. Supplier shall notify Company's transportation representative on (303) 538-8278 or (303) 538-2907 when MATERIAL is ready for shipment. Company shall select the carrier and arrange at Company's expense for the transportation of the MATERIAL. The 1990 INCOTERM manual shall govern interpretation of shipment terms under this Agreement. 10. FREIGHT CLASSIFICATION MATERIAL purchased under this Agreement shall be shipped to Company or Company's customers subject to freight charges appropriate for goods classified as Electronic Communications Equipment. Supplier shall indicate on the bill of lading that Company's contract rates apply. 11. NON-EXCLUSIVE MARKET RIGHTS This Agreement neither grants to Supplier an exclusive right or privilege to sell to Company any or all products of the type described in the MATERIAL section which Company may require, nor requires the purchase of any MATERIAL or other products from Supplier by Company. Therefore, Company may contract with other manufacturers and suppliers for the procurement of comparable products. In addition, Company shall, at its sole discretion, decide the extent to which Company will market advertise, promote, support or otherwise assist in further offerings of the MATERIAL. Purchases by Company under this Agreement shall neither restrict the right of Company to cease purchasing nor require Company to continue any level of such purchases. 12. SPECIFICATIONS OR DRAWINGS Supplier's standard commercial Technical Specification and Company's (referred to herein as "Technical MEMORANDUM" dated September 11, 1998, " or "Specification") is included by reference and further described in Appendix B attached hereto and made a part of this Agreement. In accordance with the notification requirements outlined in Section "PRODUCT CHANGE NOTICES", Supplier shall provide Company with at least thirty (30) business days prior written notice of any change proposed to be made by Supplier in the MATERIAL furnished pursuant to said Technical Specification under this Agreement. If Company, in its sole discretion, does not agree to the change proposed by Supplier, then in addition to all other rights and remedies at law or equity or otherwise, and without any cost to or liability or obligation of Company, Company shall have the right to terminate this Agreement and to terminate any or all purchase orders for MATERIAL affected by such change. Agreement No. WR71980036 Sheet 4 of 31 Supplier shall continue to supply MATERIAL to Company pursuant to the Technical Specification for the term of the Agreement. If Supplier is unable to continue to thus supply or discontinues manufacture of MATERIAL, Company shall be entitled to one (1) year's advance notice plus a manufacturing license and appropriate specifications and drawings to enable Company to manufacture or have manufactured the MATERIAL. 13. ASSIGNMENT Supplier shall not assign any right or interest under this Agreement (excepting solely for moneys due or to become due) without the prior written consent of Company, which shall not be unreasonably withheld. Supplier shall be responsible to Company for all Work performed by Supplier's subcontractor(s) at any tier. 14. BANKRUPTCY AND TERMINATION FOR FINANCIAL INSECURITY Either party may terminate this Agreement by notice in writing: (i). if the other party makes an assignment for the benefit of creditors (other than solely an assignment of monies due); or (ii). if the other party evidences an inability to pay debts as they become due unless adequate assurance of such ability to pay is provided within thirty (30) days of such notice. If a proceeding is commenced under any provision of the United States Bankruptcy Code, voluntary or involuntary, by or against either party, and this Agreement has not been terminated, the non-debtor party may file a request with the bankruptcy court to have the court set a date within sixty (60) days after the commencement of the case, by which the debtor party will assume or reject this Agreement, and the debtor party shall cooperate and take whatever steps necessary to assume or reject the Agreement by such date. 15. CFC PACKAGING Supplier warrants that all packaging materials furnished under this Agreement and all packaging associated with MATERIAL furnished under this Agreement were not manufactured using and do not contain chlorofluorocarbons. "Packaging" means all bags, wrapping, boxes, cartons and any other packing materials used for packaging. Supplier shall indemnify and hold Company harmless for any liability, fine or penalty incurred by Company to any third party or governmental agency arising out of Company's good faith reliance upon said warranty. 16. CHOICE OF LAW This Agreement and all transactions under it shall be governed by the laws of the State of New Jersey excluding its choice of law rules and excluding the Convention for the Agreement No. WR71980036 Sheet 5 of 31 International Sale of Goods. Supplier agrees to submit to the jurisdiction of any court wherein an action is commenced against Company based on a claim for which Supplier has agreed to indemnify Company under this Agreement. 17. COMPLIANCE WITH LAWS Supplier and all persons furnished by Supplier shall comply at their own expense with all applicable laws, ordinances, regulations and codes, including the identification and procurement of required permits, certificates, licenses, insurance, approvals and inspections in performance under this Agreement. 18. CONTINUING AVAILABILITY Supplier shall offer for sale to Company, during the term of this Agreement and for at least one (1) year after the expiration of this Agreement, MATERIAL conforming to the Technical Specifications and other Specifications set forth in this Agreement. Supplier further shall offer for sale to Company, during the term of this Agreement and until five (5) years after the expiration of this Agreement, maintenance, replacement, and repair parts ("Parts") which are functionally equivalent and identical in form and fit for the MATERIAL covered by this Agreement. The price for the MATERIAL and Parts shall be the price set forth in Suppliers then current Agreement with Company for said MATERIAL or Parts or, if no such Agreement exists, at a price agreed upon by Company and Supplier. If the parties fail to agree on a price, the price shall be a reasonably competitive price for said MATERIAL or Parts at the time for delivery. The MATERIAL and Parts shall be warranted as set forth in the "WARRANTY" section of this Agreement. The term "Parts" is included in the term "MATERIAL." 19. DEFAULT If Supplier shall be in breach or default of any of the terms, conditions or covenants of this Agreement or of any purchase order, and if such breach or default shall continue for a period of ten (10) days after the giving of written notice to Supplier thereof by Company, then, in addition to all other rights and remedies which Company may have at law or equity or otherwise, Company shall have the right to cancel this Agreement and/or any purchase orders placed by Company without any charge to or obligation or liability of Company. 20. ELECTRONIC DATA INTERCHANGE Supplier agrees, if requested by Company, to implement Electronic Data Interchange (EDI) ordering and payment arrangements as an electronic means of trading business document with Company. The electronic business documents include purchase orders, acknowledgments, purchase order changes, ship notices, invoices, remittance advice, electronic funds transfer (EFT) or such purchasing communications as may be requested by Company for transaction under this Agreement. Supplier shall at its sole expense, obtain, make fully operational and maintain all equipment, software and other materials set forth in Agreement No. WR71980036 Sheet 6 of 31 Company's EDI Planning Guide. Supplier shall also execute an Electronic Purchasing Agreement with Company at the time of execution of this Agreement. 21. EPIDEMIC CONDITION If during the term of this Agreement and for one (1) year after the last shipment date of MATERIAL under this Agreement Company notifies Supplier that MATERIAL shows evidence of an "Epidemic Condition," Supplier shall prepare and propose a Corrective Action Plan ("CAP") with respect to such MATERIAL within five (5) working days of such notification, addressing implementation and procedure milestones for remedying such Epidemic Condition(s). An extension of this time-frame is permissible upon mutual written agreement of the parties. Upon notification of the Epidemic Condition to Supplier, Company shall have the right to postpone all or part of the shipments of unshipped MATERIAL, by giving written notice of such postponement to Supplier, pending correction of the Epidemic Condition. Such postponement shall temporarily relieve Supplier of its shipment liability and Company of its shipment acceptance liability. Should Supplier not agree to the existence of an Epidemic Condition or should Company not agree to the CAP, then Company shall have the right to suspend all or part of its unshipped orders without liability to Company until such time as a mutually acceptable solution is reached. An Epidemic Condition will be considered to exist when one or more of the following conditions occur: (1) Failure reports or statistical samplings show that MATERIAL shipped contain a potential safety hazard (such as personal injury or death, fire, explosion, toxic emissions, etc.), or exhibit a highly objectionable symptom (such as emissions of smoke, loud noises, deformation of housing) or other disconcerting symptoms of this type. (2) Reliability plots of relevant data indicate that the MATERIAL has actual Mean Time Between Failures (MTBF) of less than 80% of the MTBF stipulated in the Technical Specification. The MTBF parameter of MATERIAL is defined as the total operating or power-on time of any population under observation ("T"), in hours, divided by the total number of critical failures ("n") that have occurred during the observed period. A critical failure is defined as a failure to operate per the requirements of the Technical Specification. The total operating time of a population is the summation of operating time of individual units in that population. MTBF is expressed as MTBF = T/n. An Epidemic Condition shall exist when data derived from populations being tracked confirms the condition with 80% confidence. (3) MATERIAL Dead on Arrival (DOA) failures exceed the Epidemic DOA failure rate which is defined as 1.2 x DOA specified in the section of this Agreement entitled PRODUCT CONFORMANCE REVIEW. Agreement No. WR71980036 Sheet 7 of 31 Only major functional and visual/mechanical/appearance defects are considered for determining Epidemic Condition. MATERIAL could be either sampled or, a Company's option, 100% audited at Company warehouses, factories or Company's customers' locations. If MATERIAL is sampled, the data must have 80% or better statistical confidence. For the purpose of this Agreement, functional DOA shall be defined as any MATERIAL that during the test, installation or upon its first use fails to operate as expected or specified. Visual/mechanical/appearance DOA is defined as any MATERIAL containing one or more major defects that would make the MATERIAL unfit for use or installation. An Epidemic Condition shall not include failures due to customer misapplication, utilization of parts not approved by supplier, or chain failures induced by internally or externally integrated subassemblies. In the event that Supplier develops a remedy for the defect(s) that caused the Epidemic Condition and Company agrees in writing that the remedy is acceptable Supplier shall: (a) Incorporate the remedy in the affected MATERIAL in accordance with Company's. (b) Ship all subsequent MATERIAL incorporating the required modification correcting the defect(s) at no additional charge to Company; and (c) Repair and/or replace MATERIAL that caused the Epidemic Condition. In the event that Company incurs costs due to such repair and/or replacement, including but not limited to labor and shipping costs, Supplier shall reimburse Company for such costs. Supplier shall bear risk of in transit loss and damage for such repaired and/or replaced MATERIAL. Supplier and Company shall mutually agree in writing as to the remedy's implementation schedule. Supplier shall use its best efforts to implement the remedy in accordance with the agreed-upon schedule. If Supplier is unable to develop a mutually agreeable remedy, or does not adequately take into account the business interests of Company, as reasonably agreed by the parties, Company may (i) develop and implement such remedy and, in such case, implementation costs and risk of in- transit loss and damage shall be allocated between the parties as set forth in this section, and/or (ii) cancel postponed orders without liability and return all MATERIAL affected by such Epidemic Condition for full refund, payable by Supplier within thirty (30) Agreement No. WR71980036 Sheet 8 of 31 business days after receipt of returned MATERIAL (with risk of loss or in-transit damage borne by Supplier) and/or (iii) terminate this Agreement without further liability. 22. EXPORT CONTROL Supplier will not use, distribute, transfer or transmit any products, software or technical information (even if incorporated into other products) provided under this Agreement except in compliance with U.S. export laws and regulations (the "Export Laws"). Supplier will not, directly or indirectly, export or re-export the following items to any country which is in the then current list of prohibited countries specified in the applicable Export Laws: (a) software or technical data disclosed or provided to Supplier by Company or Company's subsidiaries or affiliates; or (b) the direct product of such software or technical data. Supplier agrees to promptly inform Company in writing of any written authorization issued by the U.S. Department of Commerce office of export licensing to export or re-export any such items referenced in (a) or (b). The obligations stated above in this clause will survive the expiration, cancellation or termination of this Agreement or any other related agreement. 23. FORCE MAJEURE Neither party shall be held responsible for any delay or failure in performance of any part of this Agreement to the extent such delay or failure is caused by fire, flood, strike, civil, governmental, or military authority, act of God, or other similar causes beyond its control and without the fault or negligence of the delayed or non performing party or its subcontractors. Supplier's liability for loss or damage to Company's MATERIAL in Supplier's possession or control shall not be modified by this section. When a party's delay or nonperformance continues for a period of at least fifteen (15) days, the other party may terminate, at no charge, this Agreement or an order under the Agreement. 24. GOVERNMENT CONTRACT PROVISIONS The following provisions regarding equal opportunity, and all applicable laws, rules, regulations and executive orders specifically related thereto, including applicable provisions and sections from the Federal Acquisition Regulation and all supplements thereto are incorporated in this Agreement as they apply to work performed under specific U.S. Government contracts: 41 CFR 60-1.4, Equal Opportunity; 41 CFR 60-1.7, Reports and Other Required Information 41 CFR 60-1.8, Segregated Facilities; 41 CFR 60-250.4, Affirmative Action For Disabled Veterans and Veterans of the Vietnam Era (if in excess of $10,000); and 41 CFR 60-741.4, Affirmative Action for Disabled Workers (if in excess of $2,500), wherein the terms "contractor" and "subcontractor" shall mean "Supplier". In addition, orders placed under this Agreement containing a notation that the material or services are intended for use under Government contracts shall be subject to such other Agreement No. WR71980036 Sheet 9 of 31 Government provisions printed, typed or written thereon, or on the reverse side thereof, or in attachments thereto. 25. HEAVY METALS IN PACKAGING Supplier warrants to Company that no lead, cadmium, mercury or hexavalent chromium have been intentionally added to any packaging or packaging component (as defined under applicable laws) to be provided to Company under this Agreement and that packaging materials were not manufactured using and do not contain chlorofluorocarbons. Supplier further warrants to Company that the sum of the concentration levels of lead, cadmium, mercury and hexavalent chromium in the package or packaging component provided to Company under this Agreement does not exceed 100 parts per million. Upon request, Supplier shall provide to Company Certificates of Compliance certifying that the packaging and/or packaging components provided under this Agreement are in compliance with the requirements set forth above in this section. 26. IDENTIFICATION Supplier shall not, without Company's prior written consent, engage in publicity related to this Agreement, or make public use of any Identification in any circumstances related to this Agreement. "Identification" means any semblance of any trade name, trademark, service mark, insignia, symbol, logo, or any other designation, or drawing of Company or its affiliates. Supplier shall remove or obliterate any Identification prior to any use or disposition of any MATERIAL rejected or not purchased by Company. 27. IMPLEADER Supplier shall not implead or bring an action against Company based on any claim by any person for personal injury or death to an employee of Company for which Company has previously paid or is obligated to pay worker's compensation benefits to such employee or claimant and for which such employee or claimant could not otherwise bring legal action against Company. 28. INDEMNITY At Company's request, Supplier agrees to indemnify, defend and hold harmless Company, its affiliates, customers, employees, successors and assigns (all referred to as "Company") from and against any losses, damages, claims, fines, penalties and expenses (including reasonable attorney's fees) that arise out of or result from: (i) injuries or death to persons or damage to property, including theft, in any way arising out of or caused or alleged to have been caused by the Work or services performed by, or material provided by Supplier or persons furnished by Supplier; (ii) assertions under Workers' Compensation or similar acts made by persons furnished by Supplier; or (iii) any failure of Supplier to perform its obligations under this Agreement. Agreement No. WR71980036 Sheet 10 of 31 29. INFRINGEMENT Supplier shall indemnify and save harmless Company, its affiliates and their customers, officers, directors, employees (all referred to in this section as "Company") from and against any losses, damages, liabilities, fines, penalties, and expenses (including reasonable attorneys' fees) that arise out of or result from any and all claims: (i) of infringement of any patent, copyright, trademark or trade secret right, or other intellectual property right, private right, or any other proprietary or personal interest, and (ii) related by circumstances to the existence of this Agreement or performance under or in contemplation of it (an Infringement Claim). If the Infringement Claim arises solely from Suppliers adherence to Company's written instructions regarding services or tangible or intangible goods provided by Supplier (items) and if the Items are not (i) commercial items available on the open market or the same as such items, or (ii) items of Supplier's designated origin, design or selection, Company shall indemnify Supplier. Company or Supplier shall defend or settle, at its own expense any demand, action or suit on any Infringement Claim for which it is indemnitor under the preceding provisions and each shall timely notify the other of any assertion against it or any Infringement Claim and shall cooperate in good faith with the other to facilitate the defense of any such Claim. 30. INSIGNIA Upon Company's written request, "Insignia", including certain trademarks, trade names, insignia, symbols, decorative designs or packaging designs of Company, or evidences of Company's inspection will be properly affixed by Supplier to the MATERIAL furnished or its packaging. Such Insignia will not be affixed, used or otherwise displayed on the MATERIAL furnished or in connection therewith without written approval by Company. The manner in which such Insignia will be affixed must be approved in writing by Company in accordance with standards established by Company. Company shall retain all right, title and interest in any and all packaging designs, finished artwork and separations furnished to Supplier. This section does not reduce or modify Suppliers obligations under the "IDENTIFICATION" and "USE OF INFORMATION" section. 31. INSURANCE Supplier shall maintain and cause Supplier's subcontractors to maintain during the term of this Agreement: (i) Workers' Compensation insurance as prescribed by the law of the state or nation in which the Work is performed; (ii) employer's liability insurance with limits of at least $500,000 for each occurrence; (iii) automobile liability insurance if the use of motor vehicles is required, with limits of at least $1,000,000 combined single limit for bodily injury and property damage for each occurrence; (iv) Commercial General Liability ("CGL") insurance, ISO 1988 or later occurrence form of insurance including Blanket Contractual Liability and Broad Form Property Damage, with limits of at least $1,000,000 combined single limit for bodily injury and property damage for each occurrence; and (v) if the furnishing to Company (by sale or otherwise) of products or material is involved, CGL Agreement No. WR71980036 Sheet 11 of 31 insurance endorsed to include products liability and completed operations coverage in the amount of $5,000,000 per occurrence. All CGL and automobile liability insurance shall designate Company, its affiliates, and its directors, officers and employees (all referred to as "Company") as additional insured. All such insurance must be primary and non-contributory and required to respond and pay prior to any other insurance or self-insurance available. Any other coverage available to Company shall apply on an excess basis. Supplier agrees that Supplier, Supplier's insurer(s) and anyone claiming by, through, under or in Supplier's behalf shall have no claim, right of action or right of subrogation against Company and its customers based on any loss or liability insured against under the foregoing insurance. Supplier and Supplier's subcontractors shall furnish prior to the start of Work, certificates or adequate proof of the foregoing insurance, including if specifically requested by Company, endorsements and insurance Policies. Company shall be notified in writing at least thirty (30) days prior to cancellation of or any change in the policy. Insurance companies providing coverage under this Agreement must be rated by A-M Best with at least an A rating. 32. INVOICING FOR GOODS Supplier shall: (i) render original invoice, or as otherwise specified in this Agreement, showing Agreement and order number, through routing and weight, (ii) render separate invoices for each shipment within twenty-four (24) hours after shipment, and (iii) mail invoices with copies of bills of lading and shipping notices to the address shown on this Agreement or order. If shipping notices to prepayment of transportation charges is authorized, Supplier shall include the transportation charges from the F.O.B. point to the destination as a separate item on the invoice stating the name of the carrier used. 33. INVOICING FOR STOCKS If Company requests for reasons other than covered by Section "FORCE MAJEURE", that shipment be postponed beyond the date shown on a purchase order, Supplier may invoice Company as of the original scheduled delivery date for MATERIAL manufactured under this Agreement, if it has been inspected and approved by Company's designated quality organization (provided inspection has been specified in this Agreement or in an order issued under this Agreement). 34. JURISDICTION Subject to the section "MEDIATION", Supplier agrees that any action or legal proceeding arising out of this Agreement shall be brought only in a court of competent jurisdiction in the United States of America and Supplier expressly submits to, and accepts the jurisdiction of, any such court in connection with such action or proceeding and Supplier further consents to the enforcement of any judgment against it arising therefrom in any jurisdiction in which it has or shall have any assets. Agreement No. WR71980036 Sheet 12 of 31 35. LICENSES No Licenses, express or implied, under any patents are granted by Company to Supplier under this Agreement or order. 36. MARKING All MATERIA L furnished under this Agreement shall be marked for identification purposes in accordance with the specifications set forth in this Agreement and as follows: (a) with Supplier model/serial number; and (b) with month and year of manufacture. (c) with Company's Comcode In addition, Supplier shall add any other identification which might be requested by Company such as but not limited to indicia conforming to the Company's Serialization Plan (KS-23490) as shown in Appendix C. Charges, if any, for such additional identification marking shall be as agreed upon by Supplier and Company. This section does not reduce or modify Supplier's obligations under the "IDENTIFICATION" section. 37. MEDIATION If a dispute relates to this Agreement, or its breach, and the parties have not been successful in resolving such dispute through negotiation, the parties shall attempt to resolve the dispute through mediation by submitting the dispute to a sole mediator selected by the parties or, at any time at the option of a party, to mediation by the American Arbitration Association ("AAA"). Each party shall bear its own expenses and an equal share of the expenses of the mediator and the fees of the AAA. All defenses based on passage of time shall be suspended pending the termination of the mediation. Nothing in this section shall be construed to preclude any party from seeking injunctive relief in order to protect its rights pending mediation. 38. MONTHLY ORDER AND SHIPMENT REPORTS Supplier shall render monthly order and shipment reports on or before the fifth working day of the succeeding month containing the information as agreed by Company and Supplier. 39. NEW AND CHANGED METHODS, PROCESSES AND EQUIPMENT Supplier shall keep abreast of major developments in Supplier's industry and to promptly advise Company of any developments which might affect the production of any MATERIAL under this Agreement. Agreement No. WR71980036 Sheet 13 of 31 40. NON WAIVER The failure of either party at any time to enforce any right or remedy available to it under this Agreement or otherwise with respect to any breach or failure by the other party shall not be construed to be a waiver of such right or remedy with respect to any other breach or failure by the other party. 41. NOTICES Any notice given or demand which under the terms of this Agreement or under any statute, must or may be given or made by Supplier or Company shall be in writing and shall be given or made by confirmed facsimile, or similar communication or by certified or registered mail addressed to the respective parties as follows To Company: Lucent Technologies Inc. Global Procurement Organization 211 Mt. Airy Road Room 3W220 Basking Ridge, NJ 07920 Attn.: Sourcing and Manufacturing Manager -OR- To Supplier: MicroFrame, Inc. 21 Meridian Rd. Edison, NJ 08820 Attn.: Henry Gold Such notice or demand shall be deemed to have been given or made when sent by facsimile, or other communication or when deposited, postage prepaid in the U.S. mail. The above addresses may be changed at any time by giving prior written notice as above provided. The above addresses may be changed at any time by giving prior written notice as above provided. 42. OPERATING SYSTEM SOFTWARE The term MATERIAL includes any software (operating program in machine readable form and related documentation) and storage media therefor normally furnished with or embedded in the MATERIAL. Title to the software, including copyright, shall remain in Supplier. The party having title to the MATERIAL shall have title to the software storage media. For the life of the MATERIAL listed in this Agreement, Supplier grants to Company Agreement No. WR71980036 Sheet 14 of 31 and any subsequent purchaser, lessee or other end user (referred to collectively in this section as "end user") a non-exclusive license to use said software on the MATERIAL on which it was delivered. Company and any subsequent end user may copy the software for use on such MATERIAL with which it was originally delivered and for archival purposes, but shall not knowingly reproduce either the original software for distribution to others. Company and any subsequent end user may add to, delete from or modify the software in any manner, but no changes, however extensive, shall alter Supplier's title to such original software. Title to any such modification or addition to the software shall remain in the entity which creates the modification or addition. 43. OZONE DEPLETING CHEMICALS Supplier hereby warrants that it is aware of international agreements and pending legislation in several nations, including the United States, which would limit, ban and/or tax importation of any product containing, or produced using ozone depleting chemicals ("ODCs"), including chloroflurocarbons, halons and certain chlorinated solvents. Supplier hereby warrants that the MATERIAL furnished to Company will conform to all applicable requirements established pursuant to such agreements, legislation and regulations, and the MATERIAL furnished to Company will be able to be imported and used lawfully (and without additional taxes associated with ODCs not reported to Company by Supplier as set forth in this section) under all such agreements, legislation and requirements. Supplier also warrants that it is currently reducing, or if Supplier is not the manufacturer of the MATERIAL, is currently causing the manufacturing vendor to reduce and will, in an expeditious manner, eliminate, or, as applicable, have its manufacturing vendor eliminate the use of ODCs in the manufacture of the MATERIAL. If the MATERIAL furnished by Supplier under this Agreement is manufactured outside the United States, Supplier shall, upon execution of this Agreement, and at any time that new products are added to this Agreement or changes are made to the MATERIAL furnished under this Agreement, complete, sign and return to Company the attached ODC Content Certification. The ODC Content Certification must be signed by Supplier's facility manager, corporate officer or his delegate. The term "ODC content" on the ODC Content Certification means the total pounds of ODC used directly in the manufacture of each unit of MATERIAL. This includes all ODCs used in the manufacturing and assembly operations for the MATERIAL plus all ODCs used by Supplier's vendors and any other vendors in producing components or other products incorporated into the MATERIAL sold to Company. Supplier is responsible to obtain information on the ODC content of all components and other products acquired to manufacture the MATERIAL and to incorporate such information into the total ODC content reported to Company. Provided however, that Agreement No. WR71980036 Sheet 15 of 31 Supplier should not include in the ODC content those components or other products which are manufactured in the United States. Supplier hereby warrants to Company that all information furnished by Supplier on the ODC Content Certification is complete and accurate and that Company may rely on such information for any purpose, including but not limited to providing reports to government agencies or otherwise complying with applicable laws. Supplier shall defend, indemnify and hold Company harmless of and from any claims, demands, suits, judgments, liabilities, fines, penalties, costs and expenses (including additional ODC taxes as provided for in paragraph one of this section and reasonable attorney's fees) which Company may incur under any applicable federal, state, or local laws or international agreements, and any and all amendments thereto by reason of Company's use of reliance on the information furnished to Company by Supplier on the ODC Content Certification or by reason of Supplier's breach of this section. Supplier shall cooperate with Company in responding to any inquiry concerning the use of ODCs to manufacture the MATERIAL or components thereof and to execute without additional charge any documents reasonably required to certify the absence or quantity of ODCs used to manufacture the MATERIAL or components thereof. 44. OZONE DEPLETING SUBSTANCES LABELING Supplier warrants and certifies that all MATERIAL and other products, including packaging and packaging components, provided to Company under this Agreement have been accurately labeled, in accordance with the requirements of 40 CFR, Part 82 entitled "Protection of Stratospheric Ozone, Subpart E- The Labeling of Products Using Ozone Depleting Substances." 45. PACKING MATERIAL purchased, repaired, replaced or refurbished under this Agreement shall be packed and labeled by Supplier at no additional charge in accordance with Packing Specifications PKG-91NJ1045, Issue 6, as changed from time to time with Supplier's written approval, which Specifications are attached. and made a part of this Agreement as Appendix D. 46. PRODUCT CHANGES Supplier shall notify Company in advance, in writing of any change proposed to be made in accordance with this Agreement, or in the Specification and documentation covered by this Agreement that would impact upon: (i) reliability, (ii) requirements of the Specification, or (iii) form, fit or function (as defined below). In order for Company to review these proposed changes, at least thirty (30) business days advance notice will be required except for those cases where an extremely unsatisfactory condition requires immediate action. In that instance, verbal notification to Company shall be used, followed by Supplier's immediate written confirmation. Agreement No. WR71980036 Sheet 16 of 31 "Form" shall mean changes in appearance visible to the user (customer, repair personnel, developer) of the MATERIAL. "Fit" shall mean changes in parts to components that are not physically interchangeable. "Function" shall mean changes that affect operational characteristics of the MATERIAL or require the operator to change the method of operation. Supplier shall submit a proposal to Company, specifically documenting all cost factors, implementation schedules, and repair changes. The change notice shall be sent to the following address: Lucent Technologies Inc. 211 Mt. Airy Road Room 3W220 Basking Ridge, NJ 07920 Attn: Sourcing & Manufacturing Manager The format of Suppliers notification document shall be the responsibility of Supplier but said notification document shall contain at least the following information. 1. Supplier's name. 2. Agreement number. 3. MATERIAL description. 4. Change number. 5. MATERIAL affected. 6. Reason for change. 7. Description of change (including the impact upon: (i) reliability, (ii) requirements of the Specification and (iii) form, fit or function..) 8. Cost impact. 9. Marking method of identifying changed units. 10. Documentation a. Marked up documents shall be provided until the document or drawing is re-issued. b. Listing of documents and drawings to be changed. c. Field repair or modification kit documentation (if applicable). 11. Unit in process, in stock and installed affected by change. 12. Date changes are proposed to be implemented. Agreement No. WR71980036 Sheet 17 of 31 13. All necessary and relevant temporary changes affected by this notice. 14. All necessary and relevant attachments. 15. Additional comments. If, as mutually agreed by Company and Supplier, sufficient changes have been made to warrant a MATERIAL re-qualification, such requalification will be performed at no cost to Company unless otherwise agreed. MATERIAL shall be in accordance with the latest information stated or referenced in the Specification. The quality of MATERIAL used and the method of manufacturing, handling and shipping, shall be such that the finished MATERIAL meets the properties and requirements shown in the Specification and in the other sections of this Agreement. If Company, in its sole discretion, does not agree to the change(s) proposed by Supplier, then in addition to all other rights and remedies at law or equity or otherwise, and without any cost to or liability or obligation of Company, Company shall have the right to terminate this Agreement and to terminate any or all orders for MATERIAL affected by such change. 47. PRODUCT CONFORMANCE REVIEWS Supplier shall, utilizing documented procedures specified herein, make such tests and inspections as are necessary to insure that MATERIAL meets all technical requirements of the MATERIAL specification. Supplier shall provide, without charge, any production testing facilities and personnel required to inspect the MATERIAL under Quality Program Specification (QPS) Nos. 40.002 and 40.030, as changed from time to time with Supplier's written approval, which specification is attached and made a part of this Agreement as Appendix E. Company reserves the right to inspect MATERIAL prior to shipment from Supplier or Supplier's subcontractor(s). Such inspection shall be conducted by Company's Engineering and Environmental Technologies (EE&T) organization utilizing a 0.65% Acceptability Level (AQL) sampling plan as described in QPS 40.030. If MATERIAL fails inspection, Supplier agrees to pay for all re-inspection costs. Inspection requirements may be waived only by written notification from Company's Engineering and Environmental Technologies (EE&T) organization. In the event that any or all work under this Agreement is subcontracted to another Supplier, Company reserves the right to conduct the aforementioned inspections at the subcontractors facilities. 48. PRODUCT DOCUMENTATION Agreement No. WR71980036 Sheet 18 of 31 Supplier shall furnish, at no charge, product documentation, and any succeeding changes thereto, as described in the Technical Specification. Company may use, reproduce, reformat, modify and distribute such product documentation. Company shall reproduce Suppliers copyright notice contained in any documentation reproduced without change by Company. For documentation which is reformatted; or modified by Company, Company shall have the right to place only Company's own copyright notice on the reformatted or modified documentation. It is the intent of the parties that Company's copyright notice shall be interpreted to protect the underlying copyright rights of Supplier to the documentation to the extent such underlying rights are owned by Supplier. 49. PURCHASE ORDERS Purchase orders issued under this Agreement shall be sent to the following address: MicroFrame, Inc. 21 Meridian Rd. Edison, NJ 08820 Attn: Henry Gold Purchase orders shall specify: (i) description of MATERIAL, inclusive of any numerical/alphabetical identification referenced in the price list in this Agreement, (ii) delivery date, (iii) applicable price, (iv) location to which the MATERIAL is to be shipped and (v) location to which invoices shall be sent for payment. 50. REGISTRATION AND RADIATION STANDARDS When MATERIAL furnished under this Agreement is subject to Part 68, Part 15 or any other part of the Federal Communication Commission's Rules and Regulations, as may be amended from time to time (hereinafter "FCC Rules"), Supplier warrants that such MATERIAL complies with the registration, certification, type-acceptance and/or verification standards of the FCC Rules including, but not limited to, all labeling, customer instruction requirements, and the suppression of radiation to specified levels. Supplier shall also establish periodic on-going compliance retesting and follow a Quality Control program, submitted by Company, to assure that MATERIAL shipped complies with the applicable FCC Rules. Supplier shall indemnify and save Company harmless from any liability, fines, penalties, claims or demands (including the costs, expenses and reasonable attorney's fees on account thereof) that may be made because of Supplier's noncompliance with the applicable FCC Rules. Supplier shall defend Company, at Company's request, against such liability, claim or demand. In addition, should MATERIAL which is subject to Part 15 of the FCC Rules, during use generate harmful interference to radio communications, Supplier shall provide the Agreement No. WR71980036 Sheet 19 of 31 Company information relating to methods of suppressing such interference and pay the cost of suppressing such interference or, at the option of Company, accept the return of the MATERIAL and refund to Company the price paid for the MATERIAL less a reasonable amount for depreciation, if applicable. To the extent that MATERIAL furnished under this Agreement is also subject to FCC Rules governing the use of the MATERIAL as a component in a system, Company shall be responsible for compliance with the applicable FC Rules governing the system. Supplier shall fully cooperate with Company, by providing technical support and information, and, upon written request from Company, shall modify MATERIAL to enable Company to ensure ongoing compliance with the FCC Rules. Company shall pay any increase in Suppliers costs and/or expenses resulting from Company's request to modify MATERIAL to enable Company to comply with the FCC Rules. Nothing in this section shall be deemed to diminish or otherwise limit Supplier's obligations under the "WARRANTY" section or any other section of this Agreement. 51. REJECTIONS If Company rejects any or all of the MATERIAL, company may, in addition to all its other rights and remedies at law or equity, exercise one or more of the following remedies: (i) return rejected MATERIAL for full credit at the price charged plus transportation charges from Supplier's plant, and return; or (ii) accept a conforming part of any shipment; or (iii) have rejected MATERIAL replaced by Supplier at the purchase price stipulated in this Agreement. 52. RELEASES VOID Neither party shall require (i) waivers or releases of any personal rights or (ii) execution of documents which conflict with the terms of this Agreement, from employees, representatives or customers of the other in connection with visits to its premises and both parties agree that no such releases, waivers or documents shall be pleaded by them or third persons in any action or proceeding. 53. REPAIRS NOT COVERED UNDER WARRANTY In addition to repairs provided for in the "WARRANTY" section Supplier shall provide repair service on all MATERIAL ordered under this Agreement during the term of this Agreement and until five (5) years after the expiration of this Agreement. MATERIAL to be repaired under this section will be returned to a location designated by Supplier, and unless otherwise agreed upon by Supplier and Company, Supplier shall ship the repaired MATERIAL which meets the Specifications set forth in the "SPECIFICATIONS OR DRAWINGS" section and all other Specifications within ten (10) business days of receipt of Agreement No. WR71980036 Sheet 20 of 31 the defective or non-conforming MATERIAL. With the concurrence and scheduling of Company, repair may be made by Supplier on site. If MATERIAL is returned to Supplier for repair as provided for in this section and is determined to be beyond repair, Supplier shall so notify Company. If requested by Company, Supplier will sell to Company a replacement at the price set forth in Supplier's then current agreement with Company for said MATERIAL or, if no such agreement exists, at a price agreed upon by Supplier and Company. If the parties fail to agree on a price, the price shall be a reasonably competitive price for such MATERIAL at the time for delivery. Further, if requested by Company, Supplier shall take the necessary steps to dispose of the unrepairable MATERIAL and pay to Company the salvage value, if any. Replacement and repaired MATERIAL shall be warranted as set forth in the "WARRANTY" section. This Agreement does not grant Supplier an exclusive privilege to repair any or all of the MATERIAL purchased under this Agreement for which Company may require repair; and Company may perform the repairs or contract with others for these services. In addition, Supplier authorizes Company and any qualified repairer with whom Company may contract to perform repairs on all MATERIAL purchased under this Agreement. All transportation costs of and in transit risk of loss and damage to MATERIAL returned to Supplier for repair under this section will be borne by Company and all transportation costs of and in transit risk of loss and damage to such repaired or replacement MATERIAL returned to Company will be borne by Company. Price schedules for repairs under this section are listed in Appendix A. 54. REPAIR PROCEDURES Company shall furnish the following information with MATERIAL returned to Supplier for repair: (a) Company's name and complete address; (b) name(s) and telephone numbers(s) of Company's employee(s) to contact in case of questions about the MATERIAL to be repaired; (c) ship-to address for return of repaired MATERIAL if different than (a); (d) a complete list of MATERIAL returned; (e) the nature of the defect or failure if known; and (f) whether or not returned MATERIAL is in warranty. Supplier shall, within ten (10) days of the execution of this Agreement, provide a written notice to Company specifying (i) the name(s) and telephone number(s) of the individual(s) to be contacted concerning any questions that may arise concerning repair, and (ii) if required, any special packing of MATERIAL which might be necessary to provide adequate in-transit protection from transportation damage. MATERIAL repaired by Supplier shall have the repair completion date stenciled or otherwise identified in a permanent manner at a readily visible location on the MATERIAL Agreement No. WR71980036 Sheet 21 of 31 and the repaired MATERIAL shall be returned with a tag or other papers describing the repairs which have been made. All invoices originated by Supplier for repair services must be clearly identified as such, and must contain: (i) a reference to Company's purchase order for these repair services, (ii) a detailed description of repairs made by Supplier and the need therefor, and (iii) an itemized listing of parts and labor charges, if any. Replaced parts will, upon request, be available for inspection by or returned to Company. Further, the provisions of the "INVOICING" and "SHIPPING" sections, other than provisions relating to transportation charges with respect to MATERIAL repaired under warranty, shall apply to Suppliers return to Company of repaired MATERIAL. 55. RIGHT OF ENTRY Each party shall have the right to enter the premises of the other party during standard business hours with respect to the performance of this Agreement, including an inspection or a Quality Review, subject to all plant rules and regulations, clearances, security regulations and procedures as applicable. Each party shall provide safe and proper facilities for such purpose. No charge shall be made for such visits. It is agreed that prior notification will be given when access is required. 56. SAFETY CERTIFICATION All MATERIAL purchased under this Agreement shall be designed to be in compliance with the applicable Underwriters Laboratories (UL) and Canadian Standards Association (CSA) rules and regulations. It is agreed that Supplier shall be responsible for filing the required documents to obtain compliance with said Underwriters Laboratories Standards and Canadian Standards. Supplier shall be responsible for making the MATERIAL available for testing. 57. SECTION HEADINGS The headings of the sections in this Agreement are inserted for convenience only and are not intended to affect the meaning or interpretation of this Agreement. 58. SERVICES Visits by Supplier's representatives or its suppliers' representatives for inspection, adjustment or other similar purposes in connection with MATERIAL purchased under this Agreement shall for all purposes be deemed "Work under this Agreement" and shall be at no charge to Company unless otherwise agreed in writing between the parties. 59. SEVERABILITY If any of the provisions of this Agreement shall be invalid or unenforceable, such invalidity or unenforcability shall not invalidate or render unenforceable the entire Agreement, Agreement No. WR71980036 Sheet 22 of 31 but rather the entire Agreement shall be construed as if not containing the particular invalid or unenforceable provision or provisions, and the rights and obligations of Supplier and Company shall be construed and enforced accordingly. 60. SHIPPING Supplier shall: (i) ship the MATERIAL covered by this Agreement or order complete unless instructed otherwise, (ii) ship to the destination designated in the Agreement or order, (iii) ship according to routing instructions given by Company, (iv) place the Agreement and order number on all subordinate documents, (v) enclose a packing memorandum with each shipment and, when more than one package is shipped, identify the package containing the memorandum; and (vi) mark the order number on all packages and shipping papers. Adequate protective packing shall be furnished at no additional charge. Shipping and routing instructions may be furnished or altered by Company without a writing. If Supplier does not comply with the terms of the FOB section of the Agreement or order or with Company's shipping or routing instructions, Supplier authorizes Company to deduct from any invoice of Supplier (or to charge back to Supplier), any increased cost incurred by Company as a result of Supplier's noncompliance. 61. SHIPPING INTERVAL The delivery schedule applicable to each purchase order will be agreed upon by Supplier and Company and set forth in the purchase order. (Note: Supplier has indicated that MATERIAL can usually be shipped an average of fifteen (15) business days after receipt of Company's purchase order; however, in no event shall the delivery interval exceed forty-five (45) business days after receipt of purchase order.) If Supplier exceeds the above maximum interval then in addition to all other rights and remedies at law or equity or otherwise, and without any liability or obligation of Company, Company shall have the right to: (a) cancel such purchase order, or (b) extend such delivery date to a later date, subject, however, to the right to cancel as in (a) preceding if delivery is not made or performance is not completed on or before such extended delivery date. If Company elects to extend such delivery date, Supplier shall absorb the difference between the charges to ship normal transportation and the charges to ship premium overnight. If a purchase order is canceled by Company pursuant to the above, Company shall have the right to retain or return any or all MATERIAL received by or paid for by Company under such purchase order. Within fifteen (15) business days of Supplier's receipt of returned MATERIAL, Supplier shall reimburse Company for the costs of shipping the MATERIAL returned to Supplier and for any amounts, including shipping costs, previously paid by Company for the MATERIAL. Company shall pay for any MATERIAL if retains at the prices set forth in Appendix A, less applicable discounts which shall be applied on the basis of the quantity specified in the purchase order. Agreement No. WR71980036 Sheet 23 of 31 If, during the course of this Agreement, Supplier determines that Supplier will no longer be able to ship within the above interval, Supplier shall immediately notify Company's buyer to that effect. Supplier shall also notify Company's buyer, as soon as it becomes apparent, if Supplier is unable to meet the delivery date for an order. However, nothing contained in this paragraph shall waive Company's rights as set forth above in this section. 62. STORAGE OF PAID FOR STOCK Subject to the section "OPERATING SYSTEM SOFTWARE", Company has and shall have at all times all right, title and interest in all MATERIAL invoiced to Company in accordance with the section "INVOICING FOR STOCKS". Such MATERIAL shall be referred to in this section as "Company Property." Supplier shall store such Company Property without cost to Company at Supplier's] 21 Meridian Road, Edison, NJ 08820, facility and ship such Company Property as ordered by Company. In addition, Supplier shall: (i) Be responsible for the safekeeping of the Company Property, assume all risks of loss or damage to the same and be liable for the full actual value of such Company Property. In case of removal of all or any part of the Company Property from one building to another, Supplier's responsibility for loss or damage shall continue and Supplier shall give Company at least ten (10) days advance notice in writing of the removal, except when the removal is required to comply with Company's shipping orders or to protect the Company Property from loss or damage. (ii) Permanently mark or if impracticable to do so then affix labeling stating that the Company Property is the "PROPERTY OF LUCENT TECHNOLOGIES INC." For purposes of this section, the term "LUCENT TECHNOLOGIES INC." shall be deemed to mean Company or the Company affiliated or associated company which owns the tooling, as applicable. (iii) Store the Company Property safely, indoors in protected areas approved by Company. Store the Company Property segregated from other property in sections of Supplier's plant marked Property of Company. (iv) Deliver the Company Property only to Company or Company's designated customers in accordance with Company's orders or upon Company's demand, FOB Supplier's plant without additional charge for removal, packing, or crating. (v) Supplier shall not allow any security interest, lien, tax lien or other encumbrance (collectively referred to as "encumbrance") to be placed on any Company Property. Supplier shall give Company immediate written notice should any third party attempt to place or place an encumbrance on such Company Property. Supplier shall indemnify and hold Company harmless from any such encumbrance. Supplier shall, at Agreement No. WR71980036 Sheet 24 of 31 Company's request, promptly execute a "protective notice" UCC-1 form and all other documents reasonably necessary to enable Company to protect its interest in such Company Property. This Agreement shall constitute the security agreement required by the UCC of the appropriate state. (vi) Company may inspect, inventory, and authenticate the account of the Company Property during Suppliers normal business hours. Supplier shall provide Company access to the premises where all such Company Property is located. The obligations assumed by Supplier with respect to the Company Property are for the protection of Company's property. If Supplier defaults in carrying out Supplier's obligations under this Agreement, then, at no cost to Company and upon twenty-four (24) hours notice to Supplier, Company may cancel this Agreement in whole or in part or withdraw all or any part of the Company Property, or both. Supplier shall, at Company's option, return to Company or hold for Company's disposition any or all of such Company Property in Suppliers possession. 63. SUPPLIERS INFORMATION Supplier shall not provide under, or have provided in contemplation of, this Agreement any idea, data, program, technical, business or other intangible information, however conveyed, or any document, print, tape, disc, semiconductor memory or other information-conveying tangible article, unless Supplier has the right to do so, and Supplier shall not view any of the foregoing as confidential or proprietary. If Supplier must furnish any such information to Company with restrictions, it shall only be furnished after negotiation and execution on behalf of Company of a separate written agreement specifically identifying the documents to be furnished and setting forth Company's rights and obligations with respect hereto. 64. SURVIVAL OF OBLIGATIONS The obligations of the parties under this Agreement which by their nature would continue beyond the termination, cancellation or expiration of this Agreement shall survive termination, cancellation or expiration of this Agreement. 65. TAXES Company shall reimburse Supplier only for the following tax payments with respect to transactions under this Agreement unless Company advises Supplier than an exemption applies: state and local sales and use taxes, as applicable. Taxes payable by Company shall be billed as separate items on Supplier's invoices and shall not be included in Supplier's prices. Company shall have the right to have Supplier contest any such taxes that Company deems improperly levied at Company's expense and subject to Company's direction and control. Agreement No. WR71980036 Sheet 26 of 31 66. TECHNICAL SUPPORT Company shall be entitled to ongoing technical support and assistance, provided, however, that the availability or performance of this technical support service shall not be construed as altering or affecting Suppliers obligations as set forth in the "WARRANTY" section or elsewhere provided for in this Agreement. Ongoing Tier IV technical support via telephone will be at no charge. Beyond the WARRANTY period, charges, if any for Tier 1 and 2 technical support, will be as shown in Appendix A. 67. TERMINATION OF PURCHASE ORDER Company may at any time terminate any portion or the total quantity of any purchase order(s) placed under this Agreement. Company's liability to Supplier with respect to such termination shall be limited to (i) Supplier's purchase price of all components for the MATERIAL (not usable in Supplier's other operations or, saleable to Supplier's other customers), plus (ii) the actual costs incurred by Supplier in procuring and manufacturing MATERIAL (not usable in Supplier's other operations or saleable to Supplier's other customers) in process as of the date of giving notice of termination, less (iii) any salvage value thereof. However, no such termination charges will be invoiced if, within sixty (60) days of notice of termination, MATERIAL equivalent in kind to that being terminated is ordered by Company. If requested, Supplier shall substantiate such cost and price with proof satisfactory to Company. 68. TIMELY PERFORMANCE If Supplier has knowledge that anything prevents or threatens to prevent the timely performance of the Work under this Agreement, Supplier shall immediately notify Company's Representative thereof and include all relevant information concerning the delay or potential delay. 69. TITLE AND RISK OF LOSS Title (other than software) and risk of loss and damage to MATERIAL including software purchased by Company under this Agreement or an order issued pursuant to this Agreement shall vest in Company when the MATERIAL has been delivered at the FOB point. If this Agreement or an order issued pursuant to this Agreement calls for additional services including, but not limited to, unloading, installation, or testing to be performed after delivery, Supplier shall retain title and risk loss and damage to the MATERIAL until the additional services have been performed. If Supplier is authorized to invoice Company for MATERIAL prior to shipment or prior to the performance of additional services, title to MATERIAL (other than software) shall vest in Company upon payment of the invoice, but risk of loss and damage shall pass to Company when the additional services have been performed. Agreement No. WR71980036 Sheet 27 of 31 70. TOXIC SUBSTANCES AND PRODUCT HAZARDS Supplier hereby warrants to Company that, except as expressly stated elsewhere in this Agreement, all MATERIAL furnished by Supplier as described in this Agreement is safe for its foreseeable use, is not defined as a hazardous or toxic substance or material under applicable federal, state or local law, ordinance, rule, regulation or order (hereinafter collectively referred to as "law" or "laws"), and presents no abnormal hazards to persons or the environment. Supplier also warrants that it has no knowledge of any federal, state or local law, that prohibits the disposal of the MATERIAL as normal refuse without special precautions except as expressly stated elsewhere in this Agreement. Supplier also warrants that where required by law, all MATERIAL furnished by Supplier is either on the EPA Chemical Inventory compiled under Section 8 (a) of the Toxic Substance Control Act, or is the subject of an EPA-approved pre manufacture notice under 40 CFR Part 720. Supplier further warrants that all MATERIAL furnished by Supplier complies with all use restrictions, labeling requirements and all other health and safety requirements imposed under federal, state, or local laws. Supplier further warrants that, where required by law, it shall provide to Company, prior to delivery of the MATERIAL, a Material Safety Data Sheet which complies with the requirements of the Occupational Safety and Health Act of 1970 and all rules and regulations promulgated thereunder. Supplier shall defend, indemnify and hold Company harmless for any expenses (including but not limited to, the cost of substitute material, less accumulated depreciation) that Company may incur by reason of the recall or prohibition against continued use or disposal of MATERIAL furnished by Supplier as described in its Agreement whether such recall or prohibition is directed by Supplier or occurs under compulsion of law. Company shall cooperate with Supplier to facilitate and minimize the expense of any recall or prohibition against use or disposal of MATERIAL directed by Supplier or under compulsion of law. Supplier further shall defend, indemnify and hold Company harmless any claims, demands, suits, judgments, liabilities, costs and expenses (including reasonable attorney's fees) which Company may incur under any applicable federal, state or local laws, and any and all amendments thereto, including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act of 1980; the Consumer Product Safety Act of 1972; the Toxic Substance Control Act; Fungicide, Rodenticide Act; the Occupational Safety and Health Act; and the Atomic Energy Act; and any and all amendments to all applicable federal, state, or local laws, by reason of Company's acquisition, use, distribution or disposal of MATERIAL furnished by Supplier under this Agreement. 71. TRAINING If requested by Company, Supplier will, without charge to Company, provide five (5) separate training sessions at a location agreed to by Company and Supplier. Supplier shall: Agreement No. WR71980036 Sheet 27 of 31 (a) provide instructors and the necessary instructional material of Supplier's standard format to train Company's personnel in the installation, planning and practices, operation, maintenance and repair of MATERIAL furnished under this Agreement. These training sessions shall be conducted at reasonable intervals at locations agreed upon by Supplier and Company. Or, at the option of Company, (b) provide to Company training modules or manuals and any necessary assistance, covering those areas of interest outlined in (a) of this section, sufficient in detail, format and quantity to allow Company to develop and conduct a training program. 72. USE OF INFORMATION Supplier shall view as Company's property any idea, data, program, technical, business or other intangible information, however conveyed, and any document, print tape, disc, tool, or other tangible information-conveying or performance-aiding article owned or controlled by Company, and provided to, or acquired by, Supplier under or in contemplation of this Agreement (information). Supplier shall, at no charge to Company, and as Company directs, destroy or surrender to Company promptly at its request any such article or any copy, of such Information. Supplier shall keep Information confidential and use it only in performing under this Agreement and obligate its employees, subcontractors and others working for it to do so, provided that the foregoing shall not apply to information previously known to Supplier free of obligation, or made public through no fault imputable to Supplier. 73. VARIATION IN QUANTITY Company assumes no liability for MATERIAL produced, processed or in excess of the amount specified in this Agreement or in an order issue pursuant to this Agreement. 74. WARRANTY Supplier warrants to Company and Customer, as defined in this section, that MATERIAL furnished will be new, merchantable, free from defects in design, material and workmanship and will conform to and perform in accordance with the Specifications, drawings and samples set forth in this Agreement. These warranties extend to the future performance of the MATERIAL and shall continue for a period of eighteen (18) months from the date of delivery to Company. Supplier also warrants to Company and Customers that services will be performed in a first class, workmanlike manner. In addition, if MATERIAL furnished contains one or more manufacturers warranties, Supplier hereby assigns such warranties to Company and Customers. Supplier warrants that at the time of delivery to Company such MATERIAL shall Agreement No. WR71980036 Sheet 28 of 31 be free of any security interest or any other lien or any other encumbrance whatsoever. All warranties shall survive inspection, acceptance and payment. Defective or non-conforming MATERIAL will, at Company's option, either be returned to Supplier for repair or replacement, at no cost to Company, with risk of in-transit loss and damage borne by Supplier and freight paid by Supplier, or be repaired or replaced by Supplier on Customers site or another site designated by Company at no cost to Company. Unless otherwise agreed upon by Supplier and Company, Supplier shall complete repairs and ship the repaired MATERIAL within ten (10) business days of receipt of defective or non-conforming MATERIAL, or at Company's option, ship replacement MATERIAL within ten (10) business days after verbal notification is given Supplier by Company. Supplier shall bear the risk of in-transit loss and damage and shall prepay and bear that cost of freight for shipments to Company of repaired or replaced MATERIAL. If requested by Company, Supplier shall begin on-site repairs within ten (10) business days after verbal notification is given Supplier by Company. If MATERIAL returned to Supplier or made available to Supplier on site for repair as provided for in this section is determined to be beyond repair, Supplier shall promptly so notify Company and, unless otherwise agreed to in writing by Supplier and Company, Supplier shall ship replacement MATERIAL without charge within ten (10) business days of such notification. Replacement, MATERIAL shall be warranted as set forth above in this "WARRANTY" section. Any MATERIAL which is repaired, modified, or otherwise serviced by Supplier shall be warranted as provided in this "WARRANTY" section for the remainder of the warranty period (based upon the date repair, modification or other service is completed and accepted by Company) or ninety (90) business days after the MATERIAL is returned to a Customer, whichever is later. Supplier also warrants that software will record, store, process and present calendar dates falling on or after January 1, 2000, in the same manner and with the same functionality as it performed before January 1, 2000. This maintenance will be considered part of and covered under the maintenance provisions of the Agreement at no additional charge to Company. 75. ENTIRE AGREEMENT This Agreement shall incorporate the typed or written provisions on Company's orders issued pursuant to this Agreement and shall constitute the entire agreement between the parties with respect to the subject matter of this Agreement and the order(s) and shall not be modified or rescinded, except by a writing signed by Supplier and company. Printed provisions on the reverse side of Company's orders (except as specified otherwise in this Agreement No. WR71980036 Sheet 29 of 31 Agreement) and all provisions on Supplier's forms shall be deemed deleted. Estimates or forecasts furnished by Company shall not constitute commitments. The provisions of this Agreement supersede all contemporaneous oral agreements and all prior oral and written communications, and understandings of the parties with respect to the subject matter of this Agreement. Accepted (Date) October 28, 1998 MicroFrame, Inc. Lucent Technologies Inc. By: /s/ John F. McTigue By: /s/ M.B. Fahmey Name (Print) John F. McTigue Name (Print) M.B. Fahmey Title Executive V.P. Finance Chief Title Global Purchasing Manager Financial Officer Appendices- The following Appendices are hereby made part of the Agreement: Appendix A, Price Schedule Appendix B, Specifications or Drawings Appendix C, Marking Appendix D, Packing Appendix E, Quality Program Specifications Agreement No. WR71980036 Appendix A Sheet 1 of 1 Price Schedule 1. Material
Description Model No. Comcode Price ASG Guard - U.S. (4 port) SEN-2000SD * 407995794 $ 1,524.00 ea. ASG Guard - Intl. (4 port) SEN-2000SG *+ 407995810 $ 1,560.00 ea. ASG Guard Plus - U.S. (1 6 port) SEN-2000HD * 407995828 $ 2,673.60 ea. ASG Guard Plus - Intl. (16 port) SEN-2000HG *+ 407995836 $ 2,709.60 ea. ASG Guard - US (80 Contact Closure) SEN-20001D * N/A $ 2,481.60 ea. ASG Guard - Intl. (80 Contact Closure) SEN-2000IG *+ N/A $ 2,517.60 ea. * Includes 2 modems, 32 MB Ram + EUROPEAN - 220-230VAC,5OHz IN, 16VAC OUT
Part # Description Price ASG-Key Token 407994060 $ 48.75 ea. ASG-RMK19 Rack Mount 407997451 $ 25.00 ea. ASG-WMK Wall Mount 407997469 $ 12.50 ea. ASG-PS16-D Power Supply (U.S.) 408007409 $ 25.00 ea. ASG-PS16-230 Power Supply (Europe) 408007417 $ 25.00 ea. ASG-PS16-U Switching Power Supply 408007425 $ 90.00 ea. ASG-K002 Cable Kit (5-DB9 to DB25 cables) 407997790 $ 20.00 ea. SEN-HPX 12 port upgrade/ASG Guard Plus 407997782 $1,018.00 ea. PMDM-336D Modem (U.S.) 408007433 $ 150.00 ea. SEN-PS16-U Universal Power Supply 95-250 N/A $ 90.00 ea. VAC, 47-63Hz In, 18VDC Out PMDM-336G Modem (International) 408008043 $ 175.00 ea. ASG-BAT Battery 408007441 $ 30.00 ea. 2. Out of Warranty Repair ASG Guard $ 500.00 ea. Hourly Tech Support Rate (Tier 1 & 2) $ 100.00 Agreement No. WR71980036 Appendix B TECHNICAL MEMORANDUM ASG-GUARD September 11, 1998 1. INTRODUCTION This document provides the vendor, product functional and feature, requirements for a Sentinel 2000 which will be labeled the ASG GUARD product that provides secure access to dial-up communications ports. The initial application of this product is to provide secure access to RS-232 console and Administration Ports on LUCENT PBXS, adjunct processors (i.e.: CMS, Conversant, and the Voice Messaging Systems) that can only be accessed by authorized personnel. 2. PRODUCT DESCRIPTION The ASG GUARD is a single or double channel protection system that prevents unauthorized access to four to twenty-eight communications ports. The ASG GUARD is a device for "GUARDing" the console port so it cannot be accessed without being provided an appropriate response via an authentication device such as ASG KEY or ASG Manager. The ASG GUARD provides a secure access system by making use of an encryption/decryption algorithm controlled by a programmable secret key password. The ASG GUARD will initially be used as a console port security enhancement for DEFINITY and the Operations Support System (OSS) products that support it. The ASG Guard, manufactured by MicroFrame Inc., will allow customers to control access on incoming modem calls to the PBX system Maintenance and Administration ports as well as the administrative and maintenance ports of adjunct devices. The ASG GUARD shall provide a system activity log of access, attempts, both allowed and denied that includes date and time of access, Login identification and status information. System administration and/or system activity recording of the ASG Guard system shall be provided through attached equipment connected to an RS-232 auxiliary port or via remote connection over phone lines or network access. Administration equipment connected to the RS-232 port shall be customer provided, e.g., asynchronous terminal or personal computer. The customized software within the ASG GUARD product shall meet the feature and user interface requirements outlined by this document. The customized software for LUCENT will be based upon and added to the same standard software feature capabilities as offered by MicroFrame, Inc in their Sentinel 2000 product. MicroFrame gives LUCENT certain rights with 1 Agreement No. WR71980036 Appendix B respect to Alarm Delivery (section 3.5), any LUCENT specific functionality associated with User Secret Key Encryption (Section 3.6), and LUCENT Permanent Users (Section 3.2. 1, Section 3.2.2, Section 3.2.3, and Section 3.2.4), including all intellectual property to be used in ASG Guard. The LUCENT customized features and capabilities cannot be offered to any other parties without LUCENT's written consent. The ASG Guard shall meet YEAR 2000 compliance. 3. FUNCTIONAL REQUIREMENTS 3.1 Controlled Access The ASG GUARD shall allow access to its host ports port only after receiving a valid authentication response to the authentication challenge given by the ASG Guard and independent of equipment connected to the ASG GUARD. The ASG GUARD challenge and response handshake (verification process) shall make use of a data encryption/decryption algorithm as specified by ANSI X3.92 - 1961, Data Encryption Algorithm. In response to an incoming call, the ASG GUARD shall prompt the calling user for an authorized LOGIN identifier. The ASG GUARD will verify permission to the reception of an authorized LOGIN identifier by issuing a challenge. The challenge is on encrypted pseudo-random code, based on an algorithm using a secret programmable secret key password associated with the received LOGIN identifier, that is transmitted to the session originator. An authorized session originator shall be able to send a valid response after processing the challenge through a similar decryption/encryption procedure using the same secret key password that the ASG GUARD used for encryption. The ASG GUARD after receiving a valid response (calculated by the ASG KEY or other ASG compliant device) shall provide access in the ASG Guard or connected external product as directed by the originators LOGIN profile. 3.2 Administration of LOGIN Users The ASG GUARD shall provide the capability for a total of 75 authorized LOGIN users (i.e. identifiers and associated secret key passwords). All LOGIN's are to be identified as either LUCENT or customer level LOGIN'S. The LUCENT level can only be administered by LUCENT Technologies. The customer will only be able to create additional customer level LOGIN's (via the Customer Master access class). The customer level LOGINs can be administered by either LUCENT or the customer. The customer shall be able to permit/restrict Lucent logins from administering customer Logins (Permit is the default). The ASG GUARD shall be administrable to block or restrict (number of Sessions allowed/Expiration Date)access from valid LOGIN users, both LUCENT and customer users. Customers shall not be able to delete LUCENT LOGIN's from the ASG GUARD. Only LUCENT will be allowed to add or delete LUCENT LOGIN users. An initial default LOGIN user will be created and designated for LUCENT Services. 2 Agreement No. WR71980036 Appendix B A single LOGIN can be administered to access multiple ASG GUARDS. Initially, ASG GUARDS will be shipped with the same LUCENT permanent LOGIN user that will allow LUCENT Services to gain access to all ASG GUARDS. 3.2.1 LUCENT Permanent Login User: ASG GUARD administration of the permanent LOGIN user and the secret key password shall require a special procedure referred to as Unit Initialization. ASG GUARDs shall be initialized at the factory and shipped with the permanent login user loaded into the firmware. Once delivered, adding or deleting LUCENT LOGIN identifiers shall require LUCENT Master Users rights or for the unit to be initialized, wiping the unit clean of all ASG application code. 3.2.2 Default Lucent User Administration: The ASG GUARD shall provide means of administering authorized users through the use of a special default LUCENT Master user or via loading a LUCENT CONFIGURATION FILE. The LUCENT CONFIGURATION FILE will contain the LUCENT MASTER USER with the following information: o One LOGIN identifier with access parameters (Rights Level, Access Rights etc.) o One secret key password the LUCENT LOGIN identifier 3.2.3 Customer Level Users: Customers administration shall allow for provisioning up to a maximum of 55 customer level LOGINs including the deleting or changing of the non-LUCENT LOGIN identifiers and associated secret key password(s). The secret key password can be specified by the customer administrator or randomly assigned by the ASG GUARD. Four access levels for the customer user logins shall be provided. They are Customer Master, Customer Sysop 1, Customer Sysop 2, and Host. The functionality provided for the Sysop l, Sysop 2, and host classes is the same as the standard functionality currently provided the Sysop 1, Sysop 2, and host classes by the MicroFrame Sentinel product. The Customer Master access class shall be able to use the dump and config capabilities for the Customer User Table and other parts of the ASG Guard configuration. Customer users shall not be able to use the dump or config capabilities for the Lucent User Table. The ASG GUARD shall allow the customer to block or restrict (but not delete, add, or change) individual LUCENT LOGIN users from accessing it (via the Customer Master access class). 3 Agreement No. WR71980036 Appendix B The customer shall be able to display the customer LOGIN identifiers and their associated secret key passwords only during the administrative session when they are added to the ASG GUARD. The customer, via the Customer Master access class only, shall be able to display or block the LUCENT LOGIN identifiers, but shall not be able to display secret key passwords of the LUCENT LOGIN users. As stated in Section 5.2, the ASG Guard shall not allow for customer access to the internal programming mode (CCL). 3.2.4 Lucent Level Users: Lucent administration shall allow for provisioning up to a maximum of 20 Lucent LOGINS. Lucent logins can be added, changed, or deleted via the Lucent Master access level only. Four access levels for the Lucent user logins shall be provided. They are Lucent Master, Lucent Sysop 1, Lucent Sysop 2, and Host. The functionality provided for the Sysop l, Sysop 2, and host classes is the same as the standard functionality currently provided the Sysop 1, Sysop 2, and host classes by the MicroFrame Sentinel product. The Lucent Master access class shall be able to use the dump and config capabilities for the Lucent User Table and other parts of the ASG Guard configuration. It is not required that the Lucent Master access class be able to dump or config the Customer User Table, nor is it prohibited that this functionality be provided. 3.3 Invalid Attempts An invalid attempt is defined to be either an invalid LOGIN identifier, an invalid response to a challenge or the absence of a response to the Login or Challenge request. The ASG GUARD shall drop the incoming line as the result of three consecutive invalid attempts and the call attempt noted in the Failure History Log, along with a status code to explain the access failure. The ASG GUARD shall send the access failure status code to the connecting computer explaining why the connection is being dropped. 3.4 Blocked/Restricted Attempts A blocked attempt is defined to be valid LOGIN user (identifier) that has been deliberately blocked from accessing the ASG GUARD through administration. A restricted attempt is defined to be a valid LOGIN user (identifier) that has tried to access the ASG GUARD during a time of day or day of week that has been deliberately restricted blocked for that LOGIN user. The ASG GUARD shall send the access failure status code to the connecting computer explaining why the connection is being dropped. 3.5 ASG GUARD Transparency 4 Agreement No. WR71980036 Appendix B The GUARD shall be transparent when idle, i.e., the interface presented to the user equipment shall appear as an idle Network interface. This will allow normal maintenance testing on the port by the PBX or adjunct without impairment to the ASG GUARD. The ASG GUARD under any circumstance shall not impact outgoing call origination from the ASG GUARD's host port(s), e.g., PBX alarm Origination. If the ASG Guard's modem is in use, the host device originating an alarm will receive a modem busy message. The ASG GUARD shall become transparent on incoming calls after access permission has been established, but shall monitor for a disconnect from either port (Network or Host). 3.6 User Secret Key Encryption User secret keys shall be stored on the ASG Guard securely in an encrypted format. This will support a more secure approach to backup offline the User Secret Key Table. This will also support a more secure approach to distribute a User Secret Key Table to multiple ASG Guards from a remote location. The ASG Guard will provide 1) a Lucent administrable key to encrypt the Lucent user secret keys and 2) a separate customer administrable key to encrypt the customers user secret keys. MicroFrame and Lucent will jointly define the structure and administrative capabilities for the Lucent and customer keys used to encrypt the Lucent and customer user secret keys. 3.7 Blocked Access The system administrator shall be able to control access through a ASG GUARD (to the host ports connected behind the ASG GUARD) by blocking specific LOGIN (identifiers) or all LOGINS. Both permanent (LUCENT Services) and non-permanent LOGINS may be blocked. Blocked LOGINS will not be able to access the ASG GUARD until they are unblocked by ASG GUARD administration. 3.8 Time of Day/Day of Week Restriction The system administrator shall be able to control access to a ASG GUARD by administering time of day restrictions and/or days of the week for specific LOGIN identifiers including LUCENT Services LOGIN identifiers. This function shall be provided using a twenty-four hour clock. 3.9 Access Failure Messages The ASG GUARD shall provide access failure codes and associated messages to enable a system administrator or technician to: o detect and diagnose equipment problems 5 Agreement No. WR71980036 Appendix B o detect that an invalid access attempt has occurred o detect a Blocked user or time restriction call attempt o detect a forced disconnect, by either an issued command or an outgoing call 3.10 Version Display The ASG GUARD Version display shall contain the following: o Software Version o Equipment version number o Firmware version number o Memory o Port information o Number of Host Ports o Number of Modem Ports o Number of Telnet Ports o Modem Type installed o Current date and time o Site Name 3.11 ASG GUARD History Log The ASG GUARD shall provide the capability to record, display and print a log of all ASG GUARD activity. The following data will be provided in the audit trail: o Incoming call arrival date and time o Call disposition (connected or disconnected) o LOGIN identifier o Disconnect time o Reason for disconnect by access failure codes o GUARD log identification if available o LOGIN identifier(s) added and removed o LOGIN identifier(s) Blocked and unblocked o LOGIN identifier(s) restricted and unrestricted o A Message Authentication Code (MAC) allowing LUCENT to determine if a log report has been tampered with The ASG GUARD History Log shall be available in real time. I.e., all activity messages shall be sent to the connected administration equipment whenever there is no software session running. The ASG GUARD activity messages shall also be stored in the History Log buffer for retrieval. The ASG GUARD History Log shall provide for the storage of at least the last 200 messages of ASG GUARD activity. 6 Agreement No. WR71980036 Appendix B 3.12 ASG GUARD Access Log The ASG GUARD shall provide the capability to store, display and print a log of call access attempts for both incoming and outgoing calls. The following data shall be provided in the audit trail: o Date and time o LOGIN identifier and device number o Length of connection in hours. Minutes and seconds o Session type and level o A message Authentication Code (MAC) which will allow LUCENT to determine if a log report has been tampered with o The Access History Log shall provide for storage of at least the last 500 messages of ASG GUARD activity. To provide this storage capacity, MicroFrame will develop a feature that will write the Access History Log entries on both static RAM and on the RAM drive. This feature will be available in version 2 of the code at no charge to Lucent. ASG Guards with code prior to version 2 shall be able to be upgraded with this feature. 3.13 GUARD Failure History Statistics The GUARD shall provide the capability to store, display, and print a log of attempt failures. The following data shall be provided in the audit trail: o Incoming call arrival date and time o LOGIN identifier and Port o Failure reason o A Message Authentication Code (MAC) which will allow LUCENT to determine if a log report has been tampered with The Failure History Log shall provide for storage of at least the last 500 access failures. To provide this storage capacity, MicroFrame will develop a feature that will write the Failure History Log entries on both static RAM and on the RAM drive. This feature will be available in version 2 of the code at no charge to Lucent. ASG Guards with code prior to version 2 shall be able to be upgraded with this feature. 3.14 ASG GUARD Error Log The ASG GUARD shall provide the capability to record, display and print a statistical summary of system errors. The following data shall be provided in the audit trail: 7 Agreement No. WR71980036 Appendix B o Date and time o Error message 3.15 ASG GUARD Administration The ASG GUARD shall provide an EIA RS-232 auxiliary port for the connection of an asynchronous administration terminal or PC. The administration interface shall be menu driven. The ASG GUARD unit can also be administered remotely via the network port or modem connection. This requires a user login with administration privileges such as Master or Sysop. Then all administrative capabilities will be available by dialing through the modem or telneting through the ethernet port. Access to administrative functions will require authentication. Administrative sessions on the modem port will not prevent an administrative session on the AUX port. 3.16 Single Point Administration for multiple ASG GUARDs As limited by the constraints of an EIA RS-232 connection, the system administrator shall be able to administer multiple ASG GUARDs from a single terminal. This means that in addition to being able to set the time and date, and speed/parity, the administrator shall also be able to add/delete authorized users, check ASG GUARD status (idle, busy), and collect the audit trail data from a central location. When multiple ASG GUARDs are used, ASG GUARD log identification should be assigned to each ASG GUARD. 3.17 Power Outage No ASG GUARD administration shall be required following a power outage, when power is restored; the ASG GUARD shall automatically come back on-line and reset itself to their idle states, respectively. ASG GUARD stored information and parameters shall be unchanged by power outages. 3.18 Key Change Interface ASG Guard shall provide a key change interface to enable the Lucent ASG Key Change tool to change secret keys provisioned on the ASG Guard. This feature is required for handling secret key corruption, key exposure to unauthorized users, and expiration of key lifetime. It is required that the key change operation be done via the Lucent MASTER access level only. This key change interface feature shall be provided in version 2 of the code at no charge to Lucent. ASG 8 Agreement No. WR71980036 Appendix B Guards with code prior to version 2 shall be able to be upgraded with this feature. MicroFrame and Lucent will jointly define the specifications for this feature. 4. USER INTERFACE 4.1 Initialization and Test Response Code The vendor shall provide LUCENT with the ability to reset an ASG GUARD to its initial translations. An ASG GUARD shall not allow this reset function to be accomplished from a remote location. All ASG GUARDs are to be initialized in the factory before shipment with an initial LUCENT level LOGIN user. When a LOGIN user is added to the ASG GUARD's user list, a pseudo-random test response code shall be generated that maps into the specific secret key password administered for the added user. The secret key password can be chosen by the administrator or randomly generated by the ASG GUARD. This test response code is to be used to verify that the correct secret key password has been entered into the appropriate authentication tool (i.e. ASG Key, ASG Mobile, ASG Manager, etc.). Customer authentication tools are to be shipped un-initialized and need to be initialized/administered with their secret key & pin. 4.2 ASG GUARD Administration LUCENT or the customer/system administrator, using an asynchronous terminal or PC connected to the ASG GUARD's auxiliary port, through a dialup connection, or network connection (LAN) will be able to administer the ASG Guard. 4.2.1 LUCENT Master Level ASG Guard Administration o To set communications parameters of the auxiliary port o To set time and date o To display ASG GUARD status (idle or busy) (i.e. PST - Port Status Command) o To add, delete or change any authorized LOGINs (LUCENT can only administer LUCENT level LOGIN Identifiers and secret key passwords. Lucent and customer administrators can administer customer level LOGINS) o To enable/disable (block) all LOGIN users from accessing the ASG GUARD (i.e., both LUCENT and customer LOGINS) o To connect to an established call or disconnect a call in progress 9 Agreement No. WR71980036 Appendix B o To set a unique ASG GUARD identification and site information o To list the contents of the GUARD Error log o To list the contents of the GUARD Access Log o To list the contents of the GUARD History Log o To list the contents of the GUARD Failure log 4.2.2 Customer Master Level ASG Guard Administration o To set communications parameters of the auxiliary port o To set time and date o To display ASG GUARD status (idle or busy) (i.e., PST - Port Status Command) o To add, delete or change only customer level authorized LOGINs (LUCENT can only administer LUCENT level LOGIN Identifiers and secret key passwords. Lucent and customer administrators can administer customer level LOGINS) o To enable/disable (block) all LOGIN users from accessing the ASG GUARD (i.e., both LUCENT and customer LOGINS) o To connect to an established call or disconnect a call in progress o To list the contents of the GUARD Error log o To list the contents of the GUARD Access Log o To list the contents of the GUARD History Log o To list the contents of the GUARD Failure log 4.3 LED Indicators The ASG GUARD shall have Several LEDs on the front panels to provide the following functionality: o Power On indicator o Battery indicator o Power Failure indicator o Unit Pulse o Alarm, Event & File Buffer indicator o Auxiliary port activity o Host port activity indicators o Modem port activity indicators o Ethernet port indicator 4.5 Test Capabilities 4.5.l LED Testing: When powered up, all the LEDs (except Power LEDs on the front panel of the ASG GUARD shall blink on and off in unison three times, then settle into an Idle/locked condition with 2 LEDs on (power and Idle/Locked). 10 Agreement No. WR71980036 Appendix B - -------------------------------------------------------------------------------- Group Led Function - -------------------------------------------------------------------------------- power o AC Power is being supplied to the unit. - -------------------------------------------------------------------------------- o 48VDC Power is being supplied to the unit from a 48VDC source (such as the PBX battery). - -------------------------------------------------------------------------------- o Battery Internal battery is charging - -------------------------------------------------------------------------------- o Power Fail Main power has filed and the internal battery is supplying power to the unit - -------------------------------------------------------------------------------- system o PULSE Flashes to indicate that the system is operating correctly - -------------------------------------------------------------------------------- green o Alarm - clear Pending indicates that an alarm is being processed. - -------------------------------------------------------------------------------- red o Alarm - pending - -------------------------------------------------------------------------------- green o Event - clear Pending LED indicates that the Sentinel has events (alarms) queued for processing. - -------------------------------------------------------------------------------- red o Event - pending - -------------------------------------------------------------------------------- green o File - clear Pending LED indicates that the amount of data stored on the RAMdisk has reached the critical level. - -------------------------------------------------------------------------------- red o File - pending data stored on the RAMdisk has reached the critical level - -------------------------------------------------------------------------------- Ports Aux o Aux - RX o Aux - DTR Host 1 The upper LED (RX) flashes when data is being received o RX o DTR Host 2 o RX o DTR Host 3 The lower LED (DTR) indicates that a device is connected to the port. 11 Agreement No. WR71980036 Appendix B - -------------------------------------------------------------------------------- GROUP LED FUNCTION - -------------------------------------------------------------------------------- o DTR o Host 4 o RX o DTR - -------------------------------------------------------------------------------- Modem Modem 1 Upper LED (RX) indicates that data is currently being transferred. o RX o CD Modem 2 Lower LED (CD) indicates that the modem is connected to a remote system. o CD - -------------------------------------------------------------------------------- Host Expansion Board (for each port) The upper LED (RX) indicates the unit is in the process of receiving data. o RX O DTR The Lower LED (DTR) indicates that a device is connected to the port - -------------------------------------------------------------------------------- Ethernet o RX Indicate the reception and transmission of network data. O TX - -------------------------------------------------------------------------------- 4.5.2 GUARD Self-Check: The GUARD shall provide a test procedure on device boot up (Self-Check) that checks if its firmware/hardware is operating properly. 5. PRODUCT DEVELOPMENT This section states MicroFrame's development responsibilities. It also includes signaling, protocol and physical requirement, for communicating with LUCENT switches and OSS devices, and with non-LUCENT endpoints. LUCENT acceptance criteria for the ASG GUARD will include LUCENT system test results. In other words, LUCENT will system test the ASG GUARD with switches and OSS devices it intends to support, prior to acceptance. The vendor may be required to make changes to the product if the system test results indicate that the product does not satisfy LUCENT ASG GUARD functional and feature requirements. 12 Agreement No. WR71980036 Appendix B 5.1 Other ASG GUARD Applications The initial product offering will be to secure dial-up maintenance ports on the LUCENT BCS products. In the future, the product is intended to be used to secure other dial-up port applications on LUCENT BCS products, other LUCENT products, and non-LUCENT products. 5.2 Internal Program Mode The ASG GUARD product, specified by these requirements shall not allow for customer access to the internal programming mode (CCL). 5.3 Timing Accuracy The product shall keep accurate time for logging purposes. The time clock provided shall not lose or gain more than five minutes per month. 5.4 Hardware Components The ASG GUARD shall provide the following ports: o One or two female RJ11 Network port for connection to a CC 2-wire telephone line(s) o A female DB-9 Auxiliary port (DCE interface) for connection to either a terminal o Four DB-9 RS232 ports (DCE interface) for connection to host equipment such as PBX or Voice Mail systems o A 10BaseT Ethernet port for TCP/IP connection to a network o 5 dry contact closures (Slimline) o 8 dry contact closures for 16/28 port unit o 2 relays (Slimline only) o Temperature probe ports o 1 5V analog to digital conversion port The Auxiliary port shall support connected equipment with the following Requirements: o RS-232 DTE interface o Asynchronous o Full or half duplex o 8 bits no parity, 7 bits no parity, 7 bits even parity, 7 bits odd o parity (ASG GUARD admin option) o Baud rates of 2400, 4800, 9600, 19200, 38400, 57600 (ASG GUARD admin option) 13 Agreement No. WR71980036 Appendix B 6.0 Miscellaneous 6.1 Environmental The product shall be consistent with switch environmental requirements as specified by the "LUCENT Definity Generic 3, System Description" manual. 6.2 Network Port The GUARD's network interface shall conform to Bellcore Technical Advisory NPL-000912. 6.3 FCC & CSA Requirements The product modem shall pass FCC Part 15 and part 68 requirements and equivalent CSA standards. 6.4 UL and CSA Requirements The product shall meet UL part 1459, Issue 2, requirements and equivalent CSA 6.5 Reliability The GUARD shall have a minimal mean time between failure rate of 6.3 years. 14 EX-10.6 6 TECHNOLOGY LICENSE AGREEMENT DPA 38-095 EXHIBIT 10.6 ------------ TECHNOLOGY LICENSE AGREEMENT BETWEEN SOLCOM SYSTEMS LIMITED AND HEWLETT-PACKARD COMPANY 1.15 Any reference in this Agreement to "dollars" or "S" shall mean United States Dollars, and any reference to "pounds" or "(pound)" shall mean British Pounds Sterling. DEVELOPMENT WORK 2.1 SolCom shall complete the development work ("NPE") in accordance with Appendix A. Upon completion of each "Deliverable" specified in Appendix A, SolCom shall deliver to HP up to five Probes (as determined by HP) and one copy of the associated Firmware for the purpose of consistent certification of the Deliverable by HP. Any Probes delivered to HP for the purpose of certification of Deliverables, and not purchased by HP under the terms of Item 4 of Appendix D, shall be returned to SolCom within five working days from the end of the "HP Review Period" specified in Appendix A. 2.2 HP shall pay the NPE of sixty-two thousand nine hundred sixty-eight dollars in accordance with the "NPE Schedule" in Appendix A 2.3 SolCom shall ensure that any Probes delivered to HP in accordance with Section 2.1 above and Item 4 in Appendix D are compatible with HP's software as defined in Appendix F. 2.4 In an effort to keep the Technology current, SolCom shall provide HP with RMON-11 within six months from Effective Date of this Agreement or publication date of the Draft Standard, whichever is later. SolCom shall provide any other developments that result in performance enhancements or bug fixes when they become available at no additional increase in the "License Fee" in Appendix D). 2.5 HP shall be entitled to terminate this Agreement and receive a one-hundred percent refund of all NRE paid to date if SolCom fails to deliver in accordance with the NRE Schedule detailed in Appendix A. 2.6 HP shall provide all necessary technical information to SolCom for incorporating the BP Technology into the Probe by SolCom within five days of receipt of a request. 2.7 SolCom shall deliver the Documentation to HP in accordance with the schedule in Appendix A. 2 2.8 The deliverables and acceptance process are defined in Appendix A. 3 LICENSE GRANT 3.1 SolCom hereby grants to HP and its subsidiaries a world-wide, non-exclusive license in the Technology to use, make, have made, display, disclose, reproduce, create derivative works, sell and distribute with the right to grant licenses of or within the scope of this license. 3.2 Except as expressly provided in this Agreement, SolCom retains all rights to the specific implementation of the Technology. 3.3 HP shall own all right, title and interest in all modifications made by HP pursuant to Section 3.1 above. 3.4 This Agreement does not preclude HP from independently developing, acquiring, or manufacturing technology which is similar to or competitive with the Technology, provided that such development does not rely on, incorporate or use SolCom's intellectual property. SolCom acknowledges that HP currently manufactures products based on technology which is similar to the Technology, and will continue to do so in the future; HP shall not be liable for any Licensing Fee or other obligation to SolCom by reason of such products. HP acknowledges that SolCom develops and plans to manufacture and sell products based on the Technology, and will continue to do so in the future; nothing in this Agreement shall prevent SolCom from doing so. 3.5 Nothing in this Agreement requires HP to market a product using the licensed Technology. HP shall have the authority to market or not market the HP Product as it deems appropriate. 4 ENHANCEMENTS AND NEW TECHNOLOGIES 4.1 SolCom grants to HP the right of first refusal on any Enhancement or New Technology developed by and for SolCom during the term of this Agreement. 4.2 At least sixty days prior to the first commercial release of any Enhancement or New Technology, SolCom shall notify and provide HP with the related specification for HP to test and evaluate. HP shall evaluate the Enhancement or New Technology and decide if HP wishes to adopt it within thirty days from notification. 4.3 If HP wishes to adopt any Enhancement or New Technology after the evaluation, HP shall so notify SolCom. SolCom and HP agree to negotiate in good faith to define functionality, development costs, licensing fee, term, and schedule for adding the Enhancement or New Technology to this Agreement. 3 4.4 Subject to Section 4.3 above, SolCom grants to HP the option to add any Enhancement or New Technology to this Agreement on an exclusive basis. 4.5 HP may from time to time propose Enhancements. SolCom and HP agree to negotiate in good faith to define functionality, development costs, licensing fee, and schedule for adding the Enhancement to this Agreement. SUPPORT 5.1 SolCom shall provide HP with as much consulting and training as HP may require in order to successfully manufacture HP Products, including HP Products which incorporate Enhancements or New Technology. Up to five days of consulting and training shall be at no charge to HP, and HP has the option of paying for additional days at the rate of (pound)500.00 per SolCom person per day. An additional five days will be provided to HP at no charge for each significant Enhancement or New Technology adopted by HP pursuant to Section 4 above. HP shall pay reasonable, actual travel and per diem expenses. 5.2 SolCom shall provide a knowledgeable Account Manager as described in Article 11.1 below, for coordinating the support described in this Article 5, as well as the resolution of any other issues that may arise under this Agreement. 5.3 HP shall be responsible for support of its customers. If HP receives a problem report from any customer, HP will attempt to reproduce the bug on Derived Hardware. If HP is able to reproduce the bug then HP will give notice of the problem to SolCom. SolCom shall take appropriate action to resolve the problem in accordance with Section 5.8 below. 5.4 HP may duplicate and use, either internally or for HP's customers, all training classes and training materials developed by SolCom with respect to the HP Product, in any manner HP reasonably deems appropriate. 5.5 The obligations of SolCom pursuant to this Article 5 shall continue for a period of five years after the expiration or termination of this Agreement. 5.6 For the term of this Agreement, at no additional charge to HP, SolCom shall provide HP with ongoing technical support for the Technology, such technical support shall include but not be limited to: (a) Providing normal evolutionary enhancements to stay in compliance with the FDDI RMON Standard; (b) Receiving defect reports and fixing defects or providing workarounds; (c) Maintaining a telephone number for HP to call during normal business hours or an 4 electronic mail address to report problems and receive assistance; (d) Providing prompt communication and assistance to HP for the resolution of problems; (e) Providing updates from time to time, when appropriate, and instructions for implementation; and (f) Providing HP with either a written quarterly report of all known defects in the Technology or electronic access to SolCom's Defect Log. 5.7 At HP's option, SolCom will provide ongoing technical support as described in Sections 5.6 and 5.8, for a period of five years after the expiration of this Agreement, for an annual fee not to exceed $5,000.00. 5.8 HP will notify SolCom of any defects or deficiencies in the Technology and SolCom shall timely and reasonably remedy such defects in accordance with HP's priority classification as defined in Phase 1 of Appendix A. SolCom's obligation to rectify reported defects in the Technology is contingent upon receiving a full description of the defect and such information as necessary to characterize the defect and the circumstances under which it is observed. In the event HP notifies SolCom of a defect, SolCom shall respond in accordance with RP's priority classification in Phase 1 of Appendix A. SolCom shall remedy all defects by repairing the revision of the FDDI RMON Technology and OS Software which HP is then currently distributing, or providing a workaround that is acceptable to HP. 5.9 SolCom shall provide HP designated support personnel with a technical training class at HP on the HP Product for up to two days. Such training class shall provide HP support personnel with sufficient information to fully support and maintain the HP Product and shall include disclosure of principles of operation and disclosure of those tools necessary to support the HP Product as well as any other content as may be mutually agreed by the SolCom and HP support/Account Managers. The class shall be taught in a manner to permit the HP students to train other HP employees ("train-the-trainer method"). Such training shall be at no charge to HP except for (i) reasonable, actual travel and per diem charges for SolCom instructors and HP students and (ii) reasonable costs for video tapes, technical notes or other material which SolCom supplies to HP. HP shall have the right to copy any materials provided by SolCom for the purpose of enabling HP to train other employees on the operation of the HP Product. SolCom may charge HP, at the rate of (pound)500.00 per SolCom person per day, for additional HP Product training classes as requested by HP. 5.10 SolCom shall provide an additional technical training session under the same conditions each time an Enhancement or New Technology is added to this Agreement; the parties may mutually agree to a less extensive training session for insubstantial Enhancements or 5 New Technologies. 6 LICENSING FEES 6.1 In consideration for the rights granted to HP by SolCom in this Agreement, HP shall pay a "License Fee" to SolCom in accordance with this Article 6 and Appendix D. 6.2 HP shall pay SolCom a License Fee for each HP Product or any product incorporating the licensed Technology licensed or distributed to third parties by HP, HP's subsidiaries, or HP's licensee's. No License Fee shall be due for: (a) any HP Product or product incorporating the licensed Technology subsequently returned for a refund or other adjustment; (b) any HP Product or product incorporating the licensed Technology used by or distributed by HP for reasonable demonstration, training, or support purposes; (c) any user or technical documentation which may be distributed in conjunction with the HP Product or product incorporating the licensed Technology; or (d) any enhancements, updates or replacement HP Products or products incorporating the licensed Technology which are shipped by HP to its resellers or end-users. 6.3 License Fee payments due SolCom may be bundled and remitted at the end of each HP fiscal quarter, reflecting HP Products and any product incorporating the licensed Technology shipped during the previous fiscal quarter, less any recoverable fees already paid by HP and any credits for returns, refunds to customers, or other adjustments. HP will make best efforts to remit License Fee payments to SolCom by the seventh working day after the end of each fiscal quarter. The amount of these payments and any other information associated to these payments is confidential information of HP. 6.4 HP shall provide to SolCom a monthly report due fifteen days after the end of each calendar month of the sales for that month. SolCom may, at its sole expense and no more frequently than once a year, engage an independent auditor mutually acceptable to HP for the purpose of verifying License Fee payments. HP will maintain appropriate records, including sub-licensee sales, and make such records reasonably available to the auditor. If such records are found to be in error by more than five percent, then HP shall pay the deficient amount and the cost of the audit. 6.5 SolCom shall be solely liable for taxes on all fees paid to SolCom by HP under this Agreement, including all state withholding and local use, sales, property (ad valorem), and other taxes but excluding taxes calculated solely on HP's income. 6.6 All payments to SolCom are to be paid in Pounds Sterling ((pound)) based on the exchange rate of 6 $ 1.575 is equivalent to one Pound Sterling and will be wired to: The Bank of Scotland 38 St Andrew Square Edinburgh, Scotland Account #: 00-853-226 Sort Code #: 80-31-20 6.7 In accordance with the tax treaty between the United States and the United Kingdom which exempts industrial royalties from taxation, SolCom has completed a Department of the Treasury, Internal Revenue Service Form 1001 and provided it to HP for inclusion into Appendix I of this Agreement. 7 CONFIDENTIAL INFORMATION 7.1 During the term of this Agreement, both parties will require access to information which the other considers confidential (collectively "Confidential Information"), each party has agreed to disclose and receive the information in confidence by signing a two-way Non-Disclosure Agreement (Appendix G). The Confidential Information shall be labeled confidential and shall only be used by those employees of the receiving party who have a need to know such information. Except as provided for in Article 9, on termination of the Agreement, all Confidential Information (including all copies made) shall be returned by the recipient to the originator or destroyed, at the originator's option. 7.2 Confidential Information shall be safeguarded by the receiving party for five years after receipt against disclosure to third parties by employing the same degree of care as the receiving party uses for its own information of a similar nature. 7.3 No obligations of confidentiality shall extend to information which is: (a) Publicly available through no fault of the receiving party; (b) Independently developed by the receiving party; (c) Already in the receiving party's possession; (d) Rightfully received from a third party without an obligation of confidentiality; (e) Disclosed to a third party without a duty of confidentiality; or (f) Disclosed under operation of law. 7 8 WARRANTIES 8.1 SolCom warrants that (excluding any claims arising by Willemijn Houdstermaatschappij BV (a.k.a. Soderblom) toward the Technology, which HP waives indemnification): (a) It has full power and authority to grant HP the rights granted herein; and (b) The Technology does not infringe or otherwise violate any patent, copyright, trade secret or other proprietary right of any third party; and (c) SolCom is not aware of any facts upon which such a claim for violation or infringement could be based. 8.2 SolCom will indemnify and defend HP from any costs, claims, suit, or proceeding brought against HP or its customers insofar as it is based on a claim that any program, documentation, hardware, technology, copyright, or trade name or any part thereof, furnished by SolCom under this Agreement constitutes an infringement of any patent copyright, trademark, trade name, or unauthorized trade secret use, if notified promptly in writing of such claim, and given authority, information and assistance (at SolCom's expense) to handle the claim and the defense of any suit or proceeding. SolCom agrees to pay all damages and costs awarded therein against HP and its customers. In case any Program or documentation or any part thereof is in such suit held to constitute an infringement and its use is enjoined, SolCom shall, at its own expense and at its option, either procure for HP and its customers the right to continue use or, if applicable, replace the same with a noninfringing Program and documentation of equivalent function and performance, or modify them so they become noninfringing without detracting from function or performance. SolCom warrants that all hardware, firmware, and software provided within the scope of the Agreement shall conform and perform in accordance with all specifications and documentation provided by SolCom as part of this Agreement. 8.3 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SOLCOM MAKES NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING THE TECHNOLOGY, ITS MERCHANTABILITY, OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. 8.4 EXCEPT AS PROVIDED IN SECTION 8.2 ABOVE, IN NO EVENT SHALL HP OR SOLCOM BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS) ARISING OUT OF ANY PERFORMANCE UNDER THIS AGREEMENT, WHETHER SUCH DAMAGES ARE BASED ON TORT, CONTRACT, OR ANY OTHER LEGAL THEORY AND WHETHER ADVISED OF POSSIBILITY OF SUCH DAMAGES ACCESS TO SOURCE CODE 8 9.1 SolCom agrees to escrow the source code to all OS Software at HP Corporate Headquarters. The terms of such escrow are set forth in Appendix J. 9.2 SolCom agrees to make the initial deposit of Source Code within forty-five days of the Effective Date. All revisions and updates shall be deposited into escrow within forty-five days of release. 9.3 SolCom agrees to maintain the source code in escrow for five years after the expiration of this Agreement. 9.4 The Source Code Deposit Agreement (Appendix J) shall allow access to the source code under the following conditions, providing HP gives SolCom ten days notice of intent to access: (a) If SolCom is in breach of this Agreement and the breach is remediable and SolCom doe not remedy such breach within thirty days of notice from HP, then HP shall be entitled access to the source code and Documentation for the purpose of curing the breach. License Fees will accrue, but no License Fees shall be payable by HP until SolCom or its successor performs. or, (b) Failure of SolCom within thirty days of HP's giving notice to SolCom, to fulfill its support obligations as required in this Agreement. 9.5 Nothing in this Article 9 shall remove HP's obligation to pay License Fees in the event of the contingencies in paragraph 9.4 (a) or (b). 9.6 Failure of SolCom to comply with this Article 9 shall constitute a material breach of this Agreement. TERMINATION 10.1 This Agreement shall expire three years from the first production shipment of the HP Product. In the case of any Enhancement or New Technology added to this Agreement in accordance with Article 4 above, the term for the Enhancement or New Technology shall be mutually agreed to by both parties. 10.2 In the event of a breach of this Agreement by a party hereto, the non-breaching party shall give notice of such default to the other party and, if the breach is not cured within sixty calendar days of such notice, shall be entitled to terminate the Agreement. 10.3 The obligations and rights in Articles 5, 6, 7, 8, and 9 as well as HP's rights in Section 3.1 shall survive the expiration or earlier termination of this Agreement, except that the obligations regarding confidentiality and support shall survive only through the end of the 9 periods sat forth in the applicable provisions of this Agreement. MISCELLANEOUS PROVISIONS 11.1 The parties shall each designate an Account Manager who shall act as an overall coordinator for activities performed under this Agreement. The parties' initial Account Managers are identified in Section 1 1.2 below. Either party may change its Account Manager by providing notice to the other party. 11.2 All notices given pursuant to this Agreement shall be in writing, and shall be considered given upon personal delivery, upon forty-eight hours after sending by fax or air express, or upon ten days after deposit in the United States Mail, certified mail return receipt requested. All notices shall be addressed to the appropriate Account Manager as specified below: Solcom: HP: SolCom Systems Limited Hewlett-Packard Company 2 Adam Square P.O. Box 7050 Brucefield Industrial Park Colorado Springs, Colorado 80933 Livingston, United Kingdom EH4 9 DE USA Account Manager: Hugh Evans Account Manager: Ted Haller 11.3 Neither party shall publicize or otherwise disclose to any third party the terms or content of this Agreement, except as required by law. In particular, no press releases shall be made by either party without the mutual consent of the other party. 11.4 This Agreement shall be governed by and construed under the laws of England. 11.5 The captions of Articles of this Agreement are for reference only, and shall not be construed as a part of this Agreement. 11.6 Neither party's failure to exercise any right under this Agreement shall constitute a waiver or forfeiture of such right nor of any other right. The remedies specified in this Agreement are in addition to any other remedies available at law or in equity. 11.7 Each Appendix referred to in this Agreement is incorporated in fall in this Agreement wherever reference to it is made. 11.8 Neither party shall be liable to the other under this Agreement for any default or breach due to or caused by any fire, civil unrest, act of God or other event beyond that party's control. 11.9 This Agreement constitutes the entire agreement between the parties as to the matters set forth and integrates all prior discussions and understandings between them. 10 11.10 This Agreement may only be modified by a written instrument signed by an authorized representative of both SolCom and HP. 11.11 This Agreement may be executed in counterparts, each of which shall be deemed an original. SOLCOM SYSTEMS LIMITED HEWLETT-PACKARD COMPANY By: /s/ P.J. MacLaren By: /s/ William A. Tomeo Type Name: P.J. MacLaren Type Name: William A. Tomeo Title: Financial Director Title: General Manager Date: 20 October 1995 Date: 26 October 1995 11 Amendment to DPA 38-097 aka DPA 0804-95097-1 AMENDMENT 1 TO AGREEMENT NMO DPA 38-097 aka DPA 0804-95097-1 Between SolCom and HP DATED October 26, 1995 Please amend the opening paragraph to include the following: This Amendment ("Amendment) is entered into by SolCom Systems Limited, a company registered in Scotland ("SolCom") the Hewlett-Packard Company, a California corporation (HP). This Amendment is effective upon the date of the last signature ("Amendment Effective Date") and shall remain in effect for three years. All Articles, Sections and Appendices of the original Agreement shall be binding on this Amendment unless noted below. Amend entire Agreement by inserting ",Token Ring and Ethernet" immediately after FDDI wherever FDDI is referenced except for: o section 1.4 insert "Token Ring or Ethernet" o section 1.6 do not insert anything after FDDI o section 1.8 do not insert anything after FDDI o section 1. 10 insert ",Token Ring or Ethernet" o Appendix B do not insert anything after any of the FDDI'S, this is a FDDI specific Appendix o Appendix D do not insert anything after FDDI Amend section 1.1 by replacing "Probe " with "Probe(s)" Amend section 2.2 by adding the following sentence: "And, HP shall pay the NRE of thirty thousand dollars in accordance with the "NRE Schedule" in Appendix A- 1." Amend section 5.7 as follows. At HP's option, SolCom will provide ongoing technical support as described in Sections 5.6 and 5.8, for a period of five years after the expiration of this Agreement, for an annual fee not to exceed $7,500.00. 1 Amend section 6.6 as follows: All payments to SolCom are to be paid in U.S. Dollars ($) and wired to: The Bank of Scotland 120 St Vincent St Glasgow, Scotland Account # 86064USDO1 Sort Code #80 20 13 Amend Appendix A to include Appendix A-1 (see Appendix A-1): Amend Agreement by inserting "and A-1" after each reference to Appendix A Amend Appendix B to include Appendix B-1 (see Appendix B-1): Amend Agreement by inserting "and B-1" after each reference to Appendix B 2 Amendment to DPA 38-097 aka DPA 0804-95097-1 Amend Appendix D to include Appendix D- 1 (see Appendix D- 1): Amend Agreement by inserting "and D- 1 " after each reference to Appendix D APPROVED AND AGREED TO: SOLCOM SYSTEMS LIMITED HEWLETT-PACKARD COMPANY By: /s/ Peter J. MacLaren By: /s/ Bill Tomeo Type Name: Peter J. MacLaren Type Name: Bill Tomeo Title: Financial Director Title: General Manager Date: 26 February 1996 Date: March 4, 1996 3 Amendment 2 DPA 0804-95097-2 AMENDMENT 2 TO AGREEMENT NMO DPA 38-097 AKA DPA 0804-95097-2 Between SolCom and HP DATED October 26, 1995 This Amendment ("Amendment") is entered into by SolCom Systems Limited, a company registered in Scotland ("SolCom") the Hewlett-Packard Company, a California corporation ("HP"). This Amendment is effective upon the date of the last signature ("Amendment Effective Date") and shall remain in effect for three years. All Articles, Sections and Appendices of the original Agreement shall be binding on this Amendment unless noted below: Amend Section 1 to include the following definition: 1.16 "Fast-Ethernet" shall mean 100MB/second Ethernet Technology. 1.17 "Probe architecture" shall be a SolCom hardware and software design combination which results in a new HP probe. All Articles, Sections and Appendices of the original Agreement and any Amendments shall be binding on this Amendment unless noted below: Amend entire Agreement and any Amendments by inserting " and Fast-Ethernet " immediately after Ethernet wherever Ethernet is referenced. Amend section 5.7 as follows: At HP's option, SolCom will provide ongoing technical support as described in Sections 5.6 and 5.8 for a period of five years after the expiration of this agreement, for an annual fee of $2000.00 per probe architecture. If HP elects ongoing support, it must be purchased for all probe architectures covered by this contract Amend Appendix B to include Appendix B-2 (see Appendix B-2): Amend Agreement by inserting "and B-2" after each reference to Appendix B Amend Appendix D to include Appendix D-2 (see Appendix D-2): Amend Agreement by inserting "and D-2 " after each reference to Appendix D 1 Amend Agreement by adding Appendix K APPROVED AND AGREED TO: SOLCOM SYSTEMS LIMITED HEWLETT-PACKARD COMPANY By: /s/ P.J. MacLaren By: /s/ Andy Belcher Type Name: P.J. MacLaren Type Name: Andy Belcher Title: Financial Director Title: NMO Business Manager Date: 5 July 1996 Date: 7/17/96 2 Amendment to DPA 38-097 AMENDMENT 3 TO AGREEMENT NMO DPA 38-097 (aka DPA 0804-95097-1) Between SolCom and HP Please amend the opening paragraph to include the following: This Amendment ("Amendment") is entered into by SolCom Systems Limited, a company registered in Scotland ("SolCom") the Hewlett-Packard Company, a California corporation ("HP"). This Amendment is effective upon the date of the last signature ("Amendment Effective Date") and shall remain in effect for three years. All Articles, Sections and Appendices of the original Agreement shall be binding on this Amendment unless noted below: Amend Section 2.2 by adding the following sentence: "And, HP shall pay the NRE of Thirty nine thousand five hundred dollars ($39,500) in accordance with the "NRE Schedule" in Appendix A-2" Add Section 2.9 as follows. Bonus Clause o For the FDDI LanProbe modifications which include the addition of an ethernet port with DB-15 and RJ-45 connectors, there shall be a bonus of $500.00 per day paid to Solcom for each day that the Deliverables in Phase 6 are completed prior to the deadline (for example: completion 5 days early 5 x $500.00 = $2,500.00 bonus), with a maximum total bonus of $5,000.00 available to Solcom. The money will be awarded for completing Phase 6 of the NRE schedule in Appendix A-2 in accordance with the established hardware and software quality requirements. Delays in the completion of Phase 6 due to BP's actions shall not affect Solcom's eligibility for the bonus. o Any delays past the published completion date for phase 6, listed in Appendix A-2 for each deliverable will result in damages to HP. Liquidated Damages in the amount of $500.00 per day for each day late shall be deducted from the NRE payment to Solcom in accordance with the NRE schedule in Appendix A-2. Liquidated Damages will be limited to a total of $5000.00. SolCom's liability for liquidated damages shall be reduced by the extent to which delays in the completion of phase 6 are due to HP's actions. Amend Appendix A to include Appendix A-2 (See Appendix A-2): Amend Agreement by inserting "and A-2" after each reference to Appendix A Amend Appendix B to include Appendix B-3 (see Appendix B-3): 1 Amend Agreement by inserting "and B-3 " after each reference to Appendix B Amend Appendix D to include Appendix D-3 (see Appendix D-1): Amend Agreement by inserting "and D-3" after each reference to Appendix D APPROVED AND AGREED TO: SOLCOM SYSTEMS LIMITED HEWLETT-PACKARD COMPANY By: /s/ Peter James MacLaren By: /s/Greg Schiffman Type Name: Peter James MacLaren Type Name: Greg Schiffman Title: Financial Director Title: Controller Date: 11 March 1997 Date: 2-23-97 Materials Manager /s/ Yvonne Peru 2 Amendment to DPA 38-097 AMENDMENT 4 TO AGREEMENT NMO DPA 38-097 (aka DPA 0804-95097-1) Between SolCom and HP Please amend the opening paragraph to include the following: This Amendment ("Amendment") is entered into by SolCom Systems Limited, a company registered in Scotland ("SolCom") the Hewlett-Packard Company, a California corporation ("HP"). This Amendment is effective upon the date of the last signature ("Amendment Effective Date") and shall remain in effect for three years. All Articles, Sections and appendices of the original agreement shall be binding on this amendment unless noted below: Amend section 1.10 by inserting the following after the phrase "'FDDI RMON Probe": Multiport Ethernet daughter card or Multiport Token-Ring daughter Card," Add sections 1.18, and 1.19: 1.18 Multiport Ethernet daughter card ('Multiport Ethernet daughter card") shall mean the SolCom technology consisting of schematics, parts list PAL equations and ROMable code to implement a PCI bus card with the ability to simultaneously monitor four interfaces on a switched 10MB/sec Ethernet switch without the use an external hub. 1.19 Multiport Token-Ring daughter card ("Multiport Token-Ring daughter card') shall mean the SolCom technology consisting of schematics, parts list, PAL equations and ROMable code to implement a PCI bus card with the ability to simultaneously monitor two 4MB/sec or 16MB/sec Token Rings. Amend section 2.2 by adding the following sentence: "And, HP shall pay the NRE of seventy eight thousand four hundred dollars ($78,400) in accordance with the "NRE Schedule" in Appendix A-3 for the development of a Multiport Ethernet PCI Bus daughter card ("Multiport Ethernet daughter card") and a Multiport Token-Ring PCI Bus daughter card "Multiport Token-Ring daughter card"). Add section 2.10 as follows: Bonus Clause o For the Multiport Ethernet daughter card and Multiport Token-Ring daughter card, there shall be a bonus of $400.00 per day paid to SolCom for each day that the Deliverables in Phase 8 are completed prior to the deadline. For example: completion 5 days early = 5 x $400.00 = $2,000.00 bonus, with a maximum total bonus of $5000.00 available to SolCom. The money will be awarded for completing Phase 8 of the NRE schedule in Appendix A-3 in accordance with the Acceptance Criteria and Test Plan included in Appendix B-5 (See 1 Amendment 6). Delays in the completion of Phase 8 due to HP's actions shall not affect SolCom's eligibility for the bonus. o Any delays past the published completion date for phase 8, listed in Appendix A-3 for each deliverable will result in damages to HP. Liquidated Damages in the amount of $400.00 per day for each day late shall be deducted from the final NRE payment to SolCom in accordance with the NRE schedule in Appendix A-3. Liquidated Damages will be limited to a total of $5000.00. SolCom's liability for liquidated damages shall be reduced by the extent to which delays in the completion of Phase 8 are due to HP's actions. Add section 3.6 as follows "3.6 HP hereby grants to SolCom a world-wide, non-exclusive license to use the system processor board layout of HP's Fast Ethernet Probe (HP PIN J3458A) for the manufacture and distribution of SolCom Products. HP does not grant SolCom the right to transfer this license or HP Product/HP Technology, to any third party without the prior written consent of HP." Add section 3.7 as follows "3.7 HP hereby grants to SolCom a world-wide, non-exclusive license to use the design and layout of BP's Half and Full Duplex Fast Ethernet daughter cards (HP P/N J3458A, Option 200 and Option 201, respectively) for the manufacture and distribution of SolCom Products incorporating similar Half and Full Duplex Fast Ethernet daughter cards. HP does not grant SolCom the right to distribute individual Full Duplex daughter cards for resale without their incorporation into a SolCom Fast Ethernet Probe Product. HP does not grant SolCom the right to transfer this license or HP Product Technology in respect of Full Duplex daughter cards to any third party without the prior written consent of HP." Add section 6.8 as follows: "6.8 SolCom shall pay an "NRE Refund" to HP in accordance with this section 6.8 and Appendix D-4 for each SolCom Product sold incorporating a Multiport Token-Ring daughter card. 6.8.1 SolCom shall pay HP an NRE Refund for each SolCom Product incorporating a Multiport Token-Ring OR Full Duplex Fast Ethernet daughter card per Appendix B- 4. No NRE Refund shall be due for: 6.8.1.1 any SolCom Product or product incorporating a Multiport Token-Ring daughter card subsequently returned for a refund or other adjustment; 6.8.1.2 any SolCom Product or product incorporating a Multiport Token- Ring daughter card used by or distributed by SolCom for reasonable demonstration, training, or support purposes; 2 6.8.1.3 any enhancements, updates or replacement SolCom Products or products incorporating a Multiport Token-Ring daughter card which are shipped by SolCom to its resellers or end-users. 6.8.2 NRE refunds due HP may be bundled and reported at the end of each HP fiscal quarter, reflecting SolCom Products and any product incorporating a Multiport Token-Ring daughter card shipped during the previous fiscal quarter, less any recoverable fees already paid by SolCom and any credits for returns, refunds to customers, or other adjustments. SolCom will make best efforts to remit NRE Refund reports to HP by the third working day after the end of each fiscal quarter. The amount of these payments and any other information associated to these payments is confidential information of SolCorn. NRE Refunds due HP by SolCom shall be deducted from License Fees due SolCom as specified in this article 6. 6.8.3 SolCom shall provide to HP a monthly report due fifteen days after the end of each calendar month of the sales for that month. BP may, at its sole expense and no more frequently than once a year, engage an independent auditor mutually acceptable to SolCom for the purpose of verifying NRE Refund reports. SolCom will maintain appropriate records, including sub-licensee sales, and make such records reasonably available to the auditor. If such records are found to be in error by more than five percent then SolCom shall pay the deficient amount and the cost of the audit. 6.8.4 HP shall be solely liable for taxes on all fees paid to HP by SolCom under this Agreement, including all state withholding and local use, sales, property (ad valorem), and other taxes but excluding taxes calculated solely on SolCom's income." Add section 6.9 as follows: 6.9 SolCom shall pay a License Fee to HP in accordance with this section 6.9 and Appendix D-4 for each SolCom Product sold incorporating a Full Duplex Fast Ethernet daughter card. 6.9.1 SolCom shall pay HP a License Fee for each SolCom Product incorporating Full Duplex Fast Ethernet daughter card, HP P/N J3458A, Option 201. No NRE Refund shall be due for: 6.9.1.1 any SolCom Product or product incorporating a Full Duplex Fast Ethernet daughter card subsequently returned for a refund or other adjustment: 6.9.1.2 any SolCom Product or product incorporating Full Duplex Fast Ethernet daughter card used by or distributed by SolCom for reasonable demonstration training, or support purposes: 3 6.9.1.3 any enhancements, updates or replacement SolCom Products or products incorporating a Full Duplex Fast Ethernet daughter card which are shipped by SolCom to its rescilers or end-users. 6.9.2 License Fees due BP may be bundled and reported at the end of each HP fiscal quarter, reflecting SolCom Products and any product incorporating a Full Duplex Fast Ethernet daughter card shipped during the previous fiscal quarter, less any recoverable fees already paid by SolCom and any credits for returns, refunds to customers, or other adjustments. SolCom will make best efforts to remit License Fee reports to HP by the third working day after the end of each fiscal quarter. The amount of these payments and any other information associated to these payments is confidential information of SolCom. License Fees due HP by SolCom shall be deducted from Licensee Fees due SolCom as specified in this article 6. 6.9.3 SolCom shall provide to HP a monthly report due fifteen days after the end of each calendar month of the sales for that month. HP may, at its sole expense and no more frequently than once a year, engage an independent auditor mutually acceptable to SolCom for the purpose of verifying NRE Refund reports. SolCom will maintain appropriate records, including sub-licensee sales, and make such records reasonably available to the auditor. If such records are found to be in error by more than five percent, then SolCom shall pay the deficient amount and the cost of the audit. 6.9.4 HP shall be solely liable for taxes on all fees paid to UP by SolCom under this Agreement, including a state withholding and local use, sales, property (ad valorem), and other taxes but excluding taxes calculated solely on SolCom's income." Add the following phrase to the beginning of section 8.2: "Except to the extent of the indemnity set forth below" Add the following phrase to the end of section 8.2: "SolCom agrees to defend, indemnify and hold HP harmless from any claims, suits, proceedings, costs and expenses brought against or incurred by BP as a result of SolCom's use of the design and/or layout of EP's Multiport Token-Ring daughter cards, Half and Full Duplex Fast Ethernet daughter cards or Fast Ethernet Probe system processor boards" Add section 8.5 as follows: "8.5 HP MAKES NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING THE TECHNOLOGY, ITS MERCHANTABILITY, OR ITS FITNESS FOR ANY PARTICULAR PURPOSE." Amend Appendix A to include Appendix A-3 (see Appendix A -3): Amend Agreement by inserting "and A-3 " after each reference to Appendix A Amend Appendix B to include Appendix B-4 (see Appendix B-4): 4 Amend Agreement by inserting "and B-4" after each reference to Appendix B Amend Appendix D to include Appendix D-4 (see Appendix D-4): Amend Agreement by inserting "and D-4" after each reference to Appendix D APPROVED AND AGREED TO: SOLCOM SYSTEMS LIMITED HEWLETT-PACKARD COMPANY By: /s / P.J. MacLaren By: /s/ Greg Schiffman Type Name: P.J. MacLaren Type Name: Greg Schiffman Title: Financial Director Title: Date: 24 November 1997 Date: Materials Manager 5 Amendment to DPA 38-097 AMENDMENT 5 TO AGREEMENT NMO DPA 38-097 (aka DPA 0804-95097-1) Between SolCom and HP Please amend the opening paragraph to include the following: This Amendment ("Amendment") is entered into by SolCom Systems Limited, a company registered in Scotland ("SolCom") the Hewlett-Packard Company, a California corporation ("HP"). This Amendment is effective upon the date of the last signature ("Amendment Effective Date") and shall remain in effect for three years. All Articles, Sections and Appendices of the original Agreement shall be binding on this Amendment unless noted below: Add section 6.9 as follows: 6.9 Upon execution of this Amendment, HP agrees to make an additional prepayment in the amount $153,000.00, for License Fees due SolCom in accordance with the provisions of this Article 6 and Appendices D, D-1, D-2, D-3 and D-4. This prepayment raises the outstanding balance of prepayments issued by HP to SolCom to $350,000.00. Prepayment ("Prepayment") shall mean the outstanding balance of all prepayments at the time of execution of this Amendment, including the $153,000 prepayment referenced above, which equals $350,000.00. This Pre-payment of License Fees shall be subject to the following conditions: 6.9.1 The Prepayment shall not affect the current monthly License Fees due SolCom for a period of six (6) months from the issuance of such Prepayment. 6.9.2 Should License Fees due SolCom exceed $100,000.00 in any one month during the six (6)month period following the issuance of the prepayment, HP reserves the right to reduce the amount of such License Fee payment to $100,000.00 by deducting the amount of the License Fees due in excess of $100,000.00 from the outstanding Prepayment balance. 6.9.3 Six (6) months from the date of issuance of the Prepayment, HP shall amortize the remaining balance of the Prepayment over the succeeding six (6) month period and deduct that amount from the monthly License Fee payment due SolCom. 6.9.4 SolCom agrees to provide HP with quarterly Financial Forecasts until such time that HP recovers the Prepayment. The Financial Forecasts shall include profit and loss statements, balance sheets and cash flow projections. The Financial Forecasts shall be subject to the confidentiality term in article 7. 6.9.5 HP reserves the right to extend the period before which the amortization and recovery of the Prepayment begins based on BP's assessment of SolCom's current business conditions. 1 APPROVED AND AGREED TO: SOLCOM SYSTEMS LIMITED HEWLETT-PACKARD COMPANY By: /s /P.J. MacLaren By: /s/ Greg Schiffman Type Name: Peter J. MacLaren Type Name: Greg Schiffman Title: Financial Director Title: Controller Date: 21 July 1997 Date: August 14, 1997 Materials Manager 2 Amendment to DPA 38-097 AMENDMENT 6 TO AGREEMENT NMO DPA 38-097 (aka DPA 0804-95097-1) Between SolCom and HP Please amend the opening paragraph to include the following: This Amendment ("Amendment") is entered into by SolCom Systems Limited, a company registered in Scotland ("SolCom") and the Hewlett-Packard Company, a California corporation ("HP"). This Amendment is effective upon the date of the last signature ("Amendment Effective Date") and shall remain in effect for three years. All Articles, Sections and Appendices of the original Agreement shall be binding on this Amendment unless noted below: Amend entire agreement and any Amendments by inserting "and T1, E1, V-Series, T3, HSSI, ATM-OC3, ATM-UTP, ATM-DS3, ATM-E3 "immediately after Fast Ethernet, wherever Fast Ethernet is referenced, with the following exceptions: Section 1.4 insert - "or T1, E1, V-Series, T3, HSSI, ATM-OC3, ATM-UTP, ATM-DS3, ATM-E3" after Fast Ethernet Section 2.9: Do not make any insertions Section 2.10: Do not make any insertions Appendix A-2 and A-3: Do not make any insertions Appendix B-2, B-3, B-4: Do not make any insertions Appendix D-2, D-3 and D4: Do not make any insertions Appendix K: Do not make any insertions Amend section 1.10 by inserting the following after "Quad Ethernet daughter card or Dual Token-Ring daughter card" "T1, E1 or V-Series, T3, HSSI, ATM-OC3, ATM-UTP, ATM-DS3, ATM-E3 daughter card" Add sections 1.20, 1.21, 1.22, 1.23, 1.24, 1.25, 1.26 and 1.27 as follows: 1.20 T1 daughter card ("TI daughter card") shall mean a PCI bus card for the J3458A chassis which connects to a Tl WAN connection (per ANSI Tl.403) via an RJ-48C and mini-bantam style connector to access full span (T1 1544 kbps access channels) and fractional T1 (FTI) channels comprising an arbitrary configuration and number of time slots up to the maximum possible. Time slots may be 56kbps or 64 kbps. 1.21 El daughter card ("El daughter card") shall mean a PCI bus card for the J3458A chassis which connects to a CEPIT El WAN connection (per G.703 and G.704) 75- ohm and 120-ohm interfaces via BNC and dual conductor (BR2) BNC to access full 1 span (E I 1984 kbps access channels) and fractional El channels comprising an arbitrary configuration and number of time slots up the maximum possible. 1.22 V-Series daughter card ("V-Series daughter card") shall mean a PCI bus card for the J3458A chassis which connects to V.24 (RS-232), V.35, V.36 (RS-449). ANSI/EIA/TIA-530 (25-pin interface) and X.21 (V.11) supporting as appropriate line rates up to 2048 kbps. 1.23 HSSI daughter card ("HSSI daughter card") shall mean a PCI bus daughter card that is compatible with the HP J3458A Fast Ethernet LANProbe motherboard. This daughter card shall connect per ANSI/EIA/TIA-612 and ANSI/EIA/TIA-613 via a 50-pin connector. It shall be capable of monitoring at speeds up to 52 Mbps. 1.24 T3 daughter card ("73 daughter card") shall mean a PCI bus daughter card that is compatible with the HP J3458A Fast Ethernet LANProbe motherboard. The daughter card shall connect per T1.107a-1990. It shall be capable of monitoring full span or fractional framed services up to 44.736 N4bps. 1.25 ATM-UTP daughter card ("ATM-UTP daughter card") shall mean a PCI bus daughter card that is compatible with the HP J3458A Fast Ethernet LANProbe motherboard. The daughter card shall connect via RJ-45 connectors with Sonet and SDH framing. It shall be capable of monitoring a 155 Mbps connection. 1.26 ATM-OC3 daughter card ("ATM-OC3 daughter card") shall mean a PCI bus daughter card that is compatible with the HP J3458A Fast Ethernet LANProbe motherboard. The daughter card shall connect to OC-3c/STM-1 via fiber SC connectors with Sonet and SDH framing. 1.27 ATM-DS3 daughter card ("ATM-DS3 daughter card"') shall mean a PCI bus daughter card that is compatible with the HP J3458A Fast Ethernet LANProbe motherboard. The daughter card shall connect per T1.107a-1990. It shall be capable of monitoring full span or fractional framed services up to 44.736 Mbps. 1.28 E3 ("E3 daughter card") ATMProbe daughter card shall mean a PCI bus daughter card that is compatible with the HP J3458A Fast Ethernet LANProbe motherboard. The daughter card shall connect via 75-ohm unbalanced BNC connectors and support PLCP and direct cell mapping, C-bit, M13, and G.804/G.832.G.751 framing and B3ZS and HDB3 line codes. Amend section 2.2 by adding the following sentence: "And, HP shall pay an NRE of one hundred twenty thousand two hundred dollars ($120,200) in accordance with the "NRE Schedule" in Appendix A-4 for the development of TI, El or V-Series, T3, HSSI ATM-OC3, ATM-UTP, ATM-DS3, ATM-E3 daughter cards. 2 Add section 8.6 as follows: "Notwithstanding anything to the contrary in Article 8 of the Agreement, SolCom's liability to HP for costs associated with design defects in the T1, El, V-Series, T3, HSSI, ATM-OC3, ATM-UTP, ATM-DS3, ATM-E3 daughter cards shall not exceed the greater of forty two thousand dollars ($42,000) or twelve and a half percent (12.5%) of the total license fees paid to date for each individual daughter card." Amend Appendix A to include Appendix A-4 (see Appendix A-4): Amend Agreement by inserting "and A-4" after each reference to Appendix A Amend Appendix B to include Appendix B-5 (see Appendix B-5): Amend Agreement by inserting "and B-5" after each reference to Appendix B Amend Appendix D to include Appendix D-5 (see Appendix D-5): Amend Agreement by inserting "and D-5" after each reference to Appendix D Amend Agreement by adding Appendix L, Additional Firmware Requirements Amend Agreement by adding Appendix M, Vesuvius High Level Architecture APPROVED AND AGREED TO: SOLCOM SYSTEMS LIMITED HEWLETT-PACKARD COMPANY By: By: Type Name: Type Name: Title: Title: Date: Date: Materials Manager (Rest of page intentionally left blank) 3 EX-10.7 7 OEM PURCHASE AGREEMENT Exhibit 10.7 ------------ OEM PURCHASE AGREEMENT #52-154 BY AND BETWEEN HEWLETT-PACKARD COMPANY AND ION Networks, Inc. - -------------------------------------------------------------------------------- OEM PURCHASE AGREEMENT ---------------------- THIS AGREEMENT is entered into between HEWLETT-PACKARD COMPANY, a Delaware corporation ("HP") and ION NETWORKS, INC., a Delaware corporation, effective as of April 13, 1999. The parties hereby agree as follows: 1. SCOPE OF AGREEMENT 1.1 General. This Agreement specifies the terms and conditions under which Supplier will sell, license and support the OEM Products listed in Exhibit A to this Agreement. The OEM Products are regarded as "Original Equipment Manufacturer" products that will either be sold separately or incorporated into HP Products for resale, worldwide, under ION Networks, Inc. label or under HP's private label. The OEM Products and the HP Products will be marketed, serviced, and supported by HP's field organization and channel partners, subject to the marketing, service, and support obligations of ION Networks, Inc. pursuant to this Agreement. All OEM products must be new, except as otherwise provided by the parties. 1.2 Eligible Purchasers. This Agreement enables HP, HP Subsidiaries and HP Subcontractors to purchase OEM Products from ION Networks, Inc. under the terms of this Agreement or any subsequent Product Addendum. Unless a Product Addendum specifically refers to and amends a term of this Agreement, the terms and conditions of this Agreement will control and take precedence over any conflicting terms in a Product Addendum. 1.3 Term Of Agreement. This Agreement will commence as of the Effective Date and continue for a 1 year period, unless terminated earlier under the terms of this Agreement. After the initial Term, this Agreement will continue automatically for 2 additional one-year periods, unless terminated upon 60 days notice prior to expiration of the initial term or of any additional periods. 2. DEFINITIONS The following capitalized terms will have these meanings throughout this Agreement. 2.1 "Days" means calendar days unless otherwise specified herein. 2.2 "Delivery Date" means the date specified in an Order for the delivery of OEM Products by Supplier to the destination required under the Order. 2.3 "Documentation" means the user and technical manuals and other documentation that Supplier will make available with the OEM Products. 2.4 "Eligible Purchasers" mean those parties authorized to purchase OEM Products under this Agreement as listed in Section 1.2 above. 2.5 "Epidemic Failure" will mean those deviations which HP and ION Networks, Inc. mutually agree impair the form, fit or function of the product and which are evidenced by the same failure occurring in the same series of products. 2.6 "Forecast" means HP's estimate of its purchase requirements over a six-month period, or such other period designated by the parties. 2.7 "HP Products" means the HP products or systems that will incorporate the OEM Products and that will be marketed and sold to end-user customers by HP and its distributors. 2.8 "HP Property" means all property, including without limitation, models, tools, equipment, copies of designs and documentation and other materials that may be furnished to ION Networks, Inc. by HP or on HP's behalf or separately paid for by HP for use by ION Networks, Inc. in connection with this Agreement. 2.9 "Intellectual Property Rights" means all rights in patents, copyrights, trade secrets, mask works, Marks and other similar rights. 2.10 "Lead Time" means the time between the date an Order is acknowledged by ION Networks, Inc. and the Delivery Date. 2.11 "Marks" means the trademarks, service marks, trademark and service mark applications, trade dress, trade names, logos, insignia, symbols, designs or other marks identifying a party or its products. 2.12 "Noncomplying Product" means any OEM Product received by HP that does not comply with the Specifications, Exhibit A or Exhibit I or otherwise does not comply with the requirements of an Order or other provisions of this Agreement. Noncomplying Products include, without limitation, dead-on arrival products, over shipment and early shipments. 2.13 "OEM Products" means the products listed in Exhibit A, all related Documentation, Parts and other deliverables provided pursuant to this Agreement. 2.14 "Orders" means a written or electronic purchase order or release issued by HP to ION Networks, Inc. for purchase of the OEM Products. -2- 2.15 "Parts" means the replacement parts, components, consumables or other products that may be supplied in conjunction with or as additions to the OEM Products. 2.16 "Product Addendum" means an addendum to this Agreement entered into between ION Networks, Inc. and an Eligible Purchaser naming additional OEM Products and product specific requirements in addition to those requirements specified in this Agreement. 2.17 "Software" means any software or firmware included or bundled with the OEM Products, as designated in the description of OEM Products in Exhibit A. 2.18 "Specifications" means the technical and functional requirements for the OEM Products as specified or referenced in Exhibit A or as agreed to by the parties in writing addressed to the designated recipients specified in Exhibit G. 2.19 "Subcontractor" means a third party listed in Exhibit B that may purchase OEM Products under the terms of this Agreement on behalf of HP. 2.20 "Subsidiary" means an entity controlled by or under common control with a party to this Agreement, through ownership or control of more than 50% of the voting power of the shares or other means of ownership or control, provided that such control continues to exist. 2.21 "Support" means ongoing maintenance and technical support for the OEM Products provided by Supplier to HP as more fully described in Exhibit D. 2.22 "Technical Information" means ION Networks, lnc.'s manufacturing information and technology deemed necessary by HP to support OEM Products and to exercise any manufacturing rights provided under this Agreement, including, but not limited to: (i) specifications, software, schematics, designs, drawings or other materials pertinent to the most current revision level of manufacturing of the OEM Products; (ii) copies of all inspection, manufacturing, test and quality control procedures and any other work processes; (iii) jig, fixture and tooling designs; (iv) ION Networks, Inc. history files; (v) support documentation; and (vi) any additional technical information or materials agreed to by the parties. 2.23 "Technical Materials" means jigs, fixtures and tools used by Supplier to manufacture the OEM Products, and any production software used in such manufacture. -3- 3. ORDER AND SHIPMENT OF OEM PRODUCTS 3.1 Orders. Each delivery of OEM Products will be initiated by an Order issued to ION Networks, Inc. by HP. Each Order will include (i) unit quantity; (ii) unit price; (iii) shipping destination; (iv) Delivery Date; and (v) other instructions or requirements pertinent to the Order. HP may schedule regular intervals for deliveries by an appropriate Order setting forth the intervals. To the extent of any inconsistency between the terms of an Order and the terms of this Agreement, the terms specified in this Agreement will control and take precedence. 3.2 Order Acknowledgment. An Order will be deemed to have been placed as of the date of receipt of the Order by ION Networks, Inc. ION Networks, Inc. will promptly confirm the receipt of an Order electronically or through facsimile to HP within one (1) working days. Orders within Forecasts and lead-time requirements of this Agreement will be deemed accepted upon receipt by ION Networks, Inc. For Orders exceeding Forecast, ION Networks, Inc. will reject or acknowledge the order with respect to the excess as soon as reasonably possible but within two (2) working days. If a HP Order exceeds the Forecast or shortens the lead-time, ION Networks, Inc. will use its best efforts to fill such excess or accommodate such shorter Lead Time. 3.3 Emergency Orders. If HP deems it necessary, HP may order OEM Products by facsimile on an emergency basis ("Emergency Order") subject to the availability of such OEM Products in ION Networks, Inc.'s inventory. ION Networks, Inc. will use commercially reasonable efforts to ship the emergency Order to HP's stipulated destinations within one (1) business day after recite by ION Networks, Inc. Subject to HP's approval, HP will pay any additional expenses related to such Emergency Orders. 3.4 Forecasts. Upon the request of ION Networks, Inc., HP will provide a six-month rolling Forecast of its projected Orders. Any quantities listed in any Forecast or other correspondence between the parties are only estimates made as an accommodation for planning purposes and do not constitute a commitment on HP's part to purchase such quantity. HP may revise any Forecasts in its sole discretion. 3.5 Lead Time. ION Networks, Inc. will determine the Lead Time for each OEM Product, which in no event will exceed 35 days without HP's prior written consent. ION Networks, Inc. must give HP no less than 35 days advance notice to approve or reject any proposed increase in Lead Time. 3.6 Inventory Requirement. ION Networks, Inc. will maintain a protective inventory equal to 10 percent (10%) of the average monthly forecast for the most recent three (3) month rolling forecast period of each OEM product. In addition, ION -4- Networks, Inc. will maintain a protective inventory equal to 20 percent (20%) of the average monthly forecast of each critical, single sourced or long lead-time component. If this inventory is depleted, ION Networks, Inc. will replenish the inventory as soon as possible after depletion. ION Networks, Inc. will rotate its supply of OEM Products in inventory to maintain a fresh stock of inventory. Upon termination of this agreement or cancellation of orders, ION Networks, Inc. will make commercially reasonable efforts to mitigate the excess unique material listed in Exhibit H prior to making a request of HP to pay for the excess. If the excess unique materials cannot be mitigated by ION Networks, Inc., ION Networks, Inc. will request that HP pay for reasonable costs associated with the excess unique materials required to meet the inventory requirements above. HP will review the request paying reasonable costs within 30 days of ION Networks, Inc. request. 3.7 Order Changes. HP may without charge postpone, decrease, increase, or cancel any Order by notice to ION Networks, Inc. at least fifteen (15) days prior to the Delivery Date. HP may cancel an Order by notice to ION Networks, Inc. at any time prior to then agreed lead-time for the OEM products ordered. If HP postpones, decreases, or cancels an Order after such time period, ION Networks, Inc. will be entitled to be reimbursed by HP for actual costs incurred by ION Networks, Inc. as a direct result of such postponement, decrease, or cancellation that are not recoverable by the shipment of the affected OEM Products or their raw materials to other purchasers (subject to ION Networks, Inc. duty to remove HP Marks as specified in Section 6.3 below) within a reasonable period of time or the exercise by ION Networks, Inc. in a commercially reasonable manner, of other mitigation measures. 3.8 Shipment Requirements. All Orders are required to be shipped complete. ION Networks, Inc. will give HP immediate notice if it knows that it cannot meet a Delivery Date or that only a portion of the OEM Products will be available for shipment to meet a Delivery Date. For partial shipments, ION Networks, Inc. will ship the available OEM Products unless directed by HP to reschedule shipment. If ION Networks, Inc. ships any OEM Product by a method other than as specified in the corresponding Order, ION Networks, Inc. will pay any resulting increase in the cost of freight. HP may utilize drop shipment options to any HP designated delivery destination. If HP designates a drop shipment location outside the country in which the Order is placed, HP agrees to pay any additional costs associated with the shipment. 3.9 HP Option To Accept Over shipments. If ION Networks, Inc. ships more OEM Products than ordered, the amount of the over shipment may either be kept by HP -5- for credit against future Orders or returned to ION Networks, Inc. pursuant to Article 6 below, at HP's election. 3.10 Meeting Delivery Dates. If due to ION Networks, Inc.'s failure to make a timely shipment, the specified method of transportation would not permit ION Networks, Inc. to meet the Delivery Date, the OEM Products affected will be shipped by air transportation or other expedient means acceptable to HP. ION Networks, Inc. will pay for any resulting increase in the freight cost over that which HP would have been required to pay by the specified method of transportation. 3.11 No Advance Shipment. If OEM Products are delivered more than three days in advance of the Delivery Date, HP may, at its option, either return the OEM Products pursuant to Article 6 below or keep the OEM Products with payment due as provided in Section 4.3 below. 3.12 Title And Risk Of Loss. Unless otherwise specified in writing by HP, shipments will be FCA destination. If HP designates the carrier, shipments will be FCA carrier. Title to OEM Product hardware and media ordered under this Agreement and risk of loss or damage will pass from ION Networks, Inc. to HP upon ION Networks, Inc. delivery of the OEM Products to the common carrier specified by HP, subject to the provisions in Sections 3.14 and 3.15 below with respect to packing and handling. 3.13 Packing List. Each delivery of OEM Products to HP must include a packing list that contains at least: (1) The Order number and the HP part number; (2) The quantity of OEM Products or Parts shipped; and (3) The date of shipment. 3.14 Packaging. ION Networks, Inc. must preserve, package, handle, and pack all OEM Products so as to protect the OEM Products from loss or damage, in conformance with good commercial practice, the Specifications, government regulations, and other applicable standards. Special static protection must be provided for OEM Products requiring such packaging. 3.15 Responsibility For Damage. ION Networks, Inc. will only be liable for any loss or damage due to its failure to properly preserve, package, handle, or pack OEM Products. HP will not be required to assert any claims for such loss or damage against the common carrier involved. Further, HP will not be liable for any loss -6- or damage due to a release of chemicals or other hazardous materials to the environment prior to HP's actual receipt of the corresponding OEM Products. 3.16 Purchase Hold. If HP determines that an OEM Product is defective, then, irrespective of any rights provided HP hereunder, HP may implement a purchase hold to suspend purchases of such OEM Products without any liability provided that HP promptly notifies ION Networks, Inc. of such suspension and provides ION Networks, Inc. with information specific to the purported defect such that ION Networks, Inc. can identify the root cause of the defect or recreate and then remedy the defect. Such purchase hold may be removed if HP reasonably believes that ION Networks, Inc. has taken sufficient action to correct the defect or given sufficient assurances that such defect will be corrected within a reasonable time. 4. PRICES AND PAYMENT TERMS 4.1 OEM Product Prices. ION Networks, Inc. prices for the OEM Products are listed in Exhibit C, in U.S. currency unless otherwise stated, and may not be increased without HP's consent. The prices for Parts will be ION Networks, Inc. published prices, less any applicable discounts, unless the parties agree to a price schedule for Parts. OEM Products and Parts will also be subject to any applicable prompt payment discounts. ION Networks, Inc. and HP agree to review OEM Product prices quarterly. If, during the term, ION Networks, Inc. effectuates cost reductions in its manufacturing and delivery processes, it will pass such reductions to HP and amend the prices accordingly. 4.2 Changed Prices. If during the Term changed prices or price formulas are put in effect by mutual agreement of HP and ION Networks, Inc., or reduced prices or price formulas are otherwise put in effect by ION Networks, Inc., such prices or price formulas (if resulting in lower prices than the then current price) will apply to all Orders issued by HP after the effective date of such prices or price formulas and to all unshipped Orders. 4.3 Payment Procedure. Payment for OEM Products will be net 37 days, after the latest of receipt by HP of an appropriate invoice from ION Networks, Inc., the receipt by HP of the corresponding OEM Products or Parts; or the Delivery Date Except as otherwise provided in this Agreement, associated freight expenses and duties will be paid directly by HP. HP will not be liable for any costs related to or payments for unordered or Nonconforming Products. 4.4 Most Favored Purchaser Warranty. If during the term, ION Networks, Inc. offers a better price or pricing formula to other purchasers for the same or lesser volumes of OEM Products with substantially the same terms and conditions, then ION Networks, Inc. agrees to offer such price or pricing formula to HP retroactively -7- as of the date first offered to the third party. ION Networks, Inc. agrees to fulfill its obligations in this Section in good faith and further agrees that it will not create any OEM Product purchasing programs, pricing formulas or other conditions that serve to deny HP the benefits of its favored purchaser status. In addition, HP may credit any amounts due under this Agreement against future invoices. ION Networks, Inc. agrees to fulfill its obligations in this Section in good faith. 4.5 Sales Taxes And Duties. Prices are exclusive of all taxes or duties after delivery to the designated destination (other than taxes levied on ION Networks, Inc. income) that ION Networks, Inc. may be required to collect or pay upon shipment of the OEM Products. Any such taxes or duties must appear as a separate item on ION Networks, Inc. invoice. HP agrees to pay such taxes or duties unless HP is exempt from such taxes or duties. Where applicable, HP will provide ION Networks, Inc. with an exemption resale certificate. 5. NONCOMPLYING PRODUCTS 5.1 Credit, Repair or Replacement. HP may elect in its sole discretion, subject to the provisions of Article 18 below, to return a Noncomplying Product for Credit or at HP option to replacement or repair at ION Networks, Inc. expense. In addition, HP may return for repair or replacement an entire lot of OEM Products if a tested sample of that lot contains 3% or greater Noncomplying Products. 5.2 Replenishment Period. ION Networks, Inc. will return the replacement or repaired OEM Products as soon as possible but in no event later than two (2) work days after receipt of the Noncomplying Product from HP. ION Networks, Inc. opportunity to cure any failure to meet such deadline, pursuant to Article 18 below, will apply to only one such breach per part number during the Term. 6. RETURN OF OEM PRODUCTS 6.1 Return Materials Authorization. All OEM Products returned by HP to ION Networks, Inc. must be accompanied by a Return Materials Authorization ("RMA"). HP and ION Networks, Inc. will follow a mutually agreed upon RMA process. Unless further verification is reasonably required by ION Networks, Inc., ION Networks, Inc. will supply an RMA within two work days of HP's request. 6.2 Return Charges. All Early/Over Shipments and Noncomplying and failing OEM Products returned by HP to ION Networks, Inc., and all replacement or repaired OEM Products shipped by ION Networks, Inc. to HP to Eady/Over Shipments and Noncomplying and failing OEM Products, will be at ION Networks, Inc. risk and expense, including transportation charges. -8- 6.3 Duty To Remove Marks Or Destroy Noncomplying Products. ION Networks, Inc. agrees not to sell, transfer distribute or otherwise convey any part, component, product or service bearing or incorporating HP Marks, part numbers or other identifiers, including any HP packaging, copyrights or code, to any party other than to Eligible Purchasers. ION Networks, Inc. will remove from all rejected, returned or un-purchased OEM Products any such HP Marks or identifiers, even if such removal would require destruction of the OEM Products. ION Networks, Inc. further agrees not to represent that such OEM Products are built for HP or to HP specifications. ION Networks, Inc. will defend and indemnify HP against any claims, losses, liabilities, costs or expenses that HP may incur as a result of ION Networks, Inc. breach of this obligation. 6.4 Field Failure Returns. All failing OEM Products may be returned by HP to ION Networks, Inc. for repair or replacement. Failure returns within warranty period will be repaired or replaced at no cost. Failure returns of OEM Products outside of the warranty period set forth herein will be repaired or replaced at the agreed out of warranty repair cost. ION Networks, Inc. will track the repair history of each OEM Product. Any OEM Product returned for the third time to ION Networks, Inc. will be scrapped and replaced with another repaired or replacement OEM Product. No Trouble Found (NTF) returned OEM Product would be tracked by ION Networks, Inc.. If the parties mutually agree that the NTF rate is significant, the parties will agree to use commercially reasonable means to reduce the number of NTF returns. 7. ENGINEERING PROCESS OR DESIGN CHANGES 7.1 ION Networks, Inc. Proposed Changes. ION Networks, Inc. will not, without the prior written consent of HP, make or incorporate in OEM Products any of the following changes (collectively, "Engineering Changes"): (1) Process or design changes; (2) Geographical relocation of manufacturing processes; or (3) Process step discontinuance's affecting the electrical performance, the mechanical form, fit, or function, the environmental compatibility or chemical characteristics, software compatibility, or the life, reliability, or quality of OEM Products. 7.2 Notice Of Proposed Changes. ION Networks, Inc. will give HP notice of any proposed Engineering Change, and will provide evaluation samples and other appropriate information as specified by HP at least 90 days prior to the first proposed shipment of any OEM Products involving an Engineering Change. HP -9- will respond within fifteen (15) days indicating its approval or disapproval of any Engineering Change; provided, however, if HP does not respond to notice of any Engineering Change within fifteen (15) days, HP will be deemed to approve such Engineering Change. Regardless of whether HP approves a proposed Engineering Change, Lead Time will not be changed except as provided in Section 3.4 above. 7.3 HP Proposed Changes. HP may change HP-supplied drawings, designs, or Specifications at any time prior to manufacture of corresponding released OEM Products. HP will submit proposed changes to the OEM Product to ION Networks, Inc. for investigation. ION Networks, Inc. will respond to HP's proposed changes within ten (10) business days. The parties will negotiate in good faith the terms and conditions of the proposed change, including possible price adjustments, change in delivery schedule, and testing, within thirty (30) days after ION Networks, Inc. response. HP will pay all reasonable and direct costs incurred by ION Networks, Inc. in implementing the changes that are specific to the OEM Product. 7.4 Option To Terminate. If the parties are unable to agree, acting reasonably and in good faith, upon an adjustment pursuant to Section 7.3 above, HP may without any liability terminate this Agreement as to any OEM Products affected. Upon termination of this agreement, ION Networks, Inc. will make commercially reasonably efforts to mitigate excess unique materials listed in Exhibit H prior to making a request to HP to pay for the excess. If the excess unique materials cannot be mitigated by ION Networks, Inc., ION Networks, Inc. will request that HP pay for reasonable costs associated with the excess unique materials required to meet inventory requirements as stated in section 3.6. 7.5 Safety Standard Changes. ION Networks, Inc. will immediately give notice to HP if any upgrade, substitution or other change to an OEM Product is required to make that product meet applicable safety standards or other governmental statutes, rules, orders or regulations, even those that are not defined as Engineering Changes in Section 7.1 above. All affected OEM Products already purchased by HP may, at HP's election, either be returned to ION Networks, Inc. for upgrade to current revisions or upgraded by ION Networks, Inc. or HP in the field pursuant to the procedures outlined in Section 10.6 below. If an OEM Product meets applicable safety standards and other governmental requirements at the time of manufacture, HP and ION Networks, Inc. will allocate the costs of any subsequent upgrade, substitution or other required change required in an equitable manner based on good faith discussions between the parties. If such discussions render no equitable solution, the parties may either mutually agree to escalate the matter to their respective vice presidents or general managers, as applicable, or in the alternative, divide the costs equally between them. -10- 8. QUALITY 8.1 Quality Program. ION Networks, Inc. agrees to maintain an objective quality program consistent with reasonable commercial standards for all OEM Products. ION Networks, Inc. program will be in accordance with the current revision of ION Networks, Inc. quality system requirements which HP will have the opportunity to review, and if applicable, any additional or substitute quality requirements agreed to by both parties. ION Networks, Inc. will, upon HP's request, provide to HP copies of ION Networks, Inc. program and supporting documents. 8.2 HP has the right to inspect, at ION Networks, Inc. plant, the OEM Products and associated manufacturing processes. Manufacturing processes may be inspected at any time during the Term. HP's inspection may be for any reason reasonably related to this Agreement, including to assure ION Networks, Inc. compliance with HP's requirements. HP's right of inspection will apply as well to any vendor or subcontractor of ION Networks, Inc. ION Networks, Inc. will inform such vendors or subcontractors of HP's right to inspect, and, if necessary, use all reasonable effort to secure such rights for HP. 9. WARRANTIES 9.1 Product Warranties. ION Networks, Inc. warrants that all OEM Products will: (1) Be manufactured, processed, and assembled by ION Networks, Inc. or by companies under ION Networks, Inc. direction. (2) Conform to the Specifications, and other criteria referred to in this Agreement or agreed to by the parties in writing. (3) Be new, except as otherwise provided by the parties. (4) Conform strictly to the requirements of all Orders. (5) Be free from defects in design, material and workmanship in accordance with HP specifications. (6) Be free and clear of all liens, encumbrances, restrictions, and other claims against title or ownership. (7) Be "Year 2000 Compliant." Year 2000 Compliant OEM Products will perform without error, loss of data, or loss of functionality arising from any failure to process, calculate, compare, or sequence date data. In -11- addition, Year 2000 Compliant OEM Products will not cause any associated products or systems in which they may be used to fail in any of the ways described above. This Year 2000 Compliance Warranty will remain in effect through December 31, 2000, notwithstanding any other warranty period specified in this Agreement. (8) Not violate or infringe any third party Intellectual Property Rights and ION Networks, Inc. warrants that it is not aware of any facts upon which such claim could be made. If ION Networks, Inc. learns of any claim or any facts upon which claim could be made, it will promptly notify HP of this information. 9.2 Survival of Warranties. All warranties specified above will survive any inspection, delivery, acceptance, or payment by HP and be in effect for the longer of ION Networks, Inc. 13 month warranty period, or the one year period following the date of shipment of the OEM Product or the HP Product containing the OEM Product to HP's end-user customers. HP understands that the backup system battery has a 2-year life span and needs regular maintenance. 9.3 Epidemic Failure Warranty. In addition to the warranties specified above, ION Networks, Inc. warrants all OEM Products against epidemic failure for a period of three (3) years after receipt of that OEM Product or the associated HP Product by HP's customers. An epidemic failure means the occurrence of the same failure pertaining to form, fit, or function, in any one percent (1%) of the OEM Products, within a one (1) year time frame. HP understands that the backup system battery has a 2 year life span and needs regular maintenance. 9.4 Out of Warranty Repair. For Products which fail to conform to their Specifications after the warranty period has expired but during the term of this agreement, HP may return such Products to ION Networks, Inc. for repair or replacement at ION Networks, Inc. then current prices and terms after obtaining an RMA number. ION Networks, Inc. current out of warranty repair terms and pricing are set forth in Exhibit C. 9.5 DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 9 AND SECTION 14 (INTELLECTUAL PROPERTY PROTECTION), ION Networks, Inc. MAKES NO OTHER WARRANTIES, WITH RESPECT TO OEM PRODUCTS, AND ION Networks, Inc. EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, REGARDING ANY OEM PRODUCTS, OR REGARDING THEIR MERCHANTABILITY OR THEIR FITNESS FOR ANY PARTICULAR PURPOSE. -12- 10. SUPPORT SERVICES 10.1 General. ION Networks, Inc. will provide HP with Support for the OEM Products as specified in the Support Terms attached as Exhibit D. ION Networks, Inc. will maintain such number of qualified personnel as is necessary to provide timely and knowledgeable maintenance and support service. ION Networks, Inc. warrants that all Support will be provided in a professional and workmanlike manner. 10.2 New HP Products. Upon request by HP to adapt the OEM Product for use in a Product, HP and ION Networks, Inc. will negotiate in good faith the terms and additional costs associated with such adapted OEM Products. Upon agreement, ION Networks, Inc. will use all reasonable efforts to provide HP with the OEM Products adapted for use with new releases of HP Products provided that HP makes available to ION Networks, Inc. such HP Property as may be reasonably necessary for ION Networks, Inc. to develop any adaptation. 10.3 HP Property. HP may provide to ION Networks, Inc. HP Property under the terms of an HP Equipment Loan Agreement, solely for use in ION Networks, Inc. manufacturing, testing, adapting and supporting the OEM Products. All HP Property will be clearly segregated from ION Networks, Inc. property and identified as the sole property of HP. HP Property may not be transferred, assigned, loaned or otherwise encumbered in any way. HP Property may be provided to third parties for fulfillment of ION Networks, Inc. obligations hereunder only upon HP's prior written consent. HP property will be returned to HP, at ION Networks, Inc. expense, upon termination of this Agreement. 10.4 Substitute Products. If ION Networks, Inc. develops any products that are more efficient or less expensive than the comparable OEM Products available under this Agreement. ION Networks, Inc. will promptly inform HP of such product availability. AT HP's option, HP will have the right to substitute the newer products at the same price as the comparable OEM Products for all subsequent purchases under this Agreement. The pricing of such substitute products will be mutually agreed upon by the parties in good faith, but will be no higher than the price or pricing formula offered to other purchasers for similar volumes of the substitute products in accordance with Section 4.4. 10.5 Failure Rate. Notwithstanding that the warranties given in Section 9.1 above apply to 100% of OEM Products, ION Networks, Inc. and HP acknowledge that a failure rate of 0.5 percent (0.5%) delivered over a twelve (12) month period is expected. If the actual failure rate for OEM Products exceeds this expected rate, ION Networks, Inc. will provide additional engineering and technical support needed to bring the actual failure rate within the specified failure rate. -13- 10.6 Class Failure Remedies. Upon the occurrence of any of the following events: (i) a failure rate exceeding the rate specified in Section 10.5 above; (ii) an epidemic failure as described in Section 9.3; or (iii) a safety standard change under Section 7.5 above (each referred to as a "Class Failure"), HP will have the following additional remedies for a three year period commencing upon receipt by HP's end-user customer of the OEM Product or the corresponding HP Product. (1) In the event of a Class Failure, ION Networks, Inc. will provide HP no later than 3 business days following the Class Failure root cause analysis and corrective action plan. In the event it is not possible to provide the root cause analysis and corrective action plan within ten (10) days, ION Networks, Inc. will provide a status report as soon as possible but no later than 10 days following the Class Failure to HP a status on the progress of the root cause analysis and corrective action plan and an estimate of the completion when ION Networks, Inc. will complete these reports and provide them to HP as soon as possible. HP will make available such information and assistance reasonably required allowing ION Networks, Inc. to conduct its root cause analysis and provide its corrective action report. (2) If, after review of the root cause analysis and corrective action plan, HP determines in its reasonable opinion that the Class Failure necessitates a field stocking recall or customer based recall or retrofit, HP may then elect to have the OEM Products: (i) returned to ION Networks, Inc. for repair or replacement; (ii) repaired or replaced by ION Networks, Inc. in the field; or (iii) repaired or replaced by HP in the field, including products in distributor inventory and HP's installed base. If a field repair can be performed by HP service personal (at HP or HP's customer sites) and is deemed desirable by HP, ION Networks, Inc. will provide the appropriate replacement OEM Products, Parts or upgrades free of charge to HP. Such OEM Products, Parts or upgrades will have the highest shipping priority. (3) Except as provided in Section 7.5 above, regarding safety standard changes, ION Networks, Inc. will, within 90 days after completion of the recalls or retrofits, reimburse HP for its reasonable and direct costs in performing such services. 10.7 Survival of Support Obligations. ION Networks, Inc. maintenance and support obligations specified in this Section 10, and in the Support Terms in Exhibit D will run for the Term and any additional periods under Section 1.3 above and will continue for a period of five (5) years after the last shipment to HP of the OEM Product. This obligation includes making necessary Parts available to HP, as further provided in the Support Terms. -14- 11. ASSURANCE OF SUPPLY 11.1 Discontinuance. ION Networks, Inc. acknowledges its obligation to manufacture, supply and support the OEM Products without interruption for the Term of this agreement. If, however, after the third year of this agreement, it becomes impractical to continue the supply or support of any OEM Product ("Discontinued"), ION Networks, Inc. will give notice to HP no less than nine (9) months in advance of the last date the discontinued product can be ordered. After receipt of the notice of discontinuance, ION Networks, Inc. will offer a lifetime buy to HP. If HP accepts the lifetime buy option this requirement will be delivered within 12 months. 12. TRAINING 12.1 Technical Training. ION Networks, Inc. will provide to HP technical training, for a period not to exceed two (2) weeks, sufficient to allow HP to become fully familiar with each OEM Product and its market. Such training will be at no charge to HP except for any reasonable travel expenses that ION Networks, Inc. incurs. HP may further request and ION Networks, Inc. will provide additional training at no charge as reasonably necessary to inform HP personnel of upgraded, enhanced or new versions of the OEM Products except for any reasonable travel expenses that ION Networks, Inc. incurs. Other training will be provided upon mutually agreeable terms and conditions. 12.2 HP's Rights In Training Classes And Materials. HP may at no charge use, reproduce, modify, display and perform either internally or for HP's customers, all training classes, methods, and materials supplied or developed by ION Networks, Inc. under this Agreement. HP's use may be in any manner HP reasonably deems appropriate holding to terms stipulated in the attach CDA exhibit F. 13. MARKETING AND LICENSING 13.1 Marketing Authority. HP will have the authority to market the OEM Products and the HP Products containing the OEM Products to the extent it deems appropriate, in its sole discretion. Without limiting the generality of the foregoing sentence, nothing in this Agreement will be construed or interpreted to place a "best efforts" obligation upon HP with respect to marketing the HP Products or OEM Products or preclude HP from independently developing, purchasing, licensing, or marketing any product which performs the same or similar function as the OEM Products. HP will have the right to use its then current standard form business and -15- license terms for all marketing and distribution of the OEM Products and HP Products. 13.2 No Rights In Marks. Except as otherwise specified in the private labeling section below, nothing in this Agreement should be construed to grant either party rights in the Marks of the other party. ION Networks, Inc. acknowledges, however, that HP may use the name of ION Networks, Inc. and the name of the OEM Products in advertising and marketing the OEM Products or the HP Products. The OEM Products will be affixed with copyright notices sufficient to give notice as to the rights of the parties in their respective products. 13.3 Private Labeling. If HP decides during the Term to create HP private label versions of the OEM Products, ION Networks, Inc. will ensure that the OEM Products contain the HP Marks, serial number format and packaging specified by HP and conforming to HP specifications for external appearance (which will not require any material change in form or dimensions of the OEM Products or require commercially unreasonable actions). Except as provided herein, ION Networks, Inc. will have no other right or license in any HP Marks. 13.4 Software License. If the OEM Products include Software, ION Networks, Inc. hereby grants to HP, under ION Networks, Inc. Intellectual Property Rights in such Software, a nonexclusive, worldwide, fully paid up license to use, import, reproduce, offer for sale and distribute the Software in object code form as integrated with the OEM Products or the HP Products. These rights will extend to HP Subsidiaries and third party channels of distribution. 13.5 Documentation License. ION Networks, Inc. hereby grants HP a nonexclusive, non-transferable, worldwide, fully paid up license to use, reproduce, distribute and prepare derivative works in HP's name all Documentation and other information, other than confidential information, furnished by ION Networks, Inc. under this Agreement. HP may reproduce such Documentation without ION Networks, Inc. logo or other identification of source, subject to affixing copyright notices to all copies of Documentation. These rights with respect to the Documentation will extend to HP Subsidiaries and third party channels of distribution. Notwithstanding the foregoing, ION Networks, Inc. will have no responsibility for, and HP will defend, indemnify and hold harmless ION Networks, Inc., and it's officers and employees from and against all losses or damages (including reasonable attorney's fees) for any claims, suits, actions, demands or threats (collectively claims) arising from modifications of the documentation made by HP if such claim would not have arisen but for such modifications. -16- 14. INTELLECTUAL PROPERTY PROTECTION 14.1 ION Networks, Inc. Duty To Defend. Except as provided in Section 14.4 below, ION Networks, Inc. will defend and hold harmless HP and its Subsidiaries, Subcontractors and customers from any claim that any OEM Product, any combination of an OEM Product with an HP Product, any Software, Documentation or a ION Networks, Inc. Mark, or any product provided as part of ION Networks, Inc. Support services constitutes an unauthorized use or infringement of any third party's Intellectual Property Rights. ION Networks, Inc. will pay all costs, damages and expenses (including reasonable attorneys fees) incurred by HP, Subsidiaries, Subcontractors or customers and will pay any award with respect to any such claim or agreed to in any settlement of that claim. 14.2 HP's Duty To Notify. HP will give ION Networks, Inc. prompt notice of any such claim or action, will give ION Networks, Inc. control of the defense or settlement of such claim or action, and will give ION Networks, Inc. the authority, information, and reasonable assistance (at ION Networks, Inc. expense) necessary to defend. If ION Networks, Inc. does not diligently pursue resolution of the claim nor provide HP with reasonable assurances that it will diligently pursue resolution, then HP may, without in any way limiting its other rights and remedies, defend the claim. 14.3 Remedies For Infringing Products. If the use or combination of any product provided hereunder is enjoined (the "Infringing Product"), ION Networks, Inc. will, at its sole expense and option: (1) Procure for HP and its customers the right to continue using or combining the Infringing Product; (2) Replace the Infringing Product with a non-infringing product of equivalent function and performance; or (3) Modify the Infringing Product to be non-infringing, without detracting from function or performance. 14.4 Limitations. ION Networks, Inc. will be relieved of its indemnification obligations under this Article 14 to the extent that the claim arises solely and directly from ION Networks, Inc. compliance with an HP Specification provided that all implementations of that Specification constitute an unauthorized use or infringement of a third party Intellectual Property Right. -17- 15. COUNTRY OF MANUFACTURE AND DUTY DRAWBACK RIGHTS 15.1 Country Of Origin Certification. Upon HP's request, ION Networks, Inc. will provide HP with an appropriate certification stating the country of origin for OEM Products, sufficient to satisfy the requirements of the customs authorities of the country of receipt and any applicable export licensing regulations, including those of the United States. 15.2 Country Of Origin Marking. ION Networks, Inc. will mark each OEM Product or the container if there is no room on the OEM Product, with the country of origin. ION Networks, Inc. will, in marking OEM Products, comply with the requirements of the customs authorities of the country of receipt. 15.3 Duty Drawback. If OEM Products delivered under this Agreement are imported, ION Networks, Inc. will when possible allow HP to be the importer of record. If HP is not the importer of record and ION Networks, Inc. obtains duty drawback rights to OEM Products, ION Networks, Inc. will, upon HP's request, provide HP with documents required by the customs authorities of the country of receipt to prove importation and to transfer duty drawback rights to HP. 16. GOVERNMENTAL COMPLIANCE 16.1 Duty To Comply. ION Networks, Inc. agrees to comply with all federal, state, local and foreign laws, rules, and regulations applicable to its performance of this Agreement or to OEM Products. Without limiting the generality of the foregoing sentence, ION Networks, Inc. represents that: (1) ION Networks, Inc. will comply with all equal employment opportunity and nondiscrimination requirements prescribed by Presidential Executive Orders, including the requirements of Executive Order 11246, the Vocational Rehabilitation Act, and the Vietnam Era Veteran's Readjustment Assistance Act; (2) Each chemical substance contained in OEM Products is on the inventory of chemical substances compiled and published by the Environmental Protection Agency pursuant to the Toxic Substances Control Act; (3) All OEM Products will be shipped in conformance with government or freight regulations and requirements applicable to chemicals; and (4) ION Networks, Inc. will provide complete and accurate material safety data sheets prior to shipping any OEM Product. -18- 16.2 Procurement Regulations. For OEM Products purchased under this Agreement for incorporation into products to be sold under a federal contract or subcontract, those applicable procurement regulations that are required by federal statute or regulation to be inserted in contracts or subcontracts will be deemed incorporated in this Agreement and made to apply to all Orders. 16.3 Ozone Depleting Substances. ION Networks, Inc. hereby certifies that no OEM Product nor any component of any OEM Product: (1) Contains any "Class 1 Substance" or 'Class 2 Substance", as those term are defined in 42 USC Section 7671 and implementing regulations of the United States Environmental Protection Agency at 40 CFR Part 82, as now in existence or hereafter amended; or (2) Has been manufactured with a process that uses any Class 1 or Class 2 Substance within the meaning of 42 USC Section 7671 and implementing regulations of the United States Environmental Protection Agency at 40 CFR Part 82, as now in existence or hereafter amended. 17. FORCE MAJEURE EVENTS 17.1 Delaying Causes. Subject to the provisions of this Article, ION Networks, Inc. will not be liable for any delay in performance under this Agreement caused by any "act of God" or other cause beyond ION Networks, Inc. control and without ION Networks, Inc. fault or negligence (a "delaying cause"). Notwithstanding the above, ION Networks, Inc. will not be relieved of any liability for any delay or failure to perform its defense obligations with respect to third party Intellectual Property Rights or furnish remedies for Infringing Products as described in Article 14 above. 17.2 HP Option. ION Networks, Inc. will immediately give HP notice of any delaying cause and its best estimate of the expected duration of such cause. In the event of a delaying cause, HP may act in its sole discretion to: (1) Terminate this Agreement or any part hereof as to OEM Products not shipped; or (2) Suspend this Agreement in whole or in part for the duration of the delaying cause, buy similar products elsewhere, and deduct from any quantities specified under this Agreement the quantity so purchased. 17.3 Resumption Of Agreement. If HP elects to purchase other similar products in the event of a delaying cause, HP may resume performance under this Agreement once -19- the delaying cause ceases and extend the Term up to the length of time the delaying cause endured. Unless HP gives notice of termination as provided above within 30 days after notice from ION Networks, Inc. of the delaying cause, HP will be deemed to have elected to suspend this Agreement for the duration of the delaying cause. 18. EVENTS OF DEFAULT 18.1 Notice Of Breach. If either party is in breach of any provision of this Agreement, the nonbreaching party may, by notice to the breaching party, except as otherwise prohibited by the United States bankruptcy laws, terminate the whole or any part of this Agreement or any Order, unless the breaching party cures the breach within 30 days after receipt of notice. 18.2 Causes Of Breach. For purposes of Section 18.1 above, the term "breach" includes without limitation any: (1) Proceeding, whether voluntary or involuntary, in bankruptcy or insolvency by or against a party; (2) Appointment, with or without a party's consent, of a receiver or an assignee for the benefit of creditors; (3) Failure by ION Networks, Inc. to make a delivery of OEM Products in accordance with the requirements of this Agreement or any Order; (4) Failure by ION Networks, Inc. to replace or repair Noncomplying Products in a timely manner as required by Article 5 above; or (5) Other failure by a party to comply with any material provision of this Agreement with additional failure to provide the nonbreaching party, upon request, with reasonable assurances of future performance. 18.3 HP's Rights Upon Breach. In the event HP terminates this Agreement in whole or in part as provided above, in addition to any other remedies provided HP under this Agreement, HP may procure, upon such terms and in such manner as HP reasonably deems appropriate, products similar to the OEM Product as to which this Agreement is terminated. ION Networks, Inc. agrees to reimburse HP upon demand for all additional costs incurred by HP in purchasing, qualifying and testing such similar products. ION Networks, Inc. further agrees to continue the performance of this Agreement to the extent not terminated under the provisions of this Section. -20- 18.4 Purchase Hold. If any Eligible Purchaser having the right to purchase an OEM Product under this Agreement or under any other agreement with ION Networks, Inc. believes in good faith that an OEM Product is defective, then, irrespective of any other rights provided HP hereunder, HP may implement a purchase hold to suspend purchases of such OEM Products without any liability. Such purchase hold may be removed if HP reasonably believes that ION Networks, Inc. has taken sufficient action to correct the defect or given. sufficient assurances that such defect will be corrected within a reasonable time. 19. CONFIDENTIAL INFORMATION 19.1 Confidential Information. During the Term, a party (the "Recipient") may receive or have access to certain information of the other party (the "Discloser") that is marked as "Confidential Information," including, though not limited to, information or data concerning the Discloser's products or product plans, business operations, strategies, customers and related business information. The Recipient will protect the confidentiality of Confidential Information with the same degree of care as the Recipient uses for its own similar information, but no less than a reasonable degree of care, under the terms of the Confidential Disclosure Agreement attached as Exhibit F (the "CDA"). To the extent any term of this Agreement conflicts with any term in the CDA, the terms of this Agreement will control and take precedence. Confidential Information may only be used by those employees of the Recipient who have a need to know such information for the purposes related to this Agreement. The parties acknowledge that all Technical Information and Forecasts are deemed Confidential Information to be protected for a term of three (3) from the date of disclosure. Upon request of disclosure, Recipient will immediately return or at Disclosures option, destroy confidential information in its possession. 19.2 Exclusions. The foregoing confidentiality obligations will not apply to any information that is (a) already known by the Recipient prior to disclosure, (b) independently developed by the Recipient prior to or independent of the disclosure, (c) publicly available through no fault of the Recipient, (d) rightfully received from a third party with no duty of confidentiality, (e) disclosed by the Recipient with the Discloser's prior written approval, or (f) disclosed under operation of law. 20. INSURANCE REQUIREMENTS ION NETWORKS, INC. 20.1 Insurance Coverage. ION Networks, Inc. will maintain Comprehensive or Commercial General Liability Insurance (including but not limited to premises and operations, products and completed operations, broad form contractual liability, broad form property damage and personal injury liability) with a minimum limit of $5,000,000 (five million) combined single limit per occurrence and $10,000,000 -21- (ten million) in the aggregate, for claims of bodily injury, including death, and property damage that may arise from use of the OEM Products or acts or omissions of ION Networks, Inc. under this Agreement. Each policy obtained by ION Networks, Inc. will name HP, its officers, directors and employees as additional insured. Such insurance will apply as primary insurance and no other insurance will be called upon to contribute to a loss covered thereunder. In addition, such policies will permit ION Networks, Inc. to waive, on its own behalf and on behalf of its insurers, any rights of subrogation against HP. Such insurance policies will be written with appropriately licensed and financially responsible insurers, and will provide for a minimum of 30 days written notice to HP of any cancellation or reduction in coverage. Certificates of insurance evidencing the required coverage and limits will be furnished to HP before any work is commenced hereunder, and ION Networks, Inc. will deliver copies of policies or certificates to the HP contact listed in Exhibit G. 20.2 Claims Made Coverage. If any policies have "claims made" coverage, ION Networks, Inc. will maintain such coverage's with HP named as an additional insured for a minimum of three years after termination of this Agreement. Any such coverage must have a retroactive date no later than the date upon which work commenced under this Agreement. 20.3 Additional Requirements. All deductibles on policies providing coverage will be paid by ION Networks, Inc. In the event ION Networks, Inc. is self insured for matters described in Section 20.1, ION Networks, Inc. agrees to respond to any claims or losses made against or incurred by HP in the same fashion as if insurance had been purchased with the same or broader coverage terms than what is generally available to similar ION Networks, Inc. In no event will the coverage's or limits of any insurance required under this Article, or the lack or unavailability of any other insurance, be deemed to limit or diminish ION Networks, Inc. obligations or liability to HP under this Agreement. 21. LIMITATION OF LIABILITY UNLESS OTHERWISE STATED IN THIS AGREEMENT, NEITHER PARTY WILL BE LIABLE FOR ANY SPECIAL OR CONSEQUENTIAL DAMAGES OF THE OTHER ARISING OUT OF ANY PERFORMANCE OF THIS AGREEMENT OR IN FURTHERANCE OF THE PROVISIONS OR OBJECTIVES OF THIS AGREEMENT, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED ON TORT, WARRANTY, CONTRACT OR ANY OTHER LEGAL THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE ABOVE, ION NETWORKS, INC. WILL BE RESPONSIBLE FOR ANY DAMAGES OF ANY KIND INCLUDED IN AN AWARD OR SETTLEMENT OF A THIRD PARTY CLAIM UNDER ARTICLE 14 ABOVE. -22- 22. TERMINATION 22.1 Outstanding Orders. All Orders issued prior to the expiration of this Agreement must be fulfilled pursuant to and subject to the terms of this Agreement, even if the Delivery Dates are after expiration. Upon termination of this Agreement for ION Networks, Inc. breach, HP may cancel any outstanding Order or require Orders to be fulfilled even if a Delivery Date is after the date of termination. 22.2 Return Of HP Property. ION Networks, Inc. must return all HP Property to HP upon expiration or termination. All such property must be in good condition, normal wear and tear excepted. HP will determine the manner and procedure for return. HP will bear all return freight costs if return is due to HP convenience or an uncured breach by HP. Otherwise, ION Networks, Inc. will bear all such costs. 22.3 Surviving Provisions. Notwithstanding the expiration or early termination of this Agreement, the provisions regarding Warranties in Article 9, Support in Article 10, Manufacturing Rights in Article 11, Marketing and Licensing in Article 13, Intellectual Property in Article 14, Confidentiality in Article 19, Insurance Requirements in Article 20, Limitation of Liability in Article 21, and the Miscellaneous provisions below will each survive in accordance with their terms. 23. MISCELLANEOUS 23.1 Notices. All notices to be given under this Agreement must be in writing addressed to the receiving party's designated recipient specified in Exhibit G. Notices are validly given upon the earlier of confirmed receipt by the receiving party or [three days] [or seven days, for international notices] after dispatch by courier or certified mail, postage prepaid, properly addressed to the receiving party. Notices may also be delivered by telefax and will be validly given upon oral or written confirmation of receipt. Either party may change its address for purposes of notice by giving notice to the other party in accordance with these provisions. 23.2 Exhibits. Each Exhibit attached to this Agreement is deemed a part of this Agreement and incorporated herein wherever reference to it is made. 23.3 Independent Contractors. The relationship of the parties established under this Agreement is that of independent contractors and neither party is a partner, employee, agent or joint venturer of or with the other. Nothing in this Agreement precludes either party from independently developing, manufacturing, selling or supporting products similar to the OEM Products. -23- 23.4 Assignment. Neither this Agreement nor any right, license, privilege or obligation provided herein may be assigned, transferred or shared by either party without the other party's prior written consent, and any attempted assignment or transfer is void. Any merger, consolidation, reorganization, transfer of substantially all assets of a party, or other change in control or ownership will be considered an assignment for the purposes of this Agreement {other than an HP merger into a wholly owned subsidiary}. HP hereby gives its written consent to transfer of ION Networks, Inc.'s rights and obligations under this Agreement through merger, consolidation, reorganization or transfer of all assets to a successor entity named Ion Networks Inc. This Agreement will be binding on the successors and permitted assigns of the parties and the name of the party appearing herein will be deemed to include the names of such party's successors or permitted assigns to the extent necessary to carry out the intent of this Agreement. 23.5 No Waiver. The waiver of any term, condition, or provision of this Agreement must be in writing and signed by an authorized representative of the waiving party. Any such waiver will not be construed as a waiver of any other term, condition, or provision except as provided in writing, nor as a waiver of any subsequent breach of the same term, condition, or provision. 23.6 Reference To Days. All references in this Agreement to "days" will, unless otherwise specified herein, mean calendar days. 23.7 Headings. The Section headings used in this Agreement are for convenience of reference only. They will not limit or extend the meaning of any provision of this Agreement, and will not be relevant in interpreting any provision of this Agreement. 23.8 No Publication. Neither party may publicize or disclose to any third party, without the written consent of the other party, the terms of this Agreement. Without limiting the generality of the foregoing sentence, no press releases may be made without the mutual written consent of each party. 23.9 Severability. If any provision in this Agreement is held invalid or unenforceable by a body of competent jurisdiction, such provision will be construed, limited or, if necessary, severed to the extent necessary to eliminate such invalidity or unenforceability. The parties agree to negotiate in good faith a valid, enforceable substitute provision that most nearly effects the parties original intent in entering into this Agreement or to provide an equitable adjustment in the event no such provision can be added. The other provisions of this Agreement will remain in full force and effect. -24- 23.10 Entire Agreement. This Agreement comprises the entire understanding between the parties with respect to its subject matters and supersedes any previous communications, representations, or agreements, whether oral or written. For purposes of construction, this Agreement will be deemed to have been drafted by both parties. No modification of this Agreement will be binding on either party unless in writing and signed by an authorized representative of each party. 23.11 Governing Law. This Agreement will be governed in all respects by the laws of California, U.S.A. without reference to any choice of laws provisions. APPROVED AND AGREED TO: - ---------------------- ION NETWORKS, Inc. HEWLETT-PACKARD COMPANY BCC Server Manufacturing Unit By:/s/ Steve B. Gray By: /s/ Margie Mourfield ------------------ ------------------------- Steve B. Gray Margie Mourfield Title: ION Networks, Inc., President & CEO Title: Procurement Manager -25- EX-10.8 8 AGREEMENT DATED AS OF DECEMBER 19, 1994 EXHIBIT 10.8 AGREEMENT THIS IS AN AGREEMENT ("Agreement") entered into as of this 19th day of December, 1994. BY AND BETWEEN: SIEMENS ROLM COMMUNICATIONS INC., a Delaware corporation, with its principal place of business at 4900 Old Ironsides Drive, Santa Clara, California 95054 ("Siemens Rolm"); AND: LEEMAH DATACOM SECURITY CORPORATION, a California corporation, with its principal place of business at 3948 Trust Way, Hayward, California 94545 ("LeeMah"). WHEREAS, LeeMah has developed a product(s) consisting of both hardware and software ("the Product(s)"), the primary purpose of which is to enable its users to better secure certain maintenance ports, data applications, voicemail applications and network access applications (DISA) of the computerized branch exchange to which the Product is installed; and WHEREAS, Siemens Rolm and LeeMah desire to enter into an agreement whereby LeeMah will sell the hardware and license the software in the Product(s) to Siemens Rolm for subsequent resale and sublicensing by Siemens Rolm to Siemens Rolm Customers; and WHEREAS, pursuant to the terms of this Agreement, Siemens Rolm has the right to place periodic orders for the Product(s) with LeeMah on receipt of any order, LeeMah will ship the Product(s) to Siemens Rolm or the Siemens Rolm Customer, the Product(s) will be sold to a Siemens Rolm Customer; the software component of the Product(s) will be sublicensed to the customer pursuant to a current Siemens Rolm sublicense agreement; and, if applicable, Siemens Rolm will install the Product(s) and maintain it under its current customer maintenance agreement. NOW THEREFORE, it is understood and agreed as follows: 1. DEFINITIONS 1.1 "Product(s)" shall mean the hardware and software items listed in Exhibit A ("LeeMah Product and Price List"), which listing LeeMah or Siemens Rolm may periodically revise pursuant to the terms of Paragraph 4.2 hereto. 1.2 "Software" shall mean the software component(s) of the Product(s), which LeeMah licenses herein to Siemens Rolm for subsequent sublicensing to Siemens Rolm Customers. 1.3 "System" shall mean the equipment that compromises a Siemens Rolm computerized branch exchange. 1.4 "Territory" shall mean the United States of America (all fifty states), Puerto Rico, and Canada. 1.5 "Distribute" or "Distribution" shall mean to ship, resell and sublicense, install, and maintain the Product(s) for Siemens Rolm Customers pursuant to the terms of this Agreement. 1.6 "Siemens Rolm Customer" shall mean any third party having (or proposing to have) a System installed at any site in the Territory and who uses or proposes to use with the System any product by purchase and sublicense from Siemens Rolm. 1.6.1 The parties agree that "Siemens Rolm Customer" shall also mean the Siemens Rolm's authorized distributors of products and services ("Authorized Distributors"), as to whom Siemens Rolm may grant certain rights to sell and sublicense the Product(s) to Siemens Rolm Customers. The current Authorized Distributors are set forth in Exhibit B, which list may be amended from time to time by Siemens Rolm in its sole discretion. 1.7 "Sublicense" shall mean a sublicense for the Software granted by Siemens Rolm to Siemens Rolm Customers pursuant to a current Siemens Rolm sublicense agreement. A current form of Sublicense is attached hereto as Exhibit C, which sublicense may be amended from time to time by Siemens Rolm in its sole discretion. 2. TERM 2.1 Regardless of when this Agreement is executed, the Agreement will be effective from the 19th day of December, 1994 ("Effective Date") for a period of three (3) years, unless terminated by either party pursuant to provisions of Section 12. After such three (3) year period, the Agreement (if not already terminated) will automatically extend on a year-by-year basis at each anniversary date, unless either party, in the exercise of its absolute and sole discretion, elects to this terminate this Agreement by giving written notice to the other party of its intention to so terminate not less than six (6) months prior to the anniversary date. -2- 3. APPOINTMENT AND GRANT OF LICENSE 3.1 LeeMah hereby appoints Siemens Rolm as a non-exclusive distributor of the Products in the Territory, with the right and license to market and Distribute Products to Siemens Rolm Customers within the Territory during the term of this Agreement. This appointment and grant includes the right to license the Software within the Product(s) to Siemens Rolm Customers (which customers may include Siemens Rolm's authorized independent distributors of products and services ("Authorized Distributors"), as to whom Siemens Rolm may grant certain rights to sell and sublicense the Product(s) to Siemens Rolm Customers). The current Authorized Distributors are set forth in Exhibit B, which list may be amended from time to time by Siemens Rolm in its sole discretion. 4. PURCHASE AND PAYMENT 4.1 Products and Prices Siemens Rolm to acquire Products from time to time, at its sole discretion, exclusively from LeeMah. LeeMah will have sole and absolute discretion to determine the price for each of the Products, subject to the terms of Paragraph 4.2. LeeMah will consider (but shall not be obligated to accept) any reasonable discount proposal by Siemens Rolm for a discount by LeeMah on any unusually large purchase by Siemens Rolm. LeeMah warrants that the prices and discounts granted Siemens Rolm for Products during the term of this Agreement will be no less favorable than those extended to any other customer for the same or similar product in similar quantity and with similar terms and conditions. 4.2 Product and Price Changes Additions and changes (including price changes) to Exhibit A ("Product and Price List") may be made by LeeMah upon ninety (90) days' written notice to Siemens Rolm. Any deletions of Products to Exhibit A require one hundred and eighty (180) days' written notice by one party to the other party. 4.3 Shipping Risk of loss, damage to or destruction of any Products ordered by Siemens Rolm, shall transfer to Siemens Rolm, F.O.B., LeeMah, Hayward, California. LeeMah shall be responsible for arranging shipping on behalf of Siemens Rolm and Siemens Rolm will be responsible for paying all costs associated with such shipping. -3- 4.4 Payment Terms Full payment for Products sold to Siemens Rolm under this Agreement will be due and payable to LeeMah within the thirty (30) days following the later of the date of shipment of the Product or receipt by Siemens Rolm of an accurate LeeMah invoice. 4.5 Siemens Rolm's Pricing Rights Nothing in the Agreement shall be deemed to limit Siemens Rolm's right to determine prices or terms for Distribution of Products to Siemens Rolm Customer, subject to preservation of LeeMah's proprietary rights in the Software as described in Section 5 hereof. 4.6 Product Disclosures LeeMah shall notify Siemens Rolm at least one hundred and eighty (180) days before any major new release of the Product or any software or hardware comprising the Product. Subject to the provisions of the Agreement pertaining to the Confidential Information, LeeMah will disclose to Siemens Rolm its product strategies on an annual basis during the term of this Agreement. Additionally, and subject to the provisions of the Agreement pertaining to the Confidential Information, LeeMah and Siemens Rolm will disclose to each other their respective product strategies on an annual basis during the term of this Agreement for any products and product features jointly developed by Siemens Rolm and LeeMah under this or any other agreement. Both parties acknowledge that any product strategies disclosed pursuant to this Agreement will not in any way obligate the disclosing party to pursue or implement such product strategies. 5. PROPRIETARY RIGHTS 5.1 Software Ownership LeeMah represents and warrants that it owns all right, title and interest in the Software. LeeMah shall retain exclusive title to and ownership of the Software, now or hereafter developed, to all modifications, and to the source code relating to each of the foregoing, and reserves all proprietary rights in all design, engineering details and other data pertaining to all the foregoing. Siemens Rolm cannot transfer to Siemens Rolm Customers any right, title or interest in any Software, other than the rights granted under the Sublicense described in Section 6, except as specifically permitted by this Agreement. Siemens Rolm shall not modify, reproduce, copy (except one (1) copy for back-up purposes), reverse engineer, disassemble, or decompile the Software (or any part thereof) nor remove -4- any protective encryption nor circumvent or attempt to circumvent any such protective coding nor any protective hardware devices, without the express prior written permission of LeeMah. 5.2 Trademarks and Copyrights LeeMah grants to Siemens Rolm permission to refer to Siemens Rolm as an "Authorized Distributor of the TraqNet 2000-SR Series of Products", during the term of this Agreement. LeeMah represents and warrants that trademark filings are currently in process for the trade names listed in Exhibit D hereto, and LeeMah agrees that Siemens Rolm may use trademark names and copyright and materials in accordance with Exhibit D hereto or as approved for use in writing by LeeMah. Siemens Rolm acknowledges that it has paid no consideration for the acquisition of any right, title or interest to LeeMah's trademarks, logos, copyrights, trade names, documentation or designations and nothing in this Agreement shall give Siemens Rolm or Siemens Rolm Customers any interest in any of them other than those specified in this Agreement. 5.3 Indemnification - Infringement LeeMah represents and warrants that on the Effective Date, there are no infringements of patents, copyrights, trademarks or proprietary rights or misappropriation of proprietary rights, claims or disputes pending or anticipated by LeeMah with respect to the Software or the Products. LeeMah will indemnify, hold harmless and defend Siemens Rolm and any Siemens Rolm Customer at its own expense (including attorney's fees) against any claims that any Product as provided by LeeMah hereunder infringes any United States, Canadian or Puerto Rican copyright, patent or trade secret; provided, that Siemens Rolm or its Customer notifies LeeMah of any such claim within a reasonable period of time (under the circumstances) after receiving service of process, provides all reasonable assistance to LeeMah and agrees in writing to allow LeeMah to control any resulting litigation and/or settlement negotiations. LeeMah shall have no obligation with respect to any such claim of infringement based solely upon Siemens Rolm or a Siemens Rolm Customer's modification of any Product or its combination, operation or use with apparatus, data or computer programs not furnished by LeeMah. Upon occurrence of each and every claim of infringement described in this paragraph in the Territory, LeeMah, at its option, shall: 1) modify the Product so that it is no longer infringing while performing substantially the same function, or 2) obtain for the Siemens Rolm Customer the right to continue using the Product, or 3) require the Siemens Rolm Customer to return the Product in exchange for a refund of the purchase price less depreciation based upon a straight-line five (5) year basis. -5- 6. SIEMENS ROLM RESPONSIBILITIES 6.1 Sale and Sublicensing to Siemens Rolm Customers Siemens Rolm has the right to place periodic orders for the Product(s) with LeeMah. On receipt of an order, LeeMah will ship the Product(s) to Siemens Rolm or the Siemens Rolm Customer. The Software component of the Product will be licensed to the Siemens Rolm Customer on a current Siemens Rolm sublicense agreement, a current version of which is attached hereto as Exhibit C, and which Siemens Rolm may amend from time to time in its sole discretion. 6.2 Vendor Support A Product manager of Siemens Rolm will be dedicated to provide LeeMah with marketing services, technical support and other support services, including but not limited to product specifications for current and planned products, product documentation and testing assistance. Siemens Rolm personnel will also attend from time to time LeeMah product planning sessions. 6.3 Sales Support LeeMah personnel will attend any appropriate Siemens Rolm sales meetings, as determined by Siemens Rolm in its reasonable discretion. At these meetings, Siemens Rolm will provide to LeeMah, solely for the purpose of planning manufacturing schedules, a forecast of new system sales, a form of MAC activity for LeeMah products, and any special promotional programs that for the coming year include LeeMah. Siemens Rolm will update these forecasts and program activities on a quarterly basis. 6.4 Additional Responsibilities In addition to any other obligations set forth herein, Siemens Rolm undertakes to perform the following additional obligations. 6.4.1 if applicable, to install the Product purchased by a Siemens Rolm Customer in the System in accordance with LeeMah's installation instructions; and 6.4.2 if applicable, to maintain the Product for any Siemens Rolm Customer under a Siemens Rolm customer maintenance agreement. -6- 7. LEEMAH RESPONSIBILITIES 7.1 Training LeeMah will provide the following training at no cost to Siemens Rolm: sales training covering all LeeMah's Products, system applications, system pricing and system configuration (scope and content of course to be agreed upon by LeeMah and Siemens Rolm); and service and installation training (scope and content of course to be agreed upon by Siemens Rolm and LeeMah). At no cost to Siemens Rolm, LeeMah will provide training with respect to each new release of hardware and/or Software (scope and content of course to be agreed upon by LeeMah and Siemens Rolm). LeeMah will also provide, at no cost to Siemens Rolm, reasonable and appropriate content in these areas to be incorporated into appropriate Siemens Rolm training programs. 7.2 Sales Support An employee of LeeMah who is acceptable to Siemens Rolm, in Siemens Rolm's sole discretion, will be dedicated full time to provide application and configuration design services and technical support and other support services, including configuration and pricing, to Siemens Rolm by responding to telephone inquiries initiated by Siemens Rolm or Customers. Additional LeeMah employees will provide application and configuration design services and technical support and other support services to Siemens Rolm as required to support Siemens Rolm's purchase volume. Upon mutual agreement, LeeMah's sales managers and other sales personnel will be made available for joint sales calls with prospective Siemens Rolm Customers. LeeMah personnel will also attend any appropriate sales meetings, as determined by Siemens Rolm in its reasonable discretion. LeeMah will provide an initial response to all requests for support within twenty-four (24) hours of receipt. Any services requested by Siemens Rolm which are not expressly set forth in this Agreement, shall be provided to Siemens Rolm at prices agreed upon by LeeMah and Siemens Rolm. Siemens Rolm will be responsible for responding to all requests for proposal for LeeMah Products. To assist Siemens Rolm with responses to request for proposal, LeeMah will make the following tools and support materials available to Siemens Rolm, all of LeeMah's computer programs, manuals and other support materials used to prepare responses to request for proposal. LeeMah personnel will provide technical support to Siemens Rolm to answer questions concerning responses to requests for proposal which are not covered by the referenced materials, by responding to telephone inquiries. LeeMah agrees to sell demonstration systems as described in Exhibit A hereto at the price set forth therein, which price represents LeeMah's lowest price. -7- 7.3 Marketing Any customized sales and marketing literature prepared at the written request of Siemens Rolm by LeeMah will be paid for by Siemens Rolm. LeeMah will make available to each branch office one complete set of all standardized sales and marketing literature and presentation materials, as attached in Exhibit E hereto, together with all such additional materials hereafter developed during the term of this Agreement. All additional copies of sales and marketing literature and presentation materials delivered to Siemens Rolm, shall be paid for by Siemens Rolm at prices to be mutually agreed by both parries to this Agreement. LeeMah sales personnel will assist Siemens Rolm personnel at up to four (4) trade shows per year. Additionally, Siemens Rolm may offer and LeeMah may accept, based upon a mutually agreed upon cost sharing arrangement, booth space at various trade shows. 8. SERVICE AND SUPPORT 8.1 Responsibilities and Siemens Rolm Siemens Rolm will provide first-line support for any requests by Siemens Rolm Customers for repair or replacement of problematic in-field Product(s). This first-line support will consist of (a) removal of any allegedly problematic Product, (b) installation of a replacement Product, and (c) return of the allegedly problematic Product to LeeMah for repair or replacement. 8.2 Responsibilities of LeeMah LeeMah will provide second-line service support by telephone for hardware and Software installations and in-field Product failures. LeeMah's normal customer support hours are 7:00 A.M. to 6:00 P.M., Pacific Time, Monday through Friday. Additionally, a LeeMah support engineer will be on call outside service hours. When the need arises, LeeMah will support Siemens Rolm Customers directly during regular service hours. LeeMah after hours support will be limited to assisting Siemens Rolm personnel. LeeMah will also repair any allegedly problematic Product returned by Siemens Rolm to LeeMah for repair. -8- 9. WARRANTY 9.1 Warranty Period LeeMah warrants to Siemens Rolm that the Product shall be free from material defects for a period of two (2) years from the date of acceptance of same by a Siemens Rolm Customer ("the Warranty Period"). If a Product is determined to be defective during the Warranty Period, such Product shall, at Siemens Rolm's option, be replaced or repaired at LeeMah's expense. This, together with payment to Siemens Rolm of associated shipment expenses, will be LeeMah's sole liability. For purposes of this Section 9, "acceptance" by the Siemens Rolm Customer shall occur at the later of (i) the day that is thirty (30) days following the Cutover Date, (ii) the Siemens Rolm Customer returns a notice of acceptance, or (iii) the Siemens Rolm Customer fails to respond within thirty (30) days of Product installation, to a notice sent by Siemens Rolm or LeeMah by certified mail. Siemens Rolm undertakes to use its reasonable efforts to ensure that acceptance of each Product occurs at the earliest possible moment. 9.2 Warranty Coverage LeeMah's warranty is contingent upon proper use and application of the Product in accordance with applicable Product Specifications and Configuration Specifications, and (1) does not cover any Product, if modified by anyone without LeeMah's or Siemens Rolm's authorization; (2) does not cover non-conformance to Product Specifications and Configuration Specifications caused by accident, neglect or operating conditions exceeding specifications (such as voltage overloads); (3) does not cover non-conformance to Product Specifications and Configuration Specifications caused by defects in any Product not furnished by LeeMah; and (4) does not cover non-conformance to Product Specifications and Confiiguration Specifications caused by any person, other than an employee or sub-contractor of LeeMah or Siemens Rolm, involved with the manufacture, installation, modification or removal of the Product. 9.3 Warranty Disclaimer THE WARRANTY SET FORTH IN THIS SECTION 9 IS EXCLUSIVE AND IS GIVEN IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED. WITHOUT LIMITING THE GENERALITY OF THE PROCEEDING SENTENCE, LEEMAH EXPRESSLY DISCLAIMS ANY IMPLIED OR EXPRESS WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. -9- 10. LIMITATION OF LIABILITY 10.1 In each instance in which LeeMah seeks to recover damanges from Siemens Rolm, regardless of the legal theory upon which LeeMah's claim is based, Siemens Rolm will be liable only for the amount of LeeMah's actual loss or damage arising from Siemens Rolm's performance or non-performance under this Agreement, up to a maximum of $100,000, except for any claim alleging non-payment for Products provided pursuant to this Agreement. 10.2 UNDER NO CIRCUMSTANCES WILL SIEMENS ROLM BE LIABLE FOR LOSS OR DAMAGES FROM (1) THIRD PARTY CLAIMS AGAINST LEEMAH OR CLAIMS BY LEEMAH BASED ON THIRD PARTY CLAIMS, (2) LOSS OF STORED, TRANSMITTED OR RECORDED DATE, (3) CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS OR SAVINGS), OR INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES WITH RESPECT TO ANY MATTERS RELATING TO THIS AGREEMENT, REGARDLESS OF WHETHER SIEMENS ROLM IS INFORMED OF THE POSSIBILITY OF SAME, OR (4) FOR PRODUCT(S) OR PARTS OUTSIDE OF THE UNITED STATES OR AMERICA, OR CANADA, OR PUERTO RICO. IN ADDITION, SIEMENS ROLM WILL NOT BE LIABLE FOR ANY COSTS, INCLUDING LONG DISTANCE CHARGES, WHETER OR NOT AUTHORIZED, RESULTING FROM USE OF THE PRODUCT. THIS SECTION 10 SET SORTH THE MAXIMUM RESPONSIBILITY OF SIEMENS ROLM. 11. INDEMNIFICATION 11.1 Siemens Rolm agrees to indemnify and save LeeMah harmless from and against any and all claims of loss or damage to or destruction of real or tangible personal property or bodily injury (including death) to the extent caused solely by the negligence of Siemens Rolm, its employees, agents or subcontractors, and arises out of the performance of this Agreement by Siemens Rolm, provided that Siemens Rolm is allowed to control, and LeeMah cooperates in the defense and all related settlement negotiations. 11.2 LeeMah agrees to indemnify, defend and save Siemens Rolm harmless from and against any and all claims, suits, actions, liabilities, costs or any kind, including reasonable attorneys's fees and costs of litigation, for any and all claims by any party resulting directly or indirectly from any actions or omissions by LeeMah, its agents, employees or subcontractors, including any post-Warranty Period claims of Product failures. -10- 12. TERMINATION 12.1 Election to Terminate. Subject to the terms of Section 2 hereto, either party may terminate this agreement, without or without cause, upon giveiing the appropriate notice specified in Parqagraph 2.1 12.2 Termination for Breach In the event of material default by either party in the performance of its duties and obligations hereunder, the party in default shall be provided, by written notice, a sixty (60) day period to substantially cure said default, and if said default is not cured within that period, the non-defaulting party may terminate this Agreement. 12.3 Termiantion for Bankruptcy Either party hereto in its discretion may terminate this Agreement at any time upon written notice to the other in the event of any of the following: the appointment of a receiver or similar officer for the other, the filing of a petition in bankruptcy by or against the other under any bankruptcy or debtor's law for its relief. 12.4 Post-Termination Obligations Upon termination of this Agreement, LeeMah shall continue to support each Product purchased and/or installed by Siemens Rolm under this Agreement, for a period of ten (10) years following the Distribution of such Product under the Agreement, the whole in accordance with LeeMah's then applicable prices, terms and conditions for licensing its Products and providing its services. Upon termination of this Agreement, provided that this Agreement is not terminated in connection with a default by Siemens Rolm under Section 12.2 or 12.3, LeeMah and Siemens Rolm will enter into a mutually acceptable agreement, pursuant to which Siemens Rolm will only be authorized to Distribute LeeMah's products and services, including maintenance services, to support Products Distributed by Siemens Rolm pursuant to this Agreement. Any such agreement shall be based upon LeeMah's then current standard terms, conditions, prices and quantiy discounts for selling and/or licensing its products and services through value added resellers. 13. ASSIGNMENT 13.1 This Agreement or any rights hereunder shall not be assignable by either party, and neither party may delegate any duties hereunder, without the prior written consent of the other party, which shall not be unreasonably withheld, and any attempted assignment of this Agreement in contravention of this provision shall be void and of no effect. Nothwithstanding the foregoing, this Agreement may be assigned and -11- transferred by Siemens Rolm to any parent, subsidiary or affiliate or successor to it or thereof. 14. CONFIDENTIAL INFORMATION 14.1 Each party acknowledges that in the course of performing its obligations hereunder it will receive information which is confidential and proprietary to the other. The term "Confidential Information" means all information one party discloses to the other either in writing and marked with a Confidential or restrictive legend, or orally, visually or by delivery of items which at the time of disclosure, the disclosing party identified as Confidential Information. Each party agrees to use all Confidential Information in accordance with Confiddentialy and Non-Disclosure Agreement, attached hereto as Exhibit F. 15. MISCELLANEOUS 15.1 Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of California, without regard to conflict of law provisions. 15.2 Non-Waiver. None of the terms and conditions of the Agreement shall be deemed to have been waived by any delay or omission on the part of either party to exercise any right or remedy accruing upon breach by the other party or any one or more of the terms of the Agreement. 15.3 Notices. All notices and demands hereunder shall be in writing and shall be served by personal service or by mail at the address of the receiving party set forth in this Agreement (or at such different address as may be designated by such party by written notice to the other party). All notices or demands by mail shall be by telex, cable, telegram, facsimile, Federal Express (or other reliable overnight courier service), or by certified or registered airmail, return receipt requested, and shall be deemed effective upon receipt. Unless otherwise advised in accordance with the terms hereof, all notices and demands shall be addressed as follows: If to Siemens Rolm: Siemens Rolm Communications Inc. 4900 Old Ironsides Drive Santa Clara, CA 95052 Attn: Bryan Keeter Fax: 408/492-5768 -12- If to Leemah: LeeMah DataCom Security Corporation 3049 Trust Way Hayward, California 94545 Attn: John Tuomy, President Fax: 510/786-1123 15.4 Relationship of the Parties. The relationship of the parties during the term of this Agreement will be that of independent contractors. Neither party will have, nor will represent that it has, any power, right or authority to bind the other, or to assume or create any obligation or responsibility, express or implied, on behalf of the other or in the other's name, except as herein expressly provided. 15.5 Section Headings. The Section headings contained herein are for reference only and shall not be considered substantive parts of this Agreement. 15.6 Severability. Each term, condition, and provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. If there is any conflict between any term, condition or provision of this Agreement and any statute, law or regulation, the latter shall prevail; provided that any such conflicting term, condition, or provision shall be curtailed and limited only to the extent necessary to bring it within the legal requirements and the remainder of this Agreement shall not be affected thereby. 15.7 Force Majeure. Neither party will be in default of this Agreement to the extent that performance of its obligations is delayed or prevented by reason of any act of God, fire, natural disaster, accident, act of government, war shortages of material or supplies or any other cause beyond the reasonable control of such party ("Force Majeure"), provided that such party gives the other party written notice thereof promptly and, in any event, within fifteen (15) days of discovery thereof and uses its good faith efforts to cure the breach. In the event of such an event of Force Majeure, the time for performance or cure will be extended for a period equal to the duration of the event of Force Majeure but not in excess of six (6) months. -13- IN WITNESS WHEREOF, the parties have signed as of the date first above mentioned. LEEMAH DATACOM SECURITY CORPORATION By: /s/ John E. Tuomy --------------------------- Name: John E. Tuomy Title: President, CEO SIEMENS ROLM COMMUNICATIONS INC. By: /s/ Name: Title: -14- EX-10.9 9 EQUIPMENT LEASE AGREEMENT EXHIBIT 10.9 ------------ SIEMENS SIEMENS CREDIT CORPORATION FLOATING RATE ADDENDUM LEASING SCHEDULE 629-0002941-000 - -------------------------------------------------------------------------------- This Addendum shall become a part of that certain Leasing Schedule #629-0002941-000 (the "Leasing Schedule" or "Lease") to Master Equipment Lease Agreement dated June 10, 1999 (the "Agreement") between Lessor and Lessee. If there is any conflict between the terms of this Addendum and the terms of the Lease, the terms of this Addendum shall control. Capitalized terms used herein and not otherwise defined herein, unless the context otherwise requires, shall have the same meanings set forth in the Lease. For all purposes hereof, the date of this Addendum shall be the date of execution by Lessor. Add the following provision to Section 7 of the Leasing Schedule: "The Lease Payments specified above are based upon current money market rates, being 5.57% (the "Reference Rate"), which is the yield to maturity of the U.S. Treasuy Note having a 5.25% coupon and maturing in May, 2004 ("Applicable Treasury Note") as shown in the May 19, 1999 issue of THE WALL STREET JOURNAL. The Applicable Treasury Note is that Note having a remaining life closest to the Lease Term and in the case of multiple notes, the one trading closest to par. If the equipment cutover occurs after August 19, 1999, then the Lease Payment actually used will be that specified on the Leasing Schedule, increased or decreased by .00003 of the Equipment Cost for each full five basis point (0.05%) change in the Reference Rate as published in THE WALL STREET JOURNAL two business days prior to the Commencement Date. Lessee authorizes Lessor to unilaterally make the appropriate change to the Leasing Schedule to reflect any changes to the Lease Payments consistent with the foregoing." ACCEPTED BY: LESSOR: LESSEE: SIEMENS CREDIT CORPORATION ION NETWORKS, INC. BY: BY: /s/ Mark A. Simmons --------------------------- ----------------------------- (Authorized Signature) (Authorized Signature) NAME: NAME: Mark A. Simmons --------------------------- ----------------------------- (Printed or Typed) (Printed or Typed) TITLE: TITLE: Chief Financial Officer --------------------------- ----------------------------- (Printed or Typed) (Printed or Typed) DATE: DATE: 6/17/99 --------------------------- ----------------------------- SIEMENS TECHNOLOGY LICENSE AGREEMENT ---------------------------- This Technology License Agreement (the "Agreement") is entered into by SolCom Systems Limited, a company registered in Scotland ("SolCom") and Hewlett-Packard Company, a California corporation ("HP"). This Agreement is effective upon the date of the last signature ("Effective Date"). 1 DEFINITIONS 1.1 "Probe" shall mean the technology incorporated in the hardware design of SolCom's LANrover(TM) FDDI RMON Probe. 1.2 "Derived Hardware" shall mean the Probe, modified by SolCom pursuant to Article 2 below to meet the specifications in Appendix E. 1.3 "OS Software" shall mean the software defined in Appendix C. 1.4 "Firmware" shall mean OS Software with HP Technology and FDDI RMON Technology included, downloaded to a Flash ROM (see Appendix C). 1.5 "RMON Technology" shall mean the software which provides Remote Monitoring functions (as defined in RFC 1271 and 1513, groups 1 through 10 inclusive), when running on the Probe. 1.6 "FDDI RMON Technology" shall mean the subset of RMON Technology which provides RMON functionality on FDDI and SolCom's implementation of FDDI equivalents for groups 1, 2 and 10. 1.7 "RMON-II Technology" shall mean the Draft Standard published by the IETF to define the next generation of RMON standard. 1.8 "SMT" shall mean the FDDI Station Management Protocol. 1.9 "HP Technology" shall mean proprietary extensions developed by HP and listed in items 3 and 4 of Appendix E. 1.10 "HP Product" shall mean an FDDI RMON Probe, which shall be constructed from the Technology and packaged in a physical enclosure provided by HP. This is specified in Appendix E. 1.11 "Enhancement" shall mean any major upgrade, revision, design change, or other modification to the Technology. 1.12 "New Technology" shall mean any technology developed by SolCom to supplement or replace the Technology. -2- SIEMENS 1.13 "Technology" shall mean the Derived Hardware, OS Software, FDDI RMON Technology, SMT, and HP Technology. 1.14 "Documentation" shall mean all schematics, prototypes, specifications, manufacturing techniques, algorithms, and other materials embodying or documenting Technology, FDDI RMON Technology, Enhancements, or New Technology. -3- SIEMENS SIEMENS CREDIT CORPORATION LEASING SCHEDULE #: 629-0002941-000 - -------------------------------------------------------------------------------- LESSOR: SIEMENS CREDIT CORPORATION LESSEE: ION NETWORKS, INC. ------------------------------- 991 U.S. Highway 22 (herein "Lessee") Bridgewater, NJ 08807-2956 21 Meridian Road ------------------------------- (800) 327-4443 Edison, NJ 08820 ------------------------------- LEASING SCHEDULE #629-0002941-000 , to that certain Master Equipment Lease Agreement dated June 10, 1999 (herein "Agreement"), between Lessor and Lessee. 1. EQUIPMENT DESCRIPTION: NSG NETWORKING EQUIPMENT AS DESCRIBED IN THE ATTACHED QUOTE #LUJA00101C AND A RIGHT TO USE LICENSE FOR ANY SOFTWARE RELATED THERETO AND RELATED DOCUMENTATION. 2. TOTAL EQUIPMENT COST: 3. SUPPLIER: Siemens Information and $131,719.19 Equipment Communication Networks, Inc. 8,000.00 Installation $8,383.15 Tax ------------ $148,102.34 Total 4. LEASE TERM (in months): 60 5. COMMENCEMENT DATE: Upon Equipment Cutover By Supplier 6. NO. OF LEASE PAYMENTS: 60 7. LEASE PAYMENT (per payment period): $2,948.72 8. PAYMENT PERIOD Monthly 9. ADVANCE LEASE PAYMENT(S): #(S) 1; TOTALING $2,948.72 10. EQUIPMENT LOCATION (if different from WASHINGTON PLAZA - FIRST FLOOR Lessee's address above): 1551 SOUTH WASHINGTON AVENUE, PISCATAWAY, NJ 08854 11. INTERIM RENT APPLICABLE: [X] YES [ ] NO; AMOUNT: $98.29 Per diem (Plus Applicable Taxes) 12. PURCHASE OPTION: Lessee selects the following option: OPTION A [ ] a FAIR MARKET VALUE purchase option. OPTION B [ ] a FIXED PURCHASE OPTION at a Purchase Option Price of [ ] % of the Total Equipment Cost. OPTION C [X] a NOMINAL FIXED PURCHASE OPTION at a Purchase Option Price of $ [ 1.00 ]. THE TERMS AND CONDITIONS OF THE FOREGOING OPTIONS AND OTHER IMPORTANT PROVISIONS ARE SET FORTH ON THE BACK OF THIS SCHEDULE. ================================================================================ IN WITNESS WHEREOF, the parties hereto have duly executed the Lease as of the dates set forth below. For all purposes hereof, the date of the Lease shall be the date of Lessor's acceptance as set forth below. LESSEE ACKNOWLEDGES THAT NEITHER LESSOR NOR THE SUPPLIER IS AN AGENT OR REPRESENTATIVE OF THE OTHER AND NEITHER HAS AUTHORITY TO BIND THE OTHER. BY EXECUTION HEREOF, THE SIGNOR CERTIFIES THAT (S)HE HAS READ THE ENTIRE LEASE, THAT LESSOR OR ITS REPRESENTATIVES HAVE MADE NO AGREEMENTS OR REPRESENTATIONS EXCEPT AS SET FORTH HEREIN, OR IN THE AGREEMENT, AND THAT (S)HE IS DULY AUTHORIZED TO EXECUTE THE LEASE ON BEHALF OF LESSEE. ACCEPTED BY: LESSOR: SIEMENS CREDIT CORPORATION LESSEE: ION NETWORKS, INC. BY: BY: /s/ Mark A. Simmons --------------------------- ----------------------------- (Authorized Signature) (Authorized Signature) NAME: NAME: Mark A. Simmons --------------------------- ----------------------------- (Printed or Typed) (Printed or Typed) TITLE: TITLE: Chief Financial Officer --------------------------- ----------------------------- DATE: DATE: 6/17/99 --------------------------- ----------------------------- -4- SIEMENS OPTION A - FAIR MARKET VALUE PURCHASE OPTION: If Option A has been selected, provided no Default has occurred and is continuing and provided the Lease shall not have previously terminated, Lessee shall have the option, exercisable by written notice to Lessor received by Lessor at least ninety (90) but not more than one hundred eighty (180) days before the expiration of the (original) Lease Term, to purchase on the day following the last day of such Lease Term (herein "Purchase Date") all but not less than all of the Equipment subject to the Lease for its "Fair Market Value. Fair Market Value shall mean the value of the Equipment (on an installed and operating basis) which would be obtained in an arm's-length transaction between an informed and willing buyer-user (other than a lessee currently in possession or a used equipment dealer) under no compulsion to buy, and an informed and willing seller under no compulsion to sell, and in such determination, costs of removal from the location of current use shall not be a deduction from such value. Fair Market Value shall be determined by the mutual agreement of Lessor and Lessee in accordance with the preceding sentence. If Lessor and Lessee cannot agree, Fair Market Value shall be determined by a qualified independent equipment appraiser selected by Lessor and approved by Lessee, and Lessee shall pay the cost of appraisal. Provided Lessee has timely exercised its option to purchase, Lessee shall pay to Lessor on the Purchase Date the aforementioned purchase price in cash, together with all sales and other taxes or costs applicable to the transfer of the Equipment and any other amounts as may be due and owing under the Lease, whereupon Lessor shall transfer its interest in the Equipment to Lessee without recourse, on an AS-IS, WHERE-IS basis and without any warranty, express or implied from Lessor, other than the absence of any liens by or through Lessor, except those (if, any) Lessee is obligated to discharge. In the event that Lessee fails to exercise such purchase option, Lessee shall (upon termination of the Lease) return the Equipment to Lessor on demand, in accordance with the provisions of the Lease. OPTION B - FIXED PURCHASE OPTION: If Option B has been selected, provided no Default has occurred and is continuing and provided the Lease shall not have previously terminated, Lessee shall have the option, exercisable by written notice to Lessor received by Lessor at least ninety (90) but not more than one hundred eighty (180) days before the expiration of the (original) Lease Term, to purchase on the day following the last day of such Lease Term (herein "Purchase Date") all but not less than all of the Equipment subject to the Lease for the amount specified in Option B. Provided Lessee has exercised its option to purchase, Lessee shall pay to Lessor on the Purchase Date the aforementioned purchase price in cash, together with all sales and other taxes or costs applicable to the transfer of the Equipment and any other amounts as may be due and owing under the Lease, whereupon Lessor shall transfer its interest in the Equipment to Lessee without recourse, on an AS-IS, WHERE-IS basis and without any warranty, express or implied from Lessor, other than the absence of any liens by or through Lessor, except those (if any) Lessee is obligated to discharge. In the event that Lessee fails to exercise such purchase option, Lessee shall (upon termination of the Lease) return the Equipment to Lessor upon demand, in accordance with the provisions of the Lease. OPTION C - NOMINAL FIXED PURCHASE OPTION: If Option C has been selected, provided no Default has occurred and is continuing and provided the Lease shall not have previously terminated, Lessee may purchase all but not less than all of the Equipment at the end of the (original) Lease Term for the nominal purchase price specified in Option C. Lessee shall pay to Lessor on the day following the last day of such Lease Term such purchase price together with all sales and other taxes applicable to the transfer of the Equipment and any other amounts as may be due and owing under the Lease, whereupon Lessor shall transfer its interest in the Equipment to Lessee without recourse, on an AS-IS, WHERE-IS basis and without any warranty, express or implied from Lessor, other than the absence of any liens by or through Lessor, except those (if any) Lessee is obligated to discharge. -5- SIEMENS 13. ADJUSTMENTS: Lessee acknowledges that the Lease Payments herein, are based upon the Total Equipment Cost set forth above, and as a result of authorized changes to the Equipment, the final Total Equipment Cost may increase or decrease by up to 10%. In such event, the Lease Payments shall be adjusted accordingly, and Lessee authorizes Lessor to correct the Lease (and all related documentation) to reflect such changes, and Lessee, if requested by Lessor, shall confirm such changes to Lessor in writing. 14. SUPPLY CONTRACT: Lessee acknowledges either that (a) Lessee has reviewed and approved any written purchase agreement or purchase order covering the Equipment ("Supply Contract") purchased from Supplier, or (b) Lessor has informed or advised Lessee, in writing, either previously or by the Lease, of the following: (i) the identity of the Supplier, (ii) that Lessee may have rights under the Supply Contract and (iii) that Lessee may contact the Supplier for a description of any such rights Lessee may have under the Supply Contract. If Lessee has entered into a written Supply Contract, then Lessee hereby assigns to Lessor all of Lessee's rights and interests in and to the Equipment and the Supply Contract. If requested by Lessor, Lessee shall obtain any consent required for such assignment. If Lessee has not entered into any such Supply Contract, Lessee authorizes Lessor to (and Lessor may at its option) act on behalf of Lessee to obtain a Supply Contract from Supplier. Lessor's sole obligation under the Supply Contract shall be to pay the Supplier for the Equipment, if (and only if) the Equipment is accepted by Lessee under the Lease, and Lessee, not Lessor, shall at all times remain liable to perform all of the duties and obligations under the Supply Contract. Lessee hereby represents and warrants that: (c) Lessee has delivered herewith a true and correct copy of the Supply Contract, neither Supplier nor Lessee is in default under the Supply Contract and it shall not be amended without Lessees prior written consent; and (d) the Supply Contract is free from all claims, security interests, liens and encumbrances, except for the interest being conveyed hereunder. Lessee shall indemnify and hold Lessor harmless with respect to any and all claims relating to the performance of Lessee's obligations under the Supply Contract. 15. MISCELLANEOUS: THIS LEASING SCHEDULE AS INCORPORATING THE TERMS OF THE AGREEMENT, TOGETHER WITH ANY APPLICABLE STIPULATED LOSS VALUE SCHEDULE, CONTAIN THE COMPLETE AGREEMENT OF THE PARTIES WITH RESPECT TO ITS SUBJECT MATTER AND SUPERSEDE AND REPLACE ANY PREVIOUSLY MADE PROPOSALS, REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Capitalized terms used herein, which are not otherwise defined herein, shall have the same meanings as set forth in the Agreement. Any amendments contained or incorporated into this Leasing Schedule, which in any way alter the terms of the Agreement, shall be effective only with respect to this Leasing Schedule and shall be ineffective with respect to any other Leasing Schedule. The Lease shall become effective at the time of Lessor's acceptance (by execution hereof) at the address set forth above, by an authorized representative of Lessor. Lessor and Lessee agree that the terms and conditions of the Agreement are hereby incorporated into this Leasing Schedule (collectively the "Lease") and made a part hereof to the same extent as if such terms and conditions were set forth in full herein. The Lease shall constitute a lease of each item of Equipment described above. If Lessee has selected either Option B or Option C, then, notwithstanding any applicable state laws to the contrary, Lessee agrees to reimburse Lessor for all reasonable attorneys' fees incurred by it incident to any action or proceeding involving the Lessee brought pursuant to the Bankruptcy Code, as amended, which are allowable under Section 506(b) thereof. In addition to the disclaimers set forth in the Lease, Lessee acknowledges that Lessor has made no representation or warranty express or implied and has provided to Lessee no information whatsoever, regarding the Equipments Year 2000 Compliance, i.e., that the Equipment is able or unable to and will or will not accurately receive, process, store, and/or provide output of date/time data relating to the twentieth and twenty-first centuries, and/or, between the years 1999 and 2000, and/or during a leap year. -6- SIEMENS SIEMENS Siemens Credit Corporation MASTER LOAN AND SECURITY AGREEMENT DATED: May 5,1999 LENDER: SIEMENS CREDIT CORPORATION 991 US Highway 22 Bridgewater, NJ 08807-2956 (800) 327-4443 BORROWER: ION NETWORKS, Inc., 21 MERIDIAN ROAD, EDISON, NJ 08820 ------------------------------------------------------- (Exact Legal Name and Address) TERMS AND CONDITIONS OF MASTER AGREEMENT 1. MASTER LOAN AND SECURITY AGREEMENT: This Master Loan and Security Agreement (herein the "Master Agreement) sets forth the terms and conditions upon which Lender shall lend to Borrower and Borrower shall borrow from Lender monies for the acquisition by Borrower of items of property specified in loan schedules (herein"Loan Schedules") to be entered into from time to time. Each Loan Schedule shall incorporate the terms and conditions of the Master Agreement and each shall constitute a loan and security agreement as to the property specified in such Loan Schedule (herein "Equipment). The term "Loan Agreement" as used in this Master Agreement shall mean the applicable Loan Schedule as incorporating the terms and conditions of this Master Agreement. 2. A LOAN: Lender hereby agrees, on the terms stated in the Loan Agreement, to lend to Borrower on an agreed upon date (herein "Loan Date"), the loan amount as set forth in the Loan Schedule in immediately available funds (the "Loan"). The proceeds of the Loan shall be applied by Borrower on the Loan Date to the purchase price of the Equipment in accordance with the "Pay Proceeds Authorization" previously given by Borrower to Lender (in a form supplied by Lender). Borrowers obligation to pay the principal of and interest on the Loan shall be evidenced by its promissory note in the form supplied by Lender (the "Note"), dated the date of the Loan, payable to the order of Lender. Interest on the Loan shall accrue on the outstanding principal amounts thereof in accordance with the terms of the Note. Unless accelerated in accordance with the provisions of the Loan Agreement, the principal of and interest on the Loan shall be paid in accordance with the terms of the Note on the payment dates as set forth therein. Borrower agrees to pay on demand, as a late charge, 1.3% per month limited by the maximum rate permitted by law on all overdue (CONTINUED ON FOLLOWING PAGES) - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have duly executed the Master Agreement as set forth below. The Master Agreement shall become effective at the time of Lender's acceptance (by execution hereof at its New Jersey address set forth above, by an authorized representative of Lender. BORROWER ACKNOWLEDGES THAT NEITHER LENDER NOR THE SUPPLIER IS AN AGENT OF THE OTHER AND NEITHER HAS AUTHORITY TO BIND THE OTHER. -7- SIEMENS BY EXECUTION HEREOF, THE SIGNER CERTIFIES THAT (S)HE HAS READ THE ENTIRE MASTER AGREEMENT, THAT LENDER OR ITS REPRESENTATIVES HAVE MADE NO AGREEMENTS OR REPRESENTATIONS EXCEPT AS SET FORTH HEREIN, THE LOAN SCHEDULE OR THE NOTE, AND THAT (S)HE IS DULY AUTHORIZED TO EXECUTE THE MASTER AGREEMENT ON BEHALF OF BORROWER. ACCEPTED BY: LESSOR: LESSEE: SIEMENS CREDIT CORPORATION ION NETWORKS, INC. BY: BY: /S/ STEVE GRAY ----------------------- -------------------------- (Authorized Signature) (Authorized Signature) NAME: NAME: STEVE GRAY ----------------------- -------------------------- (Printed or Typed) (Printed or Typed) TITLE: TITLE: PRESIDENT ------------------------ -------------------------- (Printed or Typed) (Printed or Typed) DATE: DATE: 5/5/99 ------------------------ -------------------------- -8- SIEMENS payments under the Loan Agreement and under the Note, whether such payments are due prior to or after a Default (as hereinafter defined). All amounts payable to Lender under the Loan Agreement and under the Note shall be made not later than the date specified for payment, in lawful money of the United States of America and in immediately available funds, free and clear of and without any withholding, deduction, setoff or counterclaim. If any payment under the Loan Agreement or under the Note is due on a day when banks are required to close in New Jersey, such payment shall be due on the next succeeding business day. Except as may otherwise be provided herein or in the Note, all payments to Lender under the Loan Agreement and Note shall be paid to Lender at its address above or any other address designated by Lender in writing. All amounts paid shall be applied first, to the payment of all expenses and charges, including attorneys' fees, incurred by Lender in the protection of its rights or the pursuance of its remedies and to provide adequate indemnity to Lender against all taxes and liens which by law have, or may have, priority over the rights of Lender to any receipts or proceeds with respect to the Equipment; second, to the payment of all other costs, expenses and indemnities payable under the Loan Agreement to the extent Lender is aware of the same; third, to the payment of all interest accrued and payable with respect to the Loan; and fourth, to the payment of principal on the Loan. The Loan or any part thereof, may not be prepaid. 3. CONDITIONS PRECEDENT: The obligation of Lender to make the Loan is subject to the fulfillment of the following conditions: (a) on the Loan Date, no Default or event which with the giving of notice or lapse of time or both would constitute a Default has occurred and is continuing or would result from the performance of the Loan Agreement; (b) no material adverse change from the date of the Master Agreement shall have occurred prior to funding, in the financial condition or business operations of Borrower; (c) the Equipment shall be in good working condition; and (d) Lender shall have received from Borrower all documents requested by Lender. 4. SECURITY INTEREST: To secure all payments under the Loan Agreement and under the Note and all other obligations of Borrower to Lender under the Loan Agreement and under the Note (all hereinafter called "Obligations"), Borrower hereby grants to Lender a security interest in the Equipment, together with all accessions, attachments, replacements, substitutions, modifications and additions thereto, now or hereafter acquired, and all proceeds thereof (including insurance proceeds). Borrower agrees to execute and authorizes Lender to file with such authorities and at such locations as it may deem appropriate, any further Uniform Commercial Code financing statements relating to the Equipment and/or the Loan Agreement and Borrower agrees to reimburse Lender upon demand for all costs incurred relative thereto. In addition, Borrower hereby irrevocably appoints Lender its agent and attorney-in-fact to execute in the name of Borrower and file any Uniform Commercial Code financing statements or security agreements with respect to the Equipment in any place Lender deems necessary. Borrower also agrees that a photocopy or original of the Loan Agreement (including any addenda, attachments and amendments) may be filed by Lender as a Uniform Commercial Code financing statement. 5. REPRESENTATIONS AND WARRANTIES: Borrower represents and warrants to Lender, with respect to the Loan, as of the Loan Date that: (a) Borrower is an, entity duly organized and validly existing in good standing under the laws of the state of its organization.; (b) Borrower has full power to own its properties, to carry on its business as now being conducted and has full power to execute, deliver and perform all of its obligations under the Loan Agreement and the Note; (c) the making and performance by Borrower of the Loan Agreement and the Note have been duly authorized by all necessary action of Borrower and do not and will not violate any provision of law, statute, rule or regulation, or any judgment, franchise, permit, order, decree, ruling, writ or injunction of any court or administrative body, or of Borrower's organizational or charter documents, or the terms of any of its securities or result in the breach of, or constitute a default under, or require any consent -9- SIEMENS under, any indenture, bank loan, credit agreement or other agreement or instrument to which Borrower is a party or by which Borrower or any of its property may be bound or affected; (d) except for any Uniform Commercial Code financing statement filings, fixture filings or other recordings required hereunder with respect to the Equipment and the creation of the security interests contemplated hereby, no filings, recordations, notifications, registrations, notarizations, authentications or other formalities or property, stamp or similar taxes or duties and no approvals, licenses, orders, authorizations, consents or undertakings of any governmental bodies or regulatory, supervisory authorities are necessary or appropriate in connection with the execution, delivery and performance by Borrower of the Loan Agreement or the Note or for the payment to Lender of all sums hereunder or under the Note or for the legality, validity, binding effect or enforceability hereof or thereof; (e) the Loan Agreement and the Note have been duly executed and delivered by Borrower and are legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms; (f) there are no agreements or understandings to which Borrower and Lender are parties respecting the Equipment, verbal or written, other than those expressed herein and Borrower has not created any liens or encumbrances against the Equipment, except the lien created hereby; (g) Borrower has good title to the Equipment free and clear of any liens and encumbrances except those granted to Lender hereunder, and the security interest granted to Lender herein will at all times constitute a valid, perfected and enforceable first priority security interest in favor of Lender, subject to no other security interest, mortgage, lien or encumbrance, except as may otherwise be permitted under the Loan Agreement; (h) financial statements and other related financial information furnished by Borrower upon Lender's request shall be prepared in accordance with generally accepted accounting principles consistently applied and in all material respects shall accurately present Borrower's financial position and results of its operations as of the dates given on such statements. 6. COVENANTS: Borrower hereby covenants and agrees that until satisfaction of the Obligations, it shall: (a) preserve and maintain its existence and all of its rights, privileges and franchises, and continue the conduct of its present business in an orderly, efficient and regular manner; (b) keep the Equipment free and clear of all liens, charges, encumbrances, taxes and assessments, and keep the Equipment at the Original Equipment Location as set forth on the Loan Schedule and not change the location of any item of the Equipment without the prior written consent of Lender which consent shall not be unreasonably withheld: (c) retain possession of the Equipment and not sell, exchange, assign, loan, deliver, lease, mortgage or otherwise dispose of such Equipment; not alter the Equipment: not allow the Equipment to be affixed to realty in such manner as to cause the Equipment to become a fixture: and not use, operate or locate the Equipment in any manner or area so as to cause it to be excluded from coverage by any insurance required under the Loan Agreement: (d) operate the Equipment by qualified and duly authorized personnel only, in accordance with all applicable laws and regulations, and for business purposes only and not for personal, family or household purposes, and only for its normally intended purpose; and keep the Equipment in good repair and condition, properly maintain the Equipment or cause it to be properly maintained by a fully qualified service company, and immediately notify Lender in writing of the entity maintaining the Equipment and any change of such entity. Lender shall have the right upon advance notice to inspect the Equipment and all maintenance records thereto, if any, at any reasonable time during normal business hours and to require Borrower, at Borrower's expense, to affix plates or markings on the Equipment indicating Lender's interest; (e) pay when due all license fees, charges, assessments, duties, privilege, sales, use, excise, ad valorem, intangible, stamp, property, and other similar taxes now or hereafter imposed upon or relating to the ownership, purchase, sale, use or operation of the Equipment or this transaction (exclusive of franchise taxes or taxes based upon the net income of Lender), and in the event that Lender shall pay any such taxes to reimburse Lender upon demand therefor; (f) promptly and duly execute and deliver to Lender such further documents, instruments and assurances and take such further action as Lender may from time to time reasonably request in order to carry out the intent and purpose of the Loan Agreement and to establish and protect the rights and remedies created or intended to be created in favor of Lender hereunder, including without limitation, the -10- SIEMENS execution and delivery of any Uniform Commercial Code financing statements, landlord and mortgagee waivers or other documents reasonably requested by Lender; (g) furnish Lender with, and cause any guarantor of any of Borrower's Obligations (herein "Guarantor) to furnish, its annual and such interim financial statements as Lender shall request, certified and audited (if available), together with officer's certificates, opinions of counsel, resolutions and such other information and documents as Lender may reasonably request;.(h) timely file any and all tax returns and tax filings required under any governmental statute and pay and discharge, when due, all material obligations to third parties, except those obligations being contested in good faith, and for which Borrower shall have maintained, in accordance with generally accepted accounting principles, adequate reserves for the payment of the same; (i) notify Lender immediately upon receipt of notice of any lien, attachment or judicial proceeding affecting the Equipment in whole or in part; and (j) provide written notice to Lender thirty (30) days prior to any change in the name or address of Borrower, its identity or corporate structure, social security or taxpayer identification number as applicable, or discontinuance of any of its places of business, and immediately upon any Default or event which, with the lapse of time or giving of notice, would constitute a Default. 7. DISCLAIMER OF WARRANTIES; LIMITATION OF REMEDIES; LIMITATION OF LIABILITY: THE LOAN AGREEMENT IS SOLELY A FINANCING AGREEMENT. BORROWER HAS SELECTED BOTH THE EQUIPMENT AND THE SUPPLIER (AS IDENTIFIED IN THE LOAN SCHEDULE) OF THE EQUIPMENT AND ACKNOWLEDGES THAT LENDER IS NOT THE SUPPLIER OF THE EQUIPMENT. LENDER HAS NOT MADE, DOES NOT MAKE, AND HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, RELATING TO THE EQUIPMENT, INCLUDING ALL EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY AND WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL LENDER BE LIABLE (INCLUDING WITHOUT LIMITATION, UNDER ANY THEORY IN TORTS) FOR ANY LOSS OF USE, REVENUE, ANTICIPATED PROFITS OR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE LOAN AGREEMENT OR THE USE, PERFORMANCE OR MAINTENANCE OF THE EQUIPMENT. Borrower agrees to settle all claims relating to the Equipment directly with the manufacturer, Supplier or service company of the Equipment, as applicable, and not with Lender. 8. RISK OF LOSS; INSURANCE: (a) Borrower agrees that it shall bear all risk of loss, damage to or destruction of the Equipment. Borrower shall give Lender prompt notice of any damage to or loss of the Equipment or of any occurrence arising from the possession, use or operation of the Equipment resulting in death or bodily injury, or damage to property. In the event of damage to any item(s) of Equipment, Borrower shall immediately place such item(s) in good repair (with no abatement of payments under the Loan Agreement or under the Note), with the proceeds of any insurance recovery applied to the cost of such repair. If, however, any item(s) of Equipment shall become lost, stolen, destroyed, worn out, damaged beyond repair, condemned, confiscated, seized or requisitioned (herein "Event of Loss"), Borrower shall, at the option of Lender, either replace the same with like equipment in good repair (with no abatement of payments under the Loan Agreement or under the Note), or pay to Lender on the next scheduled payment date immediately following such Event of Loss, the remaining unpaid principal balance of the Note, all accrued but unpaid interest thereon, plus all other amounts due from Borrower under the Loan Agreement, whereupon the Loan Agreement shall terminate. (b) Until satisfaction by Borrower of the Obligations, Borrower, at its expense, shall maintain comprehensive general liability insurance, and "fire and allied perils" and "all risks" property insurance covering the Equipment (as primary insurance for Borrower and Lender), both in such amounts as Lender shall require, except that such property insurance shall be in an amount at least equal to the remaining unpaid principal balance -11- SIEMENS of the Note, and such insurance shall be placed with carriers acceptable to Lender. The liability insurance policy shall name Lender (and any assignee of Lender) as additional insured(s) and the property insurance policy shall name Lender (and any assignee of Lender) as loss payee(s) to the extent its interest(s) may appear, and both policies shall provide that they may not be canceled or altered without at least thirty (30) days prior written notice to Lender (and any assignee of Lender). Borrower irrevocably appoints Lender its agent and attorney-in-fact for the purpose of adjusting and settling any property insurance hereunder and endorsing in Borrower's name any instruments or payments received in respect thereof. Borrower shall furnish to Lender, prior to the Loan Date, a certificate of insurance that such coverage is in effect, however, Lender shall be under no duty either to ascertain the existence of or to examine such insurance policies or to advise Borrower in the event that such insurance coverage does not comply with the requirements hereof. 9. DEFAULT AND REMEDIES: (a) Any of the following shall constitute a default by Borrower hereunder (herein "Default"): (i) failure by Borrower to pay any amounts under the Loan Agreement or Note thereto when due and such remains unremedied for a period of ten (10) days from the due date; or (ii) failure of Borrower to comply with any provisions or perform any of its obligations arising under the Loan Agreement or under any other documents or agreements related hereto and such remains unremedied by Borrower for a period of twenty (20) days; or (iii) any representations or warranties made or given by Borrower in connection with the Loan Agreement or any other document or agreement related hereto were false or misleading in a material way when made; or (iv) subjection of the Equipment to levy or execution or other judicial process which is not or cannot be removed within thirty (30) days from the subjection thereof; or the imposition of any unauthorized lien on or transfer of the Equipment by or through Borrower; or (v) commencement of any insolvency, bankruptcy or similar proceedings by or against Borrower or any Guarantor, including any assignment by Borrower or any Guarantor for the benefit of creditors, and in the case of any such involuntary proceedings, such is not dismissed within thirty (30) days of institution; or the inability of Borrower to generally pay its debts as they become due; or a material adverse change from the date of the Master Agreement in the financial condition or business operations of Borrower; or (vi) any act of Borrower which imperils the value of the Equipment or the prospect of full performance of the Obligations, including but not limited to the liquidation or dissolution of Borrower or the commencement of any acts relative thereto, or without the prior written consent of Lender, any sale or other disposition of all or substantially all of the assets of Borrower, or any merger or consolidation of Borrower unless Borrower is the surviving entity, or the cessation of business by Borrower; or (vii) a default by Borrower under any Loan Agreement or other agreement or note with Lender or any assignee of the Loan Agreement and/or Note; or under any agreement with any other party that in Lender's sole opinion is a material agreement; or (viii) the death or dissolution of Borrower or of any Guarantor, the withdrawal of any partner if Borrower is a partnership, or the inability of Borrower or of any Guarantor hereunder to perform any of the obligations contained in the Loan Agreement or in any applicable guaranty. (b) Upon any Default, Lender may exercise any one or more of the following remedies (which remedies shall be cumulative to the extent permitted by law): (i) terminate any obligation by Lender to lend monies under the Loan Agreement or under any other agreement related thereto; (ii) declare the remaining unpaid principal balance of the Note, plus all accrued but unpaid interest thereon, plus all other amounts due from Borrower under the Loan Agreement, immediately due and payable in full without notice or demand, whereupon such shall become immediately due and payable; (iii) secure peaceable repossession and removal of the Equipment by Lender or its agent without judicial process; (iv) demand and Borrower shall at its own risk and expense immediately return the Equipment to Lender, packed for shipment in accordance with manufacturer's specifications and eligible for manufacturer's maintenance, freight prepaid and insured, to such location as Lender shall designate; (v) sell, lease or otherwise dispose of the Equipment at public or private sale without advertisement or notice except that required by law, upon such terms and at such place as Lender may deem advisable and Lender may be the -12- SIEMENS purchaser at any such sale: (vi) demand and Borrower shall pay exercise all expenses in connection with the Equipment relating to its retaking, refurbishing, selling or the like: (vii) exercise any other right or remedy which may be available to it under the Uniform Commercial Code or any other applicable law. Any proceeds received from Borrower or net proceeds received with respect to disposition of the Equipment, shall be applied by Lender to the Obligations, in the order of application as Lender shall elect. 10. INDEMNIFICATION: Borrower hereby indemnifies and agrees to hold Lender, its employees, officers, directors and agents harmless from and against any and all losses, claims, suits, damages, expenses and liabilities (including negligence, tort and strict liability), together with reasonable attorneys' fees, caused by, arising from, or related to, the manufacture, purchase, ownership, maintenance, modification, delivery, installation, possession, condition, use, acceptance, rejection, operation, disposition or return of the Equipment. 11. NOTICES; CHANGES: Notices, requests or other communications required hereunder to be sent to either party shall be in writing and shall be (a) by United States first class mail, postage prepaid, and addressed to the other party at the address set forth above (or to such other address as such party shall have designated by proper notice) or (b) by personal delivery. Borrower consents to service of process by certified mail at its address above (or to such other address as Borrower shall have designated by proper notice) in connection with any legal action brought by Lender. Borrower authorizes Lender to fill in descriptive material in the Loan Agreement (including serial numbers) and to correct any patent errors in the Loan Agreement or the Note. 12. MISCELLANEOUS: THE LOAN AGREEMENT AND NOTE CONTAIN THE COMPLETE AGREEMENT OF THE PARTIES WITH RESPECT TO ITS SUBJECT MATTER AND SUPERSEDE AND REPLACE ANY PREVIOUSLY MADE PROPOSALS, REPRESENTATIONS, WARRANTIES OR AGREEMENTS. LENDER MAY ASSIGN OR TRANSFER THE LOAN AGREEMENT, THE NOTE AND/OR LENDER'S INTEREST IN THE EQUIPMENT WITHOUT NOTICE TO BORROWER. Any assignee of Lender shall have all of the rights but none of the obligations of Lender under the Loan Agreement and Note, and BORROWER AGREES THAT IT WILL NOT ASSERT AGAINST ANY ASSIGNEE OF LENDER ANY DEFENSE, COUNTERCLAIM OR OFFSET THAT BORROWER MAY HAVE AGAINST LENDER. BORROWER SHALL NOT ASSIGN OR IN ANY WAY DISPOSE OF ALL OR ANY PART OF THE EQUIPMENT OR ITS RIGHTS OR OBLIGATIONS UNDER THE LOAN AGREEMENT AND THE NOTE WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER. The Loan Agreement and the Note shall be binding upon and inure to the benefit of the parties hereto, their legal representatives, permitted successors and assigns. THE PARTIES HERETO WAIVE ALL RIGHTS TO A JURY TRIAL IN ANY LITIGATION ARISING FROM OR RELATED IN ANY WAY TO THE LOAN AGREEMENT, NOTE OR THE TRANSACTION CONTEMPLATED HEREBY. No amendment under the Loan Agreement shall be effective unless in writing signed by the parties hereto and no waiver under the Loan Agreement shall be effective unless in writing, signed by the party to be charged. No failure to exercise, no delay in exercising, and no single or partial exercise on the part of Lender of any right, remedy, or power under the Loan Agreement, shall operate as a waiver thereof or preclude Lender from exercising any other right, remedy or power under the Loan Agreement. Any provision of the Loan Agreement or the Note which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions of the Loan Agreement or of the Note. The Loan Agreement, the Note and all related documents, including (a) amendments, addenda, consents, waivers and modifications which may be executed contemporaneously or subsequently herewith, (b) documents received by Lender from Borrower, and (c) financial statements, certificates and other information previously or subsequently furnished to Lender, may be reproduced by Lender by any photographic, photostatic, microfilm, micro-card, miniature photographic, compact disk reproduction or other similar process and Lender may destroy any original document so reproduced. -13- SIEMENS Borrower waives all right to object to the admissibility of such reproduction and stipulates that any such reproduction shall, to the extent permitted by law, be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original itself is in existence and whether or not the reproduction was made by Lender in the regular course of business) and that any enlargement, facsimile or further reproduction of the reproduction shall likewise be admissible in evidence. No action regardless of form arising out of the Loan Agreement or the Note may be brought by Borrower more than two (2) years after the cause of action has accrued. The representations, warranties, obligations and indemnities of the Borrower under the Loan Agreement shall survive the termination of the Loan Agreement to the extent required for their full observance and performance. The obligations of each co-maker (if any) of the Loan Agreement or the Note shall be primary, joint and several. In the event Borrower fails to meet any obligations of it hereunder. Lender may at its option satisfy such obligation and Borrower shall reimburse Lender on demand therefore. In the event that legal or other action is required to enforce Lender's rights under the Loan Agreement or under the Note (including but not limited to the exercise of remedies hereunder). Borrower agrees to reimburse Lender on demand for its reasonable attorneys' fees and its other related costs and expenses. Notwithstanding any applicable state laws to the contrary, Borrower agrees to reimburse Lender for all reasonable attorneys' fees incurred by it incident to any action or proceeding involving the Borrower brought pursuant to the Bankruptcy Code, as amended, which are allowable under Section 506(b) thereof. The captions in the Loan Agreement are for convenience only and shall not define or limit any of the same therein. THE LOAN AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. -14- SIEMENS SIEMENS SIEMENS CREDIT CORPORATION PROMISSORY NOTE #: 1 TO LOAN SCHEDULE #: 759-0001448-000 TO MASTER LOAN AND SECURITY AGREEMENT DATED: May 5,1999 - -------------------------------------------------------------------------------- U.S. $3000,000.00 PROMISSORY NOTE (Date of Note) --------------- BRIDGEWATER, NEW JERSEY ------------------------- The undersigned, organized and validly existing under the laws of its state of organization, for value received, hereby unconditionally promises to pay to the order of SIEMENS CREDIT CORPORATION (the "Payee") at 991 U.S. Highway 22, Bridgewater, NJ 08807-2956 in lawful money of the United States of America and in immediately available funds, the principal amount of U.S. Three hundred Thousand Dollars, with interest (based on a year of 360 days and 30 day months) at a per annum rate of Eight and Forty Seven Hundredths percent ( 8.47%) on the principal amount hereof remaining from time to time unpaid, such principal and interest to be paid in consecutive monthly installments of $9,465.00 each, beginning on the first day of the month following execution of this document and on the same day of each consecutive month thereafter until fully paid. A copy of the Loan amortization schedule is attached hereto as Exhibit A and made a part hereof. This Note evidences a Loan by the Payee to the undersigned pursuant to the Loan Schedule indicated above (as incorporating the terms of the Master Agreement above) between the undersigned and the Payee (the "Loan Agreement") as from time to time may be amended, restated, replaced, supplemented, substituted for or renewed, and the holder of this Note is entitled to the benefits thereof, including without limitation, the security interest in the Equipment granted therein. Capitalized terms used herein and not otherwise defined herein shall have the same meaning as in the Loan Agreement. The principal hereof and accrued interest hereon shall become forthwith due and payable as provided in the Loan Agreement. Payments hereunder not made when due shall accrue late charges as provided in the Loan Agreement. This Note may not be prepaid in whole or in part. All payments made pursuant to the terms of this Note shall be made free and clear of, and without deduction for, withholding, setoff or counterclaim of any kind. The undersigned hereby promises to pay all costs and expenses, including but not limited to reasonable attorneys' fees which may be incurred in connection with the enforcement and/or collection of this Note. Neither the failure on the part of the holder of this Note in exercising any right or remedy nor any single or partial exercise or the exercise of any other right or remedy shall operate as any waiver. No amendment hereunder shall be effective unless in writing signed by the undersigned and holder of this Note and no waiver hereunder shall be effective unless in writing, signed by the party to be charged. The undersigned hereby waives demand for payment, presentment, protest and notice of any kind in connection with the delivery, acceptance, performance, default or enforcement of this Note and hereby consents to any extensions of time, renewals, releases of any party to this Note, waivers or modifications that may be granted or consented to by the holder of this Note in respect of the time of payment or any other matter. -15- SIEMENS Anything in this Note to the contrary notwithstanding, in the event that any payment of interest hereunder shall exceed the legal limit, such amount in excess of such limit shall be deemed a payment of principal hereunder. The undersigned authorizes the Payee to insert above as the date of the Note, the date on which the Payee disburses funds pursuant to the Loan Agreement. THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. MAKER WAIVES ALL RIGHTS TO A JURY TRIAL IN ANY LITIGATION ARISING FROM OR RELATED IN ANY WAY TO THIS NOTE OR THE TRANSACTION CONTEMPLATED HEREBY. - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its authorized representative, who certifies that (s)he has all necessary authority on behalf of the undersigned to execute this Note and bind it to the terms hereof. ION Networks, Inc. (Exact Legal Name of Borrower) BY: /s/ Steve Gray ------------------------------- (Authorized Signature) NAME: Steve Gray ------------------------------ (Printed or Typed) TITLE: President ------------------------------ -16- SIEMENS SIEMENS SIEMENS CREDIT CORPORATION LOAN SCHEDULE #:759-0001448-000 LENDER: SIEMENS CREDIT CORPORATION BORROWER: ION NETWORKS, INC. 991 U.S. Highway 22 ------------------------- Bridgewater, NJ 08807-2956 (herein "Borrower") (800) 327-4443 21 Meridian Road ------------------------- (Address) Edison, NJ 08820 ------------------------- (City, State, Zip) LOAN SCHEDULE #759-0001448-000, to that certain Master Loan and Security Agreement dated May 5, 1999 (herein "Master Agreement"), between Lender and Borrower. 1. EQUIPMENT DESCRIPTION (including related items): Computer Hardware and Software Equipment; and Office Furniture as described in the attached Sheets and a right to use license for any software related thereto and related documentation. 2. SUPPLIER: ION NETWORKS $275,065.25 Equipment 24,934.75 Office Furniture 3. LOAN AMOUNT: $ 300,000.00 Total Loan Amount ---------------------------- 4. ORIGINAL EQUIPMENT LOCATION (if different from Borrowees address above): (CONTINUED ON REVERSE SIDE) - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties hereto have duly executed the Loan Agreement as of the dates set forth below. The Loan Agreement shall become effective at the time of Lender's acceptance (by execution hereof) at the address set forth above, by an authorized representative of Lender and, for all purposes hereof, the date of the Loan Agreement shall be the date of Lender's acceptance as set forth below. BORROWER ACKNOWLEDGES THAT NEITHER LENDER NOR THE SUPPLIER IS AN AGENT OR REPRESENTATIVE OF THE OTHER AND NEITHER HAS AUTHORITY TO BIND THE OTHER. BY EXECUTION HEREOF, THE SIGNER CERTIFIES THAT (S)HE HAS READ THE ENTIRE LOAN AGREEMENT, THAT LENDER OR ITS REPRESENTATIVES HAVE MADE NO AGREEMENTS OR REPRESENTATIONS EXCEPT AS SET FORTH HEREIN, IN THE MASTER AGREEMENT, OR NOTE, AND THAT (S)HE IS DULY AUTHORIZED TO EXECUTE THE LOAN AGREEMENT ON BEHALF OF BORROWER. ACCEPTED BY: SIEMENS CREDIT CORPORATION ION NETWORKS, INC. ------------------------------------ -17- SIEMENS BY: /s/ John Unkles BY: /s/ Steve Gray ---------------------------- -------------------------- (Authorized Signature) (Authorized Signature) NAME: John Unkles NAME: Steve Gray --------------------------- -------------------------- (Printed or Typed) (Printed or Typed) TITLE: Credit Mgr. TITLE: President --------------------------- -------------------------- (Printed or Typed) (Printed or Typed) DATE: 5/7/99 DATE: 5/5/99 --------------------------- -------------------------- -18- SIEMENS 5. DEFINITIONS: Capitalized terms herein, which are not otherwise defined herein, shall have the same meanings set forth in the Master Agreement. 6. TERMS OF SCHEDULE: Lender and Borrower agree that the terms and conditions of the Master Agreement are hereby incorporated into this Loan Schedule (collectively the "Loan Agreement) and made a part hereof to the same extent as if such terms and conditions were set forth in full herein. The Loan Agreement shall constitute a secured financing with respect to each item of Equipment described above. THIS LOAN SCHEDULE, AS INCORPORATING THE TERMS OF THE MASTER AGREEMENT, (ALONG WITH THE NOTE), CONTAINS THE COMPLETE AGREEMENT OF THE PARTIES WITH RESPECT TO ITS SUBJECT MATTER AND SUPERSEDES AND REPLACES ANY PREVIOUSLY MADE PROPOSALS, REPRESENTATIONS, WARRANTIES AND AGREEMENTS. 7. AMENDMENTS: Any amendments to or incorporated into this Loan Schedule, which in any way alter the terms of the Master Agreement, shall be effective only with respect to this Loan Schedule and shall be ineffective with respect to any other Loan Schedule. -19- SIEMENS SIEMENS Siemens Credit Corporation MASTER EQUIPMENT LEASE AGREEMENT DATED: June 10,1999 - -------------------------------------------------------------------------------- LESSOR: SIEMENS CREDIT CORPORATION LESSEE: ION Networks, Inc. 991 US Highway 22 ---------------------- Bridgewater, NJ 08807-2956 (herein "Lessee") (800) 327-4443 21 Meridian Road ----------------------- (Address) Edison, NJ 08820 ----------------------- City, State, Zip) TERMS AND CONDITIONS OF AGREEMENT 1. MASTER LEASE: This master Equipment Lease Agreement (herein "Agreement") sets forth the basic terms and conditions upon which Lessor shall lease to Lessee and Lessee shall lease from Lessor items of property specified in leasing schedules (herein "Leasing Schedules") to be entered into from time to time. Each Leasing Schedule shall incorporate the terms and conditions of the Agreement and shall constitute a lease as to the property specified in such Leasing Schedule (herein "Equipment"). The term "Lease" as used in the Agreement shall mean the applicable Leasing Schedule as incorporating the terms and conditions of the Agreement. The Agreement shall become effective at the time of Lessor's acceptance (by execution hereof at its New Jersey address set forth above, by an authorized representative of Lessor. 2. TERM AND LEASE PAYMENTS: The lease term of the Equipment shall be for the period specified in the Leasing Schedule (herein "Lease Term"). The Lease Term shall commence upon the commencement date specified in the Leasing Schedule (herein "Commencement Date") and thereupon Lessee, upon request by Lessor, agrees to execute and deliver to Lessor a delivery and acceptance certificate in the form supplied by Lessor. For the Lease Term, Lessee agrees to pay to Lessor the number of lease payments specified in the Leasing Schedule, each in the amount specified in the Leasing Schedule (herein "Lease Payments") for the payment periods specified in the Leasing Schedule (herein "Payment Periods"), including any Advance Lease Payments specified in the Leasing Schedule, with the first Lease Payment being due on the Commencement Date (or if "Interim Rent" is applicable as indicated on the Leasing Schedule, then on the first day of the month immediately following the Commencement Date ("First Regular Payment Date")), and the remaining Lease Payments on the same day of each consecutive Payment Period thereafter for the duration of the Lease Term. If Interim Rent is applicable, in addition to the foregoing, for the period from the Commencement Date to the First Regular Payment Date ("Interim Period"), Lessee shall pay to Lessor Rent in the amount set forth in the Leasing Schedule and such amount shall be due and payable on the tenth day following the Commencement Date (and the Stipulated Loss Value Schedule to the Lease, if any, shall be construed so that the column tided "Month of Lease Term" shall mean - month of Lease Term beginning with the First Regular Payment Date, except that month "1" shall also include the Interim Period). Any Advance Lease Payments (unless otherwise specified in the Leasing Schedule) will be applied upon the effective date of the Lease to the first regular Lease Payment, then to the remaining Lease Payments in reverse order. Lessee agrees to pay on demand, as a late charge, 1.3% per month, limited by the maximum rate permitted by law, on all overdue amounts (including accelerated balances) under the Lease, whether such amounts are due prior to or after a Default (as hereinafter defined). All payments provided for in the Lease shall be payable at the office of Lessor set forth above, or at any other place designated by Lessor. The Lease is a net lease and Lessee shall not be entitled to any abatement of, reduction of, or setoff against Lease Payments for any reason whatsoever. The Lease may not be terminated or canceled for any reason whatsoever, except as expressly provided in the Lease. No amounts under the Lease may be prepaid. (CONTINUED ON FOLLOWING PAGES) -20- SIEMENS IN WITNESS WHEREOF, the parties hereto have duly executed the Agreement as set forth below. Lessee acknowledges that no amendment to any Leasing Schedule or the Agreement shall be effective unless in writing signed by the parties hereto. BY EXECUTION HEREOF, THE SIGNER CERTIFIES THAT (S)HE HAS READ THE ENTIRE AGREEMENT, THAT LESSOR OR ITS REPRESENTATIVES HAVE MADE NO AGREEMENTS OR REPRESENTATIONS EXCEPT AS SET FORTH HEREIN OR IN THE LEASING SCHEDULE AND THAT (S)HE IS DULY AUTHORIZED TO EXECUTE THE AGREEMENT ON BEHALF OF LESSEE ACCEPTED BY: LESSOR: LESSEE: SIEMENS CREDIT CORPORATION ION NETWORKS, INC. BY: BY: /s/ Mark A. Simmons ------------------------ ------------------------- (Authorized Signature) (Authorized Signature) NAME: NAME: Mark A. Simmons ------------------------ ------------------------- (Printed or Typed) (Printed or Typed) TITLE: TITLE: Chief Financial Officer ------------------------ -------------------------- (Printed or Typed) (Printed or Typed) DATE: DATE: 6/17/99 ------------------------ -------------------------- -21- SIEMENS 3. DISCLAIMER OF WARRANTIES; LIMITATION OF REMEDY; LIMITATION OF LIABILITY: Lessee has selected both the Equipment and the supplier (identified in the Leasing Schedule, herein "Supplier") from whom at Lessee's request Lessor agrees to purchase the Equipment. LESSEE ACKNOWLEDGES THAT LESSOR HAS NO SPECIAL FAMILIARITY OR EXPERTISE WITH RESPECT TO THE EQUIPMENT. LESSEE AGREES THAT THE EQUIPMENT LEASED UNDER THE LEASE IS LEASED "AS IS", AND IS OF A SIZE, DESIGN AND CAPACITY SELECTED BY LESSEE AND THAT LESSEE IS SATISFIED THAT THE SAME IS SUITABLE FOR LESSEE'S PURPOSES, AND THAT EXCEPT AS MAY OTHERWISE BE SPECIFICALLY PROVIDED HEREIN OR IN THE LEASING SCHEDULE, LESSOR HAS MADE NO REPRESENTATION OR WARRANTY AS TO ANY MATTER WHATSOEVER. LESSOR DISCLAIMS, AND LESSEE HEREBY EXPRESSLY WAIVES AS TO LESSOR, ALL WARRANTIES WITH RESPECT TO THE EQUIPMENT INCLUDING BUT NOT LIMITED TO ALL EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, QUALITY, CAPACITY, OR WORKMANSHIP, ALL EXPRESS OR IMPLIED WARRANTIES AGAINST PATENT INFRINGEMENTS OR DEFECTS, WHETHER HIDDEN OR APPARENT, AND ALL EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO COMPLIANCE OF THE EQUIPMENT WITH THE REQUIREMENTS OF ANY LAW, REGULATION, SPECIFICATION OR CONTRACT RELATIVE THERETO. IN NO EVENT SHALL LESSOR BE LIABLE (INCLUDING WITHOUT LIMITATION, UNDER ANY THEORY IN TORTS) FOR ANY LOSS OF USE, REVENUE, ANTICIPATED PROFITS OR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE LEASE OR THE USE, PERFORMANCE OR MAINTENANCE OF THE EQUIPMENT. If the Equipment is, not properly installed, does not operate as represented or warranted by the Supplier, manufacturer and/or service company or is unsatisfactory for any reason, Lessee shall make any claim on account thereof solely against the Supplier, manufacturer and/or service company and shall, nevertheless, pay Lessor all amounts payable under the Lease and shall not set up against Lessee's obligations any such claims as a defense, counterclaim, deduction, setoff or otherwise. For the Lease Term, for so long as no Default (as hereinafter defined) has occurred and is continuing, Lessor assigns to Lessee (to the extent permitted by law) any right Lessor may have against the Supplier (under a "Supply Contract", as defined in the Leasing Schedule), manufacturer and/or service company to enforce, at Lessee's expense (if any), any product warranties with respect to the Equipment, provided however, that Lessee shall indemnify and defend Lessor from and against all claims, expenses, damages, losses and liabilities incurred or suffered by Lessor in connection with any such action taken. TO THE EXTENT PERMITTED BY LAW, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES LESSEE MAY HAVE UNDER ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE. 4. TITLE; IDENTIFICATION; PERSONAL PROPERTY: Lessee acknowledges that subject to the provisions of Section 12 of the Leasing Schedule, title to the Equipment shall at all times be vested in Lessor, and no right, title or interest in the Equipment shall pass to Lessee other than, conditioned upon Lessee's compliance with and fulfillment of the terms and conditions of the Lease, the right to possess and use the Equipment for the full Lease Term. Lessee agrees not to sell, assign, sublet, pledge, or otherwise encumber any interest in the Lease or the Equipment and agrees to keep the same free from any lien, encumbrance, right of distraint or any other claim which may be asserted by any third party. Lessee shall immediately notify Lessor in writing of any tax or other liens attaching to the Equipment. Lessor may require plates or markings to be affixed to or placed on the Equipment indicating Lessor's interest. Lessor and Lessee hereby confirm their intent that the Equipment always remain and be deemed personal property even though the Equipment may hereafter become attached or affixed to realty. Lessee shall obtain all such waivers as Lessor may reasonably require to -22- SIEMENS acknowledge Lessors title to and assure Lessor's right to remove the Equipment, including any landlord and mortgagee waivers. 5. PAYMENT OF TAXES; GENERAL INDEMNIFICATION: Lessee shall pay promptly to Lessor when due, all taxes, fees and assessments, including but not limited to, all license and registration fees, sales, use, property, gross receipts, excise, transaction, ad valorem, privilege, intangible, stamp or other taxes or charges, together with any fines, penalties or interest thereon (unless such fines, penalties or interest arise solely from Lessor's gross negligence or willful misconduct) now or hereafter imposed by any governmental body, upon or with respect to, any of the Equipment or the use, possession, ownership, leasing, operation, delivery or return thereof (excluding, however, franchise taxes and any taxes based on the net income of Lessor). Any fees, taxes or other amounts paid by Lessor upon failure of Lessee to make such payments set forth in this Section 5 shall be payable upon demand from Lessee to Lessor. Lessee agrees to indemnify and hold Lessor harmless from and against any and all claims, losses, damages, penalties, actions, suits and liabilities (including negligence, tort and strict liability), together with all reasonable legal costs and expenses in connection therewith incurred by Lessor which result from, or relate to, the manufacture, purchase, ownership, maintenance, modification, delivery, installation, possession. condition, use, acceptance, rejection, operation or return of the Equipment. 6. INSTALLATION AND DELIVERY: Lessee shall provide a suitable installation environment for the Equipment as specified in the applicable manufacturer's or Supplier's manuals, and except as otherwise specified by the manufacturer or Supplier, furnish all labor required for unpacking and placing each item of Equipment in the desired location. Lessee shall also be responsible for any delivery, rigging, destination and installation charges charged by the manufacturer or Supplier with respect to the Equipment. 7. OPERATION; USE; INSPECTION: For the full Lease Term, Lessee shall operate the Equipment in accordance with all applicable manufacturer and Supplier manuals or instructions by fully qualified and duly authorized personnel only, in accordance with all applicable laws and regulations. For said Lease Term, Lessee shall properly maintain the Equipment, or cause it to be properly maintained, by a fully qualified service company, and shall immediately notify Lessor in writing of the entity maintaining the Equipment and of any change of such entity. Such maintenance shall be performed in accordance with all requirements necessary to enforce all product warranty rights. All operating and maintenance costs with respect to the Equipment shall be borne by Lessee. Lessee shall not: (a) use, operate or locate the Equipment in any manner or area so as to cause it to be excluded from coverage by any insurance required under the Lease; (b) abandon the Equipment or, without prior written notice to Lessor, take the Equipment out of use; (c) alter the Equipment; (d) permit the Equipment to be removed from the equipment location specified in the Leasing Schedule (herein "Equipment Location"), or any subsequent location, without the prior written consent of Lessor, which consent shall not be unreasonably withheld or (e) without the prior written consent of Lessor, affix or install any accessory, equipment or device on any item of Equipment if such (i) is not readily removable, or (ii) will impair the value or the originally intended function or use of such Equipment. All additions, repairs, parts, accessories, equipment and devices attached or affixed to any item of Equipment which are not readily removable, shall become the property of Lessor and part of the Equipment for all purposes hereof. Lessor shall have the right from time to time during normal business hours to enter upon the Equipment Location or elsewhere for the purpose of confirming the existence, condition or proper maintenance of the Equipment. 8. RISK OF LOSS; INSURANCE: (a) Lessee agrees that it shall bear all risk of loss, damage to or destruction of the Equipment. Lessee shall give Lessor prompt notice of any damage to or loss of any Equipment or of any occurrence arising from the possession, use or operation of the Equipment resulting in death or bodily injury, or damage to property. In the event of damage to any item(s) of Equipment, Lessee shall immediately -23- SIEMENS place such item(s) in good repair (with no abatement of Lease Payments), with the proceeds of any insurance recovery applied to the cost of such repair. Should any item(s) of Equipment become ; lost, stolen, destroyed, worn out, damaged beyond repair, condemned, confiscated, seized or requisitioned (herein "Event of Loss"), Lessee shall, at the option of Lessor, either (i) replace the same with like equipment in good repair (with no abatement of Lease Payments), or (ii) in the event Option A of Section 12 of the applicable Leasing Schedule has been selected ("Option A"), pay to Lessor on the lease payment date immediately following such Event of Loss (herein "Loss Payment Date"), the pro rata portion relating to such item(s) of the greater of (A) the Fair Market Value (as defined in Option A) of the Equipment calculated as of the lease payment date immediately prior to such Event of Loss, or (B) the stipulated loss value of the Equipment as set forth in the schedule to the Lease and made a part thereof ("Stipulated Loss Value") calculated for the Payment Period immediately preceding the Loss Payment Date, plus all Lease and other payments due but unpaid as of the day immediately preceding the Loss Payment Date relating to such item(s), whereupon the Lease shall terminate as to such item(s) and Lessor shall adjust the remaining Lease Payments and Stipulated Loss Value Schedule accordingly, or if Option B or Option C of Section 12 of the applicable Leasing Schedule has been selected ("Option B" or "Option C", as applicable), pay to Lessor on the lease payment date immediately following such Event of Loss, the pro rata portion relating to such item(s) of the sum of (A) the remaining Lease Payments for the balance of the Lease Term and (B) the purchase option price specified in Option B or Option C, as applicable (herein "Purchase Option Price"), such sum discounted at the per annum rate implicit in the Lease assuming exercise by Lessee of such purchase option (herein"Lease Rate"), plus any other payments due from Lessee to Lessor with respect to such item(s), whereupon the Lease shall terminate as to such item(s) and Lessor shall adjust the remaining Lease Payments and Purchase Option Price accordingly. (b) For the full Lease Term, Lessee, at its expense, shall maintain comprehensive general liability insurance, and "fire and allied perils" and "all risks" property insurance with respect to the Equipment (as primary insurance for Lessee and Lessor), both in such amounts as Lessor shall require, except that such property insurance shall be in an amount at least equal to the full replacement value of the Equipment or, if Option A was selected, the applicable Stipulated Loss Value thereof, if greater: and such insurance shall be placed with carriers acceptable to Lessor. The liability insurance policy shall name Lessor as additional insured and the property insurance policy shall name Lessor as loss payee to the extent its interest may appear, and both policies shall provide that they may not be canceled or altered without at least thirty (30) days prior written notice to Lessor. Lessee irrevocably appoints Lessor its agent and attorney-in-fact for the purpose of adjusting and settling any property insurance hereunder and endorsing in Lessee's name any instruments or payments received in respect thereof. Lessee shall furnish to Lessor within thirty (30) days (or sooner if requested by Lessor) of delivery of the Equipment, a certificate of insurance that such coverage is in effect, however, Lessor shall be under no duty either to ascertain the existence of or to examine such insurance policies or to advise Lessee in the event that such insurance coverage does not comply with the requirements hereof. If Lessee fails to provide Lessor appropriate evidence of property insurance as required hereunder, Lessor shall have the right, but not the obligation, to obtain property insurance covering its interest in the Equipment from an insurer of its choice ("Insurer"), including an affiliate. Lessor may add the costs of acquiring and maintaining such insurance and fees for its services in placing and maintaining such insurance (collectively, "Insurance Charge") to the amounts due from Lessee under the Lease. Lessee shall pay such Insurance Charge in equal installments allocated to the remaining Lease Payments (plus interest on such allocation at 1.3% per month). In the event that Lessor purchases such insurance, Lessee shall cooperate with Lessor's insurance agent with respect to the placement of insurance and the processing of claims. Nothing in the Lease shall create an insurance relationship of any type between Lessor (including its Insurer and agents), and Lessee. Lessee acknowledges that Lessor is not required to secure or maintain any such insurance, and Lessor shall have no liability to Lessee if Lessor terminates any insurance coverage arranged hereunder. If -24- SIEMENS Lessor replaces or renews any such insurance coverage, Lessor shall not be obligated to provide replacement or renewal coverage under the same terms, costs, limits, or conditions as previously in affect. 9. DEFAULT AND REMEDIES: (a) Any of the following shall constitute a default by Lessee under the Lease (herein "Default"): (i) failure by Lessee to pay any amounts under the Lease when due and such remains unremedied for a period of ten (10) days from the due date; or (ii) failure by Lessee to comply with any provisions or perform any of its obligations arising under the Lease or under any other documents or agreements relating to the Lease, and such remains unremedied by Lessee for a period of twenty (20) days; or (iii) any representations or warranties made or given by Lessee in connection with the Lease or the Agreement, or any other document or agreement relating to the Lease or the Agreement, were false or misleading in a material way when made; or (iv) subjection of the Equipment to levy or execution or other judicial process which is not or cannot be removed within thirty (30) days from the subjection thereof; or the imposition of any unauthorized lien on or transfer of the Equipment by or through Lessee; or (v) commencement of any insolvency, bankruptcy or similar proceedings by or against Lessee or any guarantor of any of Lessee's obligations under the Lease (herein "Guarantee"), including any assignment by Lessee or any Guarantor for the benefit of creditors, and in the case of any such involuntary proceedings, such is not dismissed within (30) days of institution; or the inability of Lessee to generally pay its debt as they become due; or (vi) any material adverse change from the date of the Leasing Schedule in Lessee's or Guarantor's business operations or financial condition, or any act of Lessee which imperils the value of the Equipment or the prospect of full performance of Lessee's obligations under the Lease, including but not limited to the liquidation or dissolution of Lessee or the commencement of any acts relative thereto, or without the prior written consent of Lessor, any sale or other disposition of all or substantially all of the assets of Lessee, or any merger or consolidation of Lessee unless Lessee is the surviving entity and Lessee's tangible net worth, after giving effect to such transaction. equals or exceeds that which existed prior thereto, or the cessation of business by Lessee; or (vii) a default by Lessee under any Lease or other agreement or note with Lessor, or with any assignee of the Lease; or under any agreement with any other party that in Lessor's sole opinion is a material agreement; or (viii) the death or dissolution of Lessee or of any Guarantor, the withdrawal of any partner of Lessee if Lessee is a partnership, or the inability of Lessee or of any Guarantor of the Lease to perform any of the obligations contained in the Lease or in any applicable guaranty. (b) Upon any Default, Lessor may exercise any one or more of the following remedies (which remedies shall be cumulative to the extent permitted by law): (i) terminate the Lease; (ii) secure peaceable repossession and removal of the Equipment by Lessor or its agent without judicial process; (iii) demand and Lessee shall return the Equipment to Lessor in accordance with Section 11 hereof; (iv) sell, lease or otherwise dispose of the Equipment at public or private sale without advertisement or notice except that required by law, upon such terms and at such place as Lessor may deem advisable, and Lessor may be the purchaser at any such sale; (v) demand and Lessee shall pay all expenses in connection with the Equipment relating to its retaking, refurbishing, selling, leasing or the like; (vi) exercise any other right or remedy which may be available to it under the Uniform Commercial Code or any other applicable law. To the extent permitted by applicable law, Lessee waives all rights it may have to limit or modify any of Lessor's rights and remedies hereunder, including but not limited to, any right of Lessee to require Lessor to dispose of the Equipment or otherwise mitigate its damages hereunder. (c) If Option A has been selected, Lessor may exercise one or more of the following remedies in addition to the remedies set forth in Section 9 (b) above (which remedies shall be cumulative to the extent permitted by law): (i) by notice to Lessee declare the Stipulated Loss Value of the Equipment calculated for the Payment Period immediately following the date of such notice (herein "Calculation Date") immediately due and payable, together with (A) all due but unpaid Lease Payments from the commencement of the Lease Term through the day prior to the Calculation Date, and (B) all other amounts due under the Lease (including late charges), whereupon such -25- SIEMENS shall become immediately due and payable; (ii) declare all remaining Lease Payments for the balance of the Lease Term discounted at a per annum rate of six percent (6%), plus all other due and unpaid Lease Payments and all other amounts due from Lessee hereunder, immediately due and payable in full, whereupon such shall become immediately due and payable. (d) If Option B or Option C has been selected, (i) Lessor, in addition to the remedies set forth in Section 9(b) above, may exercise the following remedy (which remedies shall be cumulative to the extent permitted by law): Lessor may declare all remaining Lease Payments for the balance of the Lease Term discounted at the Lease Rate, plus all other due but unpaid Lease Payments and all other amounts due from Lessee, immediately due and payable in full, whereupon such shall become immediately due and payable: (ii) in the event that Lessor disposes of the Equipment, Lessee shall be liable for any deficiency remaining after such disposition and application of the resulting net proceeds, less the Purchase Option Price discounted at the Lease Rate, to Lessee's obligations under the Lease in the order of application as Lessor shall elect. 10. QUIET ENJOYMENT: So long as no Default exists, Lessor (and any Assignee shall be deemed to have warranted that it) shall not interfere with Lessee's quiet enjoyment of the Equipment. 11. RETURN OF EQUIPMENT; EXTENSION OF TERM: Upon demand of Lessor pursuant to Section 9 hereof, or unless Lessee purchases the Equipment pursuant to Option A or Option B, Lessee, at its own risk and expense, shall at the end of the term, immediately return the Equipment to Lessor, de-installed and packed for shipment (by Supplier or a qualified service company) in accordance with manufacturer's specifications, in good working order and eligible for manufacturer's maintenance (if available), freight prepaid and insured, to such location within the continental United States as Lessor shall designate. Should Lessee fail to provide timely notice of exercise as provided in Option A or Option B or return the Equipment to Lessor in the time and manner provided above, the Lease Term shall be extended for successive 90 day periods until Lessee returns the Equipment to Lessor in accordance herewith, or Lessor terminates the Lease by 10 days written notice to Lessee. In the event the Lease is extended pursuant to the preceding sentence, the periodic Lease Payments and the Stipulated Loss Value (if any) in effect prior to the expiration of the Lease Term, and all other provisions of the Lease, shall continue to apply. 12. LESSEE REPRESENTATIONS AND COVENANTS: Lessee represents: (a) it is duly organized and validly existing under the laws of its state of organization; (b) by consummation of the Lease transaction, Lessee is not in violation of any governmental statute or regulation, nor will consummation of the Lease transaction cause any breach, default or violation of the organizational or charter documents or any judgment, decree or agreement, all as may apply to Lessee; (c) the Lease transaction was duly authorized by all appropriate action by Lessee; (d) Lessee shall furnish Lessor with (and cause any Guarantor to furnish) its annual and such interim financial statements as Lessor shall request, certified and audited (if available), together with officer's certificates, opinions of counsel, resolutions and such other information and documents as Lessor may reasonably request; (e) financial statements and other related financial information furnished by Lessee upon Lessor's request shall be prepared in accordance with generally accepted accounting principles consistently applied and in all material respects shall accurately present Lessee's financial position and results of its operations as of the dates given on such statements; (f) the Lease and all other related instruments or documents hereunder are enforceable in accordance with their terms, shall be effective against all creditors of Lessee under applicable law, including fraudulent conveyance and bulk transfer laws, and shall raise no presumption of fraud: (g) there are no pending or threatened actions or proceedings before any court, administrative agency or other dispute resolution forum that could have a material adverse effect on, Lessee or any document hereunder, unless such actions are disclosed to Lessor and consented to in writing by Lessor, (h) all Equipment is leased for business purposes only, and not -26- SIEMENS for personal, family or household purposes, and only for its normally intended purpose; and (i) all Equipment is and shall at all times be and remain tangible personal property and shall not become a fixture or real property. Lessee shall promptly execute and deliver to Lessor such further documents and take such further action as Lessor may reasonably request in order to more effectively carry out the intent and purpose of the Lease. 13. NOTICES; CHANGES; FILINGS: Notices, requests or other communications required under the Lease to be sent to either party shall be in writing and shall be (a) by United States first class mail, postage prepaid, and addressed to the other party at the address specified above (or to such other address as such party shall have designated by proper notice) or (b) by personal delivery. Lessee consents to service of process by certified mail at its address above (or to such other address as Lessee shall have designated by proper notice) in connection with any legal action brought by Lessor. Lessee authorizes Lessor to fill in descriptive material in the Lease (including serial numbers) and to correct any patent errors in the Lease. Lessee shall execute and authorizes Lessor to file with such authorities and at such locations as Lessor may deem appropriate, Uniform Commercial Code financing statements relating to the Equipment and/or the Lease, and Lessee agrees to reimburse Lessor upon demand for all costs incurred relative thereto. In addition, Lessee hereby irrevocably appoints Lessor its agent and attorney-in-fact to execute in the name of Lessee and file any Uniform Commercial Code financing statements with respect to the Equipment in any place Lessor deems necessary. Lessee also agrees that an original or a photocopy of the Lease (including any addenda, attachments and amendments to the Lease) may be filed by Lessor as a Uniform Commercial Code financing statement. Lessee agrees to immediately notify Lessor in writing, of any change in Lessee's name or address, identity, corporate structure, social security or taxpayer identification number as applicable, or discontinuance of any of its places of business. 14. ASSIGNMENT: LESSOR MAY ASSIGN OR TRANSFER ALL 0R ANY INTEREST OF LESSOR IN THE LEASE OR THE EQUIPMENT WITHOUT NOTICE TO LESSEE. UPON NOTICE OF SUCH ASSIGNMENT LESSEE AGREES TO PAY DIRECTLY TO ASSIGNEE WITHOUT ABATEMENT, DEDUCTION OR SETOFF ALL AMOUNTS WHICH BECOME DUE UNDER THE LEASE AND FURTHER, AGREES THAT IT WILL NOT ASSERT AGAINST ASSIGNEE ANY DEFENSE, COUNTERCLAIM OR SETOFF FOR ANY REASON WHATSOEVER IN ANY ACTION FOR PAYMENT OR POSSESSION BROUGHT BY ASSIGNEE. Upon any such assignment, such assignee (herein "Assignee") shall have and be entitled to any and all rights and remedies of Lessor under the Lease and all references in the Lease to Lessor shall include Assignee, except that Assignee shall not be chargeable with any obligations or liabilities of Lessor under the Lease. Lessee acknowledges that any assignment or transfer by Lessor shall not materially change Lessee's duties or obligations under the Lease nor materially increase the burdens or risks imposed on Lessee. Lessee shall (if requested by Lessor) acknowledge in writing any assignments (including any material terms of the Lease) in a form supplied by Lessor. LESSEE SHALL NOT ASSIGN OR IN ANY WAY DISPOSE OF ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER THE LEASE OR ENTER INTO ANY SUBLEASE OF ALL OR ANY PART OF THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. 15. MISCELLANEOUS: The Lease shall be binding upon and inure to the benefit of the parties hereto, their legal representatives, permitted successors and assigns. THE PARTIES HERETO WAIVE ALL RIGHTS TO A JURY TRIAL IN ANY LITIGATION ARISING FROM OR RELATED IN ANY WAY TO THE AGREEMENT, LEASE, OR THE TRANSACTION CONTEMPLATED HEREBY. No waiver of any provision of the Lease shall be effective unless in writing, signed by the party to be charged. No failure to exercise, no delay in exercising, and no single or partial exercise on the part of Lessor of any right, remedy, or power under the Lease, shall operate as a waiver thereof or preclude Lessor from exercising any other right, remedy or power under the Lease. Any provision of the Lease which is unenforceable in any jurisdiction shall, -27- SIEMENS as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions of the Lease. The Lease, and all related documents, including (a) amendments, addenda, consents, waivers and modifications which may be executed contemporaneously therewith or subsequently thereto, (b) documents received by Lessor from the Lessee, and (c) financial statements, certificates and other information previously or subsequently furnished to Lessor, may be reproduced by Lessor by any photographic, photostatic, microfilm, microcard, miniature photographic, compact disk reproduction or other similar process and Lessor may destroy any original document so reproduced. Lessee waives all right to object to the admissibility of such reproduction and stipulates that any such reproduction shall, to the extent permitted by law, be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original itself is in existence and whether or not the reproduction was made by Lessor in the regular course of business) and that any enlargement, facsimile or further reproduction of the reproduction shall likewise be admissible in evidence. No action, regardless of form, arising out of the Lease may be brought by Lessee more than two (2) years after the cause of action has accrued. The representations, warranties, obligations and indemnities of Lessee under the Lease shall survive the termination of the Lease to the extent required for their full observance and performance. The obligations of each co-maker (if any) of the Lease, shall be primary, joint and several. In the event the Lease is deemed to be intended as security, Lessor shall have, to secure all payments and all other obligations of Lessee to Lessor under the Lease, a security interest in the Equipment together with all accessions, attachments, replacements, substitutions, modifications and additions thereto, now or hereafter acquired, and all proceeds thereof (including insurance proceeds). In the event that Lessee fails to meet any of its obligations under the Lease, Lessor may at its option satisfy such obligation and Lessee shall reimburse Lessor on demand therefor. In the event that legal or other action is required to enforce Lessor's rights under the Lease (including the exercise of remedies under Section 9 hereof), Lessee agrees to reimburse Lessor on demand for its reasonable attorneys' fees and its other related costs and expenses. The captions in the Lease are for convenience only and shall not define or limit any of the terms hereof. THE AGREEMENT AND THE LEASE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. -28- EX-10.10 10 EQUIPMENT LEASE AGREEMENTED DATED 6/17/99 EXHIBIT 10.10 LEASE AGREEMENT TO OUR VALUED CUSTOMER: This Lease has been written in "Plain English". When we use the words you and your in this Lease, we mean you, our customer, which is the Lessee indicated below. When we use the words we, us and our in this Lease, we mean Lessor, Newcourt Communications Finance Corporation. Our address is 2 Gatehall Drive, Parsippany, New Jersey 07054. Phone 1-800-527-9876.
CUSTOMER Lessee Name: Tax ID # INFORMATION ION NETWORKS, INC. 22-2413505 - ------------------------------------------------------------------------------------------------------------------------------------ Billing Street Address/City/County/State/Zip Phone No. Lease # 21 Meridian Road, Edison, NJ 08820 (732) 494-4440 X311220 - ------------------------------------------------------------------------------------------------------------------------------------ Equipment Location Street Address/City/State/Zip Phone No. Schedule # 48834 Kato Road, Fremont, CA 94538 ( ) 00010 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Exempt # - ------------------------------------------------------------------------------------------------------------------------------------ SUPPLIER Supplier Name ("Supplier") Phone No. INFORMATION LUCENT TECHNOLOGIES INC. (908) 463-2200 - ------------------------------------------------------------------------------------------------------------------------------------ Street Address/City/State/Zip 371 Hoes Lane, Piscataway, NJ 08864 - ------------------------------------------------------------------------------------------------------------------------------------ END OF (Check one applicable box. If no box is checked, the Fair Plus LEASE Market Value Purchase Option will apply.) Applicable [ ]Fair Market Value Purchase Option Taxes PURCHASE [X]Fixed Price Purchase Option of $1.00 OPTION [ ]Fixed Price Purchase Option of 0.0% of the Total Cash Price - ------------------------------------------------------------------------------------------------------------------------------------ TERM AND Lease Term (Months) Lease Payment Documentation You agree to pay at the time you sign Plus LEASE 60 $375.84 Fee this Lease: 1 Mos. $375.84 Total Advance Applicable PAYMENT Lease Payment. If more than one Lease Taxes SCHEDULE Payment is required in advance, the additional amount will be applied at the end of the original term. - ------------------------------------------------------------------------------------------------------------------------------------ EQUIPMENT Quantity Make/Model DESCRIPTION 1 MERLIN LEGEND - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INSURANCE & You are required to provide and maintain insurance related to the TAXES Equipment, and to pay any property, use and other taxes related to this Lease or the Equipment (See Sections 4 and 6 of this Lease.) If you are tax-exempt, you agree to furnish us with satisfactory evidence of your exemption. - -------------------------------------------------------------------------------- TERMS & CONDITONS 1. LEASE; DELIVERY AND ACCEPTANCE. You agree to lease the equipment described above (collectively, "Equipment") on the terms and conditions of this lease agreement ("Lease"). If you have entered into any purchase or supply contract ("Supply Contract") with any Supplier, you assign to us your rights under such Supply Contract, but none of your obligations (other than the obligation to pay for the equipment if it is accepted by you as stated below and you timely deliver to us such documents and assurances as we request). If you have not entered into a Supply Contract, you authorize us to enter into a Supply Contract on your behalf. You will arrange for the delivery of the Equipment to you. When you receive the Equipment, you agree to inspect it to determine if it is in good working order. This Lease will begin on the date when the Equipment is delivered to you and the Equipment will be deemed irrevocably accepted by you upon: a) the delivery to us of a signed Delivery and Acceptance Certificate (if requested by us); or b) 10 days after delivery of the Equipment to you if previously you have not given written notice to us of your non-acceptance. The first Lease Payment is due on or before the date the Equipment is delivered to you. The remaining Lease Payments will be due on the day of each subsequent month (or such other time period specified above) designated by us. You will make all payments required under this Lease to us at such address as we may specify in writing.. You authorize us to adjust the Lease Payment if the Total Cash Price (which is all amounts we have paid in connection with the purchase, delivery and installation of the Equipment, including any upgrade and buyout amounts) differs from the estimated Total Cash Price, specified by you (or on your behalf by the Supplier) in the credit application submitted to us. However, if the Total Cash Price exceeds the amount approved by us, we will not be obligated to purchase or lease the Equipment. If any Lease Payment or other amount payable to us is not paid within 10 days of its due date, you will pay us a late charge equal to the greater of (i) 5% of each late payment or (ii) $5.00 for each late payment (or such lesser amount as is the maximum amount allowable under applicable law). 2. NO WARRANTIES. We are leasing the Equipment to you "AS-IS". YOU ACKNOWLEDGE THAT WE DO NOT MANUFACTURE THE EQUIPMENT, WE DO NOT REPRESENT THE MANUFACTURER OR THE SUPPLIER, AND YOU HAVE SELECTED THE EQUIPMENT AND THE SUPPLIER BASED UPON YOUR OWN JUDGMENT. WE MAKE NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE. YOU AGREE THAT REGARDLESS OF CAUSE, WE ARE NOT RESPONSIBLE FOR AND YOU WILL NOT ASSERT ANY CLAIM AGAINST US FOR ANY DAMAGES, WHETHER CONSEQUENTIAL, DIRECT, SPECIAL, OR INDIRECT. YOU AGREE THAT NEITHER THE SUPPLIER NOR ANY SALESPERSON, EMPLOYEE OR AGENT OF THE SUPPLIER IS OUR AGENT OR HAS ANY AUTHORITY TO SPEAK FOR US OR TO BIND US IN ANY WAY. We transfer to you for the term of this Lease any warranties made by the manufacturer or the Supplier under a Supply Contract. (NOTE: Sections 3 through 16 of the Lease are on page 2.) - -------------------------------------------------------------------------------- BY SIGNING THIS LEASE: (i) YOU ACKNOWLEDGE THAT YOU HAVE READ AND UNDERSTAND ALL OF THE TERMS AND CONDITIONS OF THIS LEASE, WHICH IS DOCUMENTED ON OUR FORM LTPF-LA 8/98, (ii) YOU AGREE THAT IF A COPY OF THIS LEASE IS SIGNED BY YOU AND THE FRONT OF THE COPY IS DELIVERED TO US BY A FACSIMILE TRANSMISSION OR OTHERWISE, TO THE EXTENT ANY PROVISIONS ARE MISSING OR ILLEGIBLE OR CHANGED (AND NOT INITIALED BY BOTH YOU AND US), THE TERMS AND CONDITIONS OF OUR FORM LTPF-LA 8/98 IN USE ON THE DATE WE RECEIVE THE COPY SIGNED BY YOU WILL BE THE TERMS AND CONDITIONS OF THE LEASE, (iii) YOU AGREE THAT THIS LEASE IS A NET LEASE THAT YOU CANNOT TERMINATE OR CANCEL, YOU HAVE AN UNCONDITIONAL OBLIGATION TO MAKE ALL PAYMENTS DUE UNDER THIS LEASE, AND YOU CANNOT WITHHOLD, SETOFF OR REDUCE SUCH PAYMENTS FOR ANY REASON, (iv) YOU AGREE THAT YOU WILL USE THE EQUIPMENT ONLY FOR BUSINESS PURPOSES, (v) YOU WARRANT THAT THE PERSON SIGNING THIS LEASE FOR YOU HAS THE AUTHORITY TO DO SO AND TO GRANT THE POWER OF ATTORNEY SET FORTH IN SECTION 7 OF THIS LEASE, (vi) YOU CONFIRM THAT YOU HAVE DECIDED TO ENTER INTO THIS LEASE RATHER THAN PURCHASE THE EQUIPMENT FOR THE LOWER TOTAL CASH PRICE, AND (vii) YOU AGREE THAT THIS LEASE WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY. YOU CONSENT TO THE JURISDICTION OF ANY COURT LOCATED WITHIN THAT STATE. YOU AND WE EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY. ION NETWORKS, INC. NEWCOURT COMMUNICATIONS FINANCE CORPORATION (Lessee) (Lessor) X X -------------------------------- ------------------------------- Authorized Signature Authorized Signature -------------------------------- ------------------------------- Print Name and Title Date Print Name and Title Date 2 LEASE AGREEMENT - LTPF-LA 8/98 3. EQUIPMENT LOCATION; USE AND REPAIR; RETURN. You will keep and use the Equipment only at the Equipment Location shown on Page 1 of this Lease. You may not move the Equipment without our prior consent . At your own cost and expense, you will keep the Equipment eligible for any manufacturer's certification, in compliance with all applicable laws and in good repair, condition and working order, except for ordinary wear and tear. You will not make any alterations or replacements to the Equipment without our prior written consent. All alterations, additions and replacements will become part of the Equipment and our property at no cost or expense to us. We may inspect the Equipment at any reasonable time. Unless this Lease is renewed or you purchase the Equipment in accordance with this Lease, at the end of this Lease you will immediately deliver the Equipment to us in as good condition as when you received it, except for ordinary wear and tear, to any place in the United States that we tell you. You will pay all expenses of deinstalling, crating and shipping, and you will insure the Equipment for its full replacement value during shipping. 4. TAXES AND FEES. You will pay when due, either directly or to us upon our demand, all taxes, fines and penalties relating to this Lease or the Equipment that are now or in the future assessed or levied by any state, local or other government authority. We will file all personal property, use or other tax return (unless we notify you otherwise in writing) and you agree to pay us a fee for making such filings. We do not have to contest any taxes, fines or penalties. You will pay estimated property taxes with each Lease Payment or annually, as involved. 5. LOSS OR DAMAGE. As between you and us, you are responsible for any loss, theft or destruction of, or damage to, Equipment (collectively "Loss") from any and all causes at all, whether or not insured, until it is delivered to us at the end of the Lease. You are required to make all Lease Payments even if there is a loss. You must notify us in writing immediately of any Loss. Then, at our option, you will either (a) repair the Equipment so that it is in good condition and working order, eligible for any manufacturer's certification, or (b) pay us the amounts specified in Section 9(b) below. 6. INSURANCE. You will provide and maintain at your expense (a) property insurance against the loss, theft or destruction of, or damage to, the Equipment for its full replacement value, naming us as loss payee, and (b) public utility and third party property insurance, naming us as an additional insured. You will give us certificates or other evidence of such insurance when requested. Such insurance will be in a form, amount and with companies acceptable to us, and will provide that we will be given 30 days advance notice of any cancellation of material change of such insurance. If you do not give us evidence of insurance acceptable to us, we have the right, but not the obligation, to obtain insurance covering our interest in the Equipment for the term of this Lease, including any renewals or extensions, from an insurer (collectively, "Insurance Charge") to the amount due from you under this Lease. You will pay the Insurance Charge in equal installments allocated to the remaining Lease Payments. If we purchase insurance, you will cooperate with our insurance agent with respect to the placement of insurance and the processing of claims. Nothing in this Lease will create and insurance relationship of any type between us and any other person. You acknowledge that we are not required to secure or maintain any insurance, and we will no be liable to you if we terminate any insurance coverage that we arrange. If we replace or renew any insurance coverage, we are not obligated to provide replacement or renewal coverage under the same terms, costs, limits, or conditions as the previous coverage. 7. TITLE; RECORDING. We are the owner of and will hold title to the Equipment. You will keep the Equipment free of all liens and encumbrances. Unless the Purchase Option is $1.00, you agree that this transaction is a true lease.. However, if this transaction is deemed to be a lease intended for security, you grant us a purchase money security interest in the Equipment (including any replacements, substitutions, additions, attachments and proceeds). You will deliver to us signed financing statements or other documents we request to protect out interest in the Equipment. YOU AUTHORIZE US TO FILE A COPY OF THIS LEASE AS A FINANCING STATEMENT AND APPOINT US OR DESIGNEE AS YOUR ATTORNEY-IN-FACT TO EXECUTE AND FILE ON YOUR BEHALF, FINANCING STATEMENTS COVERING THE EQUIPMENT. 3 8. DEFAULT. Each of the following is s "Default" under this Lease: (a) you fail to pay any Lease Payment or any other payment within 10 days of its due date; (b) you do not perform any of your other obligations under this Lease or in any other agreement with us or with any of our affiliates and this failure continues for 10 days after we have notified you of it; (c) you become insolvent, you dissolve or are dissolved, or you assign your assets for the benefit of your creditors, or enter (voluntarily or involuntarily) any bankruptcy or reorganization proceeding, or (d) any guarantor of this Lease dies, does not perform its obligations under the guaranty, or becomes subject to one of the events listed in clause (c) above. 9. REMEDIES. If a Default occurs, we may do one or more of the following: (a) we may cancel or terminate this Lease or any and all other agreement that we have entered into with you or withdraw any offer of credit; (b) we may require you to immediately pay us, as compensation for loss of our bargain and not as a penalty, a sum equal to (i) the present value of all unpaid Lease Payments for the remainder of the term plus the present value of our anticipated residual interest in the Equipment, each discounted at 5% per year, compounded monthly, plus (ii) all other amounts due or that become due under this Lease: (c) we may require you to deliver the Equipment to us as set forth in Section 3; (d) we or our agent may peacefully repossess the Equipment without court order and you will not make any claims against us for damages or trespass or any other reason; and (e) we may exercise any other right or remedy available at law or in equity. You agree to pay all our costs of enforcing our rights against you under, including reasonable attorneys' fees. If we take possession of the Equipment, we may sell or otherwise dispose of it with or without notice, at a public or a private sale, and apply the net proceeds (after we have deducted all costs related to the sale or disposition of the Equipment) to the amounts that you owe us. You agree that if notice of sale is required by law to be given, 10 days' notice will constitute reasonable notice. You will remain responsible for any amounts that are due after we have applied such net proceeds. 10. FINANCE LEASE STATUS. You agree that if Article 2A-Leases of the Uniform Commercial Code applies to this Lease, this Lease will be considered a "finance lease" as that term is defined in Article 2A. By signing this Lease, you agree that either (a) you have reviewed, approved, and received, a copy of the Supply Contract or (b) that we have informed you of the identity of the Supplier, that you may have rights under Supply Contract, and that you may contact the Supplier for a description of those rights. TO THE EXTENT PERMITTED BY APPLICABLE LAW, YOU WAIVE ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE BY ARTICLE 2A. 11. ASSIGNMENT. YOU MAY NOT ASSIGN, SELL, TRANSFER OR SUBLEASE THE EQUIPMENT OR YOUR INTEREST N THIS LEASE. We may, without notifying you, sell, assign, or transfer this Lease or our rights in this Equipment. You agree that the new owner will have the same rights and benefits that we now have under this Lease but not our obligations. The rights of the new owner will not be subject to any claim, defense or set off that ou may have against us. 12. PURCHASE OPTION; AUTOMATIC RENEWAL. If no default exists under this Lease, you will have the option at the end of the original or any renewal terms to purchase all (but not less than all) of the Equipment at the Purchase Option price shown on Page 1 of this Lease, plus any applicable taxes. Unless the Purchase Option Price is $1.00, you must give us at least 30 days written notice before the end of the original term that you will purchase the Equipment or that you will deliver the Equipment to us. If you do not give us such written notice or if you do not purchase or deliver the Equipment in accordance with the terms and conditions of this Lease, this Lease will automatically renew for an additional 12 month renewal term and thereafter renew for successive one month terms until you deliver the Equipment to us. During such renewal(s) the Lease Payment will remain the same. We may cancel an automatic renewal term by sending you written notice 10 days prior to such renewal term. If Fair Market Value Purchase Price Option has been selected, we will use our reasonable judgment to determine the Equipment's fair market value. If you do not agree with our determination of the Equipment's fair market value, the fair market value (on a retail basis) will be determined at your expense by an independent appraiser selected by us. Upon payment of the Purchase Option price, we will transfer our interest in the Equipment to you "AS IS, WHERE IS" without any representation or warranty whatsoever and this Lease will terminate. 4 13. INDEMNIFICATION. You are responsible for any losses, damages, penalties, claims, suits and actions (collectively "Claims"), whether based on a theory of strict liability or otherwise caused by or related to (a) the manufacture, installation, ownership, use, lease, possession, or delivery of the Equipment, or (b) any defects in the Equipment. You agree to reimburse us for, and if we request to defend against, any Claims. 14. CREDIT INFORMATION. YOU AUTHORIZE US OR ANY OF OUR AFFILIATES TO OBTAIN CREDIT BUREAU REPORTS, AND MAKE OTHER CREDIT INQUIRIES THAT WE DETERMINE ARE NECESSARY. ON YOUR WRITTEN REQUEST, WE WILL INFORM YOU WHETHER WE HAVE REQUESTED A CONSUMER CREDIT REPORT AND THE NAME AND ADDRESS OF ANY CONSUMER CREDIT REPORTING AGENCY THAT FURNISHED A REPORT. YOU ACKNOWLEDGE THAT WITHOUT FURTHER NOTICE WE MAY USE OR REQUEST ADDITIONAL CREDIT BUREAU REPORTS TO UPDATE OUR INFORMATION SO LONG AS YOU OBLIGATIONS TO US ARE OUTSTANDING. 15. LEASING ADDITIONAL EQUIPMENT. You may request us to lease additional equipment ("Additional Equipment") to you by sending a purchase order or by contacting us or the Supplier by telephone or in writing. If we agree to Lease such Additional Equipment to you, we will signify our agreement by preparing and sending to you a writing ("Additional Lease") describing the Additional Equipment and specifying the amount and frequency of the Lease Payments, the Lease Term, the Purchase Option and such other terms and conditions that apply to each such lease. YOU AGREE THAT IF WE DO NOT RECEIVE A WRITTEN OBJECTION TO THE ADDITIONAL LEASE FROM YOU WITHIN 10 DAYS AFTER THE DATE OF THE ADDITIONAL LEASE, SUCH ADDITIONAL LEASE SHALL BE GOVERNED BY ALL OF THE TERMS AND CONDITIONS OF THIS LEASE. 16. MISCELLANEOUS. You agree that the terms and conditions contained in this Lease make up the entire agreement between you and us regarding the lease of the Equipment. This Lease is not binding on us until we sign it. Any change in any of the terms and conditions of this Lease must be signed in writing by us. You agree, however, that we are authorized, without notice to you, to supply missing information or correct obvious errors in this Lease. If we delay or fail to enforce any of our rights under this Lease, we will still be entitled to enforce those rights at a later time. All notices shall be given in writing by the party sending the notice and shall be effective when deposited in the U.S. Mail, addressed to the party receiving the notice at its address shown on Page 1 of this Lease (or to any other address specified by that party in writing) with first class postage prepaid. All of our rights and indemnities will survive the termination of this Lease. It is the express intent of the parties not to violate any applicable usury laws or to exceed the maximum amount of time price differential or interest, as applicable, permitted to be charged or collected by applicable law, and any such excess payment will be applied to Lease Payments in inverse order of maturity, and any remaining excess will be refunded to you. If you do not perform any of your obligations under this Lease, we have the right, but not the obligation, to take any action or pay any amounts that we believe are necessary to protect our interests. You agree to reimburse us immediately upon our demand for any such amounts that we pay. IF A SIGNED COPY OF THIS LEASE IS DELIVERED TO US BY FACSIMILE TRANSMISSION, IT WILL BE BINDING ON YOU. HOWEVER, WE WILL NOT BE BOUND BY THIS LEASE UNTIL WE ACCEPT IT MANUALLY BY SIGNING IT OR BY PURCHASING THE EQUIPMENT SUBJECT TO THE LEASE, WHICHEVER OCCURS FIRST. YOU WAIVE NOTICE OF OUR ACCEPTANCE AND WAIVE YOUR RIGHT TO RECEIVE A COPY OF THE ACCEPTED LEASE. YOU AGREE, THAT, NOTWITHSTANDING ANY RULE OF EVIDENCE TO THE CONTRARY, IN ANY HEARING, TRIAL OR PROCESSING OF ANY SUCH KIND WITH RESPECT TO THIS LEASE, WE MAY PRODUCE A COPY OF THE LEASE, WE MAY PRODUCE A COPY OF THE LEASE TRANSMITTED TO US BY FACSIMILE TRANSMISSION THAT HAS BEEN MANUALLY SIGNED BY US AND SUCH SIGNED COPY SHALL BE DEEMED TO BE THE ORIGINAL OF THIS LEASE. TO THE EXTENT (IF ANY) THAT THIS LEASE CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COPY OR COUNTERPART HEREOF EXCEPT THE COPY WITH OUR ORIGINAL SIGNATURE. IF YOU DELIVER THIS LEASE TO US BY FACSIMILE TRANSMISSION, YOU ACKNOWLEDGE THAT WE ARE RELYING ON YOUR REPRESENTATION THAT THIS LEASE HAS NOT BEEN CHANGED. If you are a tax-exempt entity as defined in Section 168(h)(2) of the Internal revenue Code and you have selected a Fair Market Value Purchase Option, the term of this Lease, including any renewals or extensions, will not exceed a total of 60 months. If more than one Lessee has signed this Lease, each of you agree that you liability is joint and several. 5 LEASE AGREEMENT TO OUR VALUED CUSTOMER: This Lease has been written in "Plain English". When we use the words you and your in this Lease, we mean you, our customer, which is the Lessee indicated below. When we use the words we, us and our in this Lease, we mean Lessor, Newcourt Communications Finance Corporation. Our address is 2 Gatehall Drive, Parsippany, New Jersey 07054. Phone 1-800-527-9876.
CUSTOMER Lessee Name: Tax ID # INFORMATION ION NETWORKS, INC. 22-2413505 - ------------------------------------------------------------------------------------------------------------------------------------ Billing Street Address/City/County/State/Zip Phone No. Lease # 21 Meridian Road, Edison, NJ 08820 (732) 494-4440 X311220 - ------------------------------------------------------------------------------------------------------------------------------------ Equipment Location Street Address/City/State/Zip Phone No. Schedule # 48834 Kato Road, Fremont, CA 94538 ( ) 00010 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Exempt # - ------------------------------------------------------------------------------------------------------------------------------------ SUPPLIER Supplier Name ("Supplier") Phone No. INFORMATION LUCENT TECHNOLOGIES INC. (908) 463-2200 - ------------------------------------------------------------------------------------------------------------------------------------ Street Address/City/State/Zip 371 Hoes Lane, Piscataway, NJ 08864 - ------------------------------------------------------------------------------------------------------------------------------------ END OF (Check one applicable box. If no box is checked, the Fair Plus LEASE Market Value Purchase Option will apply.) Applicable [ ]Fair Market Value Purchase Option Taxes PURCHASE [X]Fixed Price Purchase Option of $1.00 OPTION [ ]Fixed Price Purchase Option of 0.0% of the Total Cash Price - ------------------------------------------------------------------------------------------------------------------------------------ TERM AND Lease Term (Months) Lease Payment Documentation You agree to pay at the time you sign Plus LEASE 60 $375.84 Fee this Lease: 1 Mos. $375.84 Total Advance Applicable PAYMENT Lease Payment. If more than one Lease Taxes SCHEDULE Payment is required in advance, the additional amount will be applied at the end of the original term. - ------------------------------------------------------------------------------------------------------------------------------------ EQUIPMENT Quantity Make/Model DESCRIPTION 1 DEFINITY G3SI - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INSURANCE & You are required to provide and maintain insurance related to the TAXES Equipment, and to pay any property, use and other taxes related to this Lease or the Equipment (See Sections 4 and 6 of this Lease.) If you are tax-exempt, you agree to furnish us with satisfactory evidence of your exemption. - -------------------------------------------------------------------------------- TERMS & CONDITONS 1. LEASE; DELIVERY AND ACCEPTANCE. You agree to lease the equipment described above (collectively, "Equipment") on the terms and conditions of this lease agreement ("Lease"). If you have entered into any purchase or supply contract ("Supply Contract") with any Supplier, you assign to us your rights under such Supply Contract, but none of your obligations (other than the obligation to pay for the equipment if it is accepted by you as stated below and you timely deliver to us such documents and assurances as we request). If you have not entered into a Supply Contract, you authorize us to enter into a Supply Contract on your behalf. You will arrange for the delivery of the Equipment to you. When you receive the Equipment, you agree to inspect it to determine if it is in good working order. This Lease will begin on the date when the Equipment is delivered to you and the Equipment will be deemed irrevocably accepted by you upon: a) the delivery to us of a signed Delivery and Acceptance Certificate (if requested by us); or b) 10 days after delivery of the Equipment to you if previously you have not given written notice to us of your non-acceptance. The first Lease Payment is due on or before the date the Equipment is delivered to you. The remaining Lease Payments will be due on the day of each subsequent month (or such other time period specified above) designated by us. You will make all payments required under this Lease to us at such address as we may specify in writing.. You authorize us to adjust the Lease Payment if the Total Cash Price (which is all amounts we have paid in connection with the purchase, delivery and installation of the Equipment, including any upgrade and buyout amounts) differs from the estimated Total Cash Price, specified by you (or on your behalf by the Supplier) in the credit application submitted to us. However, if the Total Cash Price exceeds the amount approved by us, we will not be obligated to purchase or lease the Equipment. If any Lease Payment or other amount payable to us is not paid within 10 days of its due date, you will pay us a late charge equal to the greater of (i) 5% of each late payment or (ii) $5.00 for each late payment (or such lesser amount as is the maximum amount allowable under applicable law). 6 2. NO WARRANTIES. We are leasing the Equipment to you "AS-IS". YOU ACKNOWLEDGE THAT WE DO NOT MANUFACTURE THE EQUIPMENT, WE DO NOT REPRESENT THE MANUFACTURER OR THE SUPPLIER, AND YOU HAVE SELECTED THE EQUIPMENT AND THE SUPPLIER BASED UPON YOUR OWN JUDGMENT. WE MAKE NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE. YOU AGREE THAT REGARDLESS OF CAUSE, WE ARE NOT RESPONSIBLE FOR AND YOU WILL NOT ASSERT ANY CLAIM AGAINST US FOR ANY DAMAGES, WHETHER CONSEQUENTIAL, DIRECT, SPECIAL, OR INDIRECT. YOU AGREE THAT NEITHER THE SUPPLIER NOR ANY SALESPERSON, EMPLOYEE OR AGENT OF THE SUPPLIER IS OUR AGENT OR HAS ANY AUTHORITY TO SPEAK FOR US OR TO BIND US IN ANY WAY. We transfer to you for the term of this Lease any warranties made by the manufacturer or the Supplier under a Supply Contract. (NOTE: Sections 3 through 16 of the Lease are on page 2.) - -------------------------------------------------------------------------------- BY SIGNING THIS LEASE: (i) YOU ACKNOWLEDGE THAT YOU HAVE READ AND UNDERSTAND ALL OF THE TERMS AND CONDITIONS OF THIS LEASE, WHICH IS DOCUMENTED ON OUR FORM LTPF-LA 8/98, (ii) YOU AGREE THAT IF A COPY OF THIS LEASE IS SIGNED BY YOU AND THE FRONT OF THE COPY IS DELIVERED TO US BY A FACSIMILE TRANSMISSION OR OTHERWISE, TO THE EXTENT ANY PROVISIONS ARE MISSING OR ILLEGIBLE OR CHANGED (AND NOT INITIALED BY BOTH YOU AND US), THE TERMS AND CONDITIONS OF OUR FORM LTPF-LA 8/98 IN USE ON THE DATE WE RECEIVE THE COPY SIGNED BY YOU WILL BE THE TERMS AND CONDITIONS OF THE LEASE, (iii) YOU AGREE THAT THIS LEASE IS A NET LEASE THAT YOU CANNOT TERMINATE OR CANCEL, YOU HAVE AN UNCONDITIONAL OBLIGATION TO MAKE ALL PAYMENTS DUE UNDER THIS LEASE, AND YOU CANNOT WITHHOLD, SETOFF OR REDUCE SUCH PAYMENTS FOR ANY REASON, (iv) YOU AGREE THAT YOU WILL USE THE EQUIPMENT ONLY FOR BUSINESS PURPOSES, (v) YOU WARRANT THAT THE PERSON SIGNING THIS LEASE FOR YOU HAS THE AUTHORITY TO DO SO AND TO GRANT THE POWER OF ATTORNEY SET FORTH IN SECTION 7 OF THIS LEASE, (vi) YOU CONFIRM THAT YOU HAVE DECIDED TO ENTER INTO THIS LEASE RATHER THAN PURCHASE THE EQUIPMENT FOR THE LOWER TOTAL CASH PRICE, AND (vii) YOU AGREE THAT THIS LEASE WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY. YOU CONSENT TO THE JURISDICTION OF ANY COURT LOCATED WITHIN THAT STATE. YOU AND WE EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY. ION NETWORKS, INC. NEWCOURT COMMUNICATIONS FINANCE CORPORATION (Lessee) (Lessor) X X -------------------------------- ------------------------------- Authorized Signature Authorized Signature -------------------------------- ------------------------------- Print Name and Title Date Print Name and Title Date 7 LEASE AGREEMENT - LTPF-LA 8/98 3. EQUIPMENT LOCATION; USE AND REPAIR; RETURN. You will keep and use the Equipment only at the Equipment Location shown on Page 1 of this Lease. You may not move the Equipment without our prior consent . At your own cost and expense, you will keep the Equipment eligible for any manufacturer's certification, in compliance with all applicable laws and in good repair, condition and working order, except for ordinary wear and tear. You will not make any alterations or replacements to the Equipment without our prior written consent. All alterations, additions and replacements will become part of the Equipment and our property at no cost or expense to us. We may inspect the Equipment at any reasonable time. Unless this Lease is renewed or you purchase the Equipment in accordance with this Lease, at the end of this Lease you will immediately deliver the Equipment to us in as good condition as when you received it, except for ordinary wear and tear, to any place in the United States that we tell you. You will pay all expenses of deinstalling, crating and shipping, and you will insure the Equipment for its full replacement value during shipping. 4. TAXES AND FEES. You will pay when due, either directly or to us upon our demand, all taxes, fines and penalties relating to this Lease or the Equipment that are now or in the future assessed or levied by any state, local or other government authority. We will file all personal property, use or other tax return (unless we notify you otherwise in writing) and you agree to pay us a fee for making such filings. We do not have to contest any taxes, fines or penalties. You will pay estimated property taxes with each Lease Payment or annually, as involved. 5. LOSS OR DAMAGE. As between you and us, you are responsible for any loss, theft or destruction of, or damage to, Equipment (collectively "Loss") from any and all causes at all, whether or not insured, until it is delivered to us at the end of the Lease. You are required to make all Lease Payments even if there is a loss. You must notify us in writing immediately of any Loss. Then, at our option, you will either (a) repair the Equipment so that it is in good condition and working order, eligible for any manufacturer's certification, or (b) pay us the amounts specified in Section 9(b) below. 6. INSURANCE. You will provide and maintain at your expense (a) property insurance against the loss, theft or destruction of, or damage to, the Equipment for its full replacement value, naming us as loss payee, and (b) public utility and third party property insurance, naming us as an additional insured. You will give us certificates or other evidence of such insurance when requested. Such insurance will be in a form, amount and with companies acceptable to us, and will provide that we will be given 30 days advance notice of any cancellation of material change of such insurance. If you do not give us evidence of insurance acceptable to us, we have the right, but not the obligation, to obtain insurance covering our interest in the Equipment for the term of this Lease, including any renewals or extensions, from an insurer (collectively, "Insurance Charge") to the amount due from you under this Lease. You will pay the Insurance Charge in equal installments allocated to the remaining Lease Payments. If we purchase insurance, you will cooperate with our insurance agent with respect to the placement of insurance and the processing of claims. Nothing in this Lease will create and insurance relationship of any type between us and any other person. You acknowledge that we are not required to secure or maintain any insurance, and we will no be liable to you if we terminate any insurance coverage that we arrange. If we replace or renew any insurance coverage, we are not obligated to provide replacement or renewal coverage under the same terms, costs, limits, or conditions as the previous coverage. 7. TITLE; RECORDING. We are the owner of and will hold title to the Equipment. You will keep the Equipment free of all liens and encumbrances. Unless the Purchase Option is $1.00, you agree that this transaction is a true lease.. However, if this transaction is deemed to be a lease intended for security, you grant us a purchase money security interest in the Equipment (including any replacements, substitutions, additions, attachments and proceeds). You will deliver to us signed financing statements or other documents we request to protect out interest in the Equipment. YOU AUTHORIZE US TO FILE A COPY OF THIS LEASE AS A FINANCING STATEMENT AND APPOINT US OR DESIGNEE AS YOUR ATTORNEY-IN-FACT TO EXECUTE AND FILE ON YOUR BEHALF, FINANCING STATEMENTS COVERING THE EQUIPMENT. 8 8. DEFAULT. Each of the following is s "Default" under this Lease: (a) you fail to pay any Lease Payment or any other payment within 10 days of its due date; (b) you do not perform any of your other obligations under this Lease or in any other agreement with us or with any of our affiliates and this failure continues for 10 days after we have notified you of it; (c) you become insolvent, you dissolve or are dissolved, or you assign your assets for the benefit of your creditors, or enter (voluntarily or involuntarily) any bankruptcy or reorganization proceeding, or (d) any guarantor of this Lease dies, does not perform its obligations under the guaranty, or becomes subject to one of the events listed in clause (c) above. 9. REMEDIES. If a Default occurs, we may do one or more of the following: (a) we may cancel or terminate this Lease or any and all other agreement that we have entered into with you or withdraw any offer of credit; (b) we may require you to immediately pay us, as compensation for loss of our bargain and not as a penalty, a sum equal to (i) the present value of all unpaid Lease Payments for the remainder of the term plus the present value of our anticipated residual interest in the Equipment, each discounted at 5% per year, compounded monthly, plus (ii) all other amounts due or that become due under this Lease: (c) we may require you to deliver the Equipment to us as set forth in Section 3; (d) we or our agent may peacefully repossess the Equipment without court order and you will not make any claims against us for damages or trespass or any other reason; and (e) we may exercise any other right or remedy available at law or in equity. You agree to pay all our costs of enforcing our rights against you under, including reasonable attorneys' fees. If we take possession of the Equipment, we may sell or otherwise dispose of it with or without notice, at a public or a private sale, and apply the net proceeds (after we have deducted all costs related to the sale or disposition of the Equipment) to the amounts that you owe us. You agree that if notice of sale is required by law to be given, 10 days' notice will constitute reasonable notice. You will remain responsible for any amounts that are due after we have applied such net proceeds. 10. FINANCE LEASE STATUS. You agree that if Article 2A-Leases of the Uniform Commercial Code applies to this Lease, this Lease will be considered a "finance lease" as that term is defined in Article 2A. By signing this Lease, you agree that either (a) you have reviewed, approved, and received, a copy of the Supply Contract or (b) that we have informed you of the identity of the Supplier, that you may have rights under Supply Contract, and that you may contact the Supplier for a description of those rights. TO THE EXTENT PERMITTED BY APPLICABLE LAW, YOU WAIVE ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE BY ARTICLE 2A. 11. ASSIGNMENT. YOU MAY NOT ASSIGN, SELL, TRANSFER OR SUBLEASE THE EQUIPMENT OR YOUR INTEREST N THIS LEASE. We may, without notifying you, sell, assign, or transfer this Lease or our rights in this Equipment. You agree that the new owner will have the same rights and benefits that we now have under this Lease but not our obligations. The rights of the new owner will not be subject to any claim, defense or set off that ou may have against us. 12. PURCHASE OPTION; AUTOMATIC RENEWAL. If no default exists under this Lease, you will have the option at the end of the original or any renewal terms to purchase all (but not less than all) of the Equipment at the Purchase Option price shown on Page 1 of this Lease, plus any applicable taxes. Unless the Purchase Option Price is $1.00, you must give us at least 30 days written notice before the end of the original term that you will purchase the Equipment or that you will deliver the Equipment to us. If you do not give us such written notice or if you do not purchase or deliver the Equipment in accordance with the terms and conditions of this Lease, this Lease will automatically renew for an additional 12 month renewal term and thereafter renew for successive one month terms until you deliver the Equipment to us. During such renewal(s) the Lease Payment will remain the same. We may cancel an automatic renewal term by sending you written notice 10 days prior to such renewal term. If Fair Market Value Purchase Price Option has been selected, we will use our reasonable judgment to determine the Equipment's fair market value. If you do not agree with our determination of the Equipment's fair market value, the fair market value (on a retail basis) will be determined at your expense by an independent appraiser selected by us. Upon payment of the Purchase Option price, we will transfer our interest in the Equipment to you "AS IS, WHERE IS" without any representation or warranty whatsoever and this Lease will terminate. 9 13. INDEMNIFICATION. You are responsible for any losses, damages, penalties, claims, suits and actions (collectively "Claims"), whether based on a theory of strict liability or otherwise caused by or related to (a) the manufacture, installation, ownership, use, lease, possession, or delivery of the Equipment, or (b) any defects in the Equipment. You agree to reimburse us for, and if we request to defend against, any Claims. 14. CREDIT INFORMATION. YOU AUTHORIZE US OR ANY OF OUR AFFILIATES TO OBTAIN CREDIT BUREAU REPORTS, AND MAKE OTHER CREDIT INQUIRIES THAT WE DETERMINE ARE NECESSARY. ON YOUR WRITTEN REQUEST, WE WILL INFORM YOU WHETHER WE HAVE REQUESTED A CONSUMER CREDIT REPORT AND THE NAME AND ADDRESS OF ANY CONSUMER CREDIT REPORTING AGENCY THAT FURNISHED A REPORT. YOU ACKNOWLEDGE THAT WITHOUT FURTHER NOTICE WE MAY USE OR REQUEST ADDITIONAL CREDIT BUREAU REPORTS TO UPDATE OUR INFORMATION SO LONG AS YOU OBLIGATIONS TO US ARE OUTSTANDING. 15. LEASING ADDITIONAL EQUIPMENT. You may request us to lease additional equipment ("Additional Equipment") to you by sending a purchase order or by contacting us or the Supplier by telephone or in writing. If we agree to Lease such Additional Equipment to you, we will signify our agreement by preparing and sending to you a writing ("Additional Lease") describing the Additional Equipment and specifying the amount and frequency of the Lease Payments, the Lease Term, the Purchase Option and such other terms and conditions that apply to each such lease. YOU AGREE THAT IF WE DO NOT RECEIVE A WRITTEN OBJECTION TO THE ADDITIONAL LEASE FROM YOU WITHIN 10 DAYS AFTER THE DATE OF THE ADDITIONAL LEASE, SUCH ADDITIONAL LEASE SHALL BE GOVERNED BY ALL OF THE TERMS AND CONDITIONS OF THIS LEASE. 16. MISCELLANEOUS. You agree that the terms and conditions contained in this Lease make up the entire agreement between you and us regarding the lease of the Equipment. This Lease is not binding on us until we sign it. Any change in any of the terms and conditions of this Lease must be signed in writing by us. You agree, however, that we are authorized, without notice to you, to supply missing information or correct obvious errors in this Lease. If we delay or fail to enforce any of our rights under this Lease, we will still be entitled to enforce those rights at a later time. All notices shall be given in writing by the party sending the notice and shall be effective when deposited in the U.S. Mail, addressed to the party receiving the notice at its address shown on Page 1 of this Lease (or to any other address specified by that party in writing) with first class postage prepaid. All of our rights and indemnities will survive the termination of this Lease. It is the express intent of the parties not to violate any applicable usury laws or to exceed the maximum amount of time price differential or interest, as applicable, permitted to be charged or collected by applicable law, and any such excess payment will be applied to Lease Payments in inverse order of maturity, and any remaining excess will be refunded to you. If you do not perform any of your obligations under this Lease, we have the right, but not the obligation, to take any action or pay any amounts that we believe are necessary to protect our interests. You agree to reimburse us immediately upon our demand for any such amounts that we pay. IF A SIGNED COPY OF THIS LEASE IS DELIVERED TO US BY FACSIMILE TRANSMISSION, IT WILL BE BINDING ON YOU. HOWEVER, WE WILL NOT BE BOUND BY THIS LEASE UNTIL WE ACCEPT IT MANUALLY BY SIGNING IT OR BY PURCHASING THE EQUIPMENT SUBJECT TO THE LEASE, WHICHEVER OCCURS FIRST. YOU WAIVE NOTICE OF OUR ACCEPTANCE AND WAIVE YOUR RIGHT TO RECEIVE A COPY OF THE ACCEPTED LEASE. YOU AGREE, THAT, NOTWITHSTANDING ANY RULE OF EVIDENCE TO THE CONTRARY, IN ANY HEARING, TRIAL OR PROCESSING OF ANY SUCH KIND WITH RESPECT TO THIS LEASE, WE MAY PRODUCE A COPY OF THE LEASE, WE MAY PRODUCE A COPY OF THE LEASE TRANSMITTED TO US BY FACSIMILE TRANSMISSION THAT HAS BEEN MANUALLY SIGNED BY US AND SUCH SIGNED COPY SHALL BE DEEMED TO BE THE ORIGINAL OF THIS LEASE. TO THE EXTENT (IF ANY) THAT THIS LEASE CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COPY OR COUNTERPART HEREOF EXCEPT THE COPY WITH OUR ORIGINAL SIGNATURE. IF YOU DELIVER THIS LEASE TO US BY FACSIMILE TRANSMISSION, YOU ACKNOWLEDGE THAT WE ARE RELYING ON YOUR REPRESENTATION THAT THIS LEASE HAS NOT BEEN CHANGED. If you are a tax-exempt entity as defined in Section 168(h)(2) of the Internal revenue Code and you have selected a Fair Market Value Purchase Option, the term of this Lease, including any renewals or extensions, will not exceed a total of 60 months. If more than one Lessee has signed this Lease, each of you agree that you liability is joint and several. 10 BCS-003 Lucent Technologies (8/98) Equipment Agreement - -------------------------------------------------------------------------------- Customer Name |LUCENT TECHNOLOGIES INC. |Equipment Agreement No. ION Networks | |BCS-3- - ------------------------------|-------------------------|----------------------- Billing Address |Contact |Transaction Description 1551 Washington Avenue |Dean DeStefano | - ------------------------------|-------------------------| City State Zip Code |Telephone No. | Piscataway NJ 08854 |732-271-2978 | - ------------------------------|-------------------------|----------------------- Customer Indentification |Branch Code |Scheduled Instal./ 023 722 3516 |GBSBDX04 |Deliv. Date | |JULY 1999
- ------------------------------------------------------------------------------------------------------------------------------------ Transaction Details (See Legend Below) - ------------------------------------------------------------------------------------------------------------------------------------ Term In Post Purchase Length/ Warr. Warr Price/SPP Term Product/Service Price Prod. Wrn'ty Trans. Maint Maint Payment/ Installation Plan/Monthly SPP Description Element Code Qty. Status Length Type Type. Type License Fee Charges Charge Charge - ------------------------------------------------------------------------------------------------------------------------------------ 715BCS TERM W 6950-ET7 1 650.29 60.00 5MDW9030+HYB1 3204-DJS 1 4,088.07 392.00 DXS BLACK 32318 1 713.79 40.00 302B1 CONSOLE 3274-10B 1 1,362.59 140.00 6408D+ D 80 S 3304-8SG 100 26,901.00 4,000.00 6416D+ D 16B 3306-16G 20 6,615.00 800.00 PRT SENS SFW 1272-CSE 2 5,191.20 0.00 R6S1 VAS RTU 1272-S16 1 9,409.05 550.00 ECS TELCOMTG 1272-TM3 1 1,265.67 200.00 SAT CABLE H60 2725-18C 1 13.85 6.00 3003VAUPS/208 2403-517 1 2,530.71 275.00 - ------------------------------------------------------------------------------------------------------------------------------------ LeaseFinancing Notice: Third-party lease/financing Subtotals This Page of Products acquired under this Agreement may -------------------------------------------------------------------------------- require you to transfer your ownership of Prod- Subtotal From ______ ucts to the lessor and you (the lessee) may only Attached Page(s) have the right to repurchase the products at the -------------------------------------------------------------------------------- end of the lease term, e.g., for the product's fair market value. - ------------------------------------------------------------------------------------------------------------------------------------ Advance-Payment Schedule Service Protection For Product Plan (SPP) Subtotals 176,293.69 56,691.00 - ------------------------------------------------------------------------------------------------------------------------------------ By Contract ---- Duration in years Execution $___________ Date [ ] Monthly payment Plan (Price shown in SPP Charge Plus column is a recurring monthly charge Shipping Charge 2,151.34 $___________ By Install/ -------------------------------------------------------------------------------- Deliv. Date [ ] Prepayment Plan Service Charge -------------------------------------------------------------------------------- $___ Prepayment Amount Other Charges 176,293.69 68,842.34 Due on invoice -------------------------------------------------------------------------------- Credits ( ) ( ) ( ) ( ) -------------------------------------------------------------------------------- Grand Totals Taxes Not Included - ------------------------------------------------------------------------------------------------------------------------------------ ADDITIONAL REMARKS/CONTRACTUAL PROVISIONS - ------------------------------------------------------------------------------------------------------------------------------------ LUCENT TECHNOLOGIES SERVICE PROTECTION PLAN: If you have initiated the box at the right, you are CUSTOMER REP. INITIALS acknowledging your selection of the Service Protection Plan (SPP) and any options specified above. You also are acknowledging your receipt of the Lucent Technologies Service Protection Plan document reference on the back of this Agreement. - ------------------------------------------------------------------------------------------------------------------------------------ 11 YOUR SIGNATURE ACKNOWLEDGES THAT YOU HAVE READ AND UNDERSTAND EACH OF THE TERMS AND CONDITIONS ON THE FRONT AND REVERSE SIDE OF THIS AGREEMENT INCLUDING THE LIMITED WARRANTY, WARRANTY DISCLAIMERS AND LIMITATION OF LIABILITY. THESE TERMS AND CONDITIONS WILL ALSO APPLY TO ANY SUBSEQUENT ORDERS, ORAL OR WRITTEN, ACCEPTED BY LUCENT. YOUR SIGNATURE ALSO AUTHORIZED LUCENT TO REQUEST CREDIT INFORMATION FROM ART CREDIT REPORTING AGENCY OR SOURCE, ACCEPTANCE BY LUCENT IS SUBJECT TO CREDIT APPROVAL. - ------------------------------------------------------------------------------------------------------------------------------------ Customer Lucent Technologies Inc. By: ______________________________________________ Accepted By:______________________________________ (Authorized Customer Representative's Sign(Date) __________________________________________________ __________________________________________________ (Typed or Printed Name) (Typed or Printed Name) __________________________________________________ __________________________________________________ (Title) (Date) __________________________________________________ __________________________________________________ (Product Location Address) (Lucent Address) __________________________________________________ __________________________________________________ (City) (State) (Zip) (City) (State) (Zip) - ------------------------------------------------------------------------------------------------------------------------------------ Legend Term Length/ In Warranty/Term Post Warranty Product Status Warranty Length Transaction Type Plan Maint. Type Maint. Type - -------------- --------------- ---------------- ---------------- ------------- K-Other A-One Year J None F-Other A-SPP N-Not Applicable B-90 Days K Other G-Business Day C-Other U-Used/Return/Remanufactured J-None L Software License H-Around-the -Clock D-Business Day W-New K-Other N Not Applicable J-None E-Around-The-Clock N-Not Applicable PUR Purchase N-Not Applicable J-None T-Two Year MNT Post warranty Maint. only W-SPP N-Not Applicable 001 Month To Month - ------------------------------------------------------------------------------------------------------------------------------------ (C) 1996 Lucent Technologies Retention Requirement Preparer - 6 yrs After Cancellation or Expiration Distribute to: [ ]Part 1 (Original) [ ]Part 2 (Office Copy) [ ]Part 3 (Customer ______) [ ]Part 4 (Customer Preliminary)
12 EX-10.11 11 EMPLOYMENT AGREEMENT EXHIBIT 10.11 MICROFRAME - -------------------------------------------------------------------------------- MicroFrame, Inc., 21 Meridian Road, Edison, New Jersey 08820 Tel. (732) 494-4440 Fax (732) 494-4570 To: Stephen B. Gray From: Stephen Deixler Date: April 1, 1998 RE: FY99 compensation package The following will be the terms of your compensation for FY99. This package represents recognition for the job you have done at Microframe over the last two years as well as your increased span of responsibilities going forward after being elected as Microframe's CEO, in addition to the past and continuing roles you have as President and COO of Microframe. Position: CEO and President Salary: Your salary will be $225,000/yr. Term: This agreement is effective for the next two years. Other: In addition to your salary, you will be entitled to and receive the following: (1) Fully paid medical/dental, including any/all out of pocket Expenses and/or costs (2) $1,500/mo. net car allowance (3) 28 days of vacation with contractual provisions equivalent to other Company officers. Specifically, Section 3(d) which entitles the officer to either a) 28 days to be used/taken at officers' discretion as business conditions allow and/or b) compensation in respect of earned, but unused vacation days per the executive vacation policy currently in place by the company. (4) If company achieves its performance objectives as set forth by the Board for FY99 you will receive: - 60,000 ISO options based on 4/1/98 share price WE BRING WIZARDRY TO REMOTE NETWORK MANAGEMENT WWW.MCFR.COM MICROFRAME - -------------------------------------------------------------------------------- MicroFrame, Inc., 21 Meridian Road, Edison, New Jersey 08820 Tel. (732) 494-4440 Fax (732) 494-4570 - $25,000 cash bonus. (5) $30,000 cash signing/retention bonus (6) Acceleration of all options you own, if/when MicroFrame, Inc. is sold or if there is a change of control/ownership in MicroFrame. (7) Any of your 400,000 non-qualified stock options that are not vested will become vested, transferrable, assignable and will be Converted from non-qualified stock options to Incentive Stock Options (ISO's) to allow for immediate selling of Options without the one year holding period non-qualified stock options impose. This will be done in their entirety immediately upon signing of this agreement. (8) Any options you elect to exercise/sell up to a total of 400,000 over the next two years with a maximum of 200,000 in any one year.... will be backfilled in the exact same quantities/type as were sold. These Options will be replaced at a strike price based upon the then current average of the bid/ask of shares of MicroFrame, Inc. Please let me know if you have any questions. Good luck, Agreed: /s/Stephen M. Deixler /s/ Stephen B. Gray - ------------------------- ---------------------------- Stephen M. Deixler Stephen B. Gray Chairman President and CEO cc: John McTigue WE BRING WIZARDRY TO REMOTE NETWORK MANAGEMENT WWW.MCFR.COM EX-23.1 12 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS -------- We hereby consent to the incorporation by reference in the registration statements on Form S-3 (File No. 333-09507) and Form S-8 (File Nos. 33-61837, 333-14681 and 333-76809) of our report dated July 12, 1999 relating to the financial statements which appear in ION Networks, Inc. and Subsidiaries' Annual Report on Form 10-KSB for the year ended March 31, 1999. /s/ PricewaterhouseCoopers LLP New York, New York July 13, 1999 EX-27 13 FINANCIAL DATA SCHEDULE
5 MAR-31-1999 MAR-31-1998 APR-01-1998 APR-01-1998 MAR-31-1999 MAR-31-1998 12-MOS 12-MOS 165,994 507,726 0 0 3,242,867 2,793,319 150,000 126,000 2,554,643 1,425,351 6,668,845 5,120,101 2,001,776 1,393,604 991,347 971,903 15,973,475 6,179,038 7,370,895 2,176,084 0 0 8,287 4,899 0 0 0 0 6,392,751 3,998,055 15,973,475 6,179,038 12,673,917 10,217,911 12,673,917 10,217,911 5,464,708 4,285,134 18,381,120 9,821,806 0 0 0 0 (100,573) (4,344) (5,764,764) 406,649 232,239 (304,661) (5,997,003) 711,310 0 0 0 0 0 0 (5,997,003) 711,310 (1.09) 0.15 (1.09) 0.14
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